ARTS WAY MANUFACTURING CO INC (0000007623) (Filer)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

or

Commission File No. 000-05131

ART’S-WAY MANUFACTURING CO., INC.

(Exact name of registrant as specified in its charter)

(712) 208-8467

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of common shares outstanding as of October 2, 2026: 5,206,386

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Art’s-Way Manufacturing Co., Inc.

Index

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

ART’S-WAY MANUFACTURING CO., INC.

Condensed Consolidated Balance Sheets

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ART’S-WAY MANUFACTURING CO., INC.

Condensed Consolidated Statements of Operations

(Unaudited)

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Notes to Unaudited Condensed Consolidated Financial Statements

Unless otherwise specified, as used in this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” “Art’s-Way,” and the “Company” refer to Art’s-Way Manufacturing Co., Inc., a Delaware corporation headquartered in Armstrong, Iowa, and its wholly owned subsidiaries.

The Company began operations as a farm equipment manufacturer in 1956. Since that time, it has become a national manufacturer of agricultural equipment and modular buildings. Its principal manufacturing plant is located in Armstrong, Iowa.

The Company has organized its business into two operating segments. Management separately evaluates the financial results of each segment because each is a strategic business unit offering different products and requiring different technology and marketing strategies. The Agricultural Products segment manufactures and sells farm equipment and related replacement parts under the Art’s-Way Manufacturing label and private labels. The Modular Buildings segment manufactures and installs modular buildings for animal containment and various laboratory uses under the Art's-Way Scientific name.

Statement Presentation

The foregoing condensed consolidated financial statements of the Company are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the Company’s financial position and operating results for the interim periods. The condensed consolidated financial statements should be read in conjunction with the condensed financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2025. The results of operations for the three and nine months ended August 31, 2026 are not necessarily indicative of the results to be expected for the fiscal year ending November 30, 2026.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the three and nine months ended August 31, 2026. Actual results could differ from those estimates.

Allowance for Credit Losses

The Company uses aging categories to estimate expected credit losses on trade receivables. The Company considers the following factors in its analysis: historical loss experience, forward-looking macroeconomic factors, company credit risk including previous delinquencies, disputed amounts, and the intent and ability to pay. The Company's typical credit terms are Net 30, however, it also offers terms up to 360 days on floor plan units. The Company considers trade receivables greater than 30 days past due, but is not required to disclose past due receivables with an original term less than one year. The Company performs additional analysis monthly on amounts over 90 days past due to determine collectability. The Company has assigned expected credit loss percentages based on where the asset falls in the aging schedule. The Company has considered the current interest rate environment and the overall health of the agricultural commodity market and believes its method of estimating historical loss percentage to be an adequate estimate of actual expected losses. 

The Company carries contract assets related to its Modular Buildings segment in the form of costs and profit in excess of billings. These contract assets are typically converted to trade receivables in 30 to 90 days, depending on contract terms, and are due 30 days or fewer from the billing date. Because these contract assets are typically converted to receivables and collected in less than a year, consideration for these contract assets has been included in the expected credit loss model for trade receivables.

Employee Retention Credit

The Company qualified for federal government assistance through Employee Retention Credit ("ERC") provisions of the Consolidated Appropriations Act of 2021. The purpose of the Employee Retention Credit was to encourage employers to keep employees on the payroll, even if they were not working during the covered period because of the coronavirus outbreak. The Company filed amended tax returns with the Internal Revenue Service ("IRS") in October of 2023 in the amount of $1,620,103; of which $798,836 was related to the second quarter of 2021 and $821,267 was related to the third quarter of 2021. Because of the IRS moratorium in place on ERC refunds while filing, the Company did not record a receivable at the time of filing. The Company recorded the $1,620,103 of ERC refund in other income on the consolidated statement of operations and also incurred $405,026 of consulting fees for preparation of the credits and a tax study, which was recorded in other expense on the consolidated statement of operations. The Company also received $246,108 of interest income on the credits that was recorded in other income on the consolidated statement of operations.

A summary of the amounts recorded on each operating segment related to the ERC refunds during the nine months ended August 31, 2025 is as follows:

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Recently Issued Accounting Pronouncements

Accounting Pronouncements Not Yet Adopted

In October 2023, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2023-06, Disclosure Improvements (“ASU 2023-06”), to clarify or improve disclosure and presentation requirements of a variety of topics and align the requirements in the FASB ASC with the SEC’s regulations. The guidance in ASU 2023-06 is required to be applied prospectively and the GAAP requirements will be effective when the removal of the related SEC disclosure requirements is effective. If the SEC does not act to remove its related requirements by June 30, 2027, any related FASB amendments will be removed from the Accounting Standards Codification and will not be effective. The Company does not anticipate that the adoption of ASU 2023-06 will have a material impact on the consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures". The standard requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. The requirements will be effective for annual periods beginning after December 15, 2024. The guidance will be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted. The Company is not expecting a significant impact to its financial statement disclosures.

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), and in January 2025, the FASB issued ASU 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date (“ASU 2025-01”). ASU 2024-03 requires additional disclosure of the nature of expenses included in the income statement as well as disclosures about specific types of expenses included in the expense captions presented in the income statement. ASU 2024-03, as clarified by ASU 2025-01, is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact these standards will have on its financial statements.

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.

The Company offered floorplan terms in its Agricultural Products segment during its fall of 2024 and 2025 early order programs to incentivize customers to stock farm equipment on their lots for fiscal 2025 and fiscal 2026. Floorplan terms allow customers to pay the Company at the earliest of retail date or up to 360 days. This program can have an effect on the timing of the Company’s cash flows compared with historical cash flows.

On August 31, 2026, the Company had approximately $665,000 in receivables on the floorplan program with a due date greater than 30 days compared to $274,000 on August 31, 2025.

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Receivables are shown net of allowances for expected credit losses. Expected losses are recorded in administrative expense.

The activity related to expected credit losses for the three and nine months ended August 31, 2026 and 2025 was as follows:

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

The amount of revenue recognized in the first nine months of fiscal 2026 that was included in a contract liability on  November 30, 2025 was approximately $422,000 compared to $255,000 in the same period of fiscal 2025. The beginning contract receivables, assets and liabilities on December 1, 2024 were approximately $2,373,000, $213,000 and $2,110,000, respectively.

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Net income (loss) per share of common stock has been computed on the basis of the weighted average number of common shares outstanding.

Net income (loss) per share has been computed based on the following as of  August 31, 2026 and August 31, 2025:

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Major classes of inventory are:

Major components of accrued expenses are:

Major components of assets held for lease are:

There were $3,000 and $6,000 of rents recognized from assets held for lease included in sales on the Condensed Consolidated Statements of Operations during the three and nine months ended August 31, 2026, compared to $3,000 and $75,000 for the three and nine months ended August 31, 2025, respectively.

The future minimum lease receipts for twelve month periods ending November 30:

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. The accrued warranty balance is included in accrued expenses as shown in Note 8 “Accrued Expenses.” Changes in the Company’s product warranty liability for the three and nine months ended August 31, 2026 and  August 31, 2025 are as follows:

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Bank Midwest Revolving Lines of Credit and Term Loans

The Company maintains a $4,000,000 revolving line of credit (the "Line of Credit”) with Bank Midwest. On August 31, 2026, the balance of the Line of Credit was $3,645,000 with $355,000 remaining available. The Line of Credit is subject to a borrowing base, which is an amount equal to 75% of accounts receivable balances (discounted for aged receivables), plus 50% of net inventory, less any outstanding loan balance on the Line of Credit. On August 31, 2026, the Line of Credit was not limited by the borrowing base calculation. Any unpaid principal amount borrowed on the Line of Credit accrues interest at a floating rate per annum equal to the 1-month SOFR (the "index") rate plus 2.600 percentage points over the index that is published by the CME Group Benchmark Administration on its website each business day. The interest rate floor is set at 5.00% per annum and the interest rate on September 18, 2026 was 6.42% per annum. The Line of Credit was most recently renewed on March 19, 2026 with a maturity date of  March 30, 2027 and requires monthly interest-only payments. The Line of Credit is governed by the terms of a Promissory Note, dated March 19, 2026, entered into between the Company and Bank Midwest.

On June 22, 2026, the Company entered into a credit facility (the “Credit Facility”) with Bank Midwest, consisting of a $500,000 revolving line of credit (the “Reserve Line of Credit”) which is governed by a Promissory Note executed and delivered by the Company on such date. The Reserve Line of Credit is secondary to the Company’s Line of Credit and will be utilized upon the Line of Credit reaching capacity. The Reserve Line of Credit matures on March 30, 2027 with monthly interest-only payments at a rate of 2.600% above the 1-month SOFR index, which matches the Line of Credit's rate. The Reserve Line of Credit was activated to pay large equipment deposits on a new fiberoptic laser and crane system for the Agricultural Products Segment. 

The Company carries a $2,600,000 term loan with Bank Midwest due October 1, 2037 (the “Term Loan”). The Term Loan accrues interest at a rate of 6.25%, which was most recently updated with a change of terms agreement on March 19, 2026. The interest rate may only be adjusted by Bank Midwest once every five years. Monthly payments of $19,648 in principal and interest are required on the Term Loan. The Term 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 Term Loan, in an amount equal to their stock ownership percentage. McConnell Legacy Investments, which owns more than 20% of the Company’s outstanding stock, is guaranteeing approximately 38% of the Term Loan, for an annual fee of 2% of the personally guaranteed amount. The initial guarantee fee is being amortized over the life of the Term Loan, and the annual fees and personally guaranteed amounts are expensed monthly. The Term Loan is governed by the terms of a Promissory Note, dated September 28, 2017, entered into between the Company and Bank Midwest.

The Company carries a second term loan with Bank Midwest in the amount of $516,971 (the “Roof Loan”) to replace portions of the roof on its Armstrong facility since October 1, 2025. The Roof Loan accrues interest at a rate of 6.25% with a payback period of 10 years with the latest interest rate update coming on March 19, 2026 in a change of terms agreement. The interest rate will remain fixed until April 5, 2031 and will then be repriced to the 5-Year Treasury Index plus a margin of 3.25% . Monthly payments of $6,102 in principal and interest are required on the Term Loan beginning on November 5, 2025. 

On October 5, 2026 the Company entered into a third term loan with Bank Midwest in the amount of $956,000 (the "Laser Loan") to fund a new fiberoptic laser and crane system for its Agricultural Products segment. The Laser Loan accrues at a rate of 6.65% for the first 60 payments with the  first payment due October 30, 2026. The Laser Loan thereafter accrues interest at the current  1 month SOFR plus 3.1% as published by the CME Group Benchmark Administration for the remaining 120 payments. The initial monthly payment is $8,456. The new fiberoptic laser replaces a CO ² laser that was purchased by the Company in 2007.

In connection with the Line of Credit, the Company and Art’s-Way Scientific, 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. Art’s-Way Scientific, Inc. also agreed to guarantee the obligations of the Company pursuant to the Line of Credit, as set forth in a Commercial Guaranty, dated September 28, 2017. 

The Term Loan and Roof Loan are 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 subsidiary (as guarantor pursuant to the Commercial Guaranty) 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 note. 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 each  November 30. The terms of the Bank Midwest loan agreements require the Company to maintain a minimum of $4,000,000 of monthly working capital. 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 individual purchases or sales of equipment over $50,000 and maintain reasonable salaries and owner compensation. The Company was in compliance with all covenants of Bank Midwest loans as of November 30, 2025. The next measurement date is November 30, 2026 for all covenants except the monthly working capital requirement.

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SBA Economic Injury Disaster Loans

In June of 2020, the Company executed the standard loan documents required for securing loans offered by the U.S. Small Business Administration under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on the Company’s business. One outstanding loan was executed on June 18, 2020 with a principal amount of $150,000, with a second loan being executed on June 24, 2020 with a principal amount of $150,000. Proceeds from these EIDLs were used for working capital purposes. Interest accrues at the rate of 3.75% per annum and will accrue from the date of inception. Installment payments, including principal and interest, were due monthly beginning December 18, 2022 and December 24, 2022 (thirty months from the date of the EIDLs) in the amount of $731 per EIDL. The balance of principal and interest is payable 30 years from the date of the EIDL. The EIDLs are secured by a security interest on all of the Company’s assets subordinate to Bank Midwest’s security interest. Both EIDLs are governed by the terms of a separate Promissory Note, dated  June 18, 2020 and  June 24, 2020, as applicable, entered into by the Company or the applicable subsidiary.

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

A summary of the minimum maturities of term debt follows for the twelve month periods ending August 31:

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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.

The Company has net operating losses and tax credits that are expected to offset any 2026 fiscal year tax liability and does not expect to have significant cash tax expense in the near future.

During the three and nine months ended August 31, 2026, and August 31, 2025, 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 in which Marc McConnell, the Company's chairman and principal executive officer, has an ownership interest and also serves as President. McConnell Legacy Investments is paid a monthly fee to guarantee a portion of the Company’s term debt in accordance with the USDA guarantee obtained on the Company’s term debt. In the three and nine months ended August 31, 2026, the Company recognized $3,073 and $9,188 of expense for transactions with related parties compared to $3,267 and $9,796 for the three and nine months ended August 31, 2025. As of August 31, 2026, accrued expenses contained a balance of $1,003 owed to a related party compared to $1,094 on August 31, 2025.

The components of sales-type leases as a lessor on the Condensed Consolidated Balance Sheets on August 31, 2026 were as follows:

The future minimum lease receipts for the twelve month periods ended November 30 are as follows:

The components of finance leases as a lessee on the Condensed Consolidated Balance Sheets on August 31, 2026 and November 30, 2025 were as follows:

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On February 25, 2020, the Board of Directors of the Company (the “Board”) authorized and approved the Art’s-Way Manufacturing Co., Inc. 2020 Equity Incentive Plan (the “2020 Plan”). The 2020 Plan was approved by the stockholders on April 30, 2020. The 2020 Plan added an additional 500,000 shares to the number of shares reserved for issuance pursuant to equity awards. Awards to directors and executive officers under the 2020 Plan are governed by the forms of agreement approved by the Board. Stock options or other awards granted prior to February 25, 2020 are governed by the applicable prior plan and the forms of agreement adopted thereunder. At the April 21, 2026 annual meeting, shareholders approved an amendment to the 2020 plan reserving an additional 500,000 shares for equity awards.

The 2020 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 has approved a director compensation policy pursuant to which directors are automatically granted restricted stock awards of 3,000 shares of fully vested common stock annually or initially 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.

Shares issued under the 2020 Plan for the three and nine month periods ended  August 31, 2026 and 2025 are as follows:

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. On  August 31, 2026 and November 30, 2025, the carrying amount approximated fair value for cash, receivables, accounts payable, notes payable to bank, finance lease liabilities 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 finance lease liabilities also approximate recorded value, as its measurement 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 term loans payable also approximates recorded value because the interest rates do not substantially differ from current interest rates the Company could obtain under similar terms.

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In accordance with ASC 280, “Segment Reporting," the Company’s chief operating decision maker, or CODM, has been identified as its President, Chief Executive Officer and Chairman. The CODM reviews operating results to make decisions about allocating resources and assessing performance for the entire Company and utilizes gross profit and income from operations to evaluate segment performance and allocate resources. The Company's selling, general and administrative expenses and engineering expenses are charged to each segment as incurred by each reportable segment. The Company allocates a small portion of corporate expenses from the Agricultural Products segment to the Modular Buildings segment monthly for administrative support services provided.

The Company has two reportable segments: Agricultural Products and Modular Buildings. The Agricultural Products segment manufactures and sells farm equipment and related replacement parts under the Art’s-Way Manufacturing label. The Modular Buildings segment manufactures and installs modular buildings for various uses, commonly animal containment and research laboratories under the Art's Way Scientific and Evolution Modular labels. 

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, exclusive of nonrecurring gains and losses.

Approximate financial information with respect to the reportable segments is as follows.

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Management evaluated all other activity of the Company and concluded that no subsequent events have occurred that would require recognition in the condensed consolidated financial statements with the exception of the Laser Loan as discussed in Note 11 - Loan and Credit Agreements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q (this “report”) and the audited consolidated financial statements and related notes thereto included in Part II, Item 8, “Financial Statements and Supplementary Data,” as well as Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our Annual Report on Form 10-K for the fiscal year ended November 30, 2025. Some of the statements in this report may be forward-looking statements that reflect our current view on future events, future business, industry and other conditions, our future performance, and our plans and expectations for future operations and actions. In some cases you can identify forward-looking statements by the use of words such as “may,” “should,” “anticipate,” “believe,” “expect,” “plan,” “future,” “intend,” “could,” “estimate,” “predict,” “hope,” “potential,” “continue,” “foresee," "opportunity," or the negative of these terms or other similar expressions. Many of these forward-looking statements are located in this report under Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but they may appear in other sections as well. Forward-looking statements in this report generally relate to: (i) our expectations with respect to order backlog, future demand for products, expected product mix and resulting sales; (ii) our beliefs regarding the sufficiency of working capital and cash flows; (iii) our expectation that we will continue to be able to renew or obtain financing on reasonable terms when necessary as well as our continued positive relationship with our creditors and lenders; (iv) our beliefs regarding production capabilities; (v) our intentions and beliefs relating to our costs, business strategies, and future performance, including without limitation, the impact of cost cutting measures, process improvement measures and new product development; (vi) our beliefs that normalizing dealer equipment stock levels may positively impact future demand for our agricultural products (vii) our beliefs regarding our early order program providing a picture of future demand; (viii) our expected financial results, including without limitation, our expected results for the Modular Buildings and Agricultural Products segments; and (ix) our expectations concerning our primary capital and cash flow needs.

You should read this report thoroughly with the understanding that our actual results may differ materially from those set forth in the forward-looking statements for many reasons, including events beyond our control and assumptions that prove to be inaccurate or unfounded. We cannot provide any assurance with respect to our future performance or results. Our actual results or actions could and likely will differ materially from those anticipated in the forward-looking statements for many reasons, including but not limited to: (i) the impact of changing credit markets on our ability to continue to obtain financing on reasonable terms; (ii) our ability to repay current debt, continue to meet debt obligations and comply with financial covenants; (iii) the effect of inflation as well as general economic conditions, including consumer and governmental spending, on the demand for our products and the cost of our supplies and materials; (iv) impacts caused by fluctuating commodity prices and fluctuating farm income; (v) fluctuations in seasonal demand and our production cycle; (vi) the ability of our suppliers to meet our demands for raw materials and component parts; (vii) fluctuations in the price of raw materials, especially steel and the impact of U.S. tariff policy and retaliatory tariffs on our business; (viii) our ability to predict and meet the demands of each market in which our segments operate; (ix) the impact of future interest rate changes on our business and the demand of our products, or interest rate changes may be different than we currently expect; and (x) other factors described from time to time in our Securities and Exchange Commission filings. We do not intend to update the forward-looking statements contained in this report other than as required by law. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. You should read this report and the documents that we reference in this report and have filed as exhibits completely and with the understanding that our actual future results may be materially different from what we currently expect. We qualify all of our forward-looking statements by these cautionary statements.

Critical Accounting Policies

Our critical accounting policies involving the more significant judgments and assumptions used in the preparation of our financial statements as of August 31, 2026 remain unchanged from November 30, 2025. Disclosure of these critical accounting policies is incorporated by reference from Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended November 30, 2025.

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Results of Operations

Net Sales and Cost of Sales

Our consolidated corporate sales from continuing operations for the three- and nine-month periods ended August 31, 2026 were $5,616,000 and $20,109,000, respectively, compared to $6,432,000  and $17,910,000, respectively, during the same periods in fiscal 2025. Our sales decreased $816,000, or 12.7% for the three months ended August 31, 2026 and increased $2,199,000, or 12.3% for the nine months ended August 31, 2026 compared to same periods in fiscal 2025. Consolidated gross margin for the three and nine months ended August 31, 2026 was 29.6% and 27.9% compared to 27.5% and 29.7% for the same periods in fiscal 2025. 

Sales in our Agricultural Products segment during the third quarter of fiscal 2026 were $3,065,000 compared to $2,983,000 during the same period of fiscal 2025, an increase of $82,000, or 2.7%. Sales for the nine months ended August 31, 2026 were $11,193,000 compared to $9,956,000 during the same period of fiscal 2025, an increase of $1,237,000, or 12.4%. The overall outlook for the agricultural sector remains bleak with modest row crop prices and rising input costs. Despite this, our sales have increased compared to fiscal 2025 as heightened dealer inventories from previous years have returned to normal stocking levels. So far, fiscal 2026 has seen increased demand for grinder mixers, manure spreaders and bale processors from fiscal 2025, which we attribute mostly to strong livestock prices. Our sugar beet equipment demand is down noticeably from prior years, as sugar beet prices declined in the first fiscal quarter of 2026. We believe this softening demand was mitigated by the introduction of our new ClearView beet head in twelve and eight row configurations this year. We strategically deployed an experienced product specialist into our primary beet territory beginning in April 2026 to drive new customer activity and further technological development. We are still carrying elevated whole good inventory levels in beet and manure spreading equipment compared to prior years to put us in position to react to spikes in demand. We will build up grinder mixer inventory in the event we are able to work through our backlog, but have yet to get ahead of demand for these products. Gross margin for our Agricultural Products segment for the three-month period ended August 31, 2026 was 26.7% compared to 18.3% for the same period in fiscal 2025. Gross margin for the nine months ended August 31, 2026 was 28.4% compared to 24.4% for the same period of fiscal 2025. The margin increase for fiscal 2026 is due primarily to increased sales, which resulted in better absorption of fixed manufacturing costs. Our grinder mixer sales are up approximately $1,523,000 year-on-year. Steel prices are up over 31% from our fiscal year end and rising oil prices may challenge our margins for the rest of fiscal 2026.

Our third fiscal quarter sales in our Modular Buildings segment were $2,551,000 compared to $3,449,000 for the same period in fiscal 2025, a decrease of $898,000, or 26.0%. Our sales for the nine months ended August 31, 2026 were $8,916,000 compared to $7,954,000 for the same period of fiscal 2025, an increase of $962,000, or 12.1%. While sales for the nine months ended August 31, 2026 were up year on year, our third fiscal quarter had a lull in progress on contracts as we concluded on-site projects and completed design work for expected construction contracts that eventually became backlog. Current backlog is the highest in the history of this segment and is expected to carry us through the end of fiscal 2027. Gross margin in the Modular Buildings segment for the three- and nine-month periods ended August 31, 2026 was 33.0% and 27.2%, respectively, compared to 35.4% and 36.4% for the same periods in fiscal 2025. Our margin decrease for the first nine months of fiscal 2026 is due to the selling of a warrantied agriculture modular building at cost, project overages on site work while completing current contracts and contingencies that became profits in the first quarter of fiscal 2025 that was not repeated in the first nine months of fiscal 2026.

Expenses

Consolidated selling expenses from continuing operations for the three and nine months ended August 31, 2026 were $424,000, and $1,294,000, respectively, compared to $351,000 and $1,137,000 for the same periods in fiscal 2025. The increase in selling expenses is due to increased commissions and royalties from increased sales along with additional targeted advertising campaign expenditures in fiscal 2026. Selling expenses as a percentage of sales were 7.5% and 6.4% for the three and nine months ended August 31, 2026, respectively, compared to 5.5% and 6.3% for the same periods of fiscal 2025. 

Consolidated engineering expenses from continuing operations were $99,000 for the three months ended August 31, 2026 compared to $87,000 for the same period in fiscal 2025. Consolidated engineering expenses from continuing operations were $300,000 for the nine months ended August 31, 2026 compared to $257,000 for the same period in fiscal 2025. The increase in engineering expenses is related to additional research and development costs incurred in 2026 to make product changes that we anticipate could drive more sugar beet product demand. Engineering expenses as a percentage of sales were 1.8% and 1.5% for the three and nine months ended August 31, 2026, respectively, compared to 1.4% and for the same periods in fiscal 2025.

Consolidated administrative expenses from continuing operations for the three months ended August 31, 2026 were $1,208,000 compared to $983,000  for the same period in fiscal 2025. Consolidated administrative expenses from continuing operations for the nine months ended August 31, 2026 were $3,463,000 compared to $3,071,000 for the same period in fiscal 2025. Administrative expenses as a percentage of sales were 21.5% and 17.2% for the three and nine months ended August 31, 2026, respectively, compared to 15.3% and 17.1% for the same periods in fiscal 2025. Administrative fees are up for the fiscal quarter and year due to professional fees, pending litigation for which we are the plantiff and early retirement paid out in the third fiscal quarter. We do not anticipate replacing the early retirees unless an agricultural market upticks, so we anticipate savings from offering early retirement over the next 12 months.

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Net income (loss)

Consolidated net loss was $140,000 for the three-month period ended August 31, 2026, compared to net income of $254,000 for the same period in fiscal 2025. Consolidated net income was $230,000 for the nine-month period ended August 31, 2026, compared to net income of $1,680,000 for the same period in fiscal 2025. In the nine months ended August 31, 2025 we received approximately $1,154,000 of Employee Retention Credit refunds net of preparation fees and tax, which is the largest difference in comparability of net income from fiscal 2025 to fiscal 2026. Despite the increase in net sales, there are other factors decreasing net income including: steel prices (up over 39% since year end), increased legal expenses, increase in advertising footprint and early retirement offering. While our Agricultural Products segment was not profitable for the nine months ended August 31, 2025, we are continuing to make operational improvements including the acquisition of a new laser, brake press and roller to prepare for the next uptick in the ag market. We believe the acquisition of this equipment will greatly improve our operational capacity, efficiency and enhance quality. Our Modular Buildings segment continues to have strong profitability and is carrying historic backlog.

Order Backlog

The consolidated order backlog net of discounts as of October 6, 2026 was $19,075,000 compared to $3,595,000 as of October 6, 2025, a 430.6% increase. The order backlog in our Agricultural Products segment was $1,643,000 as of  October 6, 2026 compared to $848,000 in fiscal 2025, a 93.8% increase. Record cattle prices continue to fuel demand for our grinder mixers and manure spreaders as we close out fiscal 2026. Demand is improved from the previous year but overall it is not a strong farm economy. It will take rising row crop prices to increase our demand in this segment. The backlog for the Modular Buildings segment was $17,432,000 as of October 6, 2026, compared to $2,747,000 in fiscal 2025, a 534.6% increase. The Modular Buildings segment secured two significant contracts in the third fiscal quarter of 2026 that we expect will drive strong revenues through fiscal 2027. Our order backlog is not necessarily indicative of future revenue to be generated from such orders due to the possibility of order cancellations and dealer discount arrangements we may enter into from time to time.

Liquidity and Capital Resources

Our primary source of funds for the nine months ended August 31, 2026 was cash generated by operating activities including profitability and reduction of inventory. While our billings in excess of costs indicate strong cash generation, most of that is still in accounts receivable as indicated by a mostly offsetting cash utilization amount. We expect the collection of accounts receivable including progress on construction contracts and the reduction of inventory to be primary sources of cash for the remainder of fiscal 2026 as we work through on hand manure spreader and beet harvesting equipment. We expect our primary cash needs for the remainder of the fiscal year to be tied to operating expenses, acquisition of capital equipment that improves operations, and the retirement of debt. 

As of August 31, 2026, our revolving credit line (the "Line of Credit") had an outstanding principal balance of $3,645,000. We renewed our revolving line of credit with Bank Midwest on March 19, 2026, with a scheduled maturity date of March 30, 2027. In our most recent renewal, we negotiated an interest rate 50 basis points lower than our previous line of credit tied to SOFR to recognize expected interest rate decreases sooner. On June 22, 2026, we entered into a credit facility consisting of a $500,000 revolving line of credit (the “Reserve Line of Credit”). The Reserve Line of Credit is secondary to the Line of Credit and will be utilized upon the Line of Credit reaching capacity. The Reserve Line of Credit was activated in June 2026 to pay large equipment deposits on a new fiberoptic laser and crane system and has since been paid off with operational cash flow. The deposits and balance of this equipment will be funded with a term loan when installation is complete later this year. The Company expects this capital expenditure will improve quality, efficiency and reliability of our products.

We believe our current financing arrangements will provide sufficient cash to finance operations and pay debt when due during the next twelve months. We expect to continue to be able to procure financing upon reasonable terms.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

As a smaller reporting company, we are not required to provide disclosure pursuant to this Item.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The persons serving as our principal executive officer and principal financial officer have evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period subject to this report. Based on this evaluation, the persons serving as our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of August 31, 2026. Our management has concluded that the consolidated financial statements included in this report present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

On May 26, 2026, Art's Way Manufacturing Co., Inc. (the "Company") filed a complaint in the United States District Court for the Northern District of Iowa Central Division against Leon Newswanger, Exceed Manufacturing LLC, and Wood Lake, LLC. The complaint alleges, among other things, that the defendants misappropriated the Company's trade secrets and confidential and proprietary information in connection with the development, manufacture and sale of a product that competes with the Company's grinder mixer products.

The Company seeks monetary damages in excess of $2.0 million, punitive and exemplary damages, attorneys' fees and costs, as well as injunctive relief requiring the defendants to cease the alleged conduct and return the Company's trade secrets and confidential and proprietary information. The litigation remains pending.

Item 1A. Risk Factors.

As a smaller reporting company, we are not required to provide disclosure pursuant to this Item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Insider Trading Arrangements. During the three months ended  August 31, 2026, no director or officer (as defined in Rule 16a-1(f) under the Exchange Act) of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

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Item 6. Exhibits.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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