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Note 1 - Summary of Significant Accounting Policies | 12 Months Ended
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Nov. 30, 2017
Notes to Financial Statements |
Significant Accounting Policies [Text Block] |
( 1 ) | Summary of Significant Accounting Policies
| (a) | Nature of Business
Art ’s-Way Manufacturing Co., Inc. is primarily engaged in the fabrication and sale of specialized farm machinery in the agricultural sector of the United States. Primary product offerings include portable and stationary animal feed processing equipment; hay and forage equipment; sugar beet harvesting equipment; land maintenance equipment; a line of portable grain augers; a line of manure spreaders; moldboard plows; potato harvesters; and a line of reels. The Company also manufactured commercial snow blowers under the Agro Trend label but sold the Agro Trend product line to Metco, Inc. on December 15, 2017. The Company sells its labeled products through independent farm equipment dealers throughout the United States. In addition, the Company manufactures and supplies hay blowers pursuant to OEM agreements. The Company also provides after-market service parts that are available to keep its branded and OEM-produced equipment operating to the satisfaction of the end user of the Company’s products. The Company ’s Pressurized Vessels segment was primarily engaged in the fabrication and sale of pressurized vessels and tanks through the Company’s wholly-owned subsidiary, Art’s-Way Vessels, Inc. On August 11, 2016, the Company announced its plan to discontinue the operations of its Pressurized 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. The Company continues to work to dispose of these assets. In January 2018, the Company accepted an offer on the remaining assets and expects to close on the disposition in the second fiscal quarter of 2018. The Company ’s Modular Buildings segment is primarily engaged in the construction of modular laboratories and animal housing facilities through the Company’s wholly-owned subsidiary, Art’s-Way Scientific, Inc. Buildings commonly produced range from basic swine buildings to complex containment research laboratories. This segment also provides services relating to the design, manufacturing, delivering, installation, and renting of the building units that it produces. The Company ’s Tools segment is a domestic manufacturer and distributor of standard single point brazed carbide tipped tools as well as PCD (polycrystalline diamond) and CBN (cubic boron nitride) inserts and tools through the Company’s wholly-owned subsidiary, Ohio Metal Working Company/Art’s Way, Inc.
| (b) | Principles of Consolidation
The consolidated financial statements include the accounts of Art ’s-Way Manufacturing Co., Inc. and its wholly-owned subsidiaries for the 2017 fiscal year, which includes Art’s-Way Scientific, Inc., Art’s-Way Manufacturing International LTD (“International”), and Ohio Metal Working Products/Art’s-Way, Inc. The operations of Art’s-Way Vessels, Inc. were discontinued in the third quarter of the 2016 fiscal year, and the corporation was merged with the parent company of Art’s-Way Manufacturing Co., Inc. effective October 31, 2016. All material inter-company accounts and transactions are eliminated in consolidation. The financial books of International are kept in the functional currency of Canadian dollars and the financial statements are converted to U.S. Dollars for consolidation. When consolidating the financial results of the Company into U.S. Dollars for reporting purposes, the Company uses the All-Current translation method. The All-Current method requires the balance sheet assets and liabilities be translated to U.S. Dollars at the exchange rate as of year-end. Owner’s equity is translated at historical exchange rates and retained earnings are translated at an average exchange rate for the period. Additionally, revenue and expenses are translated at average exchange rates for the periods presented. The resulting cumulative translation adjustment is recorded in stockholder’s equity in fiscal 2017 and fiscal 2016. Since the Company believes that it is more likely than not that no income tax benefit will occur when the foreign equity is sold or liquidated, the cumulative translation adjustment has not been tax adjusted.
| (c) | Cash Concentration
The Company maintains several different accounts at four different banks, and balances in these accounts are periodically in excess of federally insured limits. However, management believes the risk of loss to be low.
| (d) | Customer Concentration
D uring the years ended November 30, 2017, and November 30, 2016 no one customer accounted for more than 4% and 8% of consolidated revenues for continuing operations, respectively.
| (e) | Accounts Receivable
Accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts. Accounts receivable are written-off when deemed uncollectible. Recoveries of accounts receivable previously written-off are recorded when received. Accounts receivable are generally considered past due 60 days past invoice date, with the exception of international sales which primarily are sold with a letter of credit for 1 80 day terms. Trade receivables due from customers are uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. Trade receivables are stated at the amount billed to the customer. The Company charges interest on overdue customer account balances at a rate of 1.5% per month. Payments of trade receivables are allocated to the specific invoices identified on the customer’s remittance advice or, if unspecified, are applied to the earliest unpaid invoices.
| (f) | Inventories
Inventories are stated at the lower of cost or net realizable value, and cost is determined using the standard costing method. Management monitors the carrying value of inventories using inventory control and review processes that include, but are not limited to, sales forecast review, inventory status reports, and inventory reduction programs. The Company records inventory write downs to net realizable value based on expected usage information for raw materials and historical selling trends for finished goods. Additional write downs may be necessary if the assumptions made by management do not occur.
| (g) | Property, Plant, and Equipment
Property, plant, and equipment are recorded at cost. Depreciation of plant and equipment is provided using the straight-line method, based on the estimated useful lives of the assets which range from three to forty years.
| (h) | Lessor Accounting
Modular buildings held for short term lease by our Modular Buildings segment are recorded at cost. Amortization of the property 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.
| (i) | Goodwill and Impairment
Goodwill represents costs in excess of the fair value of net tangible and identifiable net intangible assets acquired in business combinations. The Company performs an annual test for impairment of goodwill during the fourth quarter, unless factors determine an earlier test is necessary. An impairment of goodwill has not been recorded in years ending November 30, 2017 or November 30, 2016 .
| (j) | Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating losses. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates as recognized in income in the period that includes the enactment date. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is entirely dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. The Company shall classify interest and penalties to be paid on an underpayment of taxes as income tax expense . The Company files income tax returns in the U.S. federal jurisdiction and various states and Canada. The Company is no longer subject to Canadian, U.S. federal or state income tax examinations by tax authorities for years ended before November 30, 2013. On December 22, 2017, a new tax law was adopted that reduces the top corporate income tax rate from 35% to 21%. This law is generally effective for tax years beginning after December 31, 2017. The application of this new rate is expected to be recognized in the first quarter of fiscal 2018.
| (k) | Revenue Recognition
Revenue is recognized when risk of ownership and title pass to the buyer, generally upon the shipment of the product. All sales are made to authorized dealers whose application for dealer status has been approved and who have been informed of general sales policies. Any changes in Company terms are documented in the most recently published price lists. Pricing is fixed and determinable according to the Company’s published equipment and parts price lists. Title to all equipment and parts sold shall pass to the buyer upon delivery to the carrier and is not subject to a customer acceptance provision. Proof of the passing of title is documented by the signing of the delivery receipt by a representative of the carrier. Post shipment obligations are limited to any claim with respect to the condition of the equipment or parts. Applicable sales taxes imposed on our revenues are presented on a net basis on the consolidated statements of operations and therefore do not impact net revenues or cost of goods sold. A provision for warranty expenses, based on sales volume, is included in the financial statements. The Company’s return policy allows for new and saleable parts to be returned, subject to inspection and a restocking charge which is included in net sales. Whole goods are not returnable. Shipping costs charged to customers are included in net sales. Freight costs incurred are included in cost of goods sold. Customer deposits consist of advance payments from customers, in the form of cash, for revenue to be recognized in the following year. In certain circumstances, upon the customer ’s written request, the Company may recognize revenue when production is complete and the good is ready for shipment. At the buyer’s request, the Company will bill the buyer upon completing all performance obligations, but before shipment. The buyer dictates that the Company ship the goods per their direction from the Company’s manufacturing facility, as is customary with this type of agreement, in order to minimize shipping costs. The written agreement with the customer specifies that the goods will be delivered on a schedule to be determined by the customer, with a final specified delivery date, and that the Company will segregate the goods from its inventory, such that they are not available to fill other orders. This agreement also specifies that the buyer is required to purchase all goods manufactured under this agreement. Title of the goods will pass to the buyer when the goods are complete and ready for shipment, per the customer agreement. At the transfer of title, all risks of ownership have passed to the buyer, and the buyer agrees to maintain insurance on the manufactured items that have not yet been shipped. The Company has operated using bill and hold agreements with certain customers for many years. The credit terms on these agreement are consistent with the credit terms on all other sales. All risks of loss are shouldered by the buyer, and there are no exceptions to the buyer’s commitment to accept and pay for these manufactured goods. Revenues recognized at the completion of production in 2017 and 2016 were approximately $184,000 and $424,000, respectively. The Company ’s Modular Buildings segment is in the construction industry, and as such accounts for contracts on the percentage of completion method. Revenue and gross profit are recognized as work is performed based on the relationship between actual costs incurred and total estimated costs at completion. Contract losses are recognized when current estimates of total contract revenue and contract cost indicate a loss. Estimated contract costs include any and all costs appropriately allocable to the contract. The provision for these contract losses will be the excess of estimated contract costs over estimated contract revenues. Costs and profit in excess of amounts billed are classified as current assets and billings in excess of cost and profit are classified as current liabilities.
| (l) | Research and Development
Research and development costs are expensed when incurred. Such costs approximated $183,000 and $140,000 for the years ended November 30, 2017 and 2016, respectively.
| (m ) | Advertising
Advertising costs are expensed when incurred. Such costs approximated $356,000 and $420,000 for the years ended November 30, 2017 and 2016, respectively.
| ( n) | (Loss) Per Share
Basic net (loss) per common share has been computed on the basis of the weighted average number of common shares outstanding. Diluted net (loss) per share has been computed on the basis of the weighted average number of common shares outstanding plus equivalent shares assuming exercise of stock options. Basic and diluted (loss) per common share have been computed based on the following as of November 30, 2017 and 2016:
|  | For the twelve months ended |
|  | November 30, 2017 |  |  | November 30, 2016 |
Numerator for basic and diluted (loss) per common share: |  |  |  |  |  |  |  |
Net (loss) from continuing operations |  | $ | (1,369,359 | ) |  | $ | (426,182 | )
Net (loss) from discontinued operations |  |  | (267,722 | ) |  |  | (395,152 | )
Net (loss) |  | $ | (1,637,081 | ) |  | $ | (821,334 | )
Denominator: |  |  |  |  |  |  |  |
For basic (loss) per share - weighted average common shares outstanding |  |  | 4,151,406 |  |  |  | 4,097,748 |
Effect of dilutive stock options |  |  | - |  |  |  | - |
For diluted (loss) per share - weighted average common shares outstanding |  |  | 4,151,406 |  |  |  | 4,097,748 |
(Loss) per share - Basic: |  |  |  |  |  |  |  |
Continuing Operations |  | $ | (0.33 | ) |  | $ | (0.10 | )
Discontinued Operations |  | $ | (0.06 | ) |  | $ | (0.10 | )
Net (Loss) per share |  | $ | (0.39 | ) |  | $ | (0.20 | )
(Loss) per share - Diluted: |  |  |  |  |  |  |  |
Continuing Operations |  | $ | (0.33 | ) |  | $ | (0.10 | )
Discontinued Operations |  | $ | (0.06 | ) |  | $ | (0.10 | )
Net (Loss) per share |  | $ | (0.39 | ) |  | $ | (0.20 | )
| ( p) | Stock Based Compensation
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 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. Restricted stock is valued at market value at the day of grant.
| ( q) | Use of Estimates
Management of the Company has made a number of estimates and assumptions related to the reported amount of assets and liabilities, reported amount of revenues and expenses, and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates.
| (r) | Recently Issued Accounting Pronouncements
Adopted Accounting Pronouncements Going Concern In August 2014, the FASB issued ASU No. 2014 - 15, “Presentation of Financial Statements – Going Concern” which is authoritative guidance on management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and provide related footnote disclosures, codified in ASC 205 - 40, Going Concern . The guidance provides a definition of the term substantial doubt, requires an evaluation every reporting period including interim periods, provides principles for considering the mitigating effect of management’s plans, requires certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, requires an express statement and other disclosures when substantial doubt is not alleviated, and requires an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). ASU No. 2014 - 15 is effective for annual reporting periods ending after December 15, 2016. The Company has adopted this guidance for the year ended November 30, 2017, and it will apply to each interim and annual period thereafter. Its adoption has not had a material impact on the Company’s consolidated financial statements other than the increased disclosures in the interim periods of fiscal 2017. Inventory In July 2015, the FASB issued ASU 2015 - 11, “Inventory (Topic 330 ),” which requires inventory measured using any method other than last-in, first -out or the retail inventory method to be subsequently measured at the lower of cost or net realizable value, rather than the lower of cost or market. ASU No. 2015 - 11 is effective for fiscal years beginning after December 15, 2016, including interim periods within those years. The Company has adopted this guidance for the year ended November 30, 2017, including interim periods within that reporting period. The Company chose early adoption for this guidance, as its impact was expected not to be material, and it will allow the Company to focus more of its efforts on preparing for the adoption of more complex guidance. Its adoption has not had a material impact on the Company’s consolidated financial statements. Income Taxes In November 2015, the FASB issued ASU 2015 - 17, “Income Taxes (Topic 740 )”, to simplify the presentation of deferred income taxes. Under the new standard, both deferred tax liabilities and assets are required to be classified as noncurrent in a classified balance sheet. ASU No. 2015 - 17 is effective for fiscal years beginning after December 15, 2017 and interim periods within annual periods beginning after December 15, 2018. During the first quarter of fiscal 2017, the Company elected to prospectively adopt ASU 2015 - 17, thus reclassifying current deferred tax assets to noncurrent on the accompanying consolidated balance sheet. The prior reporting period was not retrospectively adjusted. The Company chose early adoption for this guidance, as its impact was expected not to be material, and it will allow the Company to focus more of its efforts on preparing for the adoption of more complex guidance. The adoption of this guidance had no impact on the Company ’s consolidated statements of operations and comprehensive income. Accounting Pronouncements Not Yet Adopted Revenue from Contracts with Customers In May 2014, the FASB issued ASU No. 2014 - 09, “Revenue from Contracts with Customers” which supersedes the guidance in “Revenue Recognition (Topic 605 )” and 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 to 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 is evaluating the new standard, and at this time believes that its Modular Buildings segment will be impacted most significantly by this standard. The Company believes that this segment will need to work to revise its standard contracts with customers to more clearly define the rights and considerations transferred at the various milestones identified in the contracts. The Company believes that the other segments already have the necessary tools to evaluate their revenues in a manner consistent with the application of this standard, and will have the ability to meet the disclosure requirements using current systems. The Company continues to research and assess the implications of the adoption of this standard on its consolidated financial statements. Leases In February 2016, the FASB issued ASU 2016 - 02, “Leases (topic 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 the year ending November 30, 2020 including interim periods within that reporting period. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

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