Art’s-Way(ARTW) - 2018 Q4 - Annual Report

Revenue Segments - Agricultural Products segment accounted for 72.7% of net revenue in the 2018 fiscal year, down from 74.4% in 2017[15] - Modular Buildings segment contributed 15.8% to net revenue in 2018, an increase from 13.0% in 2017[16] - Tools segment represented 11.5% of net revenue in 2018, a decrease from 12.6% in 2017[17] - International sales accounted for 7.7% of consolidated sales during the 2018 fiscal year[27] - Agricultural Products segment sales revenue decreased by 6.9% to $14,344,000 in 2018 from $15,407,000 in 2017, attributed to the termination of a sales relationship and liquidation of Canadian operations[78] - Modular Buildings segment net sales increased by 15.1% to $3,109,000 in 2018 from $2,700,000 in 2017, driven by increased lease activity[80] - Tools segment net sales decreased by 12.8% to $2,274,000 in 2018 from $2,608,000 in 2017, primarily due to the loss of a large volume customer[81] Financial Performance - The company reported a net loss from continuing operations of $(3,336,000) for the 2018 fiscal year, while total liabilities decreased by $100,000 compared to the previous year[63] - Consolidated net sales for continuing operations decreased by 4.8% to $19,727,000 in the 2018 fiscal year from $20,715,000 in 2017[74] - Consolidated gross profit as a percentage of net sales decreased to 17.8% in 2018 from 19.7% in 2017, primarily due to increased material costs[74] - Operating expenses increased by 13.8% to $6,607,000 in 2018 from $5,804,000 in 2017, largely due to one-time non-cash expenses[74] - Consolidated operating loss from continuing operations was $(3,095,000) in 2018 compared to $(1,722,000) in 2017[75] - Net loss for the year ended November 30, 2018, was $3,386,902 compared to a net loss of $1,637,081 in 2017, representing an increase in loss of approximately 106.0%[104] Assets and Liabilities - As of November 30, 2018, the company had $1,494,470 available on its line of credit, indicating a stable financial position despite recent losses[64] - Current assets decreased from $14,432,771 in 2017 to $12,145,158 in 2018, a decline of approximately 15.9%[91] - Working capital fell from $9,383,015 in 2017 to $6,379,777 in 2018, representing a decrease of about 32.0%[91] - Total liabilities decreased from $8,388,799 in 2017 to $8,288,399 in 2018, a reduction of approximately 1.2%[99] - The total term debt as of November 30, 2018, was $2,750,477, down from $3,569,491 in the previous year[181] Cash Flow and Financing - The company reported a net cash used in operating activities of $1,118,612 for the year ended November 30, 2018, compared to cash provided of $747,399 in the prior year[108] - The company had a net cash provided by financing activities of $202,677 in 2018, a decrease from a net cash used of $1,169,518 in 2017[108] - The company expects to rely on cash from financing activities to meet liquidity and capital expenditure needs in the near future[93] Strategic Initiatives - The company maintains a distribution network of approximately 1,100 independent dealers in the U.S. and Canada[26] - The Agricultural Products segment has made strategic acquisitions to strengthen its dealer base and enhance brand recognition[34] - The company expects to continue facing competition in its Modular Buildings segment from both existing competitors and new entrants, but believes its ability to deliver high-tech modular buildings quickly gives it a competitive edge[36] - The company maintains manufacturing rights on several products, which cover unique aspects of design, and believes these rights help secure new customer relationships[41] Tax and Regulatory Matters - Effective tax rate for continuing operations decreased to 13.3% in 2018 from 23.6% in 2017 due to the Tax Cuts and Job Act of 2017[77] - The current income tax expense for 2018 was $127,673, significantly higher than $15,360 in 2017[198] - The company recorded a deferred tax asset reduction of approximately $298,000 due to the Tax Cuts and Jobs Act of 2017[203] Research and Development - Research and development costs for the fiscal years 2018 and 2017 were approximately $178,000 and $183,000, respectively[134] - Advertising costs for the fiscal years 2018 and 2017 were approximately $312,000 and $356,000, respectively[135] Impairments and Adjustments - The Company recorded an impairment of $375,000 in the 2018 fiscal year related to the acquisition of the Miller Pro product line, compared to $0 in the 2017 fiscal year[123] - The company experienced a significant impairment of assets amounting to $591,268 in 2018, compared to $70,000 in 2017[108] - The Company recorded an impairment of approximately $289,000 for real estate assets of the discontinued Pressurized Vessels segment, reducing the value to $1,425,000[151] Employee and Compensation Matters - The company employed approximately 90 employees in its Agricultural Products segment and 18 in its Tools segment as of November 30, 2018[44] - Stock-based compensation increased to $197,243 in 2018 from $113,039 in 2017[108] - The Company sponsors a 401(k) savings plan, with recognized expenses of $31,980 in 2018 and $34,523 in 2017[187] Future Outlook - The Company will adopt ASU 2014-09 for its 2019 fiscal year, which changes revenue recognition practices[144] - The Company will adopt ASU 2014-09 using the modified retrospective method, with no material difference expected in revenue reporting compared to ASC 605[148]