ART’S-WAY MANUFACTURING CO., INC.

Condensed Consolidated Statements of Operations

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

ART’S-WAY MANUFACTURING CO., INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

In addition to the Line of Credit, on May 1, 2013, the Company refinanced all outstanding West Bank term loans with U.S. Bank. The West Bank long-term debt, which had outstanding principal balances of $4,342,000 at a fixed interest rate of 4.75% and $1,749,000 at a fixed interest rate of 4.50%, was paid off with four U.S. Bank loans totaling $6,319,000 at a fixed interest rate of 2.98% (the “2013 U.S. Bank Term Loans”). As detailed in the Company’s long-term debt summary below, monthly principal and interest payments in the aggregate amount of $93,850 are required, with final payments of principal and accrued interest on the four loans, in the aggregate amount of $1,372,000, due on May 1, 2018.

As a result of paying off the West Bank loans, the Company incurred $130,000 worth of prepayment penalties which were financed by the U.S. Bank loans. The penalties were booked to fixed costs on the income statement for the quarter ended May 31, 2013. Closing costs amounted to $9,000 and will be amortized over the life of the loans.

Except for the U.S. Bank UHC Loan (as defined below), each of the Company’s term loans from U.S. Bank is governed by a Term Note and a Term Loan Agreement. Each Term Loan Agreement and the Revolving Credit Agreement require the Company to provide monthly internally prepared financial reports, year-end audited financial statements, and a monthly aging of accounts receivable. The Company, as of the end of each fiscal quarter, must maintain a debt to tangible net worth ratio of not more than 1.5 to 1.0 and a fixed charge coverage ratio of at least 1.15 to 1.00. The loans are secured by a first position security interest on the assets of the Company and its subsidiaries, including but not limited to, inventories, machinery, equipment and real estate, in accordance with the Business Security Agreements entered into by the Company and its subsidiaries and the Pledge Agreements entered into by the subsidiaries. Additionally, the Company has mortgaged certain real property in favor of U.S. Bank to secure the new loans, as documented by the Mortgage, Security Agreement and Assignment of Rents between U.S. Bank and the Company and its subsidiaries.

If the Company or its subsidiaries (as guarantors pursuant to continuing guaranties) commits an event of default under the Term Loan Agreements, Business Security Agreements, Pledge Agreements or Revolving Credit Agreement and fails or is unable to cure that default, the interest rate on each of the loans and Line of Credit could increase by 5.0% per annum and U.S. Bank can immediately terminate its obligation, if any, to make additional loans to the Company. In addition, U.S. Bank may collect any and all money due or to become due and shall 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, including, without limitation, the right to repossess, render unusable and/or dispose of the collateral without judicial process.

The Company was in compliance with all covenants under the Term Loan Agreements and the Revolving Credit Agreement as measured on May 31, 2013. As of May 31, 2013, the Company’s debt to tangible net worth ratio and fixed charge coverage ratio were within the maximum and minimum, respectively, as required by the Term Loan Agreement. The next measurement date is August 31, 2013.

On May 10, 2012, the Company obtained $880,000 in long-term debt from U.S. Bank issued to acquire the building and property of Universal Harvester Co., Inc. located in Ames, Iowa (the “U.S. Bank UHC Loan”). The maturity date of this loan is May 10, 2017, with a final payment of principal and accrued interest in the amount of $283,500 due May 10, 2017. This loan is secured by a mortgage on the building and property acquired from Universal Harvester Co., Inc. in Ames, Iowa, pursuant to a Mortgage, Security Agreement and Assignment of Rents between the Company and U.S. Bank, dated May 10, 2012. On May 1, 2013, the U.S. Bank UHC Loan and the Mortgage were amended to extend the mortgage to secure the 2013 U.S. Bank Term Loans in addition to the U.S. Bank UHC Loan.

If the Company or its subsidiaries (as guarantors) commits an event of default under the agreement governing the U.S. Bank UHC Loan, the lender may cause the entire amount of the loan to be immediately due and payable, may foreclose on the property, or may increase the interest rate to a rate of 5.00% per annum, plus the interest rate otherwise payable under the U.S. Bank Loan.

The Company was in compliance with all covenants under the IFA Loan Agreement as measured on November 30, 2012. The next measurement date is November 30, 2013.

In May 2011, the FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” that amends the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and disclosing information about fair value measurements. The amendments in this update achieve the objective of developing common fair value measurement and disclosure requirements, as well as improving consistency and understandability. Some of the requirements clarify the FASB’s intent about the application of existing fair value measurement requirements while other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The amendments in this ASU are effective prospectively for interim and annual periods beginning after December 15, 2011, with no early adoption permitted. The Company has not completed the adoption of this standard and the Company does not expect this standard to have a material impact on our consolidated financial statements.

Stock-based compensation expense reflects the fair value of stock-based awards measured at the grant date and recognized over the relevant vesting period. We estimate the fair value of each stock-based award on the measurement date using the Black-Scholes option valuation model which incorporates assumptions as to stock price volatility, the expected life of the options, risk-free interest rate, and dividend yield. Expected volatility is based on historical volatility of the Company’s stock and other factors. The Company uses historical option exercise and termination data to estimate the expected term the options are expected to be outstanding. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected dividend yield is calculated using historical dividend amounts and the stock price at the option issuance date. The stock-based compensation expense for the quarter amounted to $27,000 calculated using a volatility rate of 53%, a two year expected option life, a discount rate of 3.25%, and a dividend yield of 1.063%.

On May 10, 2012, the Company acquired the assets of Universal Harvester Co., Inc. consisting of inventory, equipment, land, building, goodwill, and intangible assets. The acquisition-date fair value of the total consideration transferred was approximately $3,066,000 consisting of $3,030,450 of current and future cash to be paid and $35,550 of common stock. Under the terms of the purchase agreement, cash in the amount $3,003,565 was paid on May 11, 2012 and $27,427 of cash will be paid on real estate taxes accrued but due on the land and building in future periods. As of May 31, 2013, the Company has paid all of the accrued real estate taxes. The Company issued 5,000 shares of common stock valued at $35,550 based on the closing market price as of May 10, 2012.

There are three reportable segments: agricultural products, pressurized vessels and modular buildings. The agricultural products segment fabricates and sells farming products as well as related equipment and replacement parts for these products in the United States and worldwide. The pressurized vessels segment produces pressurized tanks. The modular buildings segment manufactures and installs modular buildings for animal containment and various laboratory uses.

Three Months Ended May 31, 2013

Six Months Ended May 31, 2013

Six Months Ended May 31, 2012

On June 25, 2013, the Company acquired the fixed assets, raw material inventory, work-in-process inventory, and select finished good inventory of Agro Trend, a division of Rojac Industries, Inc. of Clifford, Ontario, Canada. A new entity was formed, Art's Way Manufacturing International, LTD (“International”), which will be included in the agricultural products segment for financial reporting purposes. Art's Way Manufacturing International will lease the facility in Clifford, Ontario and plans on continuing manufacturing, marketing and sales from the Canadian location. The amount paid in US dollars for the acquisition totaled $313,000 ($88,000 in fixed assets, $223,000 in inventory, and $2,000 in rental expense).

The acquisition also includes a consignment arrangement regarding $600,000 of select finished good inventory. As part of the arrangement, International agrees to use reasonable efforts to sell the inventory including providing a sales and marketing plan with projections within 60 days of the closing date and meeting with the consignor quarterly to discuss progress. Once a month, International will pay the consignor an amount equal to the cost base of the inventory sold that month.

Because the purchase occurred after May 31, 2013, the event does not require recognition in the condensed consolidated financial statements. Management evaluated all other activity of the Company and concluded that no other subsequent events have occurred that would require recognition in the condensed consolidated financial statements or disclosure in the notes to the condensed consolidated financial statements.

The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and notes thereto included in Item 1 of Part I of this report and the audited consolidated financial statements and related notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended November 30, 2012. Some of the statements in this report may contain 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,” or the negative of these terms or other similar expressions. Many of these forward-looking statements are located in this report under “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 order backlog; (ii) our beliefs regarding the sufficiency of working capital and our continued ability to renew or obtain financing on reasonable terms when necessary; (iii) expected future expenses and operating results; (iv) growth strategy and expected benefits from acquisitions, and (v) our ability to capture additional sales and retain repeat customers in Vessels.

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 tightening credit markets on our ability to continue to obtain financing on reasonable terms; (ii) our ability to continue to meet debt obligations and comply with financial covenants; (iii) obstacles related to integration of Universal Harvester Co., Inc.; (iv) the effect of general economic conditions on the demand for our products and the cost of our supplies and materials; (v) unforeseen costs or delays in implementing production of new products; (vi) unexpected effects from changes to our production schedule; (vii) an inability to retain new customers for our modular buildings and pressurized vessels; and (viii) other factors described from time to time in our reports to the SEC. 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.

Our consolidated corporate sales for the three- and six-month periods ended May 31, 2013 were $9,250,000 and $17,665,000, respectively, compared to $11,685,000 and $17,997,000 during the same respective periods in 2012, a $2,435,000, or 20.8%, decrease for the quarter and a $332,000, or 1.8%, decrease year-to-date. The agricultural products segment (“Manufacturing”) had a three-month sales decrease of $290,000. Six-month sales for 2013 are ahead of the same respective period in 2012 by $2,726,000. The modular buildings segment (“Scientific”) had a three- and six-month sales decrease of $2,170,000 and $3,148,000, respectively. The pressurized vessels segment (“Vessels”) had a three- and six-month sales increase of $25,000 and $90,000, respectively.

Our second fiscal quarter sales at Manufacturing were $7,716,000, compared to $8,006,000 during the same period of 2012, a decrease of $290,000, or 3.6%. Year-to-date sales were up to $14,720,000, from $11,994,000 as of May 31, 2012, an increase of $2,726,000, or 22.7%. The year over year increase in revenue was due to additional sales of $2,917,000 attributable to the acquisition of Universal Harvester Co., Inc. (“UHC”) in May 2012. Gross margin for the quarter ended May 31, 2013 was 26.0%, compared to 30.7% for the same period in 2012. The year-to-date gross margin was 26.9% in 2013, compared to 29.2% in 2012. The decrease is primarily attributable to the timing of beat harvester deliveries.

Our second fiscal quarter sales at Vessels were $642,000, compared to $617,000 for the same period in 2012, an increase of $25,000, or 4.1%. Year-to-date sales were $1,036,000, compared to $946,000 for the six-month period ending May 31, 2012, an increase of $90,000, or 9.5%. Gross margin for the quarter ended May 31, 2013 was 17.6% compared to 8.1% for the same period in 2012. Year-to-date gross margin was 6.2% in 2013 compared to 0.9% in 2012. The additional sales have been the main contributor to the improved margins.

Our second fiscal quarter sales at Scientific were $892,000, compared to $3,062,000 for the same period in fiscal 2012, a decrease of $2,170,000, or (70.9%). Year-to-date sales were $1,909,000, compared to $5,057,000 for the six-month period ended May 31, 2012, a decrease of $3,148,000, or (62.3%). The decrease was primarily attributable to the completion of an approximately $7 million fabrication and delivery contract executed in January 2012 and an approximately $1.7 million installation contract executed in April 2012. Scientific was hired to design, fabricate, and install twenty-four modular units over the course of approximately one year for one of the world’s leading research and teaching institutions. Most of the revenue for the contract was recognized during 2012. Scientific uses percent complete accounting to calculate revenue and gross margins for all contracts. Gross margin for the quarter ended May 31, 2013 was 50.3% compared to 21.3% for the same period in 2012. Year-to-date gross margin was 47.4% in 2013 compared to 22.2% in 2012. The gross margin increase was due to the finalization of costs as compared to estimates and miscellaneous reductions in expenses. The team worked hard to control costs as the 2012 fabrication and installation projects were finalized.

Our second fiscal quarter consolidated selling expenses were $484,000 compared to $425,000 for the same period in 2012. Year-to-date selling expenses were $974,000 in 2013 compared to $791,000 for the same period in 2012. The increase was primarily due to increases in advertising and literature expenses related to our Manufacturing segment. Selling expenses as a percentage of sales were 5.2% and 5.5% for the three- and six-month periods ended May 31, 2013, compared to 3.6% and 4.4% for the same respective periods in 2012.

Consolidated engineering expenses were $101,000 for the three months ended May 31, 2013, compared to $73,000 for the same period in 2012. Year-to-date engineering expenses were $204,000 for 2013 compared to $158,000 in 2012. These increases were primarily due to the hiring of engineering staff at the Armstrong, Iowa facility (two open positions were filled in the third fiscal quarter of 2012). Engineering expenses as a percentage of sales were 1.1% and 1.2% for the three- and six-month periods ended May 31, 2013, compared to 0.6% and 0.9% for the same respective periods in 2012.

Consolidated administrative expenses for the three months ended May 31, 2013 were $1,181,000 compared to $1,166,000 for the same period in 2012. Year-to-date administrative expenses were $2,245,000 for 2013 compared to $1,828,000 in 2012. The increase is mainly due to the incremental expenses associated with the UHC acquisition and the West Bank loan prepayment penalties described in Note 7 to the quarterly unaudited condensed consolidated financial statements included in Part I, Item 1 of this report. Administrative expenses as a percentage of sales were 12.8% and 12.7% for the three- and six-month periods ending May 31, 2013, compared to 10.0% and 10.2% for the same respective periods in 2012.

The Company had been leasing approximately 88 acres of excess land to third parties for farming. In December of 2012, we sold this excess land as 3 separate tracts. Tract 1 was farmland northwest of the Armstrong Manufacturing plant located at 5556 Highway 9 in Armstrong, Iowa. . Tract 2 was farmland north of railroad tracks that run on the north side of the Armstrong Manufacturing plant located at 5556 Highway 9 in Armstrong, Iowa. . Tract 3 was pasture land east of the Armstrong Manufacturing plant located at 5556 Highway 9 in Armstrong, Iowa. The net gain on the sale of the three parcels totaled $639,000.

To better utilize our production facilities, our auger production was moved from our Salem, South Dakota facility to our West Union, Iowa production facility in July 2011. The Salem, South Dakota facility was sold in December 2012. An impairment of $95,000 was recognized in fiscal year 2012 on the production facility due to the Company’s carrying value exceeding the bid price. A net loss of $9,000 was recognized in December 2012, which consisted of the closing costs associated with the sale.

Consolidated net income was $514,000 and $1,334,000 for the three- and six-months ended May 31, 2013, compared to $936,000 and $1,129,000 for the same respective periods in 2012. The changes to net income for the six-month period were primarily attributable to the timing in net sales, offset by the net gain realized from the sale of the land near Armstrong.

The consolidated order backlog net of discounts as of May 31, 2013 was $6,323,000 compared to $10,356,000 as of May 31, 2012. The decrease is due to the completion of a major contract from our modular buildings segment that began in early 2012, offset by sales attributable to the acquisition of UHC. The agricultural products segment order backlog was $5,573,000 as of May 31, 2013, compared to $4,824,000 in fiscal 2012. The backlog for the pressurized vessels segment was $482,000 as of May 31, 2013, compared to $457,000 in fiscal 2012. The backlog for the modular buildings segment was $268,000 as of May 31, 2013, compared to $5,075,000 in fiscal 2012. 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.

Our primary sources of funds for the three and six months ended May 31, 2013 were customer deposits for Manufacturing, proceeds from the sale of the land near Armstrong, and income from operations. Those funds have been deposited at U.S. Bank to be used to meet future production needs. We have an $8,000,000 revolving Line of Credit with U.S. Bank, which, as of May 31, 2013, had an outstanding principal balance of $0. The line of credit is renewable annually and is scheduled to mature on May 1, 2014.

The person serving as our principal executive officer and principal financial officer has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e), as of the end of the period subject to this Report. Based on this evaluation, the person serving as our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective and provide reasonable assurance that information required to be disclosed by us in the periodic and current reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the periods specified by the Securities and Exchange Commission’s rules and forms.

On May 1, 2013, the Company entered into various financing agreements with U.S. Bank, as detailed below, which supersede certain prior financing agreements with West Bank. The relationship with U.S. Bank now includes an $8,000,000 revolving line of credit (the “Line of Credit”) which is scheduled to mature on May 1, 2014. The Line of Credit is renewable annually with advances funding the Company’s working capital needs and is secured by real property and fixed asset collateral. The interest rate is U.S. Bank’s prime interest rate, adjusted each time that the Federal prime rate changes, with a minimum rate of 3.50%. As of May 31, 2013, the interest rate was the minimum of 3.50%. Monthly interest-only payments are required and the unpaid principal is due on the maturity date. As of May 31, 2013, the Company had no principal balance outstanding against the Line of Credit. The Line of Credit states that the borrowing base will be an amount equal to the sum of 75% of accounts receivable (discounted for aged accounts and customer balances exceeding 20% of aggregate receivables), plus 50% of inventory (this component cannot exceed $6,000,000 and only includes finished goods and raw materials deemed to be in good condition and not obsolete), less any outstanding loan balance of the Line of Credit, and less undrawn amounts of outstanding letters of credit issued by U.S. Bank or any affiliate. The Company’s obligations under the Line of Credit are evidenced by a Revolving Credit Note effective May 1, 2013, a Revolving Credit Agreement dated May 1, 2013 and certain other ancillary documents.

In addition to the Line of Credit, on May 1, 2013, the Company refinanced all outstanding West Bank term loans with U.S. Bank. The West Bank long-term debt, which had outstanding principal balances of $4,342,000 at a fixed interest rate of 4.75% and $1,749,000 at a fixed interest rate of 4.50%, was paid off with four U.S. Bank loans, each at a fixed interest rate of 2.98% (the “2013 U.S. Bank Term Loans”). The first of these loans is for a principal amount of $2,335,500, with required monthly payments of $42,500, including principal and accrued interest, and a final payment of principal and accrued interest of $9,682 due on May 1, 2018. The second loan is for a principal amount of $1,006,500, with required monthly payments of $11,000, including principal and accrued interest, and a final payment of principal and accrued interest of $470,033 due on May 1, 2018. The third loan is for a principal amount of $1,833,510, with required monthly payments of $27,800, including principal and accrued interest, and a final payment of principal and accrued interest of $361,986 due on May 1, 2018. The fourth loan is for a principal amount of $1,143,600, with required monthly payments of $12,550, including principal and accrued interest, and a final payment of principal and accrued interest of $530,770 due on May 1, 2018.

As a result of paying off the West Bank loans, the Company incurred $130,000 worth of prepayment penalties which were financed by the U.S. Bank loans. The penalties were booked to fixed costs on the income statement for the quarter ended May 31, 2013. Closing costs amounted to $9,000 and will be amortized over the life of the loans.

Each of the term loans from U.S. Bank is governed by a Term Note and a Term Loan Agreement. Each Term Loan Agreement and the Revolving Credit Agreement require the Company to provide monthly internally prepared financial reports, year-end audited financial statements, and a monthly aging of accounts receivable. The Company, as of the end of each fiscal quarter, must maintain a debt to tangible net worth ratio of not more than 1.5 to 1.0 and a fixed charge coverage ratio of at least 1.15 to 1.00. The loans are secured by a first position security interest on the assets of the Company and its subsidiaries, including but not limited to, inventories, machinery, equipment and real estate, in accordance with the Business Security Agreements entered into by the Company and its subsidiaries and the Pledge Agreements entered into by the subsidiaries. Additionally, the Company has mortgaged certain real property in favor of U.S. Bank to secure the new loans, as documented by the Mortgage, Security Agreement and Assignment of Rents between U.S. Bank and the Company and its subsidiaries.

If the Company or its subsidiaries (as guarantors pursuant to continuing guaranties) commits an event of default under the Term Loan Agreements, Business Security Agreements, Pledge Agreements or Revolving Credit Agreement and fails or is unable to cure that default, the interest rate on each of the loans and Line of Credit could increase by 5.0% and U.S. Bank can immediately terminate its obligation, if any, to make additional loans to the Company. In addition, U.S. Bank may collect any and all money due or to become due and shall 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, including, without limitation, the right to repossess, render unusable and/or dispose of the collateral without judicial process. Events of default include, without limitation, nonpayment, nonperformance of covenants, misrepresentation, default on other obligations in excess of $10,000, unsatisfied judgments exceeding $10,000, bankruptcy, or adverse changes in the financial condition of the business.

The foregoing descriptions of the Revolving Credit Note, Revolving Credit Agreement, Term Loan Agreements, Business Security Agreements, Pledge Agreements, Continuing Guaranties, and Mortgages do not purport to be complete and are qualified in their entirety by reference to such documents which are attached hereto as Exhibits 10.2 through 10.23, respectively, and are incorporated herein by reference.

On May 1, 2013, the Company executed an Amendment to Note to its May 10, 2012 $880,000 note to U.S. Bank N.A. (the “U.S. Bank UHC Loan”) and a corresponding Amendment to Mortgage to extend the Mortgage to secure the 2013 U.S. Bank Term Loans in addition to the U.S. Bank UHC Loan. For more information on the U.S. Bank UHC Loan, see Note 7 to the quarterly unaudited consolidated condensed financial statements included in this report.

The forgoing descriptions of the Amendment to Note and the Amendment to Mortgage do not purport to be complete and are qualified in their entirety by reference to such documents, which are attached hereto as Exhibits 10.24 and 10.25 and are incorporated herein by reference.