ARTS WAY MANUFACTURING CO INC

Previous wording

Our consolidated corporate sales from continuing operations for the three- and six-month periods ended May 31, 2026 were $7,854,000 and $14,494,000, respectively, compared to $6,337,000 and $11,478,000, respectively, during the same periods in fiscal 2025. Our sales increased $1,517,000, or 23.9% for the three months ended May 31, 2026 and $3,016,000, or 26.3% for the six months ended May 31, 2026 compared to same periods in fiscal 2025. Consolidated gross margin for the three and six months ended May 31, 2026 was 25.9% and 27.2% compared to 32.5% and 31.0% for the same periods in fiscal 2025.

Current wording

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.

Previous 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.

Current wording

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.

Previous 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.

Current wording

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.

Previous 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.

Current wording

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.

Previous 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.

Current wording

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.

Previous 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.

Current wording

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.

Previous 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.

Current wording

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.

Previous 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.

Current wording

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.

Previous 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.

Current wording

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.