Financial Analysis

"11 ) Loan and Credit Agreements 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 May 31, 2026 , the balance of the Line of Credit was $3,495,438 with $504,562 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 May 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 June 18, 2026 was 6.23% 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 b …

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Three Months Ended May 31, 2026 Agricultural Products Modular Buildings Total Farm equipment $ 3,631,000 $ - $ 3,631,000 Farm equipment service parts 670,000 - 670,000 Modular buildings - 3,452,000 3,452,000 Modular building lease income - - - Other 73,000 28,000 101,000 $ 4,374,000 $ 3,480,000 $ 7,854,000 Three Months Ended May 31, 2025 Agricultural Products Modular Buildings Total Farm equipment $ 3,350,000 $ - $ 3,350,000 Farm equipment service parts 603,000 - 603,000 Modular buildings - 2,227,000 2,227,000 Modular building lease income - 26,000 26,000 Other 73,000 58,000 131,000 $ 4,026,000 $ 2,311,000 $ 6,337,000 Six Months Ended May 31, 2026 Agricultural Modular Buildings Total Farm equipment $ 6,515,000 $ - $ 6,515,000 Farm equipment service parts 1,460,000 - 1,460,000 Modular buildings - 6,332,000 6,332,000 Modular building lease income - - - Other 153,000 34,000 187,000 $ 8,128,000 $ 6,366,000 $ 14,494,000 Six Months Ended May 31, 2025 Agricultural Modular Buildings Total Farm equipment $ 5,344,000 $ - $ 5,344,000 Farm equipment service parts 1,486,000 - 1,486,000 Modular buildings - 4,346,000 4,346,000 Modular building lease income - 72,000 72,000 Other 143,000 87,000 230,000 $ 6,973,000 $ 4,505,000 $ 11,478,000

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15 ) Equity Incentive Plan and Stock Based Compensation On February 25, 2020, the Board of Directors of the Company (the Board) authorized and approved the Arts-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 replaced the Arts-Way Manufacturing Co., Inc. 2011 Equity Incentive Plan (the 2011 Plan) and prior plans. The 2020 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 the 2011 Plan or other prior plans. 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 i …

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16 ) Disclosures About the Fair Value of Financial Instruments 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 May 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 Companys 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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12 ) Income Taxes 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.

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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 SECs regulations. The amendments in ASU 2023 - 06 will become effective on the date the related disclosures are removed from Regulation S- X or Regulation S-K by the SEC, and will no longer be effective if the SEC has not removed the applicable disclosure requirement by June 30, 2027. Early adoption is prohibited. We are currently evaluating the impact of ASU 2023 - 06 on the Company's consolidated financial statements and disclosures. 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 entitys 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 …

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13 ) Related Party Transactions During the three and six months ended May 31, 2026 , and May 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 Companys term debt in accordance with the USDA guarantee obtained on the Companys term debt. In the three and six months ended May 31, 2026 , the Company recognized $2,960 and $6,115 of expense for transactions with related parties compared to $3,175 and $6,530 for the three and six months ended May 31, 2025 . As of May 31, 2026 , accrued expenses contained a balance of $1,003 owed to a related party compared to $1,131 on May 31, 2025 . …

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3 ) Disaggregation of Revenue 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. Three Months Ended May 31, 2026 Agricultural Products Modular Buildings Total Farm equipment $ 3,631,000 $ - $ 3,631,000 Farm equipment service parts 670,000 - 670,000 Modular buildings - 3,452,000 3,452,000 Modular building lease income - - - Other 73,000 28,000 101,000 $ 4,374,000 $ 3,480,000 $ 7,854,000 Three Months Ended May 31, 2025 Agricultural Products Modular Buildings Total Farm equipment $ 3,350,000 $ - $ 3,350,000 Farm equipment service parts 603,000 - 603,000 Modular buildings - 2,227,000 2,227,000 Modular building lease income - 26,000 26,000 Other 73,000 58,000 131,000 $ 4,026,000 $ 2,311,000 $ 6,337,000 Six Months Ended May 31, 2026 Agricultural Modular Buildings Total Farm equipment $ 6,515,000 $ - $ 6,515,000 Farm equipment service parts 1,460,000 - 1,460,000 Modular buildings - 6,332,000 6,332,000 Modular building lease income - - - Other 153,000 34,000 187,000 $ 8,128,000 $ 6,366,000 $ 14,494,000 Six Months Ended May 31, 2025 Agricultural Modular Buildings Total Farm equipment $ 5,344,000 $ - $ 5,344,000 Farm equipment service parts 1,486,000 - 1,486,000 Modular buildings - 4,346,000 4,346,000 Modular building lease income - 72,000 72,000 Other 1 …

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"17 ) Segment Information In accordance with ASC 280, Segment Reporting,"" the Companys 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 Arts-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 nonre …

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"2 ) Summary of Significant Accounting Policies 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 Companys 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 Companys Annual Report on Form 10 -K for the fiscal year ended November 30, 2025 . The results of operations for the three and six months ended May 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 six months ended May 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 macroec …

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"18 ) Subsequent Events 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 ""Reserve Line of Credit"" in Note 11 - Loan and Credit Agreements, the sales-type lessor agreement in Note 14 - Leases and the following: In June of 2026, the Company was informed that Rural Energy for America Program funding was depleted and decided to not move forward with completing the solar project that was signed on December 19, 2025. The Solar System Purchase Agreement (the Agreement) was for the installation of a solar energy system by Midwest Solar Installers at the Companys principal executive offices. The Agreement was contingent on a grant from the United States Department of Agriculture under its Rural Energy for America Program of which 25% of the total eligible project costs can be paid for with USDA funds and another 50% of the project costs can be guaranteed in the form of a loan from the USDA."

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