(1)	Summary of Significant Accounting Policies

 

(a)

Nature of Business

 

Art’s-Way Manufacturing Co., Inc. (the “Company”) 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; manure spreaders; moldboard plows; potato harvesters; and 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 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 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.

 

The Company’s discontinued 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 operations of Art’s-Way Vessels, Inc. were discontinued in the third quarter of the 2016 fiscal year, and Art’s-Way Vessels, Inc. was merged into the Company effective October 31, 2016. On March 29, 2018, the remaining assets of the Pressurized Vessels segment, consisting of primarily real estate, were disposed of at a selling price of $1,500,000.

 

(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 2019 fiscal year, which includes Art’s-Way Scientific, Inc., and Ohio Metal Working Products/Art’s-Way, Inc. All material inter-company accounts and transactions are eliminated in consolidation.

 

During the second quarter of the 2018 fiscal year, the Company liquidated its investment in its Canadian subsidiary, Art’s-Way Manufacturing International LTD, (“International”), by selling off remaining inventory and filing dissolution paperwork for International. 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 method requires the balance sheet assets and liabilities to be translated to U.S. Dollars at the exchange rate as of 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 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 received from the foreign equity sale, the cumulative translation adjustment has not been tax adjusted.

 

 

(c)

Cash Concentration

 

The Company maintains several different accounts at one bank, and balances in these accounts could periodically exceed the federally insured limits. However, management believes the risk of loss to be low.

 

(d)

Customer Concentration

 

During the 2018 fiscal year, no one customer accounted for more than 6% of consolidated revenues for continuing operations. During the 2019 fiscal year, one customer accounted for more than 21% of consolidated revenues as the result of a large contract in the Modular Buildings segment. The Company’s highest recurring customer accounted for just under 10% of consolidated net revenues.

 

(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 180 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 and Sales-Type Leases

 

Modular buildings held for short term lease by the 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.

 

The Company leases 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.

 

 

(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. The Company did not record an impairment in the 2019 fiscal year compared to a $375,000 write down for the 2018 fiscal year. This amount represents the entire balance of goodwill carried by the Company related to the Miller Pro product line. There is no goodwill reported on the consolidated balance sheets as of November 30, 2019 and 2018.

 

(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 is 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 classifies 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 previously in 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, 2016.

 

On December 22, 2017, the Tax Cuts and Job Act of 2017 was enacted, which reduced the top corporate income tax rate from 35% to 21%. The application of this new rate was recognized in the first quarter of the 2018 fiscal year. Tax expense from continuing operations for the 2018 fiscal year includes an adjustment of approximately $298,000 related to the revaluation of the Company’s net deferred tax asset at the new statutory rate.

 

(k)

Revenue Recognition

 

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 goods. Risk of ownership and title pass to the buyer upon shipment of the goods. 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 the Company’s 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 passes 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 and retained by the Company. Post shipment obligations are limited to any claim with respect to the condition of the equipment or parts. 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.

 

In certain circumstances, upon the customer’s written request, the Company may recognize revenue when production is complete, and the goods are 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 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, with consistent satisfactory results for both buyer and seller. The credit terms on these agreements 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 the 2019 and 2018 fiscal years were approximately $16,000 and $202,000, respectively.

 

 

The Modular Buildings segment is in the construction industry with its major source of revenue arising from 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. 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 costs consist of direct costs on contracts, including labor, materials, amounts payable to subcontractors and those indirect costs related to contract performance, such as equipment costs, insurance and employee benefits. Contract cost is recorded as incurred, and revisions in contract revenues and cost estimates are reflected in the accounting period when known. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. 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. Changes in job performance, job conditions and estimated profitability, including those changes arising from contract change orders, penalty provisions and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined. The Company uses significant judgments in determining estimated contract costs and estimated completion throughout the life of the project. 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. 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 the Modular Buildings segment have the most impact on the Company’s contract receivables, contract assets and contract liabilities. Project invoicing from the Modular Buildings segment increases contract receivables and has 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. 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.

 

The Company leases modular buildings to certain customers and accounts for these transactions as operating or sales-type leases. These leases have terms of up to 36 months and are collateralized by a security interest in the related modular building. On sales-type leases, 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 building is substantially complete. Profit related to the sale of the building is recorded upon fulfillment of the Company’s obligation to the lessee. On operating leases, the Company recognizes rent when the lessee has all the rights and benefits of ownership of the asset.

 

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.

 

The Company’s returns 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.

 

 

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

 

 

(l)

Disaggregation of Revenue

 

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.

 

		Twelve Months Ended November 30, 2019
		Agricultural				Modular Buildings				Tools				Total
Farm equipment		$	10,435,000			$	-			$	-			$	10,435,000
Farm equipment service parts			2,638,000				-				-				2,638,000
Steel cutting tools and inserts			-				-				2,086,000				2,086,000
Modular buildings			-				6,460,000				-				6,460,000
Modular building lease income			-				674,000				-				674,000
Other			435,000				126,000				35,000				596,000
		$	13,508,000			$	7,260,000			$	2,121,000			$	22,889,000

 

		Twelve Months Ended November 30, 2018
		Agricultural				Modular Buildings				Tools				Total
Farm equipment		$	11,149,000			$	-			$	-			$	11,149,000
Farm equipment service parts			2,735,000				-				-				2,735,000
Steel cutting tools and inserts			-				-				2,239,000				2,239,000
Modular buildings			-				2,271,000				-				2,271,000
Modular building lease income			-				373,000				-				373,000
Revenue from sales-type leases			-				427,000				-				427,000
Other			460,000				38,000				35,000				533,000
		$	14,344,000			$	3,109,000			$	2,274,000			$	19,727,000

 

(m)

Contract Receivables, Contract Assets and Contract Liabilities

 

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

 

		November 30, 2019				November 30, 2018
Receivables		$	115,000			$	159,000
Assets			727,000				99,000
Liabilities			89,000				185,000

 

The amount of revenue recognized in fiscal year 2019 that was included in a contract liability at November 30, 2018 was approximately $185,000. The change in contract receivables reflected above results from collections and progress billings from the Modular Buildings segment. The increase in contract assets from November 30, 2018 is due to estimated revenue earned in excess of contract billings from the Modular Buildings segment. The decrease in contract liabilities is due to decreases in customer deposits and decreases in excess billing over estimated revenue earned.

 

The Company will utilize the practical expedient exception for these contracts and will report only on performance obligations greater than one year. As of November 30, 2019, the Company has no performance obligations with an original expected duration greater than one year.

 

(n)

Research and Development

 

Research and development costs are expensed when incurred. Such costs approximated $149,000 and $178,000 for the 2019 and 2018 fiscal years, respectively.

 

(o)

Advertising

 

Advertising costs are expensed when incurred. Such costs approximated $198,000 and $312,000 for the 2019 and 2018 fiscal years, respectively. The Company has made a concerted effort to reduce trade show participation that was not providing the level of product exposure it expected.

 

 

(p)

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 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.

 

Basic and diluted (loss) per common share have been computed based on the following as of November 30, 2019 and 2018:

 

		Twelve Months Ended
		November 30, 2019				November 30, 2018
Numerator for basic and diluted net income (loss) per share:
Net income (loss) from continuing operations		$	(1,419,586	)		$	(3,336,049	)
Net income (loss) from discontinued operations			-				(50,853	)
Net income (loss)		$	(1,419,586	)		$	(3,386,902	)
Denominator:
For basic net income (loss) per share - weighted average common shares outstanding			4,277,375				4,202,836
Effect of dilutive stock options			-				-
For diluted net income (loss) per share - weighted average common shares outstanding			4,277,375				4,202,836
Net Income (Loss) per share - Basic:
Continuing Operations		$	(0.33	)		$	(0.80	)
Discontinued Operations		$	-			$	(0.01	)
Net Income (Loss) per share		$	(0.33	)		$	(0.81	)
Net Income (Loss) per share - Diluted:
Continuing Operations		$	(0.33	)		$	(0.80	)
Discontinued Operations		$	-			$	(0.01	)
Net Income (Loss) per share		$	(0.33	)		$	(0.81	)

 

(q)

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.

 

(r)

Use of Estimates

 

Management 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.

 

 

(s)

Recently Issued Accounting Pronouncements

 

Adopted Accounting Pronouncements

 

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 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. The Company adopted ASC 606 for the 2019 fiscal year, including interim periods within that reporting period.

 

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:

 

1.     Identify the contract(s) with a customer;

2.     Identify each performance obligation in the contract;

3.     Determine the transaction price;

4.     Allocate the transaction price to each performance obligation; and

5.     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 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 goods. 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 Company’s implementation process for ASC 606 included modifications to the contracts of the Modular Buildings segment.

 

The Company uses discounts as a form of variable consideration for the Agricultural Products and Tools segments. The variable consideration is allocated to the transaction price at contract inception and 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.

 

The Company’s product warranty is included in the price of the product and provides assurance that the product will function in accordance with agreed-upon specifications. Product warranty is expensed at the time of sale for the Agricultural Products and Modular Buildings segments. A small reserve is kept on the balance sheet as consideration for the Tools segment warranty. This product warranty does not represent a separate performance obligation under ASC 606.

 

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

 

The Company, upon adoption of ASC 606, has increased the amount of required disclosures in the notes to its financial statements, 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.

 

 

Accounting Pronouncements Not Yet Adopted

 

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 2020 fiscal year using the modified retrospective approach, including interim periods within that reporting period. Under the modified retrospective approach, the Company will not adjust prior comparative periods. The Company has a moderate amount of leasing activity mainly as the lessee of office equipment and as the lessor of modular rental buildings. The Company expects to recognize a right-of-use asset and lease liability on the balance sheet for office equipment it leases. The Company does not expect a material impact for the addition of lessee activity to its consolidated balance sheets. The Company’s activity as a lessor will remain mostly unaffected by this guidance. The Company expects additional disclosures including but not limited to:

•    Nature of its leases

•    Significant assumptions and judgements used

•    Information about leases that have not yet commenced

•    Related-party lease transactions

•    Accounting policy election regarding short-term leases

•    Finance, operating, short-term and variable lease costs

•    Maturity analysis of operating lease payments, lease receivables and lease obligations

•    Tabular disclosure of lease-related income

•    Components of the net investment in a lease

•    Information on the management of risk associated with residual asset

 

 

(2)	Discontinued Operations

 

Effective October 31, 2016, the Company discontinued 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.

 

In January 2018, the Company accepted an offer on the real estate assets of its Pressurized 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 2017 fiscal year, 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 the Pressurized Vessels segment, consisting of these real estate assets, were disposed of at a selling price of $1,500,000.

 

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

 

Income from discontinued operations, before income taxes, in the accompanying consolidated statements of operations is comprised of the following:

 

		Twelve Months Ended
		November 30, 2018
Revenue from external customers		$	-
Gross Profit			-
Asset Impairment			-
Total Operating Expense			51,133
Income (loss) from operations			(51,133	)
Income (loss) before tax			(67,177	)

 

There are no components of discontinued operations reflected in the accompanying consolidated balance sheets.

 

 

 

(3)	Allowance for Doubtful Accounts

 

A summary of the Company’s activity in the allowance for doubtful accounts is as follows:

 

		Twelve Months Ended
		November 30, 2019				November 30, 2018
Balance, beginning		$	25,100			$	32,298
Provision charged to expense			(1,602	)			2,242
Less amounts charged-off			(573	)			(9,440	)
Balance, ending		$	22,925			$	25,100

 

 

(4)	Inventories

 

Major classes of inventory are:

 

		November 30, 2019				November 30, 2018
Raw materials		$	7,156,001			$	7,825,278
Work in process			492,125				272,302
Finished goods			3,905,373				5,051,330
Total Gross Inventory		$	11,553,499			$	13,148,910
Less: Reserves			(2,774,992	)			(2,891,808	)
Net Inventory		$	8,778,507			$	10,257,102

 

 

(5)	Contracts in Progress

 

Amounts included in the consolidated financial statements related to uncompleted contracts are as follows:

 

		Cost and Profit in				Billings in Excess of
		Excess of Billings				Costs and Profit
November 30, 2019
Costs		$	3,805,906			$	629,501
Estimated earnings			1,044,612				155,790
			4,850,518				785,291
Less: amounts billed			(4,123,851	)			(874,222	)
		$	726,667			$	(88,931	)
November 30, 2018
Costs		$	190,861			$	99,782
Estimated earnings			54,721				121,115
			245,582				220,897
Less: amounts billed			(146,295	)			(405,911	)
		$	99,287			$	(185,014	)

 

The amounts billed on these long-term contracts are due 30 days from invoice date. All amounts billed are expected to be collected within the next 12 months. Retainage was $0 and $8,405 as of November 30, 2019 and 2018, respectively.

 

 

 

(6)	Property, Plant, and Equipment

 

Major classes of property, plant, and equipment used in continuing operations are:

 

		November 30, 2019				November 30, 2018
Land		$	220,503			$	220,503
Buildings and improvements			7,035,144				6,985,273
Construction in Progress			82,366				35,669
Manufacturing machinery and equipment			11,036,192				11,062,856
Trucks and automobiles			507,575				491,822
Furniture and fixtures			120,833				121,646
			19,002,613				18,917,769
Less accumulated depreciation			(13,639,706	)			(13,270,284	)
Property, plant and equipment		$	5,362,907			$	5,647,485

 

Depreciation and amortization expense for continuing operations totaled $1,003,541 and $960,606 for the 2019 and 2018 fiscal years, respectively.

 

 

(7)	Assets Held for Lease

 

Major components of assets held for lease are:

 

Assets Held for Lease
		November 30, 2019				November 30, 2018
West Union Facility		$	-			$	878,079
Modular Buildings			713,782				992,046
		$	713,782			$	1,870,125

 

On December 14, 2018, the West Union facility and remaining assets were sold for $900,000. The Company recognized approximately $216,000 related to the impairment of this asset in the 2018 fiscal year, which was attributable to the selling price less commissions. The Company also incurred $235,000 of mold remediation expense and scrapped $67,000 worth of inventory due to mold contamination in the 2018 fiscal year. Both the remediation cost and inventory scrap have been included in other income (expense) on the consolidated statements of operations.

 

The Company’s Modular Buildings segment enters into leasing arrangements with customers from time-to-time. The Company had five small leased buildings at November 30, 2019 compared to seven at November 30, 2018.

 

Rents recognized in sales were related to the leasing of modular buildings as a part of the normal course of business operations of the Modular Buildings segment. Rents recognized from assets held for lease included in sales on the consolidated statements of operations during the 2019 fiscal year were $674,000 compared to $373,000 in the 2018 fiscal year. Rents related to the West Union facility in the Agricultural Products segment were recognized in other income as such income was outside of the scope of this segment’s normal business operations. Rents recognized from assets held for lease included in other income (expense) on the consolidated statements of operations during the 2019 fiscal year were $2,500 compared to $44,000 in the 2018 fiscal year.

 

Future minimum lease receipts from assets held for lease are as follows:

 

 

 

(8)	Accrued Expenses

 

Major components of accrued expenses are:

 

		November 30, 2019				November 30, 2018
Salaries, wages, and commissions		$	555,201			$	448,737
Accrued warranty expense			203,185				96,786
Other			374,440				347,761
		$	1,132,826			$	893,284

 

 

 

(9)	Product Warranty

 

The Company offers warranties of various lengths to its customers depending on the specific product and terms of the customer purchase agreement. The average length of the warranty period is one year from the date of purchase. The Company’s warranties require it to repair or replace defective products during the warranty period at no cost to the customer. Product warranty is included in the price of the product and provides assurance that the product will function in accordance with agreed-upon specifications. It does not represent a separate performance obligation under ASC 606. The Company records a liability for estimated costs that may be incurred under its warranties. The costs are estimated based on historical experience and any specific warranty issues that have been identified. Although historical warranty costs have been within expectations, there can be no assurance that future warranty costs will not exceed historical amounts. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the balance as necessary.

 

Changes in the Company’s product warranty liability included in “accrued expenses” for the 2019 and 2018 fiscal years are as follows:

 

		Twelve Months Ended
		November 30, 2019				November 30, 2018
Balance, beginning		$	96,786			$	68,451
Settlements / adjustments			(279,992	)			(233,316	)
Warranties issued			386,391				261,651
Balance, ending		$	203,185			$	96,786

 

 

(10)	Loan and Credit Agreements

 

The Company maintains two revolving lines of credit and a term loan with Bank Midwest. The Company previously maintained a term loan with The First National Bank of West Union, and a second term loan with Bank Midwest.

 

Bank Midwest Revolving Line of Credit and Term Loans

 

On September 28, 2017, the Company entered into a credit facility with Bank Midwest, which superseded and replaced in its entirety the Company’s previous credit facility with U.S. Bank. The Bank Midwest credit facility initially consisted of a $5,000,000 revolving line of credit (the “2017 Line of Credit”), a $2,600,000 term loan due October 1, 2037, and a $600,000 term loan due October 1, 2019. The 2017 Line of Credit is being used for working capital purposes. On March 29, 2018, the Company paid in full the $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 in principal and $2,328 in interest.

 

On November 30, 2019, the balance of the 2017 Line of Credit was $2,578,530 with $2,421,470 remaining available, as may be limited by the borrowing base calculation. The 2017 Line of 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 2017 Line of Credit. At November 30, 2019, the 2017 Line of Credit was not limited by the borrowing base calculation. Any unpaid principal amount borrowed on the 2017 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 the Wall Street Journal. The interest rate floor is set at 4.25% per annum and the current interest rate is 6.00% per annum. The 2017 Line of Credit was most recently renewed on March 30, 2019. The 2017 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 Company expects to renew the 2017 Line of Credit prior to the current maturity date.   

 

The $2,600,000 term loan accrues interest at a rate of 5.00% for the first sixty months. Thereafter, this loan will accrue interest at a floating rate per annum equal to 0.75% above the Wall Street Journal rate published 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 for principal and interest are required. This loan is also guaranteed by the United States Department of Agriculture (“USDA”), which required an upfront guarantee fee of $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, 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.

 

 

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 the 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 the Wall Street Journal. The interest rate floor is set at 4.25% per annum and the current interest rate is 5.75% per annum. The 2019 Line of Credit is payable upon demand by Bank Midwest. If no earlier demand is made, the unpaid principal and accrued interest will be payable in one payment, due on February 13, 2020. As of November 30, 2019, the funds on the 2019 Line of Credit remain undisbursed and are held by Bank Midwest. The Company expects to renew the 2019 Line of Credit prior to the current maturity date.

 

Each of the 2017 Line of Credit and the $2,600,000 term loan are governed by the terms of a separate Promissory Note, dated March 30, 2019 and September 28, 2017, respectively, entered into between the Company and Bank Midwest. The 2019 Line of Credit is governed by the terms of a Promissory Note, dated February 13, 2019, entered into between the Company and Bank Midwest.

 

In connection with the 2017 Line of 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 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 2017 Line of 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.

 

To further secure the line of credit, the Company granted Bank Midwest a second mortgage on its West Union, Iowa property and Ohio Metal Working Products/Art’s-Way Inc. granted Bank Midwest a mortgage on its property located in Canton, Ohio. The mortgage on the West Union property was released in conjunction with the sale of that property in December 2018. 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. The mortgage on the Dubuque property was released in conjunction with the sale of that property in March 2018. 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.

 

To further secure the 2017 Line of Credit, the Company granted Bank Midwest a second mortgage on its West Union, Iowa property and Ohio Metal Working Products/Art’s-Way Inc. granted Bank Midwest a mortgage on its property located in Canton, Ohio. The 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. 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.

 

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 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 also must receive bank approval for purchases or sales of equipment over $100,000 annually and maintain reasonable salaries and owner compensation. The Company was in compliance with all covenants as of November 30, 2019 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, 2020.

 

 

First National Bank of West Union Term Loan

 

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 loan was 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.

 

On December 14, 2018, the Company repaid this loan in full in connection with the sale of the West Union, Iowa facility.

 

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

 

		November 30, 2019				November 30, 2018
Bank Midwest loan payable in monthly installments of $17,271 including interest at 5.00%, due October 1, 2037		$	2,435,993			$	2,517,510
First National Bank of West Union loan payable in monthly installments of $12,500 including interest at 2.75%, due June 1, 2020			-				232,967
Total term debt		$	2,435,993			$	2,750,477
Less current portion of term debt			85,401				227,459
Term debt, excluding current portion		$	2,350,592			$	2,523,018

 

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

 

Year:		Amount
2020		$	85,401
2021			90,179
2022			94,858
2023			99,781
2024			104,665
2025 and thereafter			1,961,109
Total term debt		$	2,435,993

 

 

(11)	Related Party Transactions

 

During the 2019 and 2018 fiscal years, the Company did not recognize any revenues from transactions with a related party, and no amounts in accounts receivable balances were due from a related party. From time to time, the Company purchases various supplies from related parties, which are companies owned by J. Ward McConnell, Jr., the Vice Chairman of the Company’s Board of Directors. Marc McConnell, the Chairman of the Company’s Board of Directors also serves as President of these companies. J. Ward McConnell, Jr. as a shareholder owning more than 20% of the Company’s outstanding stock, was required to guarantee a portion of the Company’s term debt in accordance with the USDA guarantee on the Company’s term loan. J. Ward McConnell, Jr. is paid a monthly fee for his guarantee. In the 2019 fiscal year, the Company recognized $26,506 of expense for transactions with related parties, compared to $25,773 in 2018. As of November 30, 2019, accrued expenses contained a balance of $1,517 owed to a related party compared to $1,568 on November 30, 2018.

 

 

(12)	Sales-Type Leases

 

The components related to sales-type leases at November 30, 2019 and 2018 are as follows:

 

		November 30, 2019				November 30, 2018
Minimum lease receivable, current		$	162,425			$	159,500
Unearned interest income, current			(14,420	)			(36,445	)
Net investment in sales-type leases, current		$	148,005			$	123,055
Minimum lease receivable, long-term		$	5,851			$	168,277
Unearned interest income, long-term			(69	)			(14,490	)
Net investment in sales-type leases, long-term		$	5,782			$	153,787

 

 

Gross revenue recognized in sales from continuing operations on the consolidated statements of operations from commencement of sales-type leases for the 2018 fiscal year was $426,542. There was no sales activity related to sales-type leases for the 2019 fiscal year.

 

Future minimum lease receipts from sales-type leases are as follows:

 

Year Ending November 30,			Amount
2020				162,425
2021				5,851
Total			$	168,276

 

 

(13)	Employee Benefit Plans

 

The Company sponsors a defined contribution 401(k) savings plan which covers substantially all full-time employees who meet eligibility requirements. Participating employees may contribute as salary reductions any amount of their compensation up to the limit prescribed by the Internal Revenue Code. The Company makes a 25% matching contribution to employees contributing a minimum of 4% of their compensation, up to 1% of eligible compensation. The Company recognized an expense of $36,253 and $31,980 related to this plan during the 2019 and 2018 fiscal years, respectively.

 

(14)	Equity Incentive Plan

 

On November 30, 2019, the Company had one equity incentive plan, the 2011 Plan, which is described below. The compensation cost charged against income was $195,416 and $197,243 for the 2019 and 2018 fiscal years, respectively, for all awards granted under the 2011 Plan during such years. The total income tax deductions for share-based compensation arrangements were $122,022 and $157,529 for the 2019 and 2018 fiscal years, respectively. No compensation cost was capitalized as part of inventory or fixed assets.

 

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 Plan”), subject to approval by the stockholders on or before January 27, 2012. 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.

 

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 common stock annually upon their election to the Board and another 1,000 shares of 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 2019 fiscal year, restricted stock awards of 56,750 shares were issued to various employees, directors, and consultants, which vest over the next three years, restricted stock awards of 9,000 shares were issued to various employees, which vested immediately upon grant, and restricted stock awards of 31,687 shares were issued to directors as part of the compensation policy, which vested immediately upon grant. During 2019 fiscal year, 32,600 shares of restricted stock became unrestricted, 1,400 shares of restricted stock were forfeited, and the Company bought 9,556 shares back as treasury stock from employees to pay payroll tax on vested shares. During the 2018 fiscal year, the Company issued 88,298 shares of restricted stock, 33,150 shares of restricted stock became unrestricted, 22,000 shares of restricted stock were forfeited, and the Company bought 7,332 shares back as treasury stock from employees to pay payroll tax on vested shares

 

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

 

 

The fair value of each option award is estimated on the date of grant using the Black Scholes option-pricing model. 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.

 

		2019				2018
Expected Volatility			-				-
Expected Dividend Yield			-				-
Expected Term (in years)			-				-
Risk-Free Rate			-				-

 

The following is a summary of activity under the plans as of November 30, 2019 and 2018, and changes during the years then ended:

 

2019 Option Activity
Options		Shares				Weighted Average Exercise Price				Weighted Average Remaining Contractual Term				Aggregate Intrinsic Value
Options O/S at beginning of period			59,000			$	6.07
Granted			-			$	-
Exercised			-			$	-								-
Options Expired or Forfeited			-			$	-
Options O/S at end of period			59,000			$	6.07				2.86				-
Options Exercisable at end of the period			59,000			$	6.07				2.86				-

   

2018 Option Activity
Options		Shares				Weighted Average Exercise Price				Weighted Average Remaining Contractual Term				Aggregate Intrinsic Value
Options O/S at beginning of period			96,000			$	7.77
Granted			-			$	-
Exercised			-			$	-								-
Options Expired or Forfeited			(37,000	)		$	10.37
Options O/S at end of period			59,000			$	6.07				3.86				-
Options Exercisable at end of the period			59,000			$	6.07				3.86				-

  

No options were granted during the 2019 or 2018 fiscal years. As of both November 30, 2019 and November 30, 2018, there were no non-vested options. As of November 30, 2019, there was no unrecognized compensation cost related to non-vested share-based compensation arrangements under the plan related to stock options.

 

No options vested during the 2019 or 2018 fiscal years.

 

The Company received no cash from the exercise of options during the 2019 or 2018 fiscal years.

 

 

(15)	Income Taxes

 

Total income tax expense (benefit) for the 2019 and 2018 fiscal years consists of the following:

 

		November 30, 2019				November 30, 2018
Current Expense (benefit)		$	4,392			$	127,673
Deferred expense (benefit)			(353,626	)			(654,413	)
		$	(349,234	)		$	(526,740	)

 

 

The reconciliation of the statutory Federal income tax rate is as follows:

 

		November 30, 2019				November 30, 2018
Statutory federal income tax rate			21.0	%			21.0	%
Valuation allowance on foreign net operating loss			-				(1.4	)
Revaluation of deferred tax asset			-				(7.6	)
Permanent Differences and Other			(1.3	)			1.5
			19.7	%			13.5	%

 

Tax effects of temporary differences that give rise to significant portions of the deferred tax assets (liabilities) at November 30, 2019 and 2018 are presented as approximate amounts below:

 

		November 30
		2018				2018
Current deferred tax assets (liabilities):
Accrued expenses		$	100,000			$	59,000
Inventory capitalization			21,000				73,000
NOL and tax credit carryforward			1,182,000				826,000
Asset reserves			621,000				609,000
Total current deferred tax assets		$	1,924,000			$	1,567,000
Non-current deferred tax assets
Property, plant, and equipment		$	(138,000	)		$	(135,000	)
Total non-current deferred tax assets (liabilities)		$	(138,000	)		$	(135,000	)
Net deferred taxes		$	1,786,000			$	1,432,000

 

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 dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company’s net operating loss amounting to approximately $5,033,000 and tax credit carryforward amounting to approximately $109,000 for its U.S. operations expire on November 30, 2036, 2037, 2038 and 2039. Management believes that the Company will be able to utilize the U.S. net operating losses and credits before their expiration.

 

On December 22, 2017, the Tax Cuts and Job Act of 2017 was enacted, which reduced the top corporate income tax rate from 35% to 21%. The application of this new rate was recognized in the first quarter of the 2018 fiscal year. Tax expense from continuing operations includes an adjustment of approximately $298,000 related to the revaluation of the Company’s net deferred tax asset at the new statutory rate.

 

 

(16)	Disclosures About the Fair Value of Financial Instruments

 

The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties. At November 30, 2019, and November 30, 2018, the carrying amount approximated fair value for cash, accounts receivable, net investment in sales-type leases, accounts payable, notes payable to bank, and other current and long-term liabilities. The carrying amounts of current assets and liabilities approximate fair value because of the short maturity of these instruments. The fair value of the net investment in sales-type leases also approximates recorded value as that is based on discounting future cash flows at rates implicit in the lease. The rates implicit in the lease do not materially differ from current market rates. The fair value of the Company’s installment term loans payable also approximates recorded value because the interest rates charged under the loan terms are not substantially different from current interest rates.

 

 

(17)	Litigation and Contingencies

 

Various legal actions and claims that arise in the normal course of business are pending against the Company. In the opinion of management adequate provisions have been made in the accompanying financial statements for all pending legal actions and other claims.

 

 

 

(18)	Segment Information

 

There are three reportable segments: Agricultural Products, Modular Buildings, and Tools. The Agricultural Products segment fabricates and sells farming products as well as replacement parts for these products in the United States and worldwide. The Modular Buildings segment produces modular buildings for animal containment and various laboratory uses. 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.

 

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 2 above, “Discontinued Operations.”

 

		Twelve Months Ended November 30, 2019
		Agricultural Products				Modular Buildings				Tools				Consolidated
Revenue from external customers		$	13,508,000			$	7,260,000			$	2,121,000			$	22,889,000
Income (loss) from operations		$	(1,599,000	)		$	208,000			$	(106,000	)		$	(1,497,000	)
Income (loss) before tax		$	(1,843,000	)		$	220,000			$	(146,000	)		$	(1,769,000	)
Total Assets		$	13,169,000			$	3,584,000			$	2,594,000			$	19,347,000
Capital expenditures		$	257,000			$	147,000			$	43,000			$	447,000
Depreciation & Amortization		$	503,000			$	372,000			$	129,000			$	1,004,000

 

		Twelve Months Ended November 30, 2018
		Agricultural Products				Modular Buildings				Tools				Consolidated
Revenue from external customers		$	14,344,000			$	3,109,000			$	2,274,000			$	19,727,000
Income (loss) from operations		$	(2,462,000	)		$	(566,000	)		$	(67,000	)		$	(3,095,000	)
Income (loss) before tax		$	(3,206,000	)		$	(530,000	)		$	(111,000	)		$	(3,847,000	)
Total Assets		$	15,458,000			$	3,401,000			$	2,466,000			$	21,325,000
Capital expenditures		$	321,000			$	4,000			$	110,000			$	435,000
Depreciation & Amortization		$	516,000			$	317,000			$	128,000			$	961,000

 

 

(19)	Subsequent Events

 

Management evaluated all other activity of the Company and concluded that no subsequent events have occurred that would require recognition in the consolidated financial statements or disclosure in the notes to the consolidated financial statements.