ARTS WAY MANUFACTURING CO INC

Previous wording

Sales in our Agricultural Products segment during the first quarter of fiscal 2026 were $3,754,000 compared to $2,948,000 during the same period of fiscal 2025, an increase of $806,000, or 27.3%. We have experienced increased demand this quarter, as compared to the same period in 2025, with increased sales on grinder mixers, manure spreaders and bale processors. While row crop commodity prices have increased from their lowest point in 2024, they remain substantially below the peak levels experienced in 2022. The slight increase in commodity prices and product availability did, however, lead to improved results for the first quarter of fiscal 2026. Livestock prices remained elevated through Q1 of fiscal 2026 and are driving most of the demand for our agricultural products as a large portion of our customer base raises livestock and row crops. Sugar beet prices declined in the first fiscal quarter of 2026 and we are expecting less demand for our sugar beet equipment for the remainder of fiscal 2026. To offset some of the anticipated decrease in demand, we are deploying a product specialist into our primary beet territory to drive new customer activity and technological development as we unveil a new product in that market for fiscal 2026. Our fall early order program ended with a 62% increase in orders on our non beet equipment, while our beet orders were down 63%. Overall order book from the early order program was up 11%, which leads us to believe the agricultural market is entering a recovery despite continued increasing input costs. Gross margin for our Agricultural Products segment for the three-month period ended February 28, 2026 was 34.5% compared to 26.7% for the same period in fiscal 2025. The margin increase is due primarily to the mix of products sold in Q1 of fiscal 2026. Our grinder mixer sales were up $909,000 year-on-year and was our most profitable product line for the first quarter of fiscal 2026. We continue to carry strong grinder mixer backlog into the second quarter of fiscal 2026 and foresee steady shipments in the second quarter of fiscal 2026.. Steel prices continued to rise in the first quarter of fiscal 2026 and will challenge our strong first fiscal quarter margins. Rising fuel prices in fiscal 2026 could negatively affect demand if it has a large impact on farmer's input costs and

Current wording

Sales in our Agricultural Products segment during the second quarter of fiscal 2026 were $4,374,000 compared to $4,026,000 during the same period of fiscal 2025, an increase of $348,000, or 8.6%. Sales for the six months ended May 31, 2026 were $8,128,000 compared to $6,973,000, an increase of $1,155,000, or 16.6%. Livestock prices continued to be elevated through the second quarter of fiscal 2026 and are driving the increased demand for our agricultural products year-on-year. We continue to see steady demand for grinder mixers, manure spreaders and bale processors, despite modest row crop prices through the first six months of fiscal 2026. Our sugar beet equipment demand is down from prior years, as sugar beet prices declined in the first fiscal quarter of 2026. To offset some of the demand decrease, we strategically deployed an experienced product specialist into our primary beet territory to drive new customer activity and technological development. The timing of this hire aligns with the unveiling of a new product in the beet market for fiscal 2026. We have increased our finished product inventory since the fall of 2025 to be prepared for retail opportunities in fiscal 2026, which we believe has been an opportunistic move. Our inventory levels are still elevated as compared to prior years, but are putting us in a position where our short lead times are providing a competitive edge. Gross margin for our Agricultural Products segment for the three-month period ended May 31, 2026 was 24.4% compared to 27.2% for the same period in fiscal 2025. Gross margin for the six months ended May 31, 2026 was 29.1% compared to 27.0% for the same period of fiscal 2025. The margin decrease for the three months ended May 31, 2026 is due primarily to price increases on steel. The gross margin increase for the six months ended May 31, 2026 is due primarily to strong demand for our grinder mixers. Our grinder mixer sales are up approximately $1,319,000 year-on-year. Rising steel and oil prices may challenge our margins for the rest of fiscal 2026 if we continue to see increases.

Previous wording

Our first fiscal quarter sales in our Modular Buildings segment were $2,886,000 compared to $2,193,000 for the same period in fiscal 2025, an increase of $693,000, or 31.6%. We carried strong modular building backlog into fiscal 2026, unlike a year ago, which drove the revenue increase this year. We experienced continued strong demand for our buildings on both the livestock and research sides in the first quarter of fiscal 2026. Current backlog is expected to carry us well into the third quarter of fiscal 2026, which is somewhat unusual given the sales life cycle in our Modular Buildings segment. Our leads remain abundant and we continue to be optimistic about the future prospects and continued success of this business segment. Gross margin in the Modular Buildings segment for the three- month period ended February 28, 2026 was 21.3% compared to 32.3% for the same period in fiscal 2025. Our margin decrease in the first fiscal quarter of fiscal 2026 is due to the selling of a warrantied agriculture modular building at cost and project overages on site work while completing current contracts.

Current wording

Our second fiscal quarter sales in our Modular Buildings segment were $3,480,000 compared to $2,311,000 for the same period in fiscal 2025, an increase of $1,169,000, or 50.6%. Our sales for the six months ended May 31, 2026 were $6,366,000 compared to $4,505,000 for the same period of fiscal 2025, an increase of $1,861,000, or 41.3%. We carried a strong modular building backlog into fiscal 2026, unlike fiscal 2025, which has driven the revenue increase so far this year. Our agricultural modular building business is up approximately $407,000, or 29.5% year-on-year due to strong livestock prices. Our research-related modular building sales are up approximately $1,578,000 or 53.2% for the six months ended May 31, 2026 due to large projects we contracted at the end of fiscal 2025. Current backlog is expected to carry us through the third quarter of fiscal 2026. Additionally, we expect current engineering projects to convert to construction projects in the third fiscal quarter. The private research market continued to carry strong demand for laboratory space during the first six months of fiscal 2026. Gross margin in the Modular Buildings segment for the three- and six-month period ended May 31, 2026 was 27.8% and 24.8%, respectively, compared to 41.7% and 37.2% for the same periods in fiscal 2025. Our margin decrease for the first six 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 six months of fiscal 2026.

Previous wording

Consolidated selling expenses from continuing operations for the three months ended February 28, 2026 were $437,000, compared to $350,000 for the same period in fiscal 2025. The increase in selling expenses is due to increased commissions and royalties on increased sales along with additional targeted advertising campaign expenditures. Selling expenses as a percentage of sales were 6.6% for the three months ended February 28, 2026 compared to 6.8% for three months ended February 28, 2025.

Current wording

Consolidated selling expenses from continuing operations for the three and six months ended May 31, 2026 were $434,000, and $870,000, respectively, compared to $436,000 and $786,000 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 6.0% for the six months ended May 31, 2026 compared to 6.9% for the six months ended May 31, 2025.

Previous wording

Consolidated engineering expenses from continuing operations were $107,000 for three months ended February 28, 2026 compared to $85,000 for the same period in fiscal 2025. The increase in engineering expenses is related to additional research and development costs incurred in 2026 as we made product changes that we felt could drive more sugar beet product demand. Engineering expenses as a percentage of sales were 1.6% for the three months ended February 28, 2026, compared to 1.7% for the same period in fiscal 2025.

Current wording

Consolidated engineering expenses from continuing operations were $94,000 for the three months ended May 31, 2026 compared to $84,000 for the same period in fiscal 2025. Consolidated engineering expenses from continuing operations were $201,000 for the six months ended May 31, 2026 compared to $169,000 for the same period in fiscal 2025. The increase in engineering expenses is related to additional research and development costs incurred in 2026 as we made product changes that we felt could drive more sugar beet product demand. Engineering expenses as a percentage of sales were 1.4% for the six months ended May 31, 2026, compared to 1.5 % for the same period in fiscal 2025.

Previous wording

Consolidated administrative expenses from continuing operations for the three- month period ended February 28, 2026 were $1,038,000 compared to $1,059,000 for the same period in fiscal 2025. Administrative expenses as a percentage of sales were 15.6% for the three months ended February 28, 2026, compared to 20.6% for the same period in fiscal 2025. Administrative expenses have decreased slightly in fiscal 2026 despite the increase in sales as we have not replaced overhead cut in previous years. We continue to be conscious of adding additional overhead while market conditions are still slow in the Agricultural Products segment.

Current wording

Consolidated administrative expenses from continuing operations for the three months ended May 31, 2026 were $1,218,000 compared to $1,029,000 for the same period in fiscal 2025. Consolidated administrative expenses from continuing operations for the six months ended May 31, 2026 were $2,256,000 compared to $2,088,000 for the same period in fiscal 2025. Administrative expenses as a percentage of sales were 15.6% for the six months ended May 31, 2026, compared to 18.2% for the same period in fiscal 2025. Administrative expenses have increased in fiscal 2026 despite the increase in sales as we have not replaced overhead cut in previous years. We continue to be conscious of adding additional overhead while market conditions are still slow in the Agricultural Products segment.

Previous wording

Consolidated net income was $196,000 for the three-month period ended February 28, 2026, compared to net loss of $56,000 for the same period in fiscal 2025. We are reporting positive operating results in both of our business segments through the first quarter of fiscal 2026. The small uptick in the agricultural market coupled with cost cutting procedures enacted in fiscal 2024 in the Agricultural Products segment has stabilized our operating result to prepare us for a future uptrend in the agriculture cycle. We continue to focus on remaining competitive with pricing, features and availability to ensure we are considered for retail opportunities. Our Modular Buildings segment's success is expected to continue as solid leads make their way to our sales team.

Current wording

Consolidated net income was $173,000 for the three-month period ended May 31, 2026, compared to net income of $1,482,000 for the same period in fiscal 2025. Consolidated net income was $370,000 for the six-month period ended May 31, 2026, compared to net income of $1,426,000 for the same period in fiscal 2025. In the six months ended May 31, 2025 we received approximately $1,154,000 of Employee Retention Credit refunds net of preparation fees and tax, which is the primary reason for our decrease in net income for fiscal 2026. Overall we did see improved income from operations for both the three and six months ended May 31, 2026. The small uptick in the agricultural market coupled with cost cutting procedures enacted in fiscal 2024 in the Agricultural Products segment has stabilized our operating results to prepare us for a potential future uptrend in the agriculture cycle. We continue to focus on remaining competitive with pricing, features and availability to ensure we are considered for retail opportunities. Our Modular Buildings segment's success is expected to continue as solid leads make their way to our sales team.

Previous wording

The consolidated order backlog net of discounts as of April 7, 2026 was $7,287,000 compared to $4,482,000 as of April 7, 2025, a 62.6% increase. The order backlog in our Agricultural Products segment was $2,774,000 as of April 7, 2026 compared to $2,016,000 in fiscal 2025, a 37.6% increase. Demand has remained steady throughout fiscal 2026 for our agriculture products and is much improved from a year ago due to higher row crop prices and record cattle prices. The backlog for the Modular Buildings segment was $4,513,000 as of April 7, 2026, compared to $2,466,000 in fiscal 2025, an 83% increase. Quoting activity in both the research and agriculture buildings markets have been strong so far in fiscal 2026, with further contracts expected to execute with customers we are performing design agreements for. 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.

Current wording

The consolidated order backlog net of discounts as of July 7, 2026 was $2,744,000 compared to $4,407,000 as of July 7, 2025, a 37.7% decrease. The order backlog in our Agricultural Products segment was $1,413,000 as of July 7, 2026 compared to $863,000 in fiscal 2025, a 63.7% increase. Demand has remained steady throughout fiscal 2026 for our agriculture products and is much improved from a year ago due to higher row crop prices and record cattle prices. The backlog for the Modular Buildings segment was $1,332,000 as of July 7, 2026, compared to $3,544,000 in fiscal 2025, a 62.4% decrease. Quoting activity in both the research and agriculture buildings markets have been strong so far in fiscal 2026, with further contracts expected to execute with customers we are performing design agreements for. 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.

Previous wording

Our primary source of funds for the three months ended February 28, 2026 was cash generated by operating activities including profitability and the increase of customer deposits and accounts payable as we incurred costs on construction contracts. We expect the collection of accounts receivable, progress on construction contracts and reduction of inventory to be primary sources of cash for the remainder of fiscal 2026. We expect our primary cash needs for the remainder of the fiscal year to be tied to operating expenses and retirement of debt.

Current wording

Our primary source of funds for the six months ended May 31, 2026 was cash generated by operating activities including profitability and the increase of accounts payable as we incurred costs on construction contracts. We expect the collection of accounts receivable, progress on construction contracts, and reduction of inventory to be primary sources of cash for the remainder of fiscal 2026. We expect our primary cash needs for the remainder of the fiscal year to be tied to operating expenses and retirement of debt.

Previous wording

As of February 28, 2026, our revolving credit line had an outstanding principal balance of $3,431,937. 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. Bank Midwest's credit committee has preapproved an additional $1,500,000 of principal for the 2026 renewal, consistent with the borrowing availability of our previous line of credit, in the event we need additional funding.

Current wording

As of May 31, 2026, our revolving credit line (the "Line of Credit") had an outstanding principal balance of $3,495,438. 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. Bank Midwest's credit committee has preapproved an additional $1,500,000 of principal for the 2026 renewal, consistent with the borrowing availability of our previous line of credit, in the event we need additional funding. 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 to pay large equipment deposits on a new fiberoptic laser and crane system. The deposits and balance of this equipment will be converted to 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.