XML 41 R27.htm IDEA: XBRL DOCUMENT

Significant Accounting Policies (Policies)

12 Months Ended

Nov. 30, 2016

Basis of Accounting, Policy [Policy Text Block]

(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; commercial snow blowers and a line of reels. The Company sells its labeled products through independent farm equipment dealers throughout the United States. In addition, the Company manufactures and supplies hay blowers to OEMs. 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.

Our 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 Art’s Way 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 intends to dispose of these assets during the

2017

fiscal year.

Our 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.

Our 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.

Consolidation, Policy [Policy Text Block]

(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

2016

fiscal year, which includes, Art’s-Way Vessels, Inc., Art’s-Way Scientific, Inc., Art’s-Way Manufacturing International LTD (“International”), and Ohio Metal Working Products/Art’s-Way, Inc. Art’s-Way Vessels, Inc. operations were discontinued in the

third

quarter of fiscal

2016,

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 Company the resulting cumulative translation adjustment is recorded in stockholder’s equity in fiscal

2016.

The cumulative translation adjustment for prior periods was immaterial, and was not included in Statements of Comprehensive Income in fiscal

2015.

Since the Company believes that it is more likely than not that no income tax benefit will occur if the foreign equity is sold or liquidated, the cumulative translation adjustment has not been tax adjusted.

Concentration Risk, Credit Risk, Policy [Policy Text Block]

(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.

Major Customers, Policy [Policy Text Block]

(d)

Customer Concentration

During the years ended

November

30,

2016,

and

November

30,

2015

one

customer accounted for more than

and

of consolidated revenues for continuing operations, respectively.

Receivables, Policy [Policy Text Block]

(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

days past invoice date, with the exception of international sales which primarily are sold with a letter of credit for

180

day terms.

Trade receivables due from customers are uncollateralized customer obligations due under normal trade terms requiring payment within

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.

Inventory, Policy [Policy Text Block]

(f)

Inventories

Inventories are stated at the lower of cost or market, 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 market 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.

Property, Plant and Equipment, Policy [Policy Text Block]

(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

forty

years.

Lease, Policy [Policy Text Block]

(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

five

years. Lease revenue is accounted for on a straight-line basis over the term of the related lease agreement.

Goodwill and Intangible Assets, Policy [Policy Text Block]

(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. Art’s-Way performs an annual test for impairment of goodwill during the

fourth

quarter, unless factors determine an earlier test is necessary. During the

third

quarter of fiscal

2015,

an impairment test of the goodwill associated with the Universal Harvester subsidiary indicated an impairment of goodwill had occurred. Based on the testing, we incurred an impairment of goodwill of

$618,729

in fiscal

2015.

There had been

other impairment of goodwill as of

November

30,

2016.

Income Tax, Policy [Policy Text Block]

(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,

2012.

Revenue Recognition, Policy [Policy Text Block]

(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.

In certain circumstances, upon the customer’s written request, we

may

recognize revenue when production is complete and the good is ready for shipment. At the buyer’s request, we will bill the buyer upon completing all performance obligations, but before shipment. The buyer dictates that we ship the goods per their direction from our 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 we will segregate the goods from our 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 this 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

2016

and

2015

were approximately

$424,000

and

$634,000,

respectively.

Our 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.

Research and Development Expense, Policy [Policy Text Block]

(l)

Research and Development

Research and development costs are expensed when incurred. Such costs approximated

$140,000

and

$162,000

for the years ended

November

30,

2016

and

2015,

respectively.

Advertising Costs, Policy [Policy Text Block]

)

Advertising

Advertising costs are expensed when incurred. Such costs approximated

$420,000

and

$488,000

for the years ended

November

30,

2016

and

2015,

respectively.

Reclassification, Policy [Policy Text Block]

)

Reclassification

Certain amounts in the consolidated financial statements of the Company related to the discontinuation of operations at our Vessels division have been reclassified to conform to classifications used in the current year. The reclassifications had no effect on previously reported results of operations or retained earnings.

Earnings Per Share, Policy [Policy Text Block]

(o)

Income (Loss) Per Share

Basic net income (loss) per common share 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 assuming exercise of stock options.

Basic and diluted earnings per common share have been computed based on the following as of

November

30,

2016

and

2015:

	For the twelve months ended
	November 30, 2016			November 30, 2015
Numerator for basic and diluted (loss) earnings per common share:

Net (loss) income from continuing operations	$	(426,182	)	$	(309,649	)
Net (loss) income from discontinued operations		(395,152	)		(248,193	)
Net (loss) income	$	(821,334	)	$	(557,842	)

Denominator:
For basic (loss) earnings per share - weighted average common shares outstanding		4,097,748			4,058,382
Effect of dilutive stock options		-			-
For diluted (loss) earnings per share - weighted average common shares outstanding		4,097,748			4,058,382


Earnings (Loss) per share - Basic:
Continuing Operations	$	(0.10	)	$	(0.08	)
Discontinued Operations	$	(0.10	)	$	(0.06	)
Net Income (Loss) per share	$	(0.20	)	$	(0.14	)

Earnings (Loss) per share - Diluted:
Continuing Operations	$	(0.10	)	$	(0.08	)
Discontinued Operations	$	(0.10	)	$	(0.06	)
Net Income (Loss) per share	$	(0.20	)	$	(0.14	)

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

(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. We estimate 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.

Use of Estimates, Policy [Policy Text Block]

(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.

New Accounting Pronouncements, Policy [Policy Text Block]

(r)

Recently Issued Accounting Pronouncements

Revenue from Contracts with Customers

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

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 are evaluating the new standard, and at this time believe that our modular buildings segment will be impacted most significantly by this standard. We continue to research and assess the implications of the adoption of this standard on the Company’s consolidated financial statements.

Going Concern

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.

2015

is effective for annual reporting periods ending after

December

15,

2016.

The Company will adopt this guidance for the year-ended

November

30,

2017,

and it will apply to each interim and annual period thereafter. Its adoption is not expected to have a material effect on the Company’s consolidated financial statements.

Inventory

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

is effective for fiscal years beginning after

December

15,

2016,

including interim periods within those years. The Company will adopt this guidance for the year-ended

November

30,

2017

including interim periods within that reporting period. Its adoption is not expected to have a material impact on our consolidated financial statements.

Income Taxes

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

is effective for fiscal years beginning after

December

15,

2017

and interim periods within annual periods beginning after

December

15,

2018.

The Company will adopt this guidance for the year-ended

November

30,

2019,

and interim periods within the year-ended

November

30,

2020.

The effects of the adoption of this standard is classification of current deterred tax balances will be long-term.

Leases

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-ended

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.