Significant Accounting Policies (Policies)

12 Months Ended

Nov. 30, 2017

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; 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.

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

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

income tax benefit will occur when 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.

(d)

Customer Concentration

uring the years ended

November 30, 2017,

and

November 30, 2016

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

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

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.

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.

Short-term Leases [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

three

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.

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. 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

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

longer subject to Canadian, U.S. federal or state income tax examinations by tax authorities for years ended before

November 30, 2013.

December 22, 2017,

a new tax law was adopted that reduces the top corporate income tax rate from

35%

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.

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. 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

exceptions to the buyer’s commitment to accept and pay for these manufactured goods. Revenues recognized at the completion of production

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.

Research and Development Expense, Policy [Policy Text Block]

(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.

Advertising Costs, Policy [Policy Text Block]

)

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.

Earnings Per Share, Policy [Policy Text Block]

(

(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	)

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

(

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.

Use of Estimates, Policy [Policy Text Block]

(

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

Adopted Accounting Pronouncements

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.

2014

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

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 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

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.

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

impact on the Company

’s consolidated statements of operations and comprehensive income.

Accounting Pronouncements

Not

Yet Adopted

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. 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

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.