ARTS WAY MANUFACTURING CO INC

Unless otherwise specified, as used in this Quarterly Report on Form10-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 in1956. Since that time, it has become a major worldwide manufacturer of agricultural equipment. Its principal manufacturing plant is located in Armstrong, Iowa.

The Company has organized its business intotwo 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.

During thethird quarter of fiscal2023, the Company ceased operations of its Tools business, which manufactured steel cutting tools and inserts. In previous periods, operations of the Tools business was reported in consolidated numbers as the Company'sthird operating segment. The Tools segment wasfirst reported in discontinued operations beginning with thethree andnine month periods ending* August 31, 2023.The remaining assets and liabilities of the Tools segment were disposed in thefourth* fiscal quarter of the year ended* November 30, 2024.For more information on discontinued operations, see Note3* "Discontinued Operations."

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 Form10-K for the fiscal year ended* November 30, 2024*. The results of operations for thethree andnine months ended* August 31, 2025* arenot necessarily indicative of the results to be expected for the fiscal year ending* November 30,*2025.

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 thethree andnine months ended* August 31, 2025*. 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 Net30, however, it also offers terms up to360 days on floor plan units. The Company considers trade receivables greater than30 days past due, but isnot required to disclose past due receivables with an original term less thanone year. The Company performs additional analysis monthly on amounts over90 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's actual credit losses have been low compared to historical allowance estimates. The Company has considered the current interest rate environment and the recent decline in the agricultural commodity market and believes its method of estimating a higher than historical loss percentage to be an adequate estimate of actual expected losses. The Company foresees decreased credit risk over the next year while inventory on dealer lots starts to decline, interest rates continue to drop and farm income strengthens.

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 in30 to90 days, depending on contract terms, and are due30 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.

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Employee Retention Credit

The Company qualified for federal government assistance through Employee Retention Credit ("ERC") provisions of the Consolidated Appropriations Act of2021. The purpose of the Employee Retention Credit was to encourage employers to keep employees on the payroll, even if they werenot working during the covered period because of the coronavirus outbreak. The Company filed amended tax returns with the Internal Revenue Service ("IRS") in* Octoberof2023* in the amount of$1,620,103; of which $798,836 was related toQ2 of2021 and $821,267 was related toQ3 of2021. Because of the IRS moratorium in place on ERC refunds while filing, the Company didnot 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 thenine months ended* August**31,* 2025 is as follows:

The Agricultural Products segment includes $219,144 of net proceeds related to discontinued operations received after books and records were closed.

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On* June 7, 2023we announced we would be discontinuing our Tools segment with the last day of normal operations occurring on July 14, 2023.Just over a year later, on October 21, 2024,we completed the sale of the remaining real estate associated with our Tools segment for $1,800,000. The assets and liabilities of this segment were gone prior to November 30, 2024and areno* longer reported in discontinued operations in our financial statements moving forward.

The cessation of operations and liquidation of the Tools segment as a unique business unit of the Company, represented a strategic shift in the Company's operations. In accordance with Accounting Standards Codification ("ASC") Topic360, the Company has reclassified Tools as discontinued operations for all periods presented.

Segment information as of* August 31, 2024* for discontinued operations was as follows:

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Recently Issued Accounting Pronouncements

Accounting Pronouncements Recently Adopted

Segment Reporting - Improvements to Reportable Segment Disclosures

In* November**2023,* the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU")2023-07, “Segment Reporting - Improvements to Reportable Segment Disclosures.” ASU2023-07 adds enhanced disclosures about significant segment expenses, clarifies circumstances in which an entity can disclose multiple segment measures of profit and loss and provides new segment disclosure requirements for entities with a single reportable segment. ASU2023-07 is effective for fiscal years beginning after* December 15, 2023,and interim periods within fiscal years beginning after December 15, 2024.Early adoption was permitted. The Company adopted ASU2023*-07 inQ1 of fiscal2025. The application of ASU2023-07 didnot have a significant impact on segment disclosures. The Company recast periods presented prior to thenine months ended* August 31, 2025*.

Accounting PronouncementsNot Yet Adopted

In* October 2023,the FASB issued ASU2023*-06, Disclosure Improvements (“ASU2023-06”), 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 amendments in ASU2023-06 will become effective on the date the related disclosures are removed from Regulation S-X or Regulation S-K by the SEC, and willno longer be effective if the SEC hasnot removed the applicable disclosure requirement by* June 30, 2027.Early adoption is prohibited. We are currently evaluating the impact of ASU2023*-06 on the Company's consolidated financial statements and disclosures.

In* December 2023,the FASB issued ASU2023*-09, "Income Taxes (Topic740): 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 currently evaluating the potential effect that the updated standard will have on its financial statement disclosures.

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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 of2023 and2024 early order programs to incentivize customers to stock farm equipment on their lots for fiscal2024 and fiscal2025. Floorplan terms allow customers to pay the Company at the earliest of retail date or up to360 days. This program can have an effect on the timing of the Company’s cash flows compared with historical cash flows.

On* August 31, 2025*, the Company had approximately $274,000 in receivables on the floorplan program with a due date greater than30 days compared to $341,000 on* August 31, 2024*.

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Accounts receivable are shown net of allowances for expected credit losses. Expected losses are recorded in administrative expense at the time of receivable recognition.

The activity related to expected credit losses for thenine months ended* August 31, 2025* andnine months ended* August 31, 2024* 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 thefirst nine months of fiscal2025 that was included in a contract liability on* November 30, 2024* was approximately $255,000 compared to $686,000 in the same period of fiscal2024. The beginning contract receivables, assets and liabilities on* December 1, 2023*were approximately$3,432,000, $289,000 and $767,000, respectively.

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Basic net income (loss) per share of common stock has been computed on the basis of the weighted average number of common shares outstanding. Diluted net income (loss) per share has been computed on the basis of the weighted average number of common shares outstanding plus equivalent shares assuming exercise of stock options. 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.

Basic and diluted net income (loss) per share have been computed based on the following as of* August 31, 2025* and* August 31, 2024*:

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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 approximately $3,000 and $75,000 of rents recognized from assets held for lease included insales on the Condensed Consolidated Statements of Operations during thethree andnine months ended* August 31, 2025*, respectively, compared to $56,000 and $148,000 for thethree andnine months ending* August 31, 2024*, respectively. There wereno future minimum lease receipts as of* August 31, 2025*.

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 isone year from the date of purchase. The Company’s warranties require it to repair or replace defective products during the warranty period atno 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 doesnot represent a separate performance obligation under ASC606. The Company records a liability for estimated costs that* maybe 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 beno* assurance that future warranty costs willnot 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 Note9 “Accrued Expenses.” Changes in the Company’s product warranty liability for thethree andnine months ended* August 31, 2025* and* August 31, 2024* 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*“2025* Line of Credit”) with Bank Midwest. On* August 31, 2025*, the balance of the2025 Line of Credit was $2,672,437 with $1,327,563 remaining available. The2025 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, 2025*, the2025 Line of Credit wasnot limited by the borrowing base calculation. Any unpaid principal amount borrowed on the2025 Line of Credit accrued interest at a floating rate per annum equal to the Wall Street Journal rate published in the money rates section of the Wall Street Journal. The interest rate floor is set at 6.00% per annum and the interest rate at* August 31, 2025* was 7.5% per annum. The2025 Line of Credit was most recently renewed on* March 27, 2025with a maturity date of March 30, 2026and required monthly interest-only payments. The2025* Line of Credit is governed by the terms of a Promissory Note, dated* March 27, 2025,*entered into between the Company and Bank Midwest.

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 7.00%. The interest rate mayonly be adjusted by Bank Midwest once everyfive* 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 than20% are required to personally guarantee a portion of the Term Loan, in an amount equal to their stock ownership percentage. The J. Ward McConnell Jr. Living Trust, the estate of the former 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 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.

On* October 1, 2025the Company entered into a term loan with Bank Midwest in the amount of $516,971 (the “Roof Loan”) to replace portions of the roof on its Armstrong facility. The Term Loan accrues interest at a rate of 7.25% with a payback period of 10 years. The interest rate will be adjusted after60* payments to the5-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.*

In connection with the 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 afirst* 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 Line of Credit, as set forth in Commercial Guaranties, each dated* September 28, 2017.The Ohio Metal Working Products/Art's-Way Inc.'s mortgage, commercial security agreements and commercial guaranties were released upon sale of the Ohio real estate associated with the Company's discontinued Tools segment in Octoberof2024.*

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* mayimmediately terminate its obligation, if any, to make additional loans to the Company and mayaccelerate 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, 2024*. The next measurement date is* November 30, 2025*for all covenants except the monthly working capital requirement.

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SBA Economic Injury Disaster Loans

In* Juneof2020,* 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, 2020with a principal amount of $150,000, with asecond* loan being executed on* June 24, 2020with 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, 2022and 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, 2020and 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 thetwelve 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 any2025 fiscal year tax liability and doesnot expect to have significant cash tax expense in the near future.

During thethree andnine months ended* August 31, 2025*, and* August 31, 2024*, the Company didnot recognize any revenues from transactions with a related party, andno 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. The J. Ward McConnell, Jr. Living Trust, 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 thethree andnine months ended* August 31, 2025*, the Company recognized $3,267 and $9,796 of expense for transactions with related parties compared to $3,869 and $11,549 for thethree andnine months ended* August 31, 2024*. As of* August 31, 2025*, accrued expenses contained a balance of $1,094 owed to a related party compared to $1,299 on* August 31, 2024*.

The components of operating leases on the Condensed Consolidated Balance Sheets on* November 30, 2024* were as follows:

The components of finance leases on the Condensed Consolidated Balance Sheets on* August 31, 2025* and* November 30, 2024* 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”). The2020 Plan was approved by the stockholders on* April 30, 2020.The2020* Plan replaced the Art’s-Way Manufacturing Co., Inc.2011 Equity Incentive Plan (the*“2011* Plan”) and prior plans. The2020 Plan added an additional 500,000 shares to the number of shares reserved for issuance pursuant to equity awards. No further awards will be made under the2011 Plan or other prior plans. Awards to directors and executive officers under the2020 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.

The2020 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 the2020 Plan for thethree andnine month periods ended* August 31, 2025and August 31, 2024* 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, 2025* and* November 30, 2024*, the carrying amount approximated fair value for cash, accounts receivable, 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 donot materially differ from current market rates. The fair value of the Company’s term loans payable also approximates recorded value because the interest rates donot substantially different from current interest rates the Company could obtain under similar terms.

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In accordance with ASC280, “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 hastwo 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 thatno subsequent events have occurred other than the roof loan that was signed on* October 1, 2025in Note12* Loan and Credit Agreements that would require recognition in the condensed consolidated financial statements.