UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[x]	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended ~~August~~May 31, ~~2018~~2019

[ ]	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______ to ______

Commission File No. 0-5131

ART’S-WAY MANUFACTURING CO., INC.

(Exact name of registrant as specified in its charter)

DELAWARE

42-0920725

(State or other jurisdiction of incorporation or

organization)

(I.R.S. Employer Identification No.)

5556 Highway 9

Armstrong, Iowa 50514

(Address of principal executive offices)

(712) 864-3131

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock $.01 par value	ARTW	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [x] No [ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes [x] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]		Accelerated filer [ ]
Non-accelerated filer [x]		Smaller reporting company [x]
		Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Yes [ ] No [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [x]

Number of common shares outstanding as of ~~October 2, 2018: 4,207,144~~July 3, 2019: 4,291,712

Art’s-Way Manufacturing Co., Inc.

Index

Page No.

~~Page No.~~

PART I – FINANCIAL INFORMATION		1

Item 1.	Financial Statements	1

	Condensed Consolidated Balance Sheets ~~August~~May 31, ~~2018~~2019 and November 30, ~~2017~~2018	1

	Condensed Consolidated Statements of Operations Three-month and ~~nine-month~~six-month periods ended ~~August~~May 31, ~~2018~~2019 and ~~August~~May 31, ~~2017~~2018	2

	Condensed Consolidated Statements of Comprehensive Income Three-month and ~~nine-month~~six-month periods ended ~~August~~May 31, ~~2018~~2019 and ~~August~~May 31, ~~2017~~2018	3

	Condensed Consolidated Statements of Stockholders’ Equity Three-month and six-month periods ended May 31, 2019 and May 31, 2018	4

	Condensed Consolidated Statements of Cash Flows ~~Nine-month~~Six-month periods ended ~~August~~May 31, ~~2018~~2019 and ~~August~~May 31, ~~2017~~2018	45

	Notes to Condensed Consolidated Financial Statements	5 6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17 20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20 25

Item 4.	Controls and Procedures	20 25

PART II – OTHER INFORMATION		21 26

Item 1.	Legal Proceedings	21 26

Item 1A.	Risk Factors	21 26

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21 26

Item 3.	Defaults Upon Senior Securities	21 26

Item 4.	Mine Safety Disclosures	21 26

Item 5.	Other Information	21 26

Item 6.	Exhibits	21 26

	SIGNATURES	22 27

	(Unaudited)						(Unaudited)
	August 31, 2018			November 30, 2017			May 31, 2019			November 30, 2018
Assets
Current assets:
Cash	$	4,888		$	212,400		$	4,401		$	3,512
Accounts receivable-customers, net of allowance for doubtful accounts of $24,630 and $32,298 in 2018 and 2017, respectively		2,141,167			1,910,294
Accounts receivable-customers, net of allowance for doubtful accounts of $29,153 and $25,100 in 2019 and 2018, respectively								2,667,764			1,537,113
Inventories, net		10,668,767			11,966,722			10,105,263			10,257,102
Cost and profit in excess of billings		79,602			65,146			32,527			99,287
Net investment in sales-type leases, current		142,242			-			145,799			123,055
Assets of discontinued operations		-			2,454
Other current assets		175,735			275,755			266,107			125,089
Total current assets		13,212,401			14,432,771			13,221,861			12,145,158
Property, plant, and equipment, net		5,654,140			5,946,957			5,468,238			5,647,485
Assets held for lease, net		1,663,855			1,217,164			805,498			1,870,125
Deferred income taxes		1,005,250			901,396			1,711,958			1,432,422
Goodwill		375,000			375,000
Net investment in sales-type leases, long-term		186,779			-			77,607			153,787
Other assets of discontinued operations		-			1,425,000
Other assets		77,824			81,545			73,843			76,497
Total assets	$	22,175,249		$	24,379,833		$	21,359,005		$	21,325,474
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable							$	936,036		$	802,062
Customer deposits								512,286			145,632
Billings in excess of cost and profit								851,206			185,014
Income taxes payable								3,855			6,400
Accrued expenses								795,615			893,284
Line of credit	$	2,693,530		$	2,462,530			3,599,530			3,505,530
Current portion of long-term debt		225,405			221,230			83,250			227,459
Accounts payable		846,596			673,653
Customer deposits		133,924			600,325
Billings in Excess of Cost and Profit		71,723			48,211
Accrued expenses		1,234,306			981,558
Liabilities of discontinued operations		-			59,149
Income taxes payable		3,500			3,100
Total current liabilities		5,208,984			5,049,756			6,781,778			5,765,381
Long-term liabilities
Long-term liabilities of discontinued operations		-			590,366
Long-term debt, excluding current portion		2,580,387			2,748,677			2,393,502			2,523,018
Total liabilities		7,789,371			8,388,799			9,175,280			8,288,399
Commitments and Contingencies (Notes 8 and 9)
Commitments and Contingencies (Notes 9 and 10)
Stockholders’ equity:
Undesignated preferred stock - $0.01 par value. Authorized 500,000 shares in 2018 and 2017; issued 0 shares in 2018 and 2017.		-			-
Common stock – $0.01 par value. Authorized 9,500,000 shares in 2018 and 2017; issued 4,216,430 in 2018 and 4,158,752 in 2017		42,164			41,587
Undesignated preferred stock - $0.01 par value. Authorized 500,000 shares in 2019 and 2018; issued 0 shares in 2019 and 2018.								-			-
Common stock – $0.01 par value. Authorized 9,500,000 shares in 2019 and 2018; issued 4,309,587 in 2019 and 4,225,050 in 2018								43,096			42,250
Additional paid-in capital		3,016,565			2,859,052			3,174,230			3,055,632
Retained earnings		11,354,884			13,353,830			9,004,954			9,966,928
Accumulated other comprehensive income		-			(257,010	)
Treasury stock, at cost (9,286 in 2018 and 1,954 in 2017 shares)		(27,735	)		(6,425	)
Treasury stock, at cost (14,779 in 2019 and 9,286 in 2018 shares)								(38,555	)		(27,735	)
Total stockholders’ equity		14,385,878			15,991,034			12,183,725			13,037,075
Total liabilities and stockholders’ equity	$	22,175,249		$	24,379,833		$	21,359,005		$	21,325,474

	Three Months Ended						Six Months Ended
	May 31, 2019			May 31, 2018			May 31, 2019			May 31, 2018
Sales	$	5,747,256		$	5,294,464		$	9,871,482		$	10,660,000
Cost of goods sold		4,788,261			4,187,450			8,307,644			8,399,610
Gross profit		958,995			1,107,014			1,563,838			2,260,390
Expenses:
Engineering		116,773			127,539			263,986			256,602
Selling		397,270			487,991			740,617			972,522
General and administrative		814,465			949,598			1,651,371			1,798,101
Total expenses		1,328,508			1,565,128			2,655,974			3,027,225
Income (Loss) from operations		(369,513	)		(458,114	)		(1,092,136	)		(766,835	)
Other income (expense):
Interest expense		(100,402	)		(68,711	)		(185,441	)		(138,387	)
Other		11,092			(252,687	)		37,915			(180,115	)
Total other income (expense)		(89,310	)		(321,398	)		(147,526	)		(318,502	)
Income (Loss) from continuing operations before income taxes		(458,823	)		(779,512	)		(1,239,662	)		(1,085,337	)
Income tax expense (benefit)		(102,781	)		(125,533	)		(277,688	)		96,040
Income (Loss) from continuing operations		(356,042	)		(653,979	)		(961,974	)		(1,181,377	)
Discontinued Operations
Income (loss) from operations of discontinued segment		-			(15,587	)		-			(67,177	)
Income tax expense (benefit)		-			(3,788	)		-			(16,324	)
Income (Loss) on discontinued operations		-			(11,799	)		-			(50,853	)
Net Income (Loss)		(356,042	)		(665,778	)		(961,974	)		(1,232,230	)

Earnings (Loss) per share - Basic:
Continuing Operations	$	(0.08	)	$	(0.16	)	$	(0.23	)	$	(0.28	)
Discontinued Operations	$	-		$	-		$	-		$	(0.01	)
Net Income (Loss) per share	$	(0.08	)	$	(0.16	)	$	(0.23	)	$	(0.29	)

Earnings (Loss) per share - Diluted:
Continuing Operations	$	(0.08	)	$	(0.16	)	$	(0.23	)	$	(0.28	)
Discontinued Operations	$	-		$	-		$	-		$	(0.01	)
Net Income (Loss) per share	$	(0.08	)	$	(0.16	)	$	(0.23	)	$	(0.29	)


Weighted average outstanding shares used to compute basic net income per share		4,299,289			4,213,893			4,272,532			4,192,592
Weighted average outstanding shares used to compute diluted net income per share		4,299,289			4,213,893			4,272,532			4,192,592

Three Months Ended

Nine Months Ended

August 31, 2018

August 31, 2017

August 31, 2018

August 31, 2017

Sales
$ 5,280,269 $ 6,549,772 $ 15,940,268 $ 15,660,294
Cost of goods sold
4,105,012 5,104,826 12,504,621 12,290,041
Gross profit
1,175,257 1,444,946 3,435,647 3,370,253
Expenses:

Engineering
201,845 107,944 458,447 372,932
Selling
475,604 432,562 1,448,124 1,401,003
General and administrative
857,740 795,200 2,655,844 2,560,894
Impairment of asset held for lease
199,175 - 199,175 -
Total expenses
1,734,364 1,335,706 4,761,590 4,334,829
Income (Loss) from operations
(559,107 ) 109,240 (1,325,943 ) (964,576 )
Other income (expense):

Interest expense
(82,058 ) (92,351 ) (220,445 ) (235,398 )
Other
(307,735 ) 75,236 (487,850 ) 190,155
Total other income (expense)
(389,793 ) (17,115 ) (708,295 ) (45,243 )
Income (Loss) from continuing operations before income taxes
(948,900 ) 92,125 (2,034,238 ) (1,009,819 )
Income tax expense (benefit)
(182,184 ) 50,477 (86,145 ) (288,919 )
Income (Loss) from continuing operations
(766,716 ) 41,648 (1,948,093 ) (720,900 )
Discontinued Operations

Income (loss) from operations of discontinued segment
- (26,449 ) (67,177 ) (49,238 )
Income tax expense (benefit)
- (8,008 ) (16,324 ) (15,756 )
Income (Loss) on discontinued operations
- (18,441 ) (50,853 ) (33,482 )
Net Income (Loss)
(766,716 ) 23,207 (1,998,946 ) (754,382 )

Earnings (Loss) per share - Basic:

Continuing Operations
$ (0.18 ) $ 0.01 $ (0.46 ) $ (0.17 )
Discontinued Operations
$ - $ - $ (0.01 ) $ (0.01 )
Net Income (Loss) per share
$ (0.18 ) $ 0.01 $ (0.47 ) $ (0.18 )

Earnings (Loss) per share - Diluted:

Continuing Operations
$ (0.18 ) $ 0.01 $ (0.46 ) $ (0.17 )
Discontinued Operations
$ - $ - $ (0.01 ) $ (0.01 )
Net Income (Loss) per share
$ (0.18 ) $ 0.01 $ (0.47 ) $ (0.18 )

Weighted average outstanding shares used to compute basic net income per share
4,209,445 4,161,421 4,198,250 4,148,966
Weighted average outstanding shares used to compute diluted net income per share
4,209,445 4,161,421 4,198,250 4,148,966

	Nine Months Ended						Six Months Ended
	August 31, 2018			August 31, 2017			May 31, 2019			May 31, 2018
Cash flows from operations:
Net (loss) from continuing operations	$	(1,948,093	)	$	(720,900	)	$	(961,974	)	$	(1,181,377	)
Net (loss) from discontinued operations		(50,853	)		(33,482	)		-			(50,853	)
Adjustments to reconcile net (loss) to net cash (used in) operating activities:
Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities:
Stock based compensation		158,090			92,225			119,444			111,436
Loss on release of cumulative translation adjustment		253,180			-			-			253,180
Realized foreign currency loss		3,830			60,411
Impairment of asset held for lease		199,175			-
Unrealized foreign currency gain (loss)								-			3,830
(Gain)/Loss on disposal of property, plant, and equipment		(12,084	)		20,824			(10,303	)		(12,084	)
Depreciation and amortization expense		681,939			516,642			549,333			408,757
Bad debt expense (recovery)		(8,090	)		15,452			3,673			(9,044	)
Deferred income taxes		(103,854	)		(319,833	)		(279,536	)		80,432
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable		(222,783	)		(1,011,520	)		(1,134,324	)		(155,874	)
Inventories		489,189			348,888
Income taxes receivable		-			265,924
Inventories, net								151,839			437,307
Net investment in sales-type leases		(329,021	)		-			53,436			(349,981	)
Other assets		100,020			(155,776	)		(141,018	)		87,529
Increase (decrease) in:
Accounts payable		172,943			870,377			133,974			384,157
Contracts in progress, net		9,056			182,985			732,952			(252,146	)
Customer deposits		(466,401	)		(164,970	)		366,654			8,580
Income taxes payable		400			3,100			(2,545	)		400
Accrued expenses		252,748			14,638			(97,669	)		(149,197	)
Net cash provided by (used in) operating activities - continuing operations		(769,756	)		18,467
Net cash (used in) operating activities - continuing operations								(516,064	)		(334,095	)
Net cash (used in) operating activities - discontinued operations		(89,697	)		(69,028	)		-			(89,697	)
Net cash (used in) operating activities		(859,453	)		(50,561	)		(516,064	)		(423,792	)
Cash flows from investing activities:
Purchases of property, plant, and equipment		(265,418	)		(472,031	)		(186,215	)		(164,874	)
Net proceeds from sale of assets		52,607			17,156			893,713			29,316
Net cash (used in) investing activities - continuing operations		(212,811	)		(454,875	)
Net cash provided by (used in) investing activities - continuing operations								707,498			(135,558	)
Net cash provided by investing activities - discontinued operations		1,418,761			40,936			-			1,418,761
Net cash provided by (used in) investing activities		1,205,950			(413,939	)
Net cash provided by investing activities								707,498			1,283,203
Cash flows from financing activities:
Net change in line of credit		231,000			450,000			94,000			(338,000	)
Repayment of term debt		(164,115	)		(551,585	)		(273,725	)		(109,295	)
Repurchases of common stock		(21,310	)		(6,425	)		(10,820	)		(21,310	)
Net cash provided by (used in) financing activities - continuing operations		45,575			(108,010	)
Net cash (used in) financing activities - continuing operations								(190,545	)		(468,605	)
Net cash (used in) financing activities - discontinued operations		(599,584	)		(97,930	)		-			(599,584	)
Net cash (used in) financing activities		(554,009	)		(205,940	)		(190,545	)		(1,068,189	)
Net (decrease) in cash		(207,512	)		(670,440	)
Net increase (decrease) in cash								889			(208,778	)
Cash at beginning of period		212,400			1,063,716			3,512			212,400
Cash at end of period	$	4,888		$	393,276		$	4,401		$	3,622

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	225,249		$	247,330		$	170,992		$	142,426
Income taxes	$	3,600		$	-		$	3,855		$	5,237

Supplemental disclosures of non-cash operating and investing activities:
Transfer of inventory to assets held for lease	$	808,766		$	-		$	-		$	800,343

2)2)

Summary of Significant Account Policies

Statement Presentation

The foregoing condensed consolidated financial statements of the Company are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the Company’s financial position and operating results for the interim periods. The financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K10-K for the fiscal year ended November 30, ~~2017.~~ 2018. The results of operations for the three and ~~nine~~six months ended ~~August~~May 31, ~~2018~~ 2019 are not necessarily indicative of the results for the fiscal year ending November 30, ~~2018.~~2019.

During the second quarter of fiscal 2018, the Company liquidated its investment in its Canadian subsidiary (“International”) by selling off remaining inventory and filing dissolution ~~paperwork for the Canadian entity.~~paperwork. Prior to that liquidation and dissolution, the financial books of the Company’s Canadian operations were kept in the functional currency of Canadian dollars and the financial statements were converted to U.S. Dollars for consolidation. When consolidating the financial results of the Company into U.S. Dollars for reporting purposes, the Company used the All-Current translation method. The All-Current translation method requires the balance sheet assets and liabilities to be translated to U.S. Dollars at the exchange rate as of ~~quarter end.~~quarter-end. Stockholders’ equity was translated at historical exchange rates and retained earnings were translated at an average exchange rate for the period. Additionally, revenue and expenses were translated at average exchange rates for the periods presented. The resulting cumulative translation adjustment was carried on the balance sheet and was recorded in stockholders’ equity. Following the liquidation and dissolution of ~~the Company’s investment in its Canadian subsidiary~~International, the cumulative translation adjustment carried on the balance sheet was released into net income under other income (expense), and the financial statements will no longer need translation each period. Since no income tax benefit ~~will be~~was received from ~~the foreign equity sale,~~liquidation and dissolution, the cumulative translation adjustment ~~has~~ was not ~~been~~ tax adjusted.

- 6 -

Lessor Accounting and Sales-Type Leases

Modular buildings held for short term lease by our modular buildings segment are recorded at cost. Amortization of each modular building is calculated over the useful life of the building. Estimated useful life is three to five years. Lease revenue is accounted for on a straight-line basis over the term of the related lease agreement. Lease income for modular buildings is included in sales on the consolidated statements of operations.

The Company accounts for leases of modular buildings to certain customers ~~and accounts for these transactions~~ as sales-type leases. These leases have terms of up to 36 months and are collateralized by a security interest in the related modular building. The lessee has a bargain purchase option available at the end of the lease term. A minimum lease receivable is recorded net of unearned interest income and profit on sale at the time the Company’s obligation to the lessee is complete. Profit related to the sale of the building is recorded upon fulfillment of the Company’s obligation to the lessee.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the three and ~~nine~~six months ended ~~August~~May 31, ~~2018.~~ 2019. Actual results could differ from those estimates.

Revenue Recognition

Effective December 1, 2018 the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 606, Revenue from Contracts with Customers (“ASC 606”). The Company used the modified retrospective adoption of ASC 606. The adoption of ASC 606 had no impact on prior year or previously disclosed amounts. In accordance with ASC 606, revenue is measured based on consideration specified in a contract with a customer and recognized when the Company satisfies the performance obligation specified in each contract.

The Company’s revenues primarily result from contracts with customers. The major sources of revenue for the agricultural products and tools segments are farm equipment, service parts related to farm equipment and steel cutting tools and inserts. The agricultural products and tools segments generally execute short-term contracts that contain a single performance obligation – the delivery of product to the common carrier. The Company recognizes revenue for the production and sale of farm equipment, service parts and cutting tools upon shipment of the good(s). The agricultural products and tools segments each typically require payment in full 30 days after the ship date. To take advantage of program discounts, some customers pay deposits up front. Any deposits received increase contract liabilities. The modular buildings segment executes contracts with customers that can be short- or long-term in nature. These contracts can have multiple performance obligations and revenue from these can be recognized over time or at a point in time depending on the nature of the contracts. Payment terms for the modular buildings segment vary by contract, but typically utilize money down and progress payments throughout the life of the contract. The payment terms of our modular buildings segment have the most impact on our contract receivables, contract assets and contract liabilities. Project invoicing from the modular buildings segment increase contract receivables and have an effect on contract liabilities through billings in excess of costs and estimated gross profit and advanced payments. The balance of contract assets is typically made up of the balance of costs in and estimated gross profit in excess of billings. The major source of revenue for the modular buildings segment is modular building sales. Sales of modular buildings are generally recognized using input methods to measure progress towards the satisfaction of a performance obligation using the percentage of completion method. Stock modular building sales also occur and are recognized at a point in time when the performance obligation is fulfilled through substantial completion. Substantial completion is achieved through customer acceptance of the completed building.

- 7 -

The agricultural products segment offers variable consideration in the form of discounts depending on participation in yearly early order programs. This variable consideration is allocated to the transaction price of all products in a sales arrangement and is not contingent on future outcomes. The agricultural products segment does not offer rebates or credits. The tools segment offers quantity discounts that are allocated to the transaction price of each product once the quantity break is achieved. The tools segment does not offer rebates or credits. The modular buildings segment does not offer discounts, rebates or credits.

For information on product warranty as it applies to ASC 606, refer to Note 9 “Product Warranty.”

3)3)

Revenue Recognition

The following table displays revenue by reportable segment from external customers, disaggregated by major source. The Company believes disaggregating by these categories depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

	Three Months Ended May 31, 2019
	Agricultural		Modular Buildings		Tools		Total
Farm equipment	$	2,879,000	$	-	$	-	$	2,879,000
Farm equipment service parts		665,000		-		-		665,000
Steel cutting tools and inserts		-		-		544,000		544,000
Modular buildings		-		1,368,000		-		1,368,000
Modular building lease income		-		168,000				168,000
Other		93,000		22,000		8,000		123,000
	$	3,637,000	$	1,558,000	$	552,000	$	5,747,000

	Three Months Ended May 31, 2018
	Agricultural		Modular Buildings		Tools		Total
Farm equipment	$	3,123,000	$	-	$	-	$	3,123,000
Farm equipment service parts		698,000		-		-		698,000
Steel cutting tools and inserts		-		-		516,000		516,000
Modular buildings		-		734,000		-		734,000
Modular building lease income		-		67,000		-		67,000
Other		116,000		33,000		7,000		156,000
	$	3,937,000	$	834,000	$	523,000	$	5,294,000

- 8 -

	Six Months Ended May 31, 2019
	Agricultural		Modular Buildings		Tools		Total
Farm equipment	$	4,881,000	$	-	$	-	$	4,881,000
Farm equipment service parts		1,216,000		-		-		1,216,000
Steel cutting tools and inserts		-		-		1,028,000		1,028,000
Modular buildings		-		2,163,000		-		2,163,000
Modular building lease income		-		348,000				348,000
Other		150,000		69,000		16,000		235,000
	$	6,247,000	$	2,580,000	$	1,044,000	$	9,871,000

	Six Months Ended May 31, 2018
	Agricultural		Modular Buildings		Tools		Total
Farm equipment	$	6,373,000	$	-	$	-	$	6,373,000
Farm equipment service parts		1,286,000		-		-		1,286,000
Steel cutting tools and inserts		-		-		1,203,000		1,203,000
Modular buildings		-		1,407,000		-		1,407,000
Modular building lease income		-		116,000		-		116,000
Other		207,000		50,000		18,000		275,000
	$	7,866,000	$	1,573,000	$	1,221,000	$	10,660,000

The following table provides information about contract receivables, contract assets, and contract liabilities from contracts with customers included on the Condensed Consolidated Balance Sheets.

	May 31, 2019		November 30, 2018
Receivables	$	1,024,000	$	159,000
Assets		33,000		99,000
Liabilities		1,220,000		185,000

The amount of revenue recognized in the first six months of fiscal 2019 that was included in a contract liability at November 30, 2018 was $185,014 compared to $93,264 in the same period of fiscal 2018. The significant change in contract receivables is due to a large milestone invoice from the modular buildings segment. This invoice also affected contract liabilities by increasing billings in excess of costs and estimated gross profit at May 31, 2019. Contract liabilities also increased due to equipment deposits received in the first quarter of fiscal 2019 from the 2019 beet program offering from the agricultural products segment. Swings in contract assets from November 30, 2018 are due to changes in costs and estimated gross profit in excess of billings from the modular buildings segment.

The Company will utilize the practical expedient exception for these contracts and will report only on performance obligations greater than one year. As of May 31, 2019, the Company has no performance obligations with an original expected duration greater than one year.

- 9 -

Discontinued Operations

Effective October 31, 2016, the Company discontinued the operations of its Vessels segment in order to focus its efforts and resources on the business segments that have historically been more successful and that are expected to present greater opportunities for meaningful long-term shareholder returns.

In ~~January 2018,~~ ~~the Company accepted an offer on the real estate assets of its Vessels segment for~~ ~~$1,500,000,~~ ~~which was below the carrying value of the real estate assets at that time. Based on these facts the Company recorded an impairment of the real estate assets of approximately~~ ~~$289,000~~ ~~for the fiscal year ended~~ ~~November 30, 2017,~~ ~~which reduced the value to~~ ~~$1,425,000,~~ ~~which is the value the Company expected to receive after commissions on the sale of these real estate assets.~~ On March 29, 2018, the remaining assets of Vessels, consisting of ~~these~~ real estate assets, were disposed of at a selling price of ~~$1,500,000.~~$1,500,000.

As Vessels was a unique business unit of the Company, its liquidation was a strategic shift. In accordance with ~~Accounting Standard Codification~~ASC Topic 360, the Company has classified Vessels as discontinued operations for all periods presented.

Income (loss) from discontinued operations, before ~~income taxes~~tax in the accompanying Condensed Consolidated Statements of Operations is comprised of the following:

	Three Months Ended
	~~August~~May 31, 2018		~~August 31, 2017~~
Revenue from external customers	$	-	$	-
Gross ~~profit~~Profit		-		-
Operating ~~expense~~Expense		-		~~17,082~~7,019
Income (loss) from operations		-		(~~17,082~~7,019	)
Income (loss) before ~~taxes~~tax		-		(~~26,449~~15,587	)

	~~Nine~~Six Months Ended
	~~August~~May 31, 2018			~~August 31, 2017~~
Revenue from external customers	$	-		$	-
Gross ~~profit~~Profit		-			-
Operating ~~expense~~Expense		51,133			~~40,905~~
Income (loss) from operations		(51,133	)		~~(40,905~~	)
Income (loss) before ~~taxes~~tax		(67,177	)		~~(49,238~~	)

~~The~~There were no components of discontinued operations in the accompanying Condensed Consolidated Balance Sheets ~~are~~ as ~~follows:~~

August 31, 2018

November 30, 2017

Cash
$ - $ 2,454
Property, plant, and equipment, net
- 1,425,000
Assets of discontinued operations
$ - $ 1,427,454

Accrued expenses
- 49,931
Notes payable
- 599,584
Liabilities of discontinued operations
$ - $ 649,515

of May 31, 2019 or November 30, 2018.

4)5)

Net Income (Loss) Per Share of Common Stock

Basic net income (loss) per share ~~has been computed on the basis of the weighted average number of shares of common stock outstanding. Diluted net income (loss) per share~~ of common stock has been computed on the basis of the weighted average number of common shares outstanding. Diluted net income (loss) per share has been computed on the basis of the weighted average number of common shares outstanding plus equivalent shares ~~of common stock~~ assuming exercise of stock options. Potential shares of common stock that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted net income (loss) per ~~share of common stock.~~share.

- 10 -

Basic and diluted net income (loss) per share ~~of common stock~~ have been computed based on the following as of ~~August~~May 31, ~~2018~~ 2019 and ~~August~~May 31, ~~2017:~~2018:

For the Three Months Ended

August 31, 2018

August 31, 2017

Numerator for basic and diluted net (loss) income per share of common stock:

Net (loss) income from continuing operations
$ (766,716 ) $ 41,648
Net (loss) income from discontinued operations
- (18,441 )
Net (loss) income
$ (766,716 ) $ 23,207

Denominator:

For basic net (loss) income per share - weighted average shares of common stock outstanding
4,209,445 4,161,421
Effect of dilutive stock options
- -
For diluted net (loss) income per share - weighted average shares of common stock outstanding
4,209,445 4,161,421

Net income (loss) per share - Basic:

Continuing operations
$ (0.18 ) $ 0.01
Discontinued operations
$ - $ -
Net income (loss) per share
$ (0.18 ) $ 0.01

Net income (loss) per share - Diluted:

Continuing operations
$ (0.18 ) $ 0.01
Discontinued operations
$ - $ -
Net income (loss) per share
$ (0.18 ) $ 0.01

	For the Three Months Ended
	May 31, 2019			May 31, 2018
Numerator for basic and diluted net income (loss) per share:
Net income (loss) from continuing operations	$	(356,042	)	$	(653,979	)
Net income (loss) from discontinued operations		-			(11,799	)
Net income (loss)	$	(356,042	)	$	(665,778	)

Denominator:
For basic net income (loss) per share - weighted average common shares outstanding		4,299,289			4,213,893
Effect of dilutive stock options		-			-
For diluted net income (loss) per share - weighted average common shares outstanding		4,299,289			4,213,893


Net Income (Loss) per share - Basic:
Continuing Operations	$	(0.08	)	$	(0.16	)
Discontinued Operations	$	-		$	-
Net Income (Loss) per share	$	(0.08	)	$	(0.16	)

Net Income (Loss) per share - Diluted:
Continuing Operations	$	(0.08	)	$	(0.16	)
Discontinued Operations	$	-		$	-
Net Income (Loss) per share	$	(0.08	)	$	(0.16	)

	For the Six Months ended
	May 31, 2019			May 31, 2018
Numerator for basic and diluted net income (loss) per share:
Net income (loss) from continuing operations	$	(961,974	)	$	(1,181,377	)
Net income (loss) from discontinued operations		-			(50,853	)
Net income (loss)	$	(961,974	)	$	(1,232,230	)

Denominator:
For basic net income (loss) per share - weighted average common shares outstanding		4,272,532			4,192,592
Effect of dilutive stock options		-			-
For diluted net income (loss) per share - weighted average common shares outstanding		4,272,532			4,192,592


Net Income (Loss) per share - Basic:
Continuing Operations	$	(0.23	)	$	(0.28	)
Discontinued Operations	$	-		$	(0.01	)
Net Income (Loss) per share	$	(0.23	)	$	(0.29	)

Net Income (Loss) per share - Diluted:
Continuing Operations	$	(0.23	)	$	(0.28	)
Discontinued Operations	$	-		$	(0.01	)
Net Income (Loss) per share	$	(0.23	)	$	(0.29	)

- 11 -

For the Nine Months Ended

August 31, 2018

August 31, 2017

Numerator for basic and diluted net (loss) income per share of common stock:

Net (loss) income from continuing operations
$ (1,948,093 ) $ (720,900 )
Net (loss) income from discontinued operations
(50,853 ) (33,482 )
Net (loss) income
$ (1,998,946 ) $ (754,382 )

Denominator:

For basic net (loss) income per share - weighted average shares of common stock outstanding
4,198,250 4,148,966
Effect of dilutive stock options
- -
For diluted net (loss) income per share - weighted average shares of common stock outstanding
4,198,250 4,148,966

Net income (loss) per share - Basic:

Continuing operations
$ (0.46 ) $ (0.17 )
Discontinued operations
$ (0.01 ) $ (0.01 )
Net income (loss) per share
$ (0.47 ) $ (0.18 )

Net income (loss) per share - Diluted:

Continuing operations
$ (0.46 ) $ (0.17 )
Discontinued operations
$ (0.01 ) $ (0.01 )
Net income (loss) per share
$ (0.47 ) $ (0.18 )

Rents recognized from assets held for lease included in sales on the ~~third~~ ~~quarter~~Consolidated Statements of ~~2018,~~Operations during the ~~Company discovered mold~~three and six months ended May 31, 2019 were $168,465 and $347,509, respectively, compared to $66,558 and $115,518 for the same respective periods in ~~its West Union facility. The Company estimates the remediation will cost approximately~~ ~~$252,000~~ ~~and has included this amount~~fiscal 2018. Rents recognized in ~~other accrued expense at~~ ~~August 31, 2018.~~ ~~The Company also scrapped approximately~~ ~~$67,000~~ ~~of inventory~~sales were related to ~~mold remediation. Both~~ the ~~remediation cost and inventory scrap have been~~leasing of modular buildings as a part of the normal course of business operations of the modular building segment. Rents recognized from assets held for lease included in other income (expense) on the ~~statement~~Consolidated Statements of ~~operations. As a result of an adverse change~~Operations during the three and six months ended May 31, 2019 were $0 and $2,500, respectively, compared to $0 and $38,180 for the same respective periods in ~~physical condition of this asset, circumstances indicate that its carrying amount~~ ~~may~~ ~~not~~ ~~be recoverable. The Company recognized approximately~~ ~~$199,000~~fiscal 2018. Rents related to the ~~impairment~~West Union facility in the agricultural products segment were recognized in other income as such income was outside of the scope of this ~~asset in the~~ ~~three~~ ~~months ended~~ ~~August 31, 2018.~~segment’s normal business operations. The West Union facility was sold on December 14, 2018 for $900,000.

9)10)

Loan and Credit Agreements

The Company maintains atwo revolving ~~line~~lines of credit and a term loan with Bank ~~Midwest as well as~~Midwest. The Company also previously maintained a term loan with The First National Bank of West Union.

Bank Midwest Revolving Line ofs of Credit and Term Loans, ~~and~~ ~~Covenants~~

On September 28, 2017, the Company entered into a credit facility with Bank Midwest, which ~~supersedes~~superseded and ~~replaces~~replaced in its entirety the Company’s previous credit facility with U.S. Bank. The Bank Midwest credit facility ~~consists~~initially consisted of a ~~$5,000,000~~$5,000,000 revolving line of credit (the “2017 Line of Credit”), a ~~$2,600,000~~$2,600,000 term loan due October 1, 2037, and a ~~$600,000~~$600,000 term loan due October 1, 2019. The ~~proceeds~~2017 Line of ~~the new line of credit and the term loans were used to refinance all debt previously held by U.S. Bank in the amount of approximately~~ ~~$6,562,030,~~ ~~which consisted of~~ ~~$6,528,223~~ ~~in unpaid principal and approximately~~ ~~$33,807~~ ~~in accrued and unpaid interest and fees. The revolving line of credit~~Credit is being used for working capital purposes. On March 29, 2018, the Company paid in full the ~~$600,000~~$600,000 term loan due October 1, 2019 using proceeds from the sale of the Company’s Dubuque, Iowa property. The payment consisted of ~~$596,563~~$596,563 in principal and ~~$2,328~~$2,328 in interest.

- 13 -

On ~~August~~May 31, ~~2018,~~ 2019, the balance of the ~~line~~2017 Line of ~~credit~~Credit was ~~$2,693,530~~$3,599,530 with ~~$2,306,470~~$1,400,470 remaining available, as may be limited by the borrowing base calculation. The ~~line~~2017 Line of ~~credit~~Credit borrowing base is an amount equal to 75% of accounts receivable balances (discounted for aged receivables), plus 50% of inventory, less any outstanding loan balance on the ~~line~~2017 Line of ~~credit.~~Credit. At May 31, 2019, the 2017 Line of Credit was not limited by the borrowing base calculation. Any unpaid principal amount borrowed on the ~~revolving line~~2017 Line of ~~credit~~Credit accrues interest at a floating rate per annum equal to 1.00% above the Wall Street Journal rate published ~~from time to time~~ in the money rates section of the Wall Street Journal. The interest rate floor is set at 4.25% per annum and the current interest rate is ~~6.00%~~6.50% per annum. The ~~revolving line~~2017 Line of ~~credit~~Credit was most recently renewed on March 30, ~~2018.~~ 2019. The ~~revolving line~~2017 Line of ~~credit~~Credit is payable upon demand by Bank Midwest, and monthly interest-only payments are required. If no earlier demand is made, the unpaid principal and accrued interest is due on March 30, ~~2019.~~2020.

The ~~$2,600,000~~$2,600,000 term loan accrues interest at a rate of 5.00% for the firstsixty months. Thereafter, this loan will accrue interest at a floating rate per annum equal to 0.75% above the Wall Street Journal rate published ~~from time to time in~~ the money rates section of the Wall Street Journal. The interest rate floor is set at 4.15% per annum and the interest rate may only be adjusted by Bank Midwest once every five years. Monthly payments of ~~$17,271~~$17,271 for principal and interest are required. This loan is also guaranteed by the United States Department of Agriculture (“USDA”), which ~~requires~~required an upfront guarantee fee of ~~$62,400~~$62,400 and requires an annual fee of 0.5% of the unpaid balance. As part of the USDA guarantee requirements, shareholders owning more than 20% are required to personally guarantee a portion of the loan, ~~as well,~~ in an amount equal to their stock ownership percentage. J. Ward McConnell Jr., the Vice Chairman of the Board of Directors and a shareholder owning more than 20% of the Company’s outstanding stock, is guaranteeing approximately 38% of this loan, for an annual fee of 2% of the personally guaranteed amount. The initial guarantee fee will be amortized over the life of the loan, and the annual fees and personally guaranteed amounts are expensed monthly. ~~Prior~~

On February 13, 2019, the Company opened a $4,000,000 revolving line of credit (the “2019 Line of Credit”) with Bank Midwest in connection with bonding obligations for the Company’s performance of a large modular laboratory construction project. Funds under the 2019 Line of Credit will be undisbursed to ~~repayment,~~ the ~~$600,000~~ ~~term loan accrued~~Company and will be held by Bank Midwest in connection with an Irrevocable Letter of Credit issued by Bank Midwest for the project. The 2019 Line of Credit accrues interest at a floating rate per annum equal to 1.00% above the Wall Street Journal rate published in the money rates section of ~~5.00%,~~the Wall Street Journal. The interest rate floor is set at 4.25% per annum and ~~monthly payments~~the current interest rate is 6.50% per annum. The 2019 Line of ~~$3,249~~ ~~for~~Credit is payable upon demand by Bank Midwest. If no earlier demand is made, the unpaid principal and accrued interest ~~were required.~~will be payable in one payment, due on February 13, 2020. As of May 31, 2019, the funds on the 2019 Line of Credit remain undisbursed and are held by Bank Midwest.

Each of the ~~revolving line~~2017 Line of ~~credit~~Credit and the ~~$2,600,000~~$2,600,000 term loan are governed by the terms of a separate Promissory Note, dated September 28, 2017, entered into between the Company and Bank Midwest. The ~~$600,000~~ ~~term loan was also~~2019 Line of Credit is governed by the terms of a ~~separate~~ Promissory Note, dated ~~September 28, 2017,~~ February 13, 2019, entered into between the Company and Bank Midwest.

In connection with the ~~revolving line~~2017 Line of ~~credit,~~Credit, the Company, Art’s-Way Scientific Inc. and Ohio Metal Working Products/Art’s-Way Inc. each entered into a Commercial Security Agreement with Bank Midwest, dated September 28, 2017, pursuant to which each granted to Bank Midwest a first priority security interest in certain inventory, equipment, accounts, chattel paper, instruments, letters of credit and other assets to secure the obligations of the Company under the ~~revolving~~ line of credit. Each of Art’s-Way Scientific Inc. and Ohio Metal Working Products/Art’s-Way Inc. also agreed to guarantee the obligations of the Company pursuant to the ~~revolving line~~2017 Line of ~~credit,~~Credit, as set forth in Commercial Guaranties, each dated September 28, 2017. The 2019 Line of Credit is also secured by these existing security documents.

- 14 -

To further secure the ~~line~~2017 Line of ~~credit,~~Credit, the Company ~~has~~ granted Bank Midwest a second mortgage on its West Union, Iowa property and Ohio Metal Working Products/Art’s-Way Inc. ~~has~~ granted Bank Midwest a mortgage on its property located in Canton, Ohio. The ~~$2,600,000~~mortgage on the West Union property was released in conjunction with the sale of that property on December 14, 2018. The 2019 Line of Credit is also secured by the mortgage on the Canton, Ohio property. The $2,600,000 term loan is secured by a mortgage on the Company’s Armstrong, Iowa and Monona, Iowa ~~properties, and the~~ ~~$600,000~~ ~~term loan was secured by a mortgage on the Company’s Dubuque, Iowa property.~~properties. Each mortgage is governed by the terms of a separate Mortgage, dated September 28, 2017, and each property is also subject to a separate Assignment of Rents, dated September 28, 2017.

If the Company or its subsidiaries (as guarantors pursuant to the Commercial Guaranties) commits an event of default with respect to the promissory notes and fails or is unable to cure that default, Bank Midwest may immediately terminate its obligation, if any, to make additional loans to the Company and may accelerate the Company’s obligations under the promissory notes. Bank Midwest shall also have all other rights and remedies for default provided by the Uniform Commercial Code, as well as any other applicable law and the various loan agreements. In addition, in an event of default, Bank Midwest may foreclose on the mortgaged property.

Bank Midwest Loan Covenants

Compliance with Bank Midwest covenants is measured annually at November 30. The terms of the Bank Midwest loan agreements require the Company to maintain a minimum working capital ratio of 1.75, while maintaining a minimum of ~~$5,100,000~~$5,100,000 of working capital. Additionally, a maximum debt to worth ratio of 1 to 1 must be maintained, with a minimum of 40% tangible balance sheet equity, with variations subject to mutual agreement. The Company is also required to maintain a minimum debt service coverage ratio of 1.25, with a 0.10 tolerance. The Company was in compliance with all covenants as of November 30, ~~2017~~ 2018 other than the debt service coverage ratio. Bank Midwest issued a waiver forgiving the noncompliance, and no event of default has occurred. The next measurement date is November 30, ~~2018.~~ ~~The Company is also required to provide audited financial statements within~~ ~~120~~ ~~days of its fiscal year end.~~2019.

- 15 -

Iowa Finance Authority Term Loan ~~and Covenants~~

On May 1, 2010, the Company obtained a $1,300,000 loan to finance the purchase of an additional facility located in West Union, Iowa to be used as a distribution center, warehouse facility, and manufacturing plant for certain products under the Art’s-Way brand. The ~~funds for this~~ loan ~~were made available by the Iowa Finance Authority by the issuance of tax exempt bonds. This loan had an original principal amount of~~ ~~$1,300,000,~~ ~~an interest rate of~~ ~~3.5%~~ ~~per annum and a maturity date of~~ ~~June 1, 2020.~~ On ~~February 1, 2013,~~ ~~the interest rate~~ was ~~decreased to~~ ~~2.75%~~ ~~per annum. The other terms of the loan remain unchanged.~~

~~This loan from the Iowa Finance Authority, which has been assigned to The First National Bank of West Union (n/k/a Bank~~ ~~1st~~~~), is governed by a Manufacturing Facility Revenue Note dated~~ ~~May 28, 2010~~ ~~as amended~~ ~~February 1, 2013~~ ~~and a Loan Agreement dated~~ ~~May 1, 2010~~ ~~and a First Amendment to Loan Agreement dated~~ ~~February 1, 2013 (~~collectively, “the IFA Loan Agreement”), which requires the Company to provide quarterly internally prepared financial reports and year-end audited financial statements and to maintain a minimum debt service coverage ratio of ~~1.5~~ to ~~1.0,~~ ~~which is measured at~~ ~~November 30~~ of each year. Among other covenants, the IFA Loan Agreement also requires the Company to maintain proper insurance on, and maintain in good repair, the West Union Facility, and continue to conduct business and remain duly qualified to do business in the State of Iowa. The loan is secured by a mortgage on the Company’s West Union Facility, pursuant to a Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Financing Statement dated May 1, 2010 between the Company and The First National Bank of West ~~Union (the “West Union Mortgage”).~~Union.

IfOn December 14, 2018, the Company ~~commits an event~~repaid this loan in full in connection with the sale of ~~default under the IFA Loan Agreement or~~ the West Union, ~~Mortgage and does~~ ~~not~~ ~~cure the event of default within the time specified by the IFA Loan Agreement, the lender~~ ~~may~~ ~~cause the entire amount of the loan to be immediately due and payable and take any other action that it is lawfully permitted to take or in equity to enforce the Company’s performance.~~Iowa facility.

~~The Company was in compliance with all covenants except for the debt service coverage ratio covenant as measured on~~ ~~November 30, 2017.~~ ~~The First National Bank of West Union issued a waiver and the next measurement date is~~ ~~November 30, 2018.~~

A summary of the Company’s term debt is as follows:

	August 31, 2018		November 30, 2017		May 31, 2019		November 30, 2018
Bank Midwest loan payable in monthly installments of $17,271 including interest at 5.00%, due October 1, 2037	$	2,536,987	$	2,595,007	$	2,476,752	$	2,517,510
Bank Midwest loan payable in monthly installments of $3,249 including interest at 5.00%, paid in full		-		599,584
Iowa Finance Authority loan payable in monthly installments of $12,500 including interest at 2.75%, due June 1, 2020		268,805		374,900		-		232,967
Total term debt	$	2,805,792	$	3,569,491	$	2,476,752	$	2,750,477
Less current portion of term debt		225,405		221,230		83,250		227,459
Term debt of discontinued operations		-		599,584
Term debt, excluding current portion	$	2,580,387	$	2,748,677	$	2,393,502	$	2,523,018

A summary of the minimum maturities of term debt follows for the years ending November 30:

~~The profit~~Gross revenue recognized in sales from continuing operations on the ~~condensed consolidated statements~~Consolidated Statements of ~~operations~~Operations from commencement of sales-type leases infor the three and ~~nine~~six months ended ~~August~~May 31, ~~2018~~ 2019 was $0$0 for both periods compared to $0 and ~~$129,104,~~ ~~respectively.~~$426,542 for the same periods in fiscal 2018.

13)14)

Recently Issued Accounting Pronouncements

Accounting Pronouncements Not Yet Adopted

~~Revenue from Contracts with Customers~~ ~~(Topic~~ ~~606~~)

In ~~May 2014,~~ ~~the Financial Accounting Standards Board (“FASB”) issued ASU~~ ~~No.~~~~2014~~-~~09,~~ ~~“Revenue from Contracts with Customers (Topic~~ ~~606~~~~)” which supersedes the guidance in “Revenue Recognition (Topic~~ ~~605~~~~).” The core principle of ASU~~ ~~2014~~-09 requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU ~~2014~~-09 ~~is effective for annual reporting periods beginning after~~ ~~December 15, 2017,~~ ~~including interim periods within that reporting period, and is to be applied retrospectively, with early application~~ ~~not~~ ~~permitted.~~

~~The Company has evaluated the new standard and applied the core principle to its contract revenue streams. To be consistent with this core principle, an entity is required to apply the following~~ ~~five~~~~-step approach:~~

~~Identify the contract(s) with a customer;~~

~~Identify each performance obligation in the contract;~~

~~Determine the transaction price;~~

~~Allocate the transaction price to each performance obligation; and~~

~~Recognize revenue when or as each performance obligation is satisfied.~~

The Company’s revenues primarily result from contracts with customers. The agricultural products and tools segments are generally short-term contracts and contain a single performance obligation – the delivery of product to the common carrier. The Company recognizes revenue for the sale of agriculture parts, equipment and tools upon shipment of the good. The modular buildings segment executes contracts with customers that can be short or long-term in nature. These contracts can have multiple performance obligations and revenue from these can be recognized over time or at a point in time depending on the nature of the contracts. Payment terms generally are short-term and vary by customer and segment. The implementation process will include modifications to the contracts of the modular buildings segment.

~~The Company intends to adopt ASU~~ ~~2014~~-09 ~~using the modified retrospective method. Once adopted, the Company has determined that amounts reported under ASC~~ ~~606~~ ~~will~~ ~~not~~ ~~be materially different than amounts that would have been reported under the previous revenue guidance of ASC~~ ~~605~~ ~~and would~~ ~~not~~ ~~require an adjustment to retained earnings.~~

~~The Company, upon adoption of ASU~~ ~~2014~~-~~09,~~ ~~will increase the amount of required disclosures, including but~~ ~~not~~ ~~limited to:~~

●

~~Disaggregation of revenue that depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors;~~

●

~~The opening and closing balances of receivables, contract assets, and contract liabilities from contracts with customers, if~~ ~~not~~ ~~otherwise separately presented or disclosed;~~

●

~~Revenue recognized in the reporting period that was included in the contract liability balance at the beginning of the period;~~

●

~~Information about performance obligations in contracts with customers; and~~

●

Judgments that significantly affect the determination of the amount and timing of revenue from contracts with customers, including the timing satisfaction of performance obligation, and the transaction price and the amounts allocated to performance obligations.

Leases

In February 2016, the FASB issued ASU ~~2016~~-~~02,~~2016-02, “Leases (Topic ~~842~~)842),” which requires a lessee to recognize a right-of-use asset and a lease liability on its balance sheet for all leases with terms of twelve months or greater. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those years. The Company will adopt this guidance for ~~its~~ fiscal ~~year ending~~ ~~November 30,~~ 2020, including interim periods within that reporting period. The Company has a moderate amount of leasing activity and is currently evaluating the impact of this guidance on its consolidated financial statements.

- 17 -

14)15)

Equity Incentive Plan and Stock Based Compensation

On January 27, 2011, the Board of Directors of the Company authorized and approved the Art’s-Way Manufacturing Co., Inc. 2011 Equity Incentive Plan (the ~~“2011~~“2011 Plan”). The 2011 Plan was approved by the stockholders on April 28, 2011. It replaced the Employee Stock Option Plan and the Directors’ Stock Option Plan (collectively, the “Prior Plans”), and no further stock options will be awarded under the Prior Plans. Awards to directors and executive officers under the 2011 Plan are governed by the forms of agreement approved by the Board of Directors. Stock options granted prior to January 27, 2011 are governed by the applicable Prior Plan and the forms of agreement adopted thereunder.

The 2011 Plan permits the plan administrator to award nonqualified stock options, incentive stock options, restricted stock awards, restricted stock units, performance awards, and stock appreciation rights to employees (including officers), directors, and consultants. The Board of Directors has approved a director compensation policy pursuant to which non-employee directors are automatically granted restricted stock awards of 1,000 shares of ~~fully-vested~~fully vested common stock annually or initially upon their election to the Board and another 1,000 shares of ~~fully-vested~~fully vested common stock on the last business day of each fiscal quarter. ~~Additionally, directors can elect to receive their board compensation as restricted stock.~~ During the first~~nine~~ six months of fiscal ~~2018,~~2019, restricted stock awards of ~~46,200~~69,937 shares were issued to various employees, directors, and consultants, which vest over the next three years, and restricted stock awards of ~~28,478~~ ~~shares~~16,000 were issued to directors as part of the director compensation policy, which vested immediately upon grant. During the first~~nine~~ six months of fiscal ~~2018,~~~~17,000~~2019, 1,400 shares of restricted stock were forfeited upon ~~the~~ departure of certain employees.

~~Stock options granted prior to~~ ~~January 27, 2011~~ ~~are governed by the applicable Prior Plan and the forms of agreement adopted thereunder.~~

Stock-based compensation expense reflects the fair value of stock-based awards measured at the grant date and recognized over the relevant vesting period. The Company estimates the fair value of each stock-based option award on the measurement date using the Black-Scholes option valuation model which incorporates assumptions as to stock price volatility, the expected life of the options, risk-free interest rate, and dividend yield. Expected volatility is based on historical volatility of the Company’s stock and other factors. The Company uses historical option exercise and termination data to estimate the expected term the options are expected to be outstanding. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected dividend yield is calculated using historical dividend amounts and the stock price at the option issuance date. No stock options were granted during the ~~nine~~six months ended ~~August~~May 31, ~~2018~~ 2019 or in the same respective period of fiscal ~~2017.~~2018. The Company incurred a total of ~~$46,654~~$53,898 and ~~$158,090~~$119,444 of stock-based compensation expense for restricted stock awards during the three and ~~nine~~six months ended ~~August~~May 31, ~~2018~~ 2019, respectively, compared to ~~$19,266~~$61,870 and ~~$92,225~~$111,436 of stock-based compensation expense for restricted stock awards for the same respective periods of fiscal ~~2017.~~2018.

16)17)

Segment Information

~~There are~~ The Company has three reportable segments: agricultural products, modular buildings and tools. The agricultural products segment ~~fabricates~~manufactures and sells ~~farming products as well as related~~farm equipment and related replacement parts ~~for these products in~~under the ~~United States~~Art’s-Way Manufacturing label and ~~worldwide.~~private labels. The modular buildings segment manufactures and installs modular buildings for various uses, commonly animal containment and ~~various laboratory uses.~~research laboratories. The tools segment manufactures steel cutting tools and inserts.

The accounting policies applied to determine the segment information are the same as those described in the summary of significant accounting policies. Management evaluates the performance of each segment based on profit or loss from operations before income taxes, exclusive of nonrecurring gains and losses.

Approximate financial information with respect to the reportable segments is as follows. The tables below exclude income and balance sheet data from discontinued operations. See Note 34 “Discontinued Operations.”

	Three Months Ended August 31, 2018											Three Months Ended May 31, 2019
	Agricultural Products			Modular Buildings			Tools		Consolidated			Agricultural Products			Modular Buildings			Tools			Consolidated
Revenue from external customers	$	3,913,000		$	773,000		$	594,000	$	5,280,000		$	3,637,000		$	1,558,000		$	552,000		$	5,747,000
Income (loss) from operations		(450,000	)		(141,000	)		32,000	$	(559,000	)		(297,000	)		(63,000	)		(10,000	)		(370,000	)
Income (loss) before tax		(835,000	)		(136,000	)		22,000	$	(949,000	)		(382,000	)		(56,000	)		(21,000	)		(459,000	)
Total Assets		15,999,000			3,692,000			2,484,000	$	22,175,000			14,730,000			4,127,000			2,502,000			21,359,000
Capital expenditures		92,000			13,000			-	$	105,000			76,000			30,000			27,000			133,000
Depreciation & Amortization		126,000			116,000			31,000	$	73,000			124,000			104,000			32,000			260,000

*The consolidated total in the table is a sum of segment figures and may not tie to actual figures in the condensed consolidated financial statements due to rounding.

The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and notes thereto included in Part I, Item 1 ~~of Part I~~ of this Quarterly Report on Form 10-Q (this “report”) and the audited consolidated financial statements and related notes thereto included in Part II, Item 8 “Financial Statements and Supplementary Data,” as well as Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations” contained in~~Operations,” of our Annual Report on Form 10-K for the fiscal year ended November 30, ~~2017.~~2018. Some of the statements in this report may contain forward-looking statements that reflect our current view on future events, future business, industry and other conditions, our future performance, and our plans and expectations for future operations and actions. In some cases you can identify forward-looking statements by the use of words such as “may,” “should,” “anticipate,” “believe,” “expect,” “plan,” “future,” “intend,” “could,” “estimate,” “predict,” “hope,” “potential,” “continue,” or the negative of these terms or other similar expressions. Many of these forward-looking statements are located in this report under ~~“Item 2. Management’s~~Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” but they may appear in other sections as well. Forward-looking statements in this report generally relate to: (i) our warranty costs and order backlog; (ii) our beliefs regarding the sufficiency of working capital and cash flows; (iii) our expectation that we will continue to be able to renew or obtain financing on reasonable terms when necessary; (iv) the impact of recently issued accounting ~~pronouncements and changes to tax laws;~~pronouncements; (v) our intentions and beliefs relating to our costs, business strategies, and future performance; (vi) our expected financial results; and (vii) our expectations concerning our primary capital and cash flow needs.

You should read this report thoroughly with the understanding that our actual results may differ materially from those set forth in the forward-looking statements for many reasons, including events beyond our control and assumptions that prove to be inaccurate or unfounded. We cannot provide any assurance with respect to our future performance or results. Our actual results or actions could and likely will differ materially from those anticipated in the forward-looking statements for many reasons, including but not limited to: (i) the impact of changing credit markets on our ability to continue to obtain financing on reasonable terms; (ii) our ability to repay current debt, continue to meet debt obligations and comply with financial covenants; (iii) ~~obstacles related to liquidation of product lines and segments; (iv)~~ the effect of general economic conditions, including consumer and governmental spending, on the demand for our products and the cost of our supplies and materials; ~~(v)~~(iv) fluctuations in seasonal demand and our production cycle; and ~~(vi)~~(v) other factors described from time to time in our ~~reports to the~~ Securities and Exchange ~~Commission.~~Commission filings. We do not intend to update the forward-looking statements contained in this report other than as required by law. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. You should read this report and the documents that we reference in this report and have filed as exhibits completely and with the understanding that our actual future results may be materially different from what we currently expect. We qualify all of our forward-looking statements by these cautionary statements.

Our critical accounting policies involving the more significant judgments and assumptions used in the preparation of ~~the~~our financial statements as of ~~August~~May 31, ~~2018~~2019 remain unchanged from November 30, ~~2017,~~2018 with the exception of the addition of a critical accounting policy regarding ~~sales-type lease activity. Other than this new policy regarding sales-type lease activity,~~revenue recognition from contracts with customers, which is set forth ~~below, disclosure~~below. Disclosure of these critical accounting policies is incorporated by reference from Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” inof our Annual Report on Form 10-K for the fiscal year ended November 30, ~~2017.~~2018.

Effective December 1, 2018 we adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of ASC 606 requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC 606 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, and is to be applied retrospectively, with early application not permitted. We adopted ASC 606 for fiscal 2019, including interim periods within that reporting period.

We ~~lease~~have evaluated the new standard and applied the core principle to our contract revenue streams. To be consistent with this core principle, an entity is required to apply the following five-step approach:

Our revenues primarily result from contracts with customers. The agricultural products and tools segments generally execute short-term contracts that contain a single performance obligation – the delivery of product to the common carrier. We recognize revenue for the production and sale of farm equipment, service parts, and cutting tools upon shipment of the good(s). The modular buildings segment executes contracts with customers that can be short or long-term in nature. These contracts can have multiple performance obligations and revenue from these can be recognized over time or at a point in time depending on the nature of the contracts. Payment terms generally are short-term and vary by customer and segment. Our implementation process for ASC 606 included modifications to ~~certain customers~~the contracts of the modular buildings segment.

We use discounts as a form of variable consideration for our agricultural products and ~~account for these transactions as sales-type leases. These leases have terms of up~~tools segments. The variable consideration is allocated to ~~36 months~~the transaction price at contract inception and ~~are collateralized by a security interest~~is generally not contingent on future outcomes. The agricultural products and tools segments do not offer rebates or credits. The modular buildings segment does not offer discounts, credits or rebates.

Our product warranty is included in the ~~related modular building. The lessee has a bargain purchase option available at the end~~price of the ~~lease term. A minimum lease receivable~~product and provides assurance that the product will function in accordance with agreed-upon specifications. Product warranty is ~~recorded net of unearned interest income and profit on sale~~expensed at the time of sale for the ~~building~~agricultural products and modular buildings segments. A small reserve is ~~substantially complete. Profit related to~~kept on the ~~sale of~~balance sheet as consideration for the ~~building is recorded upon substantial completion.~~tools segment warranty. This product warranty does not represent a separate performance obligation under ASC 606.

We adopted ASC 606 using the modified retrospective method. We have determined that amounts reported under ASC 606 are not materially different than amounts reported under the previous revenue guidance of ASC 605 and therefore, we were not required to make an adjustment to retained earnings.

We, upon adoption of ASC 606, have increased the amount of required disclosures in the notes to our financial statements, including but not limited to:

Our consolidated corporate sales for continuing operations for the three- and ~~nine-month~~six-month periods ended ~~August~~May 31, ~~2018~~2019 were ~~$5,280,000~~$5,747,000 and ~~$15,940,000~~$9,871,000, respectively, compared to ~~$6,550,000~~$5,294,000 and ~~$15,660,000~~$10,660,000 during the same respective periods in ~~2017,~~fiscal 2018, a ~~$1,270,000~~$453,000 or ~~19.4%~~8.6%, ~~decrease~~increase for the three months and a ~~$280,000,~~$789,000, or ~~1.8%~~7.4%, ~~increase for the nine months. The~~ decrease for the six months. The three ~~months~~month increase in revenue is ~~primarily~~ due to ~~a decrease~~an $8.4 million project at our modular buildings segment that began in ~~revenue from~~the second quarter of fiscal 2019 and increased demand at our ~~agricultural products and~~ tools ~~segments.~~segment. Consolidated gross margin for the three-month period ended ~~August~~May 31, ~~2018~~2019 was 22.3% compared to 22.1% for the same period in fiscal 2017. Consolidated gross margin for the nine-month period ended August 31, 2018 was 21.6% compared to 21.5% for the same period in fiscal 2017. These increased gross margins are largely attributable to increased efficiency in our agricultural products segment, as discussed below, as margins have decreased in our modular buildings and tools segments.

Our third quarter sales at Manufacturing were $3,913,000 compared to $5,065,000 during the same period of 2017, a decrease of $1,152,000, or 22.7%. Our year-to-date sales at Manufacturing were $11,778,000 compared to $11,595,000 during the same period in 2017, an increase of $183,000, or 1.6%. The three-month decrease in revenue is due to decreased demand for forage box equipment and the absence of pass-through self-propelled beet equipment that was sold in 2017. The year-to-date increase in sales is due to increased demand for portable feed equipment, manure spreaders and UHC reels. Gross margin for Manufacturing for the three-month period ended August 31, 2018 was 21.6%16.7% compared to 20.9% for the same period in ~~2017. Gross~~fiscal 2018. Consolidated gross margin for ~~Manufacturing for~~ the ~~nine-month~~six-month period ended ~~August~~May 31, ~~2018~~2019 was ~~21.8%~~15.8% compared to ~~20.2%~~21.2% for the same period in ~~2017. The increase in~~fiscal 2018. This overall decreased gross margin is attributable to decreased gross margin in ~~2018 is due to increased efficiency from~~both our ~~direct labor~~agricultural products and modular buildings segment, as ~~a part of recently-launched lean initiatives. Although our gross margin is up we did receive downward pressure from rising costs of goods sold, which have been impacted by steel tariffs.~~discussed in further detail below.

Our ~~third~~second quarter sales ~~at Scientific~~in our agricultural products segment were ~~$773,000~~$3,637,000 compared to ~~$767,000~~$3,937,000 during the same period of fiscal 2018, a decrease of $300,000, or 7.6%. Our year-to-date agricultural product sales were $6,247,000 compared to $7,866,000 during the same period in fiscal 2018, a decrease of $1,619,000, or 20.6%. This decrease was driven by a difficult sales climate due to spring flooding across the United States, with many farmers planting on historically late dates and some concern that the crops may not be planted at all. Due to the uncertainty of 2019 crops, we saw decreased revenue on portable feed equipment and forage and receiver boxes. Additionally, the liquidation of our Canadian subsidiary accounted for a decrease of approximately $420,000 in sales in 2019. Moreover, our year-to-date fiscal 2018 revenue reflects liquidation of an old model of manure spreader, which was sold at a decreased margin, and OEM blower revenue of approximately $262,000 that was not repeated in fiscal 2019 as our OEM blower customer elected not to purchase any blowers from us in 2019 due to slow-moving inventory on their dealer lots relating to poor agricultural market conditions. Despite the overall sales decrease, we did see increased sales for the six months ended May 31, 2019 in land maintenance equipment, plows, beet equipment, reels and dump boxes compared to the same period in fiscal 2018. Gross margin for our agricultural products segment for the three-month period ended May 31, 2019 was 17.9% compared to 22.6% for the same period in ~~2017, an increase of $6,000, or 0.8%. Our year-to-date sales at Scientific were $2,346,000~~fiscal 2018. Gross margin for our agricultural products segment for the six-month period ended May 31, 2019 was 15.8% compared to ~~$2,043,000~~21.9% for the same period in ~~2017,~~fiscal 2018. Our gross margin in fiscal 2019 reflects pressure from lower revenue available to cover our fixed overhead and decreased plant efficiency from a year ago due to new operations leadership diverting resources to implement changes that we believe will have long-term benefits. Some of these changes include warehouse reorganization to decrease material handling travel time and to improve inventory accuracy and a material review board to review parts before they are scrapped.

Our second quarter sales in our modular buildings segment were $1,558,000 compared to $834,000 for the same period in fiscal 2018, an increase of ~~$303,000,~~$724,000, or ~~14.8%~~86.8%. Our year-to-date sales in our modular buildings segment were $2,580,000 compared to $1,573,000 for the same period in fiscal 2018, an increase of $1,007,000, or 64.0%. Our year-to-date increase in revenue is largely attributable to ~~using sales-type~~an $8.4 million project that began in the second quarter of fiscal 2019 and ~~operating leases to expand our customer base.~~an increase in modular building lease revenue. Gross margin for the three- and ~~nine-month~~six-month periods ended ~~August~~May 31, ~~2018~~2019 was ~~15.8%~~9.4% and ~~13.7%~~10.3%, respectively, compared to ~~21.4%~~10.0% and ~~18.5%~~12.7% for the same respective periods in ~~2017.~~fiscal 2018. The slight decrease in gross margin is due to ~~added~~increased costs associated with new production staff hired to fill large project needs coupled with an increase in depreciation ~~from~~on leased buildings ~~out on lease and the production of leased assets~~put into service in ~~the third quarter, which don’t provide immediate revenue.~~fiscal 2018.

~~Metals~~Our tools segment had sales of ~~$594,000~~$552,000 and ~~$1,816,000~~$1,044,000 during the three- and ~~nine-month~~six-month periods ended ~~August~~May 31, ~~2018~~2019, respectively, compared to ~~$718,000~~$523,000 and ~~$2,022,000~~$1,221,000 for the same respective periods in ~~2017,~~fiscal 2018, a ~~17.3%~~5.5% increase and ~~10.2%~~a 14.5% decrease, respectively. The year-to-date decrease is mainly due to the loss of a large volume ~~customer.~~customer at the end of the first quarter of fiscal 2018. Gross margin was ~~34.7%~~27.9% and ~~30.1%~~28.6% for the three- and ~~nine-month~~six-month periods ended ~~August~~May 31, ~~2018~~2019, respectively, compared to ~~30.9%~~25.6% and ~~32.1%~~27.9% for the same respective periods in ~~2017. The~~fiscal 2018. Our increased gross margin ~~for the three-months~~ is due ~~mainly~~ to ~~price increases and better margins on~~improved efficiency by our ~~sales. Our decreased gross margin for the nine-months is largely due to lower revenues with less variable margin to absorb fixed costs.~~workforce in 2019.

Our ~~third~~second quarter consolidated selling expenses were ~~$476,000~~$397,000 compared to ~~$433,000~~$488,000 for the same period in ~~2017.~~fiscal 2018. Our year-to-date selling expenses were ~~$1,448,000~~$741,000 in fiscal 2019 compared to ~~$1,401,000~~$973,000 for the same period in ~~2017.~~fiscal 2018. The ~~increase~~decrease in selling expenses is due to ~~increased~~lower commissions ~~as a result~~paid in our agricultural products and tools segments due to fewer sales, the shift of ~~higher sales~~our advertising strategy from print to digital, attendance in fewer tradeshows in fiscal 2019 and ~~the reclassification of an employee~~cuts made to ~~an independent sales representative.~~indirect labor in fiscal 2019. Selling expenses as a percentage of sales were ~~9.0%~~6.9% and ~~9.1%~~7.5% for the three- and ~~nine-month~~six-month periods ended ~~August~~May 31, ~~2018~~2019, respectively, compared to ~~6.6%~~9.2% and ~~8.9%~~9.1% for the same respective periods in ~~2017.~~fiscal 2018.

Consolidated engineering expenses were ~~$202,000~~$117,000 and ~~$458,000~~$264,000 for the three- and ~~nine-month~~six-month periods ended ~~August~~May 31, ~~2018~~2019, respectively, compared to ~~$108,000~~$128,000 and ~~$373,000~~$257,000 for the same respective periods in ~~2017.~~fiscal 2018. The decrease in engineering expenses for the three months ended May 31, 2019 is due to having one less engineer on staff in fiscal 2019. The increase in engineering ~~expenses~~expense year-to-date is ~~directly related~~due to research and development expenses related to our hammer blower and commercial forage box that were incurred in the first quarter of ~~new agricultural products and modular building engineering.~~fiscal 2019. Engineering expenses as a percentage of sales were ~~3.8%~~2.0% and ~~2.9%~~2.7% for the three- and ~~nine-month~~six-month periods ended ~~August~~May 31, ~~2018~~2019, respectively, compared to ~~1.6%~~2.4% and 2.4% for the same ~~respective~~ periods in ~~2017.~~fiscal 2018.

Consolidated administrative expenses for the three- and ~~nine-month~~six-month periods ended ~~August~~May 31, ~~2018~~2019 were ~~$858,000~~$814,000 and ~~$2,656,000~~$1,651,000, respectively, compared to ~~$795,000~~$950,000 and ~~$2,561,000~~$1,798,000 for the same respective periods in ~~2017.~~fiscal 2018. These ~~increases~~decreases are largely ~~related~~due to ~~increased stock compensation expense and the addition of a general manager~~cuts made to administrative staff at the ~~modular buildings segment.~~start of fiscal 2019 and a decrease in temporary staffing at our tools segment location from a year ago. Administrative expenses as a percentage of sales were ~~16.3%~~14.2% and 16.7% for the three- and ~~nine-month~~six-month periods ended ~~August~~May 31, ~~2018~~2019, respectively, compared to ~~12.1%~~17.9% and ~~16.4%~~16.9% for the same respective periods in ~~2017.~~fiscal 2018.

Consolidated net (loss) from continuing operations before income taxes was ~~$(767,000)~~$(459,000) for the three-month period and ~~$(1,948,000)~~$(1,240,000) for the ~~nine-month~~six-month period ended ~~August~~May 31, ~~2018~~2019 compared to net (loss) from continuing operations before income ~~(loss)~~taxes of ~~$42,000~~$(780,000) and ~~$(721,000)~~$(1,085,000) for the same respective periods in ~~2017.~~fiscal 2018. The ~~increased~~decreased net ~~loss~~(loss) from continuing operations before income taxes for the three months ended ~~August~~May 31, ~~2018 was~~2019 is due to ~~the discovery~~increased revenue in our modular buildings segment related to our $8.4 million project, cuts made to our selling expenses and reduction of ~~mold~~indirect labor in ~~one of~~fiscal 2019. The increase in our ~~facilities. We estimate approximately $253,000 for mold remediation and $67,000~~net (loss) year-to-date is primarily related to a decrease in ~~damaged inventory,~~revenue from our agricultural products segment due to continued difficult agricultural market conditions. Looking forward, corn prices are starting to rise as uncertainty looms about crop yields in 2019 due to wet field conditions, and we ~~recognized an impairment of approximately $199,000 of~~are optimistic this asset held for lease. The increased net loss from continuing operations for the nine-months was largely due to the revaluing of our deferred tax asset at the new income tax rates for the 2018 tax year, which resulted inwill have a ~~loss of approximately $300,000. We also recognized a loss of approximately $253,000 from the liquidation of our Canadian subsidiary related to the cumulative translation adjustment in~~positive impact on the second ~~quarter~~half of fiscal ~~2018. These expenses were non-cash expenses and one-time adjustments. Our margins are generally depressed from historic levels because low volumes caused by market conditions~~2019. We expect to continue to ~~impact~~cut costs and solidify our ~~ability~~processes in order to ~~cover~~maximize our ~~fixed costs. Margins are also impacted as we continue to right-size our inventories to focus on products we feel our customers will want to purchase in the future.~~stockholder value during this time of rough agricultural outlook.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 was enacted, which ~~reduced~~reduces the top corporate income tax rate from 35% to 21%. We have assessed the impact of the law on our reported assets, liabilities, and results of operations, and we believe that going forward, the overall rate reduction will have a positive impact on our net ~~earnings~~income in the long run. However, during the first quarter of fiscal 2018, we substantially reduced our net deferred tax asset using the new lower rates. Based on our recorded deferred tax asset at November 30, 2017, we reduced the deferred tax asset by approximately ~~$300,000,~~$298,000, which was recorded as an adjustment to our tax provision in the first quarter ~~of fiscal~~ended February 28, 2018.

The consolidated order backlog net of discounts for continuing operations as of ~~October 2, 2018~~July 6, 2019 was ~~$1,405,000~~$8,446,000 compared to ~~$1,638,000~~$3,175,000 as of ~~October 2, 2017.~~July 6, 2018. The agricultural products segment order backlog was ~~$715,000~~$1,369,000 as of ~~October 2, 2018~~July 6, 2019 compared to ~~$1,069,277~~$2,495,000 in fiscal ~~2017.~~2018. The decrease in backlog is due to economic uncertainty from early spring flooding affecting 2019 planting and the early completion of our beet equipment that typically ships in the third quarter of each year. The backlog for the modular buildings segment was ~~$609,000~~$6,914,000 as of ~~October 2, 2018,~~July 6, 2019, compared to ~~$456,000~~$465,000 in fiscal ~~2017.~~2018. This increase in backlog is due to a modular research facility contracted at $8.4 million that is scheduled to be complete entirely in 2019. The backlog for the tools segment was ~~$81,000~~$163,000 as of ~~October 2, 2018,~~July 6, 2019 compared to ~~$113,000~~$216,000 in fiscal ~~2017.~~2018. Our order backlog is not necessarily indicative of future revenue to be generated from such orders due to the possibility of order cancellations and dealer discount arrangements we may enter into from time to time.

During the third quarter of fiscal 2016, we made the decision to exit the pressurized vessels industry. On March 29, 2018 we disposed of the remaining assets of our ~~Vessels~~pressurized vessels segment at a selling price of $1,500,000.

Our primary ~~sources~~source of funds for the ~~nine~~six months ended ~~August~~May 31, ~~2018 were funds received~~2019 was cash generated by investing activities, which includes the proceeds from the sale of ~~real estate~~our prior facility in West Union, Iowa. Under operating activities, our contracts in progress from ~~discontinued operations and the reduction~~our modular buildings segment provided a significant cash inflow by utilizing a favorable draw schedule on our $8.4 million project. Our fall beet pre-order program also was a significant source of ~~inventory. Our~~operating funds as we incentivize down payments by offering a discount to purchase price. Operations was our primary ~~uses~~use of cash ~~were costs~~for the first quarter of ~~operation, the execution of sales-type leases, the fulfillment of customer deposits and retirement of debt related to discontinued operations.~~fiscal 2019. We expect our primary capital needs for the remainder of fiscal ~~2018~~2019 to relate to operating costs, primarily production and contract fulfilment, and retirement of ~~operation, including production.~~debt.

We have a $5,000,000 revolving line of credit with Bank Midwest that, as of ~~August~~May 31, ~~2018,~~2019, had an outstanding principal balance of ~~$2,693,530.~~$3,599,530. The ~~revolving~~ line of credit ~~was renewed on March 30, 2018 and~~ is scheduled to mature on March 30, ~~2019.~~2020 if no earlier demand is made.

We believe that our cash flows from operations and current financing arrangements will provide sufficient cash to finance operations and pay debt when due during the next twelve months. We expect to continue to be able to procure financing upon reasonable terms.

As a smaller reporting company, we are not required to provide disclosure pursuant to this item.

The person serving as our principal executive officer and principal financial officer has evaluated the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e), as of the end of the period subject to this report. Based on this evaluation, the person serving as our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective and provide reasonable assurance that information required to be disclosed by us in the periodic and current reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the periods specified by the Securities and Exchange Commission’s rules and forms.

There were no changes in our internal controls over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

As a smaller reporting company, we are not required to provide disclosure pursuant to this item.

Effective March 30, 2019, we renewed our $5,000,000 revolving line of credit with Bank Midwest. The revolving line of credit is payable upon demand by Bank Midwest, and monthly interest-only payments are required. If no earlier demand is made, the unpaid principal and accrued interest is due on March 30, 2020. The updated Promissory Note with Bank Midwest is included as Exhibit 10.1 hereto and is incorporated herein by reference.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Common Stock				Additional					Other			Treasury Stock
	Number of				paid-in		Retained			Comprensive			Number of
	shares		Par value		capital		earnings			Income (Loss)			shares		Amount			Total

Balance, November 30, 2017		4,158,752	$	41,587	$	2,859,052	$	13,353,830		$	(257,010	)		1,954	$	(6,425	)	$	15,991,034
Stock based compensation		49,481		495		110,941		-			-			7,332		(21,310	)		90,126
Foreign Currency Translation Adjustment		-		-		-		-			3,830			-		-			3,830
Release of cumulative translation adjustment due to substantial liquidation of a foreign entity		-		-		-		-			253,180			-		-			253,180
Net (loss)		-		-		-		(1,232,230	)		-			-		-			(1,232,230	)
Balance, May 31, 2018		4,208,233	$	42,082	$	2,969,993	$	12,121,600		$	-			9,286	$	(27,735	)	$	15,105,940

	Common Stock				Additional					Other		Treasury Stock
	Number of				paid-in		Retained			Comprensive		Number of
	shares		Par value		capital		earnings			Income (Loss)		shares		Amount			Total

Balance, November 30, 2018		4,225,050	$	42,250	$	3,055,632	$	9,966,928		$	-		9,286	$	(27,735	)	$	13,037,075
Stock based compensation		84,537		846		118,598		-			-		5,493		(10,820	)		108,624
Foreign Currency Translation Adjustment		-		-		-		-			-		-		-			-
Release of cumulative translation adjustment due to substantial liquidation of a foreign entity		-		-		-		-			-		-		-			-
Net (loss)		-		-		-		(961,974	)		-		-		-			(961,974	)
Balance, May 31, 2019		4,309,587	$	43,096	$	3,174,230	$	9,004,954		$	-		14,779	$	(38,555	)	$	12,183,725

	August 31, 2018			November 30, 2017			May 31, 2019			November 30, 2018
Raw materials	$	7,959,989		$	8,731,985		$	7,689,572		$	7,825,278
Work in process		376,273			460,687			433,171			272,302
Finished goods		4,721,049			5,395,353			4,778,690			5,051,330
Gross inventory	$	13,057,311		$	14,588,025		$	12,901,433		$	13,148,910
Less: Reserves		(2,388,544	)		(2,621,303	)		(2,796,170	)		(2,891,808	)
Net Inventory	$	10,668,767		$	11,966,722		$	10,105,263		$	10,257,102

	August 31, 2018		November 30, 2017		May 31, 2019		November 30, 2018
Salaries, wages, and commissions	$	554,625	$	584,768	$	422,752	$	448,737
Accrued warranty expense		71,263		68,451		89,637		96,786
Other		608,418		328,339		283,226		347,761
	$	1,234,306	$	981,558	$	795,615	$	893,284

Future Minimum Leased Assets
Year Ending November 30,	Amount
2019	$	204,330
2020		90,411
Total	$	294,741

ART’S-WAY MANUFACTURING CO., INC.
Condensed Consolidated Balance Sheets

ART’S-WAY MANUFACTURING CO., INC.
Consolidated Statements of Stockholders' Equity
Six Months Ended May 31, 2019 and 2018
(Unaudited)

	For the Nine Months Ended
	August 31, 2018			August 31, 2017
Numerator for basic and diluted net (loss) income per share of common stock:

Net (loss) income from continuing operations	$	(1,948,093	)	$	(720,900	)
Net (loss) income from discontinued operations		(50,853	)		(33,482	)
Net (loss) income	$	(1,998,946	)	$	(754,382	)

Denominator:
For basic net (loss) income per share - weighted average shares of common stock outstanding		4,198,250			4,148,966
Effect of dilutive stock options		-			-
For diluted net (loss) income per share - weighted average shares of common stock outstanding		4,198,250			4,148,966


Net income (loss) per share - Basic:
Continuing operations	$	(0.46	)	$	(0.17	)
Discontinued operations	$	(0.01	)	$	(0.01	)
Net income (loss) per share	$	(0.47	)	$	(0.18	)

Net income (loss) per share - Diluted:
Continuing operations	$	(0.46	)	$	(0.17	)
Discontinued operations	$	(0.01	)	$	(0.01	)
Net income (loss) per share	$	(0.47	)	$	(0.18	)

Year	Amount
2019		40,761
2020		85,401
2021		90,179
2022		94,858
2023		99,781
2024 and thereafter		2,065,772
	$	2,476,752

	Three Months Ended August 31, 2017									Three Months Ended May 31, 2018
	Agricultural Products		Modular Buildings			Tools		Consolidated		Agricultural Products			Modular Buildings			Tools			Consolidated
Revenue from external customers	$	5,065,000	$	767,000		$	718,000	$	6,550,000	$	3,937,000		$	834,000		$	523,000		$	5,294,000
Income (loss) from operations		118,000		(37,000	)		28,000	$	109,000		(263,000	)		(146,000	)		(49,000	)		(458,000	)
Income (loss) before tax		123,000		(45,000	)		15,000	$	93,000		(576,000	)		(141,000	)		(63,000	)		(780,000	)
Total Assets		18,941,000		3,094,000			2,721,000	$	24,756,000		16,686,000			3,485,000			2,419,000			22,590,000
Capital expenditures		61,000		117,000			-	$	178,000		42,000			859,000			-			901,000
Depreciation & Amortization		125,000		17,000			32,000	$	174,000		132,000			5,500			32,000			169,500

	Nine Months Ended August 31, 2018												Six Months Ended May 31, 2018
	Agricultural Products			Modular Buildings			Tools			Consolidated			Agricultural Products			Modular Buildings			Tools			Consolidated
Revenue from external customers	$	11,778,000		$	2,346,000		$	1,816,000		$	15,940,000		$	7,866,000		$	1,573,000		$	1,221,000		$	10,660,000
Income (loss) from operations		(988,000	)		(347,000	)		9,000		$	(1,326,000	)		(537,000	)		(206,000	)		(24,000	)		(767,000	)
Income (loss) before tax		(1,681,000	)		(329,000	)		(24,000	)	$	(2,034,000	)		(845,000	)		(194,000	)		(46,000	)		(1,085,000	)
Total Assets		15,999,000			3,692,000			2,484,000		$	22,175,000			16,686,000			3,485,000			2,419,000			22,590,000
Capital expenditures		163,000			99,000			4,000		$	266,000			71,000			894,000			-			965,000
Depreciation & Amortization		391,000			196,000			95,000		$	682,000			265,000			80,000			64,000			409,000

Exhibit No.	Description
10.1	Promissory Note, between Bank Midwest and Art’s-Way Manufacturing Co., Inc., dated March 30, 2019 – filed herewith.
31.1	Certificate of Chief Executive Officer and Interim Chief Financial Officer pursuant to 17 CFR 13a-14(a) – filed herewith.
32.1	Certificate of Chief Executive Officer and Interim Chief Financial Officer pursuant to 18 U.S.C. Section 1350 - filed herewith.
101	The following materials from this report, formatted in XBRL (Extensible Business Reporting Language) are filed herewith: (i) condensed consolidated balance sheets, (ii) condensed consolidated statement of operations, (iii) condensed consolidated statements of cash flows, and (iv) the notes to the condensed consolidated financial statements.

	ART’S-WAY MANUFACTURING CO., INC.


Date: ~~October 8, 2018~~July 11, 2019		By: /s/Carrie L. L.Gunnerson
		Carrie L. Gunnerson
		President, Chief Executive Officer and Interim Chief Financial Officer