ARTS WAY MANUFACTURING CO INC (Form: 10-Q, Received: 07/08/2009 11:12:58)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x	Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended May 31, 2009

¨	Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ______ to ______

Commission File No. 0-5131

ART’S-WAY MANUFACTURING CO., INC.

(Exact Name of Registrant as Specified in Its Charter)

DELAWARE	42-0920725
(State or Other Jurisdiction of Incorporation or Organization)	I.R.S. Employer Identification No.

5556 Highway 9

Armstrong, Iowa 50514

(Address of Principal Executive Offices)

(712) 864-3131

Registrant’s Telephone Number, Including Area Code

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):

Large Accelerated filer ¨	Accelerated filer ¨

Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Number of common shares outstanding as of June 25, 2009: 3,990,352

Art’s-Way Manufacturing Co., Inc.

Index

		Page No.

PART I – FINANCIAL INFORMATION		1

Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets
	May 31, 2009 and November 30, 2008	1
	Condensed Consolidated Statement of Operations
	Three-month and six-month periods ended May 31, 2009 and May 31, 2008	2
	Condensed Consolidated Statements of Cash Flows
	Six-month period ended May 31, 2009 and May 31, 2008	3
	Notes to Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 4T.	Controls and Procedures	15
PART II – OTHER INFORMATION		17

Item 1.	Legal Proceedings	17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3.	Defaults Upon Senior Securities	17
Item 4.	Submission of Matters to a Vote of Security Holders	17
Item 5.	Other Information	17
Item 6.	Exhibits	18
	Signatures	19
	Exhibits Index	20

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

ART’S-WAY MANUFACTURING CO., INC.

Consolidated Balance Sheets

	(Unaudited)
	May		November
	2009		2008
Assets
Current assets:
Cash	$	53,037	$	103,450
Accounts receivable-customers, net of allowance for doubtful accounts of $170,243 and $177,434 in 2009 and 2008, respectively		2,818,473		3,251,326

Inventories, net		13,985,118		15,172,723
Deferred taxes		915,000		780,000
Cost and Profit in Excess of Billings		81,604		250,330
Income taxes receivable		58,088		87,000
Other current assets		310,657		111,533
Total current assets		18,221,977		19,756,362
Property, plant, and equipment, net		6,857,931		6,855,042
Covenant not to Compete		210,000		240,000
Goodwill		375,000		375,000
Total assets	$	25,664,908	$	27,226,404
Liabilities and Stockholders’ Equity
Current liabilities:
Notes payable to bank	$	3,717,784	$	2,581,775
Current portion of term debt		440,034		429,689
Accounts payable		676,163		3,425,885
Checks issued in excess of deposits		-		274,043
Customer deposits		886,479		75,980
Billings in Excess of Cost and Profit		480,734		531,736
Accrued expenses		839,166		1,323,525
Total current liabilities		7,040,360		8,642,633
Long-term liabilities
Deferred taxes		565,000		490,000
Term debt, excluding current portion		5,860,193		6,083,159
Total liabilities		13,465,553		15,215,792
Stockholders’ equity:
Common stock – $0.01 par value. Authorized 5,000,000 shares; issued 3,990,352 and 3,986,352 shares in 2009 and 2008		39,904		39,864
Additional paid-in capital		2,157,539		2,085,349
Retained earnings		10,001,912		9,885,399
Total stockholders’ equity		12,199,355		12,010,612
Total liabilities and stockholders’ equity	$	25,664,908	$	27,226,404

See accompanying notes to consolidated financial statements.

ART’S-WAY MANUFACTURING CO., INC.

Consolidated Statements of Operations

Condensed

	Three Months Ended						Year to Date
	May 31,			May 31,			May 31,			May 31,
	2009			2008			2009			2008
Net sales	$	7,115,645		$	7,686,553		$	13,806,511		$	14,435,067
Cost of goods sold		5,647,551			5,247,976			11,022,137			9,821,168
Gross profit		1,468,094			2,438,577			2,784,374			4,613,899
Expenses:
Engineering		70,177			74,208			159,129			149,676
Selling		393,181			424,916			813,313			877,730
General and administrative		713,509			900,258			1,423,068			1,733,373
Total expenses		1,176,867			1,399,382			2,395,510			2,760,779
Income from operations		291,227			1,039,195			388,864			1,853,120
Other income (expense):
Interest expense		(140,624	)		(143,657	)		(266,786	)		(266,289	)
Other		23,479			393,935			57,543			435,714
Total other income		(117,145	)		250,278			(209,243	)		169,425
Income before income taxes		174,082			1,289,473			179,621			2,022,545
Income tax expense		61,164			400,428			63,108			656,659
Net income	$	112,918		$	889,045		$	116,513		$	1,365,886
Net income per share:
Basic		0.03			0.22			0.03			0.34
Diluted		0.03			0.22			0.03			0.34

See accompanying notes to consolidated financial statements.

ART’S-WAY MANUFACTURING CO., INC.

Consolidated Statements of Cash Flows

Condensed

	Year To Date
	May 2009			May 2008
Cash flows from operations:
Net income	$	116,513		$	1,365,886
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Stock based compensation		56,789			94,823
(Gain) Loss on disposal of property, plant, and equipment		-			(399,449	)
Depreciation expense		290,809			250,222
Amortization expense		30,000			30,000
Deferred income taxes		(60,000	)		149,557
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable		432,853			(682,570	)
Inventories		1,187,605			(5,573,742	)
Other current assets		(199,124	)		(118,494	)
Income taxes receivable		28,912			-
Other, net		-			977
Increase (decrease) in:
Accounts payable		(2,749,722	)		116,572
Contracts in progress, net		117,724			836,936
Customer deposits		810,499			3,196,420
Income taxes payable		-			(85,389	)
Accrued expenses		(484,359	)		(70,591	)
Net cash (used in) operating activities		(421,501	)		(888,842	)
Cash flows from investing activities:
Purchases of property, plant, and equipment		(293,697	)		(1,161,074	)
Proceeds from insurance recoveries		-			248,872
Net cash (used in) investing activities		(293,697	)		(912,202	)
Cash flows from financing activities:
Net change in line of credit		1,136,009			2,010,080
Net activity as a result of checks issued in excess of deposits		(274,043	)		-
Payments of notes payable to bank		(212,621	)		(107,457	)
Proceeds from term debt		-			500,000
Proceeds from the exercise of stock options		15,440			15,360
Net cash provided by financing activities		664,785			2,417,983
Net increase (decrease) in cash		(50,413	)		616,939
Cash at beginning of period		103,450			612,201

Cash at end of period	$	53,037		$	1,229,140

Supplemental disclosures of cash flow information:
Cash paid/(received) during the period for:
Interest	$	251,183		$	254,706
Income taxes		91,950			592,500

Supplemental disclosures of noncash investing activities:
Insurance recoveries receivable	$	-		$	399,449
Gain on insurance recovery	$	-		$	399,449

See accompanying notes to consolidated financial statements.

Notes to Consolidated Financial Statements

(1)	Description of the Company

Unless otherwise specified, as used in this Quarterly Report on Form 10-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.

We began operations as a farm equipment manufacturer in 1956. Since that time, we have become a major worldwide manufacturer of agricultural equipment. Our principal manufacturing plant is located in Armstrong, Iowa.

We have organized our business into three 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. Art’s-Way Manufacturing manufactures farm equipment under its own and private labels. Art’s-Way Manufacturing has two wholly-owned operating subsidiaries. Art’s-Way Vessels manufactures pressure vessels and Art’s-Way Scientific manufactures modular buildings for various uses, commonly animal containment and research laboratories. For detailed financial information relating to segment reporting, see Note 10, “Segment Information.”

(2)	Summary of Significant Account Policies

Statement Presentation

The foregoing financial statements of Art’s-Way Manufacturing Co., Inc. (the “Company”) are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. The financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2008. The results of operations for the three and six months ended May 31, 2009 are not necessarily indicative of the results for the fiscal year ending November 30, 2009.

(3)	Income Per Share

Basic net income per common share has been computed on the basis of the weighted average number of common shares outstanding. Diluted net income 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. Per share computations reflect the results of the two for one stock split that became effective on July 30, 2008.

Basic and diluted earnings per common share have been computed based on the following as of May 31, 2009 and 2008:

	For the three months ended
	May 31, 2009		May 31, 2008
Basic:
Numerator, net income	$	112,918	$	889,045
Denominator: Average number
of common shares
outstanding		3,986,830		3,972,352
Basic earnings per
common share	$	0.03	$	0.22
Diluted
Numerator, net income	$	112,918	$	889,045
Denominator: Average number
of common shares outstanding		3,986,830		3,972,352

Effect of dilutive stock options		2,256		12,556
		3,989,086		3,984,908
Diluted earnings per
common share	$	0.03	$	0.22

	For the six months ended
	May 31, 2009		May 31, 2008
Basic:
Numerator, net income	$	116,513	$	1,365,886
Denominator: Average number of common shares outstanding		3,986,594		3,971,238
Basic earnings per common share	$	0.03	$	0.34
Diluted
Numerator, net income	$	116,513	$	1,365,886
Denominator: Average number of common shares outstanding		3,986,594		3,971,238

Effect of dilutive stock options		604		18,872
		3,987,198		3,990,110
Diluted earnings per common share	$	0.03	$	0.34

(4)

Inventory

Major classes of inventory are:

	May 31, 2009			November 30, 2008
Raw materials	$	9,846,314		$	10,622,204
Work in process		413,391			825,330
Finished goods		5,238,445			5,667,449
	$	15,498,150		$	17,114,983
Less: Reserves		(1,513,032	)		(1,942,260	)
	$	13,985,118		$	15,172,723

(5)	Accrued Expenses

Major components of accrued expenses are:

	May 31, 2009		November 30, 2008
Salaries, wages, and commissions	$	412,399	$	780,293
Accrued warranty expense		259,899		327,413
Other		166,868		215,819
	$	839,166	$	1,323,525

(6)	Product Warranty

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 is one year from the date of purchase. The Company’s warranties require it to repair or replace defective products during the warranty period at no cost to the customer. The Company records a liability for estimated costs that may be 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 be no assurance that future warranty costs will not exceed historical amounts. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the balance as necessary.

Changes in the Company’s product warranty liability for the three and six months ended May 31, 2009 and May 31, 2008 are as follows:

	For the three months ended
	May 31,2009			May 31, 2008

Balance, beginning	$	334,755		$	238,198
Settlements made in cash or in-kind		(137,166	)		(85,718	)
Warranties issued		62,310			87,661
Balance, ending	$	259,899		$	240,141

	For the six months ended
	May 31, 2009			May 31, 2008

Balance, beginning	$	327,413		$	262,665
Settlements made in cash or in-kind		(224,265	)		(262,478	)
Warranties issued		156,751			239,954
Balance, ending	$	259,899		$	240,141

(7)	Loan and Credit Agreements

The Company has a revolving line of credit with West Bank (the “Line of Credit”). On April 30, 2009, the Line of Credit was renewed in the amount of $4,500,000 and the maturity date was extended through June 30, 2009. Subsequent to quarter-end, on June 8, 2009, the Line of Credit was increased to $6,000,000 and the maturity date was extended to April 30, 2010. The Line of Credit is renewable annually with advances funding the Company’s working capital and letter of credit needs. The interest rate is West Bank’s prime interest rate, adjusted daily, with a minimum rate of 4.00%. As of May 31, 2009, the interest rate was the minimum of 4.0%. Upon renegotiation of the Line of Credit on June 8, 2009, the interest rate remained at the minimum rate of 4.0%. Monthly interest-only payments are required and the unpaid principal is due on the maturity date. As of May 31, 2009 and November 30, 2008, the Company had borrowed $3,717,784 and $2,581,775 respectively, against the Line of Credit. The available amounts remaining on the Line of Credit were $782,216 and $918,225 on May 31, 2009 and November 30, 2008, respectively. After renegotiation on June 8, 2009, the Company had borrowed $3,542,135 and had $2,457,865 remaining against the Line of Credit. The borrowing base limits advances from the Line of Credit to 60% of accounts receivable less than 90 days, plus 60% of finished goods inventory, plus 50% of raw material inventory and work-in-process inventory, as calculated at each month-end. The Company’s obligations under the Line of Credit are evidenced by a Promissory Note dated June 8, 2009 and certain other ancillary documents.

On June 7, 2007, the Company obtained a term loan from West Bank in the amount of $4,100,000. The loan was written to mature on May 1, 2017 and bore fixed interest at 7.25%. On May 1, 2008, the terms of this loan were changed to modify the maturity date, interest rate, and payments. The loan, with a principal amount of $3,607,860 as of May 31, 2009, will now mature on May 1, 2013 and bears fixed interest at 5.75%. Monthly principal and interest payments in the amount of $42,500 are required, with a final payment of principal and accrued interest in the amount of $2,304,789 due on May 1, 2013.

The Company obtained two additional loans from West Bank in 2007 for the purpose of financing the construction of the Company’s new facilities in Monona and Dubuque. On October 9, 2007, the Company obtained a loan for $1,330,000 that bore fixed interest at 7.0%. On May 1, 2008, the terms of this loan were changed to modify the maturity date, interest rate and payments. The current terms are a maturity date of May 1, 2013 and a fixed interest rate of 5.75%. Monthly payments of $11,000 are required for principal and interest, with a final payment of accrued interest and principal in the amount of $1,007,294 due on May 1, 2013. On May 31, 2009, the outstanding principal balance on this loan was $1,259,252.

On November 30, 2007, the Company obtained a construction loan to finance construction of the Dubuque, Iowa facility. This loan had an original principal amount of $1,500,000 and bore fixed interest at 7.25%. On May 1, 2008, the terms of this loan were changed to modify the maturity date, interest rate, and payments. The current terms are a maturity date of May 1, 2013 and a fixed interest rate of 5.75%. Payments of $12,550 are due monthly for principal and interest, with a final accrued interest and principal payment in the amount of $1,114,714 due on May 1, 2013. On May 31, 2009 the outstanding principal balance on this loan was $1,433,115.

Each of the Company’s loans from West Bank are governed by a Business Loan Agreement dated June 8, 2009 (the “Business Loan Agreement”), which requires the Company to comply with certain financial and reporting covenants. The Company must provide monthly internally prepared financial reports, including accounts receivable aging schedules and borrowing base and compliance certificates, and year-end audited financial statements. The Company must maintain a minimum debt service coverage ratio and a maximum debt to tangible net worth ratio of 1.5, and a minimum tangible net worth of $11,500,000, each as measured at the Company’s fiscal year-end. Further, the Company must obtain West Bank’s prior written consent for capital expenditures that exceed $500,000 annually. The loans are secured by a first position on the assets of the Company and its subsidiaries, including but not limited to, inventories, accounts receivable, machinery, equipment and real estate. The Company and its subsidiaries were required to execute Agreements to Provide Insurance that set forth the insurance requirements for the collateral.

If the Company or either of its subsidiaries (as guarantors) commits an event of default under the Business Loan Agreement and fails or is unable to cure that default, West Bank may cease advances and has the option of causing all outstanding indebtedness to become immediately due and payable. Events of default include, without limitation: (i) becoming insolvent or subject to bankruptcy proceedings; (ii) defaulting on any of obligations to West Bank; (iii) defaulting on any obligations to third parties that would materially affect the ability to perform obligations owed to West Bank; (iv) suffering a material adverse change in financial condition or the value of any collateral; and (v) making false statements to West Bank.

As previously disclosed, the Company received a debt waiver letter from West Bank for violating the debt/tangible net worth ratio covenant as of November 30, 2008. This waiver is in effect until the covenant is measured again at November 30, 2009.

A summary of the Company’s term debt is as follows:

	2009		2008

West Bank loan payable in monthly installments of $42,500 including interest at 5.75% ,due May 1, 2013 (A)	$	3,607,860	$	3,757,213

West Bank loan payable in monthly installments of $11,000 including interest at 5.75% ,due May 1, 2013 (A)		1,259,252		1,288,758

West Bank loan payable in monthly installments of $12,550 including interest at 5.75% ,due May 1, 2013 (A)		1,433,115		1,466,878

Total term debt		6,300,227		6,512,849
Less current portion of term debt		440,034		429,689
Term debt, excluding current portion	$	5,860,193	$	6,083,159

(A)

Covenants include, but are not limited to, debt service coverage ratio and debt/tangible net worth ratio. These loans are secured by all of the Company’s assets and those of its subsidiaries, including real estate, inventory, accounts receivable, inventory and equipment.

(8)	Recently Issued Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, Fair Value Measurements . This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosure about fair value measurements. The statement does not require any new fair value measurements, but for some entities, the application of the statement will change current practice. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. FASB Staff Position FAS 157-1 and FAS 157-2 were issued in February 2008. FSP FAS 157-1 amends SFAS No. 157 to exclude pronouncements that address the fair value measurement for lease classifications from the scope of SFAS No. 157. FSP FAS 157-2 delayed the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008. This delay did not include items that are recognized or disclosed at fair value in the financial statements on a recurring basis. FAS 157 has been adopted by the Company without a material impact on the financial statements.

In October 2008, the FASB issued FSP FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for that Asset is Not Active , which clarified the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSP FAS 157-3 was effective upon issuance. Its adoption did not have a material effect on the Company’s financial statements.

In December 2007, the FASB issued FASB Statement No. 141 (Revised 2007), Business Combinations , which requires the Company to record fair value estimates of contingent consideration and certain other potential liabilities during the original purchase price allocation, expense acquisition costs as incurred and does not permit certain restructuring activities previously allowed to be recorded as a component of purchase accounting. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, except for the presentation and disclosure requirements, which shall be applied retrospectively for all periods presented. The Company has not determined the effect that the adoption of SFAS No. 141(R) will have on the financial results of the Company.

In December 2007, the FASB issued FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51 , which causes noncontrolling interests in subsidiaries to be included in the equity section of the balance sheet. SFAS No. 160 applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, except for the presentation and disclosure requirements, which shall be applied retrospectively for all periods presented. The adoption of SFAS No. 160 will not have a material effect on the financial results of the Company.

In December 2007, the Securities and Exchange Commission (“SEC”) published SAB 110, Share-Based Payment . The interpretations in SAB 110 express the SEC staff’s views regarding the acceptability of the use of a “simplified” method, as discussed in SAB 107, in developing an estimate of expected term of share options in accordance with FASB Statement No. 123 (Revised) Share-Based Payment . The use of the simplified method requires our option plan to be consistent with a “plain vanilla” plan and was originally permitted through December 31, 2007 under SAB 107. In December 2007, the SEC issued SAB 110, Share-Based Payment , to amend the SEC’s views discussed in SAB 107 regarding the use of the simplified method in developing an estimate of expected life of share options in accordance with FAS No. 123(R). SAB 110 is effective for the Company beginning December 31, 2007. The Company will continue to use the simplified method until it has the historical data necessary to provide a reasonable estimate of expected life, in accordance with SAB 107, as amended by SAB 110.

The FASB issued FAS 165, Subsequent Events , on May 28, 2009. FAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Although there is new terminology, the standard is based on the same principles as those that currently exist in the auditing standards. The standard, which includes a new required disclosure of the date through which an entity has evaluated subsequent events, is effective for interim or annual periods ending after June 15, 2009. The Company does not anticipate the adoption FAS 165 to have a material effect on the financial reports of the Company.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP 107-1 and APB 28-1”), which requires disclosures about fair value of financial instruments in interim reporting periods of publicly traded companies that were previously only required to be disclosed in annual financial statements. The provisions of FSP FAS 107-1 and APB 28-1 are effective for our interim period ending on August 31, 2009. As FSP FAS 107-1 and APB 28-1 amends only the disclosure requirements about fair value of financial instruments in interim periods, the adoption of FSP FAS 107-1 and APB 28-1 is not expected have an effect on the financial results of the Company.

In April 2009, the FASB issued FSP No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP FAS 157-4”). FSP FAS 157-4 provides guidance on estimating fair value when market activity has decreased and on identifying transactions that are not orderly. Additionally, entities are required to disclose in interim and annual periods the inputs and valuation techniques used to measure fair value. This FSP is effective for interim and annual periods ending after June 15, 2009. The Company does not expect the adoption of FSP FAS 157-4 will have a material impact on its financial condition or results of operation.

(9)	Stock Option Plan

On January 25, 2007, the Board of Directors adopted the 2007 Non-Employee Directors’ Stock Option Plan (the “Directors’ Stock Option Plan”), which was approved by the Company’s stockholders at the annual stockholders meeting on April 24, 2008. The Directors’ Stock Option Plan provides that the plan administrator may grant non-employee directors options to purchase shares of common stock of the Company at an exercise price not less than fair market value at the date the options are granted. The Board of Directors has approved a director compensation policy pursuant to which non-employee directors are automatically granted non-qualified stock options to purchase 2,000 shares of common stock annually or initially upon their election to the Board, which are automatically vested.

On February 5, 2007, the Board of Directors adopted the 2007 Employee Stock Option Plan, which was approved by the Company’s stockholders at the Annual Stockholders’ Meeting on April 26, 2007. Under this plan, options may be granted to key personnel and consultants at the discretion of the plan administrator. The exercise price of the options must be not less than fair market value at the grant date. The options may be non-qualified or incentive stock options. The term and vesting conditions of options granted under the plan are at the administrator’s discretion.

(10)	Segment Information

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

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.

Three Months Ended May 31, 2009

	Agricultural Products		Pressurized Vessels			Modular Buildings			Consolidated
Revenue from external customers	$	6,165,000	$	226,000		$	725,000		$	7,116,000
Income from operations		694,000		(167,000	)		(236,000	)		291,000
Income before tax		653,000		(219,000	)		(260,000	)		174,000
Total Assets		19,302,000		2,959,000			3,404,000			25,665,000
Capital expenditures		59,000		7,000			0			66,000
Depreciation & Amortization		114,000		24,000			25,000			163,000

Three Months Ended May 31, 2008

	Agricultural Products		Pressurized Vessels			Modular Buildings		Consolidated
Revenue from external customers	$	5,066,000	$	90,000		$	2,531,000	$	7,687,000
Income from operations		760,000		(224,000	)		503,000		1,039,000
Income before tax		685,000		(273,000	)		877,000		1,289,000
Total Assets		20,622,000		2,633,000			4,555,000		27,810,000
Capital expenditures		300,000		187,000			41,000		528,000
Depreciation & Amortization		108,000		10,000			22,000		140,000

Six Months Ended May 31, 2009

	Agricultural Products		Pressurized Vessels			Modular Buildings			Consolidated
Revenue from external customers	$	10,874,000	$	375,000		$	2,558,000		$	13,807,000
Income from operations		837,000		(380,000	)		(68,000	)		389,000
Income before tax		759,000		(469,000	)		(110,000	)		180,000
Total Assets		19,302,000		2,959,000			3,404,000			25,665,000
Capital expenditures		260,000		34,000			0			294,000
Depreciation & Amortization		226,000		46,000			49,000			321,000

Six Months Ended May 31, 2008

	Agricultural Products		Pressurized Vessels			Modular Buildings		Consolidated
Revenue from external customers	$	9,193,000	$	203,000		$	5,039,000	$	14,435,000
Income from operations		1,291,000		(460,000	)		1,022,000		1,853,000
Income before tax		1,199,000		(536,000	)		1,360,000		2,023,000
Total Assets		20,622,000		2,633,000			4,555,000		27,810,000
Capital expenditures		332,000		710,000			119,000		1,161,000
Depreciation & Amortization		219,000		20,000			41,000		280,000

(11)	Subsequent Events

On June 8, 2009, the Company increased its Line of Credit with West Bank to $6,000,000 and extended the maturity date to April 30, 2010. In connection with renegotiating the Line of Credit, the Company entered into a Business Loan Agreement, Promissory Note, and certain other ancillary documents. For more detailed information relating to the Line of Credit and related agreements, see Note 7, “Loan and Credit Agreements.”

On June 3, 2009, the Company received $190,000 as part of the master contract by and between Art’s-Way Scientific, Inc. and the Iowa Department of Economic Development. This contract, signed August 7, 2007, governs two promissory notes, each for $95,000. The first promissory note provides for a $95,000 loan at 0% interest. The first of sixty monthly payments of $1,583.33 will begin on August 31, 2009. The second promissory note provides for a $95,000 forgivable loan. This loan will be forgiven provided Art’s-Way Scientific, Inc. meets certain obligations. These obligations include creating and retaining 37 jobs for the job maintenance period of May 31, 2010 to May 31, 2012, maintaining existence in Iowa, and maintaining insurance on the real estate in Monona.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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, 2008. 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 ability to meet our production schedule and obtain higher profit margins; (ii) the anticipated benefits of our efforts to improve our disclosure controls and procedures and remediate the material weakness in our internal control over financial reporting; (iii) our expectations related to expenses, particularly engineering expenses; (iv) our beliefs regarding the impact of current economic conditions on revenues; and (v) our beliefs regarding the sufficiency of working capital and our continued ability to renew or obtain financing when necessary, and (vi) our order backlog.

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) unexpected delays in production; (ii) delays in or obstacles to our ability to successfully improve our disclosure controls and procedures and remediate the material weakness in our internal control over financial reporting; (iii) the impact of tightening credit markets on our ability to renew our line of credit or obtain alternative financing; (iv) our ability to continue to meet debt obligations; (v) the effect of general economic conditions on the demand for our products and the cost of our supplies and materials; (vi) unforeseen costs or delays in implementing production of new products; (vii) unforeseen costs or delays in commencing operations at our Salem, South Dakota facility; (viii) unforeseen order cancellations and (ix) those risks described from time to time in our reports to the SEC (including our Annual Report on Form 10-K). We are not under any duty to update the forward-looking statements contained in this report. 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.

Critical Accounting Policies

Our critical accounting policies involving the more significant judgments and assumptions used in the preparation of the financial statements as of May 31, 2009 have remained unchanged from November 30, 2008. These policies include revenue recognition, inventory valuation, income taxes and stock-based compensation. Disclosure of these critical accounting policies is incorporated by reference under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended November 30, 2008.

Results of Operations

Net Sales and Cost of Sales

Our consolidated net sales for the six months ended May 31, 2009 were $13,807,000 compared to $14,435,000 for the same period in fiscal 2008. Consolidated net sales for the fiscal quarter ended May 31, 2009 were $7,116, 000 compared to $7,687,000 for the same period in fiscal 2008. Art’s-Way Manufacturing, our agricultural products segment, had net revenues of approximately $6,165,000 and $10,874,000 for the three- and six-month periods ended May 31, 2009, respectively, compared to $5,066,000 and $9,193,000 for the same respective periods in fiscal 2008, which represents an increase of 21.7% and 18.3%, respectively. The quarter and six-month increase in sales for Art’s-Way Manufacturing was largely due to the sales of forage boxes and rakes from the Miller Pro product line, which had minimal sales during the first half of fiscal 2008, due to product integration. Art’s-Way Vessels, our pressurized vessels segment, had net revenues of approximately $226,000 and $375,000 for the three- and six-month periods ended May 31, 2009, respectively, compared to $90,000 and $203,000 for the same respective periods in fiscal 2008, which represents an increase of 151.1% and 84.7%, respectively. This was an expected increase due to the ongoing process of rebuilding sales that were lost during the period after the termination of our lease. The increases in net revenue were offset, however, by decreases in net revenues at Art’s Way Scientific, our modular buildings segment, of 71.3% and 49.2% for the three- and six-month periods ended May 31, 2009, respectively. Art’s Way Scientific had net revenues of approximately $725,000 and $2,558,000 for the three- and six-month periods ended May 31, 2009, respectively, compared to $2,531,000 and $5,039,000 for the same respective periods in fiscal 2008. The decrease in net revenues for Art’s Way Scientific was the result of a decrease in demand for modular buildings, which management believes was largely due to the impact of current economic conditions on the capital budgets of potential customers.

Consolidated gross profit margin for the three- and six-month periods ended May 31, 2009 was 20.6% and 20.2%, respectively, compared to 31.7% and 32.0% for the same respective periods in the 2008 fiscal year, primarily due to decreases in gross profit margin at Art’s-Way Manufacturing and Art’s-Way Scientific. The gross profit margin of Art’s-Way Manufacturing decreased from 34.8% and 36.4% in the three- and six-month periods ended May 31, 2008, respectively, to 25.7% and 23.9% for the same respective periods in 2009. After the purchase of the Miller Pro product line, we had many orders that we were unable to produce in a timely fashion. In order to satisfy our customers, we agreed to sell these goods at the lower prices quoted in 2007. As a result of our production delays caused by the integration of this product line, we shipped goods in the first and second quarters of 2009 that were priced at the end of 2007 and manufactured with materials purchased at the higher prices of 2008. We have nearly completed our commitments on the 2007 pricing, and do not anticipate any additional production delays.

The gross profit margin of Art’s-Way Vessel increased from -83.0% and -99.6% in the three- and six-month periods ended May 31, 2008 to -30.2% and -38.1% for the same respective periods in 2009. This increase is due to our increased sales, which help defray the fixed manufacturing expenses, such as depreciation and inventory obsolescence. The gross profit margin of Art’s-Way Scientific decreased from 29.6% and 29.1% in the three- and six–month periods ended May 31, 2008, respectively, to -6.6% and 12.9% for the same respective periods in 2009. The decrease in gross profit margin at Art’s-Way Scientific was primarily due to the decrease in revenue explained above. In addition, gross profit margins at Art’s-Way Scientific were negatively impacted during the first and second quarter by unanticipated cost overruns on a project that was substantially completed during the period.

Expenses

Consolidated operating expenses for the three- and six–month periods ended May 31, 2009 decreased $223,000 and $365,000, respectively, compared to the three- and six-month periods ended May 31, 2008. As a percentage of sales, operating expenses decreased by 1.7% and 1.7%, respectively. Operating expenses were 16.5% and 17.4% of sales for the three- and six-month periods ended May 31, 2009 compared to 18.2% and 19.1% for the same respective periods in fiscal 2008. Year-to-date operating expense as a percentage of sales for each of Art’s-Way Manufacturing, Art’s-Way Vessels and Art’s-Way Scientific was 16.2%, 63.3% and 15.5%, respectively.

General and administrative expenses decreased $187,000 and $310,000 for the three- and six–month periods ended May 31, 2009, as compared to the same respective periods in fiscal 2008. The decrease was partly due to a $120,000 decrease in the current year accrual for management bonuses during the first half of fiscal 2009 as compared to the same period in fiscal 2008, as a result of a decision of the Board of Directors to eliminate this accrual for management bonuses until profits increase. Additionally, the elimination of management bonuses caused a reversal of $100,000 of the bonus that had accrued as of the end of our 2008 fiscal year, which affected our first quarter of 2009 general and administrative expenses, and therefore the year-to-date amounts as well. We were also able to reduce our corporate expenses for professional services. General and administrative expenses as a percentage of sales were 10.0% and 10.3% for the three- and six–month periods ended May 31, 2009, respectively, compared to 11.7% and 12.0% for the same respective periods in fiscal 2008.

Engineering expenses, which include expenses related to research and development and implementation of new product lines, decreased $4,000 and increased $9,000 for the three- and six-month periods ended May 31, 2009, respectively, compared to the same respective periods in fiscal 2008. As a percentage of sales, engineering expenses were 1.0% and 1.2% for the three- and six-month, periods, respectively, compared to 1.0% and 1.0% for the same respective periods in fiscal 2008. These expenses are largely due to the process of establishing auger production, which is a new product line offered by Art’s-Way Manufacturing and manufactured at a new site in Salem, South Dakota. We expect to continue to incur such expenses throughout the fiscal year.

Selling expenses decreased by $32,000 and $64,000 for the three- and six-month periods ended May 31, 2009, respectively, compared to the same respective periods in fiscal 2008. As a percentage of sales, selling expenses were 5.5% and 5.9% for the three- and six-month periods ended May 31, 2009, respectively, compared to 5.5% and 6.1% for the same respective periods in fiscal 2008.

Interest expense for the three- and six-month periods ended May 31, 2009 is approximately the same from year to year. The lower effective interest rate on our Line of Credit has mitigated the increased interest due to greater borrowings compared to the same respective periods in fiscal 2008. Other income decreased by $370,000 and $378,000 in the three- and six-month periods ended May 31, 2009, respectively, compared to the same respective periods in fiscal 2008. This decrease is due to the fact that in 2008, Art’s Way Scientific recognized a gain of $399,499 in the second fiscal quarter due to insurance recoveries received for the fire in Monona in 2007.

Order Backlog

The consolidated order backlog as of June 30, 2009 was $10,511,000, compared to $20,538,000 as of June 30, 2008. Art’s-Way Manufacturing’s order backlog as of quarter-end was $7,757,000, compared to $13,785,000 in fiscal 2008. The majority of this decrease was due to our alleviation of delays in production and shipment of products in our Miller Pro product line, as explained above, but we are also experiencing lower demand for all of our product lines. The backlog for Art’s-Way Vessels was $199,000 at June 30, 2009, compared to $40,000 in fiscal 2008. The backlog for Art’s-Way Scientific was $2,555,000 at June 30, 2009, compared to $6,713,000 in fiscal 2008. The decrease in the backlog at Art’s Way Scientific is largely due to a reduction in the number of customer orders, which management believes was the result of decreases in capital budgets of many potential customers and current economic conditions. Our order back log 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.

Liquidity and Capital Resources

Our main source of funds year-to-date has been from the reduction of our inventories, and our traditional customer deposits in the first and second quarters. Increased borrowing on our line of credit also provided cash during the first half of 2009.

The majority of the cash used by operations during the first half of 2009 was due to payments on raw material purchases for the OEM and Miller Pro blower lines of Art’s-Way Manufacturing, as well as fulfilling commitments related to production at Art’s-Way Scientific. Our accounts payable decreased from $3,425,885 at November 30, 2008 to $676,162 on May 31, 2009.

We have a revolving line of credit with West Bank (the “Line of Credit”). On April 30, 2009, the Line of Credit was renewed in the amount of $4,500,000 and the maturity date was extended through June 30, 2009. Subsequent to quarter-end, on June 8, 2009, the Line of Credit was increased to $6,000,000 and the maturity date was extended to April 30, 2010. The Line of Credit is renewable annually with advances funding our working capital and letter of credit needs. The interest rate is West Bank’s prime interest rate, adjusted daily, with a minimum rate of 4.00%. As of May 31, 2009, the interest rate was the minimum of 4.0%. Upon renegotiation of the Line of Credit on June 8, 2009, the interest rate remained at the minimum rate of 4.0%. Monthly interest-only payments are required and the unpaid principal is due on the maturity date. As of May 31, 2009 and November 30, 2008, the Company had borrowed $3,717,784 and $2,581,775 respectively, against the Line of Credit. The available amounts remaining on the Line of Credit were $782,216 and $918,225 on May 31, 2009 and November 30, 2008, respectively. After renegotiation on June 8, 2009, the Company had borrowed $3,542,135 and had $2,457,865 remaining against the Line of Credit. The borrowing base limits advances from the Line of Credit to 60% of accounts receivable less than 90 days, plus 60% of finished goods inventory, plus 50% of raw material inventory and work-in-process inventory, as calculated at each month-end. The Company’s obligations under the Line of Credit are evidenced by a Promissory Note dated June 8, 2009 and certain other ancillary documents.

On June 7, 2007, we obtained a term loan from West Bank in the amount of $4,100,000. The loan was written to mature on May 1, 2017 and bore fixed interest at 7.25%. On May 1, 2008, the terms of this loan were changed to modify the maturity date, interest rate, and payments. The loan, with a principal amount of $3,607,860 as of May 31, 2009, will now mature on May 1, 2013 and bears fixed interest at 5.75%. Monthly principal and interest payments in the amount of $42,500 are required, with a final payment of principal and accrued interest in the amount of $2,304,789 due on May 1, 2013.

We obtained two additional loans from West Bank in 2007, for the purpose of financing the construction our facilities in Monona and Dubuque. On October 9, 2007, we obtained a loan for $1,330,000 that bore fixed interest at 7.0%. On May 1, 2008, the terms of this loan were changed to modify the maturity date, interest rate, and payments. The current terms are a maturity date of May 1, 2013 and a fixed interest rate of 5.75%. Monthly payments of $11,000 are required for principal and interest, with a final payment of accrued interest and principal in the amount of $1,007,294 due on May 1, 2013. On May 31, 2009, the outstanding principal balance on this loan was $1,259,252.

On November 30, 2007, we obtained a construction loan to finance construction of the Dubuque, Iowa facility. This loan had an original principal amount of $1,500,000 and bore fixed interest at 7.25%. On May 1, 2008 the terms of this loan were changed to modify the maturity date, interest rate, and payments. The current terms are a maturity date of May 1, 2013 and a fixed interest rate of 5.75%. Payments of $12,550 are due monthly for principal and interest, with a final accrued interest and principal payment in the amount of $1,114,714 due on May 1, 2013. On May 31, 2009 the outstanding principal balance on this loan was $1,433,115.

Each of our loans from West Bank are governed by a Business Loan Agreement dated June 8, 2009 (the “Business Loan Agreement”), which requires us to comply with certain financial and reporting covenants. We must provide monthly internally prepared financial reports, including accounts receivable aging schedules and borrowing base and compliance certificates, and year-end audited financial statements. We must maintain a minimum debt service coverage ratio and a maximum debt to tangible net worth ratio of 1.5, and a minimum tangible net worth of $11,500,000, each as measured at our fiscal year-end. Further, we must obtain West Bank’s prior written consent for capital expenditures that exceed $500,000 annually. The loans are secured by a first position on our assets and those of our subsidiaries, including but not limited to, inventories, accounts receivable, machinery, equipment and real estate. Art’s-Way Manufacturing and its subsidiaries were required to execute Agreements to Provide Insurance that set forth the insurance requirements for the collateral.

If Art’s-Way Manufacturing or either of its subsidiaries (as guarantors) commits an event of default under the Business Loan Agreement and fails or is unable to cure that default, West Bank may cease advances and has the option of causing all outstanding indebtedness to become immediately due and payable. Events of default include, without limitation: (i) becoming insolvent or subject to bankruptcy proceedings; (ii) defaulting on any of obligations to West Bank; (iii) defaulting on any obligations to third parties that would materially affect the ability to perform obligations owed to West Bank; (iv) suffering a material adverse change in financial condition or the value of any collateral; and (v) making false statements to West Bank.

As previously disclosed, we received a debt waiver letter from West Bank for violating the debt/tangible net worth ratio covenant as of November 30, 2008. This waiver is in effect until the covenant is measured again at November 30, 2009.

We believe that we may to rely on cash from financing activities to supplement our cash flows from operations in order to meet our liquidity and capital expenditure needs in the near future. We expect to continue to be able to procure financing upon reasonable terms.

Off Balance Sheet Arrangements

None.

Item 4T. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The person serving as our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), as of the end of the period covered by this report. As a result of the material weakness relating to inventory accounting that existed at the end of our fiscal year, which was previously disclosed in Item 9A(T) of our 2008 Annual Report on Form 10-K, the person serving as our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (a) accumulated and communicated to our management, including the person serving as our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure; and (b) recorded, processed, summarized and reported, within the time specified in the SEC’s rules and forms. As a result of this conclusion, the financial statements for the period covered by this report were prepared with particular attention to the material weakness previously disclosed.

We are taking actions to remediate the previously-disclosed material weakness in our internal controls over financial reporting and improve our disclosure controls and procedures. We will continue to evaluate and monitor these efforts and intend to take all appropriate action when and as necessary to ensure we have effective disclosure controls and procedures.

Changes in Internal Controls

We have made significant progress, and continue to work on remediating the material weakness identified in our 2008 Annual Report on Form 10-K. During the first and second quarters of 2009, we continued to improve our physical inventory count procedures to ensure that inventory is properly reflected in the Company’s financial statements. We intend to continue to implement and use these procedures throughout the 2009 fiscal year. No other changes in our internal control over financial reporting occurred during the first quarter of 2009 which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are currently not a party to any material pending legal proceedings.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On May 21, 2009, one of our directors exercised options to purchase an aggregate of 4,000 shares of the Company’s common stock. The options had an average exercise price of $3.86 per share and resulted in the Company receiving cash consideration of $15,440. The shares were issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended, since the issuances did not involve a public offering, the recipient took the shares for investment and not resale and we took appropriate measures to restrict transfer. We did not pay underwriter discounts or commissions in connection with the issuances.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

At our annual meeting of stockholders held April 30, 2009, the following individuals were elected to our Board of Directors to hold office until the next annual meeting or until their successors are elected and qualified, with the following votes in favor of election:

	FOR		WITHHELD
Thomas E. Buffamante		3,638,370		112,948
David R. Castle		3,635,778		115,540
Fred W. Krahmer		3,676,449		74,869
James Lynch		3,674,864		76,454
Douglas McClellan		3,676,449		74,869
J. Ward McConnell, Jr.		3,641,675		109,643
Marc H. McConnell		3,634,272		117,046

The stockholders ratified the appointment of Eide Bailly, LLP as independent public accountants for the fiscal year ending November 30, 2009.

Total number of shares voted in favor:			3,679,752
Total number of shares voted against:			61,044
Total number of abstentions:			10,520
Total number of broker non-votes:			0

Item 5. Other Information

On April 30, 2009, we renewed our Line of Credit with West Bank in the amount of $4,500,000 and extended the maturity date to June 30th, 2009. In connection with this renewal and extension, we executed a promissory note in the principal amount of $4,500,000, which is filed as Exhibit 10.1 hereto and is incorporated herein by reference.

Subsequent to quarter-end, on June 8, 2009, we increased the Line of Credit to $6,000,000 and further extended the maturity date to April 30, 2010. The Line of Credit is renewable annually with advances funding our working capital and letter of credit needs. The interest rate is West Bank’s prime interest rate, adjusted daily, with a minimum rate of 4.00%. Upon renegotiation of the Line of Credit on June 8, 2009, the interest rate was at the minimum rate of 4.0%. Monthly interest interest-only payments are required and the unpaid principal is due on the maturity date. Collateral consists of a first position on the assets of the Company and its subsidiaries, including but not limited to inventories, accounts receivable, machinery and equipment. As of June 8, 2009, we had borrowed $3,542,135 and had $2,457,865 remaining against the Line of Credit. The borrowing base limits advances from the Line of Credit to 60% of accounts receivable less than 90 days, plus 60% of finished goods inventory, plus 50% of raw material inventory and work-in-process inventory, as calculated at each month-end. The Company’s obligations under the Line of Credit are evidenced by a Promissory Note dated June 8, 2009 and certain other ancillary documents.

In connection with renegotiating the Line of Credit, on June 8, 2009, we entered into a Business Loan Agreement with West Bank (the “Business Loan Agreement”), which governs the Line of Credit and our outstanding term loans. The Business Loan Agreement requires us to comply with certain financial and reporting covenants. We must provide monthly internally prepared financial reports, including accounts receivable aging schedules and borrowing base and compliance certificates, and year-end audited financial statements. We must maintain a minimum debt service coverage ratio and a maximum debt to tangible net worth ratio of 1.5, and a minimum tangible net worth of $11,500,000, each as measured at our fiscal year-end. Further, we must obtain West Bank’s prior written consent for capital expenditures that exceed $500,000 annually. The loans are secured by a first position on our assets and those of our subsidiaries, including but not limited to, inventories, accounts receivable, machinery, equipment and real estate. Art’s-Way Manufacturing and its subsidiaries were required to execute Agreements to Provide Insurance that set forth the insurance requirements for the collateral.

The foregoing summary of the Line of Credit and Business Loan Agreement does not purport to be complete and is qualified in its entirety by reference to Letter Agreement from West Bank dated May 21, 2009, the Business Loan Agreement, the Promissory Note dated June 8, 2009, the Art’s-Way Manufacturing, Co., Inc. Agreement to Provide Insurance, the Art’s-Way Vessels, Inc. Agreement to Provide Insurance, and the Art’s-Way Scientific, Inc. Agreement to Provide Insurance, copies of which are attached hereto as Exhibits 10.2, 10.3, 10.4, 10.5, 10.6 and 10.7 respectively, as well as the Real Estate Mortgage to West Bank dated April 23, 2003 for property located in Armstrong Iowa, the Real Estate Mortgage to West Bank dated October 9, 2007 for property located in Monona, Iowa, the Real Estate Mortgage to West Bank dated November 30, 2007 for property located in Dubuque, Iowa, the Commercial Security Agreement dated April 25, 2003, the Commercial Security Agreement between Art’s-Way Scientific Inc. and West Bank dated April 20, 2007, and the Commercial Security Agreement between Art’s-Way Vessels Inc. and West Bank dated December 16, 2008, copies of which were attached to the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2008 as Exhibits 10.13, 10.14, 10.15, 10.9, 10.10, and 10.11 respectively. Each of the foregoing agreements is incorporated herein by reference.

Item 6. Exhibits

See “Exhibit Index” on page 20 of this report.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ART’S-WAY MANUFACTURING CO., INC.

Date: July 8, 2009	By:	/s/ Carrie L. Majeski
		Carrie L. Majeski
	President, Chief Executive Officer and Principal Financial Officer

Exhibits Index

Exhibit No.		Description
10.1		Promissory Note from Art’s-Way Manufacturing Co., Inc. to West Bank dated April 30, 2009—filed herewith
10.2		Letter Agreement from West Bank dated May 21, 2009 —filed herewith
10.3		Business Loan Agreement between Art’s-Way Manufacturing Co., Inc. and West Bank dated June 8, 2009—filed herewith
10.4		Promissory Note from Art’s-Way Manufacturing Co., Inc. to West Bank dated June 8, 2009—filed herewith
10.5		Art’s-Way Manufacturing Co., Inc. Agreement to Provide Insurance for loan dated June 8, 2009—filed herewith
10.6		Art’s-Way Vessels, Inc. Agreement to Provide Insurance for loan dated June 8, 2009—filed herewith
10.7		Art’s-Way Scientific, Inc. Agreement to Provide Insurance for loan dated June 8, 2009—filed herewith
10.8		Form of Non-Qualified Option Agreement under 2007 Non-Employee Directors’ Stock Option Plan and 2007 Employee Stock Option Plan
31.1		Certificate pursuant to 17 CFR 240 13a-14(a)—filed herewith
32.1		Certificate pursuant to 18 U.S.C. Section 1350—filed herewith

EXHIBIT 10.1

PROMISSORY NOTE

Borrower:	ART’S-WAY MANUFACTURING COMPANY, INC.	Lender:	WEST BANK
	(TIN: ____________ )		MAIN BANK
	5556 HIGHWAY 9 WEST, BOX 288		1601 22ND STREET
	ARMSTRONG, IA 50514		WEST DES MOINES, IA 50266
			(515) 222-2300

Principal Amount: $4,500,000.00

Date of Note: April 30, 2009

PROMISE TO PAY. ART’S-WAY MANUFACTURING COMPANY, INC. (“Borrower”) promises to pay to WEST BANK (“Lender”), or order, in lawful money of the United States of America, the principal amount of Four Million Five Hundred Thousand & 00/100 Dollars ($4,500,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance.

PAYMENT. Borrower will pay this loan in one payment of all outstanding principal plus all accrued unpaid interest on June 30, 2009. Unless otherwise agreed or required by applicable law, payments will be applied first to any accrued unpaid interest; then to principal; then to any unpaid collection costs; and then to any late charges. Borrower will pay Lender at Lender’s address shown above or at such other place as Lender may designate in writing.

VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an index which is Lender’s Prime Rate (the “Index”). This is the rate Lender charges, or would charge, on 90-day unsecured loans to the most creditworthy corporate customers. This rate may or may not be the lowest rate available from Lender at any given time. Lender will tell Borrower the current Index rate upon Borrower’s request. The interest rate change will not occur more often than each DAY. Borrower understands that Lender may make loans based on other rates as well. The Index currently is 3.250% per annum. The interest rate to be applied to the unpaid principal balance of this Note will be calculated as described in the “INTEREST CALCULATION METHOD” paragraph using a rate equal to the Index, adjusted if necessary for any minimum and maximum rate limitations described below, resulting in an initial rate of 4.000% per annum based on a year of 360 days. NOTICE: Under no circumstances will the interest rate on this Note be less than 4.000% per annum or more than the maximum rate allowed by applicable law.

INTEREST CALCULATION METHOD. Interest on this Note is computed on a 365/360 basis; that is, by applying the ratio of the interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. All interest payable under this Note is computed using this method.

	PROMISSORY NOTE
Loan No: ____________	(Continued)	Page 2

PREPAYMENT; MINIMUM INTEREST CHARGE. In any event, even upon full prepayment of this Note, Borrower understands that Lender is entitled to a minimum interest charge of $7.50 . Other than Borrower’s obligation to pay any minimum interest charge, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower’s obligation to continue to make payments. Rather, early payments will reduce the principal balance due. Borrower agrees not to send Lender payments marked “paid in full”, “without recourse”, or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender’s rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes “payment in full” of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: WEST BANK, MAIN BANK, 1601 22ND STREET, WEST DES MOINES, IA 50266.

LATE CHARGE. If a payment is 11 days or more late, Borrower will be charged $15.00 .

INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final maturity, the interest rate on this Note shall be increased by adding a 2.000 percentage point margin (“Default Rate Margin”). The Default Rate Margin shall also apply to each succeeding interest rate change that would have applied had there been no default. However, in no event will the interest rate exceed the maximum interest rate limitations under applicable law.

DEFAULT. Each of the following shall constitute an event of default (“Event of Default”) under this Note:

Payment Default. Borrower fails to make any payment when due under this Note.

Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.

Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower’s property or Borrower’s ability to repay this Note or perform Borrower’s obligations under this Note or any of the related documents.

False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower’s behalf under this Note or the related documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

	PROMISSORY NOTE
Loan No: ____________	(Continued)	Page 3

Insolvency. The dissolution or termination of Borrower’s existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower’s property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrower’s accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

Events Affecting Guarantor. Any of the preceding events occurs with respect to any guarantor, endorser, surety, or accommodation party of any of the indebtedness or any guarantor, endorser, surety, or accommodation party dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the indebtedness evidenced by this Note.

Change in Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower.

Adverse Change. A material adverse change occurs in Borrower’s financial condition, or Lender believes the prospect of payment or performance of this Note is impaired.

Insecurity. Lender in good faith believes itself insecure.

Cure Provisions. If any default, other than a default in payment is curable and if Borrower has not been given a notice of a breach of the same provision of this Note within the preceding twelve (12) months, it may be cured if Borrower, after receiving written notice from Lender demanding cure of such default: (1) cures the default within twenty (20) days; or (2) if the cure requires more than twenty (20) days, immediately initiates steps which Lender deems in Lender’s sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical.

LENDER’S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance under this Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount.

	PROMISSORY NOTE
Loan No: ____________	(Continued)	Page 4

ATTORNEYS’ FEES; EXPENSES. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable law, Lender’s attorneys’ fees and Lender’s legal expenses, whether or not there is a lawsuit, including without limitation all attorneys’ fees and legal expenses for bankruptcy proceedings (Including efforts to modify or vacate any automatic stay or injunction), and appeals. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law.

GOVERNING LAW. This Note will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Iowa without regard to its conflicts of law provisions. This Note has been accepted by Lender in the State of Iowa.

CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lender’s request to submit to the jurisdiction of the courts of POLK County, State of Iowa.

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower’s accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the indebtedness against any and all such accounts, and, at Lender’s option, to administratively freeze all such accounts to allow Lender to protect Lender’s charge and setoff rights provided in this paragraph.

COLLATERAL. Borrower acknowledges this Note is secured by REAL ESTATE MORTGAGE DATED 04/25/03; SECURITY AGREEMENT DATED 04/25/03; UNLIMITED SECURED GUARANTEES OF ART’S-WAY VESSELS, INC. AND ART’S-WAY SCIENTIFIC, INC.

LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under this Note, as well as directions for payment from Borrower’s accounts, may be requested orally or in writing by Borrower or by an authorized person. Lender may, but need not, require that all oral requests be confirmed in writing. Borrower agrees to be liable for all sums either: (A) advanced in accordance with the instructions of an authorized person or (B) credited to any of Borrower’s accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender’s internal records, including daily computer print-outs. Lender will have no obligation to advance funds under this Note if: (A) Borrower or any guarantor is in default under the terms of this Note or any agreement that Borrower or any guarantor has with Lender, including any agreement made in connection with the signing of this Note; (B) Borrower or any guarantor ceases doing business or is insolvent, (C) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor’s guarantee of this Note or any other loan with Lender, (D) Borrower has applied funds provided pursuant to this Note for purposes other than those authorized by Lender; or (E) Lender in good faith believes itself insecure.

	PROMISSORY NOTE
Loan No: ____________	(Continued)	Page 5

PURPOSE OF LOAN. The specific purpose of this loan is: WORKING CAPITAL.

SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrower’s heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender and its successors and assigns.

GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender’s security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Note are joint and several.

PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE.

BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE AND ALL OTHER DOCUMENTS RELATING TO THIS DEBT.

BORROWER:

ART’S-WAY MANUFACTURING COMPANY, INC.

By:	/s/ Carrie L. Majeski
	CARRIE L. MAJESKI, PRESIDENT of ART’S-WAY
	MANUFACTURING COMPANY, INC.

Exhibit 10.2

LOGO

May 21, 2009

Mr. J. Ward McConnell, Jr., Chairman

Ms. Carrie Majeski, President

Art’s-Way Manufacturing Co., Inc.

5556 Highway 9 West

P.O. Box 288

Armstrong, IA 50514

Re:	Replacement and update to Commitment Letter dated April 30, 2009

Dear Ward and Carrie:

We are pleased to inform you that West Bank (“Bank”) commits to renew and increase your line of credit to $6,000,000 to Art’s-Way Manufacturing Company, Inc. and all affiliated entities (“Borrower”) to provide working capital financing under the following terms and conditions:

FACILITY/PURPOSE:

$6,000,000 Revolving Line of Credit with advances funding the working capital, letter of credit, and corporate credit card needs of Borrowers.

MATURITY DATE:

April 30, 2010

INTEREST RATE:

The Bank’s Prime Interest Rate (presently 3.25%) adjusted daily with an interest rate floor of 4.00%.

PAYMENT SCHEDULE:

Monthly interest only payments shall be required. All remaining unpaid principal and interest shall be due on the maturity date of April 30, 2010.

COLLATERAL:

First and paramount security and mortgage interests in all assets owned by the Borrower and all subsidiary companies including, but not limited to cash, inventory, accounts, accounts receivable, equipment, and real estate.

OTHER TERMS AND CONDITIONS:

Borrowers agree to provide the Bank with the following financial reports:

A monthly internally prepared balance sheet, income statements, accounts receivable aging schedules, and borrowing base certificates. The borrowing bases shall limit the advances from Facility #1 to 60% of accounts receivable less than 90 days plus 60% of finished goods inventory and 50% of raw material inventories and work-in-process and shall be delivered within 30 days of each month end.

CPA-prepared audited financial statement at the conclusion of Borrowers’ fiscal year-end.

Borrowers agree to maintain a minimum debt service coverage ratio (measured at the conclusion of Borrower’s year-end) of 1.50 times. This ratio is calculated by dividing net income plus all non-cash charges by current maturities of long-term debt.

Borrowers shall maintain primary deposit accounts and credit card accounts at West Bank.

Borrowers agree to maintain a maximum debt/tangible net worth ratio of 1.50 times and a minimum tangible net worth of $11,500,000 by each fiscal year-end.

Borrower agrees to seek approval from the Bank prior to acquiring any new companies that would be included as affiliate or subsidiary entities of Borrower.

Borrower agrees to limit capital expenditures to an amount of $500,000 each fiscal year without prior written consent from the Bank excluding the building addition completed in 2009 and the planned roof replacement to be completed in 2009.

The aforementioned financial covenants and reporting also govern all existing long-term notes presently provided by Bank to Borrower. A new comprehensive loan agreement shall be established between Bank and Borrower that reinforces the terms and conditions of this commitment to lend.

We appreciate the opportunity to provide this commitment for your consideration. Please sign one copy of this letter where indicated below and return it to the Bank on or before May 29, 2009 at which time this commitment shall expire unless otherwise extended in writing by the Bank. The terms of this financing proposal are not to be shared with anyone other than the CPA, attorney, Board, or management team of the Borrower(s).

Please contact me at (515) 222-2322 with remaining questions or issues.

Sincerely,

/s/ Kevin J. Smith

Kevin J. Smith

Sr. Vice President

We accept the aforementioned terms of this commitment letter this 26th day of May, 2009.

ART’S-WAY MANUFACTURING CO., INC.

By:	/s/ J. Ward McConnell, Jr.		By:	/s/ Carrie Majeski
J. Ward McConnell, Jr., Chairman			Carrie Majeski, President

EXHIBIT 10.3

BUSINESS LOAN AGREEMENT

Borrowers:	Art’s-Way Manufacturing Co., Inc.	Lender:	West Bank
	5556 Hwy. 9 W		1601 22 nd Street
	Armstrong, IA 50514		West Des Moines, IA 50255

Guarantor:	Art’s-Way Vessels, Inc.	Art’s-Way Scientific, Inc.
	7010 Chavenelle Road	203 Oak Street
	Dubuque, IA 52002	Monona, IA 52159

THIS BUSINESS LOAN AGREEMENT dated June 8, 2009, is made and executed between Art’s-Way Manufacturing Co., Inc. (“Borrower”) and West Bank (“Lender”) on the following terms and conditions.

Borrower has made four prior commercial loans from Lender and has applied to Lender for a renewal and increased $6,000,000 commercial line of credit (collectively “Loans” and each individually a “Loan”). Borrower understands and agrees that: (A) In granting, renewing, or extending the Loans, Lender has relied upon Borrower’s representations, warranties, and agreements as set forth in the loan documents and/or this Agreement; (B) the granting, renewing, or extending of any Loan by Lender at all times shall be subject to Lender’s sole judgment and discretion; and (C) all of the Loans shall hereby become and remain subject to the terms and conditions of this Agreement.

TERM . This Agreement shall be effective as of the date stated above and shall continue in full force and effect until such time as all of Borrower’s obligations to Lender have been paid in full, including principal, interest, costs, expenses, attorneys’ fees, and other fees and charges, or until such time as the parties may agree in writing to terminate this Agreement.

CONDITIONS PRECEDENT TO EACH LINE OF CREDIT ADVANCE . Lender’s obligation to make the initial Advance and each subsequent Advance under the line of credit Loan shall be subject to the fulfillment to Lender’s satisfaction of all of the conditions set forth in this Agreement and in the Related Documents. Specifically, but without limitation:

Borrower’s Authorization . Borrower shall have provided in form and substance satisfactory to Lender properly certified resolutions, duly authorizing the execution and delivery of this Agreement, the Note, and the Related Documents. In addition, Borrower shall have provided such other resolutions, authorizations, documents, and instruments as Lender or Lender’s counsel may require.

Loan Documents . Borrower shall provide to Lender the following documents for the line of credit Loan: (1) the Note; (2) Security Agreements granting to Lender security interests in the Collateral; (3) financing statements and all other documents perfecting Lender’s Security Interests; (4) evidence of insurance as required below; (5) guaranties by Art’s-Way Vessels, Inc. and Art’s-Way Scientific, Inc.; (6) together with all such Related Documents as Lender may require for the Loan; all in form and substance satisfactory to Lender and Lender’s counsel.

Business Loan Agreement (Continued)

Loan No. ___________________

No Event of Default . There shall not exist at the time of any Advance a condition which would constitute an Event of Default under this Agreement, any of the Loans, or any Related Document.

Payment of Fees and Expenses . Borrower shall have paid to Lender all fees, charges, and other expenses which are then due and payable as specified in this Agreement or any Related Document.

Representations and Warranties . The representations and warranties set forth in this Agreement, in the Related Documents, and in any document or certificate delivered to Lender concerning the Loans are true and correct.

REPRESENTATIONS AND WARRANTIES . Borrower represents and warrants to Lender that as of the date of this Agreement, the date of each disbursement of loan proceeds, and at all times any indebtedness exists:

Assumed Business Names . Borrower does not operate under any assumed business names.

Authorization . Borrower’s execution, delivery, and performance of this Agreement and all the Related Documents have been duly authorized by all necessary action by Borrower and do not conflict with, result in a violation of, or constitute a default under (1) any provision of (a) Borrower’s articles of organization or membership agreements, or (b) any agreement or other instrument binding upon Borrower or (2) any law, governmental regulation, court decree, or order applicable to Borrower or to Borrower’s properties.

Binding Effect . This Agreement, the Note, all Security Agreements, and all Related Documents are binding upon the signers thereof, as well as upon their successors, representatives and assigns, and are legally enforceable in accordance with their respective terms.

Financial Information . Each of Borrower’s financial statements supplied to Lender truly and completely disclosed Borrower’s financial condition as of the date of the statement, and there has been no material adverse change in Borrower’s financial condition subsequent to the date of the most recent financial statement supplied to Lender. Borrower has no material contingent obligations except as disclosed in such financial statements.

- 2 -

Business Loan Agreement (Continued)

Loan No. ___________________

Hazardous Substances . Except as disclosed to and acknowledged by Lender in writing, Borrower represents and warrants that: (1) During the period of Borrower’s ownership of the Collateral, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance by any person on, under, about or from any of the Collateral; (2) Borrower has no knowledge of, or reason to believe that there has been (a) any breach or violation of any Environmental Laws; (b) any use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance on, under, about or from the Collateral by any prior owners or occupants of any of the Collateral; or (c) any actual or threatened litigation or claims of any kind by any person relating to such matters; and (3) Neither Borrower nor any tenant, contractor, agent or other authorized user of any of the Collateral shall use, generate, manufacture, store, treat, dispose of or release any Hazardous Substance on, under, about or from any of the Collateral unless any such activity shall be conducted in compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation, all Environmental Laws. Borrower authorizes Lender and its agents to enter upon the Collateral to make such inspections and tests as Lender may deem appropriate to determine compliance with this section of the Agreement. Any inspections or tests made by Lender shall be at Borrower’s expense and for Lender’s purposes only and shall not be construed to create any responsibility or liability on the part of Lender to Borrower or to any other person. The representations and warranties contained herein are based on Borrower’s due diligence in investigating the Collateral for hazardous waste and Hazardous Substances. Borrower hereby (1) releases and waives any future claims against Lender for indemnity or contribution in the event Borrower becomes liable for cleanup or other costs under any such laws, and (2) agrees to indemnify, defend, and hold harmless Lender against any and all claims, losses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release of a hazardous waste or substance on the Collateral. The provisions of this section of the Agreement, including the obligation to indemnify and defend, shall survive the payment of the Indebtedness and the termination, expiration or satisfaction of this Agreement and shall not be affected by Lender’s acquisition of any interest in any of the Collateral, whether by foreclosure or otherwise.

Legal Effect . This Agreement and every instrument or agreement Borrower is required to give under this Agreement when delivered will constitute legal, valid, and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms.

Lien Priority . Unless otherwise previously disclosed to Lender in writing, Borrower has not entered into or granted any Security Agreements, or permitted the filing or attachment of any Security Interests on or affecting any of the Collateral directly or indirectly securing repayment of the Loans that would be prior or that may in any way be superior to Lender’s Security Interests and rights in and to the Collateral.

Litigation and Claims . No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borrower is pending or threatened, and no other event has occurred which may materially adversely affect Borrower’s financial condition or properties, other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by Lender in writing.

- 3 -

Business Loan Agreement (Continued)

Loan No. ___________________

Organization . Borrower is a corporation which is, and at all times shall be, duly organized, validly existing, and in good standing under and by virtue of the laws of the State of Delaware. Borrower is duly authorized to transact business in all other states in which Borrower is doing business, having obtained all necessary filings, governmental licenses, and approvals for each state in which Borrower is doing business. Specifically, Borrower is, and at all times shall be, duly qualified as a foreign corporation in all states in which the failure to so qualify would have a material adverse effect on its business or financial condition. Borrower has the full power and authority to own its properties and to transact the business in which it is presently engaged or presently proposes to engage. Borrower maintains its principal office and place of business at 5569 Hwy 9 West, Armstrong, Iowa. Unless Borrower has designated otherwise in writing, the principal office is the office at which Borrower keeps its books and records including its records concerning the Collateral. Borrower will notify Lender in writing prior to any change in its principal place of business, the location of Borrower’s state of organization, or any change in Borrower’s name. Borrower shall do all things necessary to preserve and to keep in full force and effect its existence, rights and privileges, and shall comply with all regulations, rules, ordinances, statutes, orders and decrees of any governmental or quasi-governmental authority or court applicable to Borrower and Borrower’s business activities.

Properties . Except as contemplated by this Agreement or as previously disclosed in Borrower’s financial statements or in writing to Lender and as accepted by Lender, and except for property tax liens for taxes not presently due and payable, Borrower owns and has good title to all of Borrower’s properties free and clear of all Security Interests, and has not executed any security documents or financing statements relating to such properties. All of Borrower’s properties are titled in Borrower’s legal name, and Borrower has not used or filed a financing statement under any other name.

Securities Laws . To the best of Borrower’s knowledge, Borrower is in full compliance with all securities laws applicable to Borrower.

Subsidiaries . Borrower has two wholly-owned subsidiaries: Art’s-Way Vessels, Inc. and Art’s-Way Scientific, Inc.

Taxes . To the best of Borrower’s knowledge, all of Borrower’s tax returns and reports that are or were required to be filed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith in the ordinary course of business and for which adequate reserves have been provided.

AFFIRMATIVE COVENANTS . Borrower covenants and agrees with Lender that, so long as this Agreement remains in effect, Borrower will:

Accounts . Maintain its primary deposit accounts and credit card accounts at Lender.

- 4 -

Business Loan Agreement (Continued)

Loan No. ___________________

Additional Assurances . Make, execute and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, assignments, financing statements, instruments, documents and other agreements or documents as Lender or Lender’s counsel may reasonably require to create, evidence, and perfect Lender’s security and collateral interests in all assets of Borrower and its subsidiaries.

Additional Information . Furnish such additional information and statements, as Lender may request from time to time.

Collateral . Grant and maintain first priority security and mortgage interests to Lender in all assets of Borrower and its subsidiaries subject only to Permitted Liens, if any.

Compliance Certificate . Unless waived in writing by Lender, provide Lender at least annually, with a certificate executed by Borrower’s chief financial officer, or other officer or person acceptable to Lender, certifying that the representations and warranties set forth in this Agreement are true and correct as of the date of the certificate and further certifying that, as of the date of the certificate, no Event of Default exists under this Agreement.

Compliance with Governmental Requirements . Comply with all laws, ordinances, and regulations, now or hereafter in effect, of all governmental authorities applicable to the conduct of Borrower’s properties, businesses, and operations, and to the use or occupancy of the Collateral, including without limitation, the Americans With Disabilities Act. Borrower may contest in good faith any such law, ordinance, or regulation and withhold compliance during any proceedings, including appropriate appeals, so long as Borrower has notified Lender in writing prior to doing so and so long as, in Lender’s sole opinion, Lender’s interests in the Collateral are not jeopardized. Lender may require Borrower to post adequate security or a surety bond, reasonably satisfactory to Lender, to protect Lender’s interest.

Cross-collateralization . Make, execute, and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, assignments, financing statements, instruments, documents and other agreements or documents as Lender or Lender’s counsel may reasonably require to completely cross-collateralize the Loans.

Environmental Compliance and Reports . Borrower shall comply in all respects with any and all Environmental Laws; not cause or permit to exist, as a result of an intentional or unintentional action or omission on Borrower’s part or on the part of any third party, on property owned and/or occupied by Borrower, any environmental activity where damage may result to the environment, unless such environmental activity is pursuant to and in compliance with the conditions of a permit issued by the appropriate federal, state or local governmental authorities; shall furnish to Lender promptly and in any event within thirty (30) days after receipt thereof a copy of any notice, summons, lien, citation, directive, letter or other communication from any governmental agency or instrumentality concerning any intentional or unintentional action or omission on Borrower’s part in connection with any environmental activity whether or not there is damage to the environment and/or other natural resources.

- 5 -

Business Loan Agreement (Continued)

Loan No. ___________________

Environmental Studies . Promptly conduct and complete, at Borrower’s expense, all such investigations, studies, samplings and testings as may be requested by Lender relative to any substance, or any waste or by-product of any substance defined as toxic or a hazardous substance under applicable federal, state, or local law, rule, regulation, order or directive, at or affecting any property or any facility owned, leased, or used by Borrower.

Financial Covenants . Maintain a minimum debt-service coverage ratio of 1.5 calculated as of Borrower’s fiscal year end. The ratio shall be calculated as (net income plus interest expenses plus non-cash charges) divided by (total principal and interest payments due during succeeding fiscal year except loan maturities). Maintain a maximum debt to tangible net worth ratio of 1.5 and a minimum tangible net worth of $11,500,000, both calculated as of Borrower’s fiscal year end.

Financial Records . Maintain its books and records in accordance with GAAP, applied on a consistent basis, and permit Lender to examine and audit Borrower’s books and records at all reasonable times.

Financial Statements . Furnish Lender with the following:

Annual Statements . As soon as available, but in no event later than one-hundred-twenty (120) days after the end of each fiscal year, Borrower’s balance sheet and income statement for the year ended, audited by a certified public accountant satisfactory to Lender.

Interim Statements . As soon as available, but in no event later than thirty (30) days after the end of each month, Borrower’s and each subsidiary’s balance sheet, income statement, and accounts receivable aging schedule, prepared by Borrower.

All financial reports required to be provided under this Agreement shall be prepared in accordance with GAAP, applied on a consistent basis, and certified by Borrower as being true and correct.

Guaranties . Prior to disbursement of any Loan proceeds, furnish executed guaranties of the Loans in favor of Lender, executed by the guarantors named below, on Lender’s forms, and in the amounts and under the conditions set forth in those guaranties.

Inspection . Permit employees or agents of Lender at any reasonable time to inspect any and all Collateral for the Loans and Borrower’s other properties and to examine or audit Borrower’s books, accounts, and records and to make copies and memoranda of Borrower’s books, accounts, and records. If Borrower now or at any time hereafter maintains any records (including without limitation computer generated records and computer software programs for the generation of such records) in the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all at Borrower’s expense.

- 6 -

Business Loan Agreement (Continued)

Loan No. ___________________

Insurance . Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may require with respect to Borrower’s properties and operations, in form, amounts, coverages and with insurance companies acceptable to Lender. Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least thirty (30) days prior written notice to Lender. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not impaired in any way by any act, omission or default of Borrower or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest for the Loans, Borrower will provide Lender with such lender’s loss payable or other endorsements as Lender may require.

Insurance Reports . Furnish to Lender, upon request of Lender, reports on each existing insurance policy showing such information as Lender may reasonably request, including without limitation the following: (1) the name of the Insurer; (2) the risks insured; (3) the amount of the policy; (4) the properties insured; (5) the then current property values on the basis of which insurance has been obtained, and the manner of determining those values; and (6) the expiration date of the policy. In addition, upon written request of Lender (however not more often than annually), Borrower will have an independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement cost of any Collateral. The cost of such appraisal shall be paid by Borrower.

Loan Proceeds . Use all proceeds of the Loans solely for the business operations of Borrower and its subsidiaries, unless otherwise specifically agreed to in advance by Lender in writing. The line of credit Loan proceeds shall be used for working capital, letter of credit, and corporate credit card purposes of Borrower and its subsidiaries.

Names of Guarantors . Art’s-Way Vessels, Inc. and Art’s-Way Scientific, Inc.

Notices of Claims and Litigation . Promptly inform Lender in writing of (1) all material adverse changes in the financial condition of Borrower or either Guarantor, and (2) all existing and all threatened litigation, claims, investigations, administrative proceedings or similar actions affecting Borrower or any Guarantor which could materially affect the financial condition of Borrower or the financial condition of any Guarantor.

Operations . Maintain executive and management personnel with substantially the same qualifications and experience as the present executive and management personnel; provide written notice to Lender of any change in executive and management personnel; conduct its business affairs in a reasonable and prudent manner.

Other Agreements . Comply with all terms and conditions of all other material agreements, whether now or hereafter existing, between Borrower and any other entity and notify Lender immediately in writing of any default in connection with any other such agreements.

- 7 -

Business Loan Agreement (Continued)

Loan No. ___________________

Performance . Perform and comply, in a timely manner, with all terms, conditions, and provisions set forth in this Agreement, in the Related Documents, and in all other instruments and agreements between Borrower and Lender. Borrower shall notify Lender immediately in writing of any default in connection with any such agreement.

Taxes, Charges and Liens . Pay and discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower’s properties, income, or profits.

LENDER’S EXPENDITURES . If any action or proceeding is commenced that would materially affect Lender’s interest in the Collateral or if Borrower fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Borrower’s failure to discharge or pay when due any amounts Borrower is required to discharge or pay under this Agreement or any Related Documents, Lender on Borrower’s behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on any Collateral and paying all costs for insuring, maintaining and preserving any Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Borrower. All such expenses will become a part of the Indebtedness and, at Lender’s option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable at the Note’s maturity.

NEGATIVE COVENANTS . Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower and Guarantors shall not, without the prior written consent of Lender:

Borrowing Base . Allow the amount advanced pursuant to the line of credit Loan to exceed the sum of (60% of Borrower’s accounts receivable less than 90 days old) plus (60% of Borrower’s finished goods inventory) plus (50% of Borrower’s raw material inventory and work-in-process) calculated at each month end.

Capital Expenditures . Make or contract to make capital expenditures, including leasehold improvements, in any fiscal year in excess of $500,000 or incur liability for rentals of property (including both real and personal property) in an amount which, together with capital expenditures, shall in any fiscal year exceed such sum. This limitation shall not include expenditures for the building addition completed in 2009 and the planned roof replacement expected to be completed in 2009 in the amounts disclosed to Lender before the effective date of this Agreement.

- 8 -

Business Loan Agreement (Continued)

Loan No. ___________________

Continuity of Operations . (1) Engage in any business activities substantially different than those in which Borrower and its subsidiaries are presently engaged, (2) cease operations, liquidate, merge, transfer, acquire or consolidate with any other entity, change its name, dissolve or transfer or sell Collateral out of the ordinary course of business, or (3) make any distribution with respect to any capital account except from a subsidiary to Borrower, whether by reduction of capital or otherwise.

Indebtedness and Liens . (1) Except for trade debt incurred in the normal course of business and indebtedness to Lender contemplated by this Agreement, create, incur or assume indebtedness for borrowed money, including capital leases, (2) sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of Borrower’s assets (except as allowed as Permitted Liens), or (3) sell with recourse any of Borrower’s accounts, except to Lender.

Loans, Acquisitions and Guaranties . (1) Loan, invest in, or advance money or assets to any other person, enterprise, or entity, (2) purchase, create, or acquire any interest in any other enterprise or entity, or (3) incur any obligation as surety or guarantor.

CESSATION OF ADVANCES . If Lender has made any commitment to make any Loan or Loan Advance to Borrower, whether under this Agreement or under any other agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds if: (A) Borrower or any Guarantor is in default under the terms of this Agreement or any of the Related Documents or any other agreement that Borrower or any Guarantor has with Lender; (B) Borrower or any Guarantor becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; (C) there occurs a material adverse change in Borrower’s financial condition, in the financial condition of any Guarantor, or in the value of any Collateral securing any Loan; or (D) any Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such Guarantor’s guaranty of the Loan or any other loan with Lender; or (E) Lender in good faith deems itself insecure, even though no Event of Default shall have occurred.

RIGHT OF SETOFF . To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower’s and Guarantors’ accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower or either of the Guarantors holds jointly with someone else and all accounts Borrower may open in the future. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the Indebtedness against any and all such accounts, and, at Lender’s option, to administratively freeze all such accounts to allow Lender to protect Lender’s charge and setoff rights provided in this paragraph.

DEFAULT . Each of the following shall constitute an Event of Default under this Agreement:

Adverse Change . A material adverse change occurs in Borrower’s or either Guarantor’s financial condition, or Lender believes the prospect of payment or performance of any of the Loans is impaired.

- 9 -

Business Loan Agreement (Continued)

Loan No. ___________________

Creditor or Forfeiture Proceedings . Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the Loan. This includes a garnishment of any of Borrower’s accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

Dissolution or Insolvency . The dissolution of Borrower or either Guarantor (regardless of whether election to continue is made) or any other termination of Borrower’s or either Guarantor’s existence as a going business, the insolvency of Borrower or either Guarantor, the appointment of a receiver for any part of Borrower’s or either Guarantor’s property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower or either Guarantor.

Default in Favor of Third Parties . Borrower or any Guarantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower’s or any Guarantor’s property or Borrower’s or any Guarantor’s ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents.

Defective Collateralization . This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral document to create a valid and perfected security interest or lien) at any time and for any reason.

Events Affecting Guarantors . Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or any Guarantor revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness.

False Statements . Any warranty, representation or statement made or furnished to Lender by Borrower or the Guarantors or on Borrower’s behalf under this Agreement or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

Insecurity . Lender in good faith deems itself insecure and allows Borrower a Right to Cure as described below.

Other Defaults . Borrower or either Guarantor fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement with Lender.

Payment Default . Borrower or Guarantors fail to make any payment when due under the Loans.

- 10 -

Business Loan Agreement (Continued)

Loan No. ___________________

Right to Cure . If any default, other than a payment default, is curable and if Borrower or either Guarantor, as the case may be, has not been given a notice of similar default within the preceding twelve (12) months, it may be cured if Borrower or a Guarantor, as the case may be, after receiving written notice from Lender demanding cure of such default: (1) cure the default within twenty (20) days; or (2) if the cure requires more than twenty (20) days, immediately initiates steps which Lender deems in Lender’s sole discretion to be sufficient to cure the default and thereafter continue and complete all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical.

EFFECT OF AN EVENT OF DEFAULT . If any Event of Default shall occur, except where otherwise provided in this Agreement or the Related Documents, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate (including any obligation to make further Loan Advances or disbursements), and, at Lender’s option, all Indebtedness immediately will become due and payable, all without notice of any kind to Borrower or Guarantors, except that in the case of an Event of Default of the type described in the “Insolvency” subsection above, such acceleration shall be automatic and not optional. In addition, Lender shall have all the rights and remedies provided in the Related Documents or available at law, in equity, or otherwise. Except as may be prohibited by applicable law, all of Lender’s rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower or of any Guarantor shall not affect Lender’s right to declare a default and to exercise its rights and remedies.

MISCELLANEOUS PROVISIONS . The following miscellaneous provisions are a part of this Agreement.

Amendments . This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement or any Related Document shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.

Attorneys’ Fees; Expenses . Borrower agrees to pay upon demand all of Lender’s costs and expenses, including Lender’s attorneys’ fees and Lender’s legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Borrower shall pay the costs and expenses of such enforcement. Costs and expenses include Lender’s attorneys’ fees and legal expenses, whether or not there is a lawsuit, including attorneys’ fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post judgment collection services.

Caption Headings . Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.

- 11 -

Business Loan Agreement (Continued)

Loan No. ___________________

Choice of Venue . If there is a lawsuit related to this Agreement or the Loans, Borrower agrees to submit to the personal jurisdiction of the courts of Polk County, State of Iowa.

Consent to Loan Participation . Borrower agrees and consents to Lender’s sale or transfer, whether now or later, of one or more participation interests in the Loans to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or Guarantors or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy Borrower or Guarantors may have with respect to such matters. Borrower additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests. Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loan and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against Lender or against any purchaser of such a participation interest and unconditionally agrees that either Lender or such purchaser may enforce Borrower’s obligation under the Loan irrespective of the failure or insolvency of any holder of any interest in the Loan. Borrower further agrees that the purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender.

Governing Law. This Agreement will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Iowa without regard to its conflicts of law provisions. This Agreement has been accepted by Lender in Polk County, Iowa.

No Waiver by Lender . Lender shall not be deemed to have waived any rights under this Agreement unless such wavier is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender’s right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Borrower, or between Lender and any Grantor, shall constitute a waiver of any of Lender’s rights or of any of Borrower’s or any grantor’s obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.

Notices . Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile or email (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party’s address. For notice purposes, Borrower agrees to keep Lender informed at all times of Borrower’s current address. Unless otherwise provided or required by law, if there is more than one Borrower, any notice given by Lender to any Borrower is deemed to be notice given to all Borrowers.

- 12 -

Business Loan Agreement (Continued)

Loan No. ___________________

Severability . If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement.

Successors and Assigns . All covenants and agreements by or on behalf of Borrower contained in this Agreement or any Related Documents shall bind Borrower’s successors and assigns and shall inure to the benefit of Lender and its successors and assigns. Borrower shall not, however, have the right to assign Borrower’s rights under this Agreement or any interest therein, without the prior written consent of Lender.

Survival of Representations and Warranties . Borrower understands and agrees that in making the Loan, Lender is relying on all representations, warranties, and covenants made by Borrower in this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement or the Related Documents. Borrower further agrees that regardless of any investigation made by Lender, all such representations, warranties and covenants will survive the making of the Loan and delivery to Lender of the Related Documents, shall be continuing in nature, and shall remain in full force and effect until such time as Borrower’s Indebtedness shall be paid in full, or until this Agreement shall be terminated in the manner provided above, whichever is the last to occur.

Time is of the Essence . Time is of the essence in the performance of this Agreement.

DEFINITIONS . The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. Accounting words and terms not otherwise defined in this Agreement shall have the meanings assigned to them in accordance with generally accepted accounting principles as in effect on the date of this Agreement:

Advance . The word “Advance” means a disbursement of Loan funds made, or to be made, to Borrower or on Borrower’s behalf on a line of credit or multiple advance basis under the terms and conditions of this Agreement or any Related Document.

- 13 -

Business Loan Agreement (Continued)

Loan No. ___________________

Agreement . The word “Agreement” means this Business Loan Agreement, as this Business Loan Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement from time to time.

Borrower . The word “Borrower” means Art’s-Way Manufacturing Co., Inc. and includes all co-signers and co-makers signing the Note and all their successors and assigns. In addition, to the extent the context of any provisions of this Agreement makes it appropriate, including without limitation any representation, warranty, or covenant, the word “Borrower” as used in this Agreement shall include all of Borrower’s subsidiaries and affiliates. Notwithstanding the foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan or other financial accommodation to any of Borrower’s subsidiaries or affiliates.

Collateral . The word “Collateral” means all property and assets granted as collateral security for a Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, collateral mortgage, deed of trust, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor’s lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise.

Environmental Laws . The words “Environmental Laws” mean any and all state, federal and local statutes, regulations and ordinances relating to the protection of human health or the environment, including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. (“CERCLA”), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 (“SARA”), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable state or federal laws, rules, or regulations adopted pursuant thereto.

Event of Default . The words “Event of Default” mean any of the events of default set forth in this Agreement in the default section of this Agreement.

GAAP . The word “GAAP” means generally accepted accounting principles.

Guarantor . The word “Guarantor” means any guarantor, surety, or accommodation party of any or all of the Loans, including specifically Art’s-Way Vessels, Inc. and Art’s-Way Scientific, Inc.

Guaranty . The word “Guaranty” means the guaranty from Guarantor to Lender, including without limitation a guaranty of all or part of the Note.

- 14 -

Business Loan Agreement (Continued)

Loan No. ___________________

Hazardous Substances . The words “Hazardous Substances” mean materials that, because of their quantity, concentration or physical, chemical or infectious characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly used, treated, stored, disposed of, generated, manufactured, transported or otherwise handled. The words “Hazardous Substances” are used in their very broadest sense and include without limitation any and all hazardous or toxic substances, materials or waste as defined by or listed under the Environmental Laws. The term “Hazardous Substances” also includes, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos.

Indebtedness . The word “Indebtedness” means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other indebtedness and costs and expenses for which Borrower and Guarantors are responsible under this Agreement or under any of the Related Documents.

Lender . The word “Lender” means West Bank, its successors and assigns.

Loan . The word “Loan” means any and all loans and financial accommodations from Lender to Borrower or Guarantors whether now or hereafter existing, and however evidenced, including without limitation those loans and financial accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time.

Note . The word “Note” means the promissory note executed by Borrower in the principal amount of $6,000,000 dated on or about the date of this Agreement, together with all renewals of, extension of, modifications of, refinancings of, consolidations of, and substitutions for the note or credit agreement.

Permitted Liens . The words “Permitted Liens” mean (1) liens and security interests securing Indebtedness owed by Borrower to Lender; (2) liens for taxes, assessments, or similar charges either not yet due or being contested in good faith; (3) liens of materialmen, mechanics, warehousemen, or carriers, or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent; (4) purchase money liens or purchase money security interests upon or in any property acquired or held by Borrower in the ordinary course of business to secure Indebtedness outstanding on the date of this Agreement or permitted to be incurred under the paragraph of this Agreement titled “Indebtedness and Liens”; (5) liens and security interests which, as of the date of this Agreement, have been disclosed to and approved by the Lender in writing; and (6) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of Borrower’s assets.

Related Documents . The words “Related Documents” mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Loan, the Loans, or this Agreement, all in form satisfactory to Lender and Lender’s Counsel.

Security Agreement . The words “Security Agreement” mean and include without limitation any agreements, promises, covenants, arrangements, understandings or other agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Security Interest.

- 15 -

Business Loan Agreement (Continued)

Loan No. ___________________

Security Interest . The words “Security Interest” mean, without limitation, any and all types of collateral security, present and future, whether in the form of a lien, charge, encumbrance, mortgage, deed of trust, security deed, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor’s lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever whether created by law, contract, or otherwise.

BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT AND BORROWER AGREES TO ITS TERMS.

BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS BUSINESS LOAN AGREEMENT AND ALL OTHER DOCUMENTS RELATING TO THIS DEBT.

BORROWER:		LENDER:

ART’S-WAY MANUFACTURING CO., INC.		WEST BANK

By:	/s/ J. Ward McConnell, Jr.	By:	/s/ Kevin J. Smith
	J. Ward McConnell, Jr.		Kevin J. Smith
	Chairman		Senior Vice President

By:	/s/ Carrie Majeski
	Carrie Majeski
	President

- 16 -

Exhibit 10.4

PROMISSORY NOTE

Borrower:	ART’S-WAY MANUFACTURING COMPANY, INC.	Lender:	WEST BANK
	(TIN: _________________)		MAIN BANK
	5556 HIGHWAY 9 WEST, BOX 288		1601 22ND STREET
	ARMSTRONG, IA 50514		WEST DES MOINES, IA 50266
			(515) 222-2300

Principal Amount: $6,000,000.00

Date of Note: June 8, 2009

PROMISE TO PAY. ART’S-WAY MANUFACTURING COMPANY, INC. (“Borrower”) promises to pay to WEST BANK (“Lender”), or order, in lawful money of the United States of America, the principal amount of Six Million & 00/100 Dollars ($6,000,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance.

PAYMENT. Borrower will pay this loan in one payment of all outstanding principal plus all accrued unpaid interest on April 30, 2010. In addition, Borrower will pay regular monthly payments of all accrued unpaid interest due as of each payment date, beginning June 30, 2009, with all subsequent interest payments to be due on the same day of each month after that. Unless otherwise agreed or required by applicable law, payments will be applied first to any accrued unpaid interest; then to principal; then to any unpaid collection costs; and then to any late charges. Borrower will pay Lender at Lender’s address shown above or at such other place as Lender may designate in writing.

VARIABLE INTEREST RATE . The interest rate on this Note is subject to change from time to time based on changes in an index which is Lender’s Prime Rate (the “Index”). This is the rate Lender charges, or would charge, on 90-day unsecured loans to the most creditworthy corporate customers. This rate may or may not be the lowest rate available from Lender at any given time. Lender will tell Borrower the current Index rate upon Borrower’s request. The interest rate change will not occur more often than each DAY. Borrower understands that Lender may make loans based on other rates as well. The Index currently is 3.250% per annum. The interest rate to be applied to the unpaid principal balance of this Note will be calculated as described in the “INTEREST CALCULATION METHOD” paragraph using a rate equal to the Index, adjusted if necessary for any minimum and maximum rate limitations described below, resulting in an initial rate of 4.000% per annum based on a year of 360 days. NOTICE: Under no circumstances will the interest rate on this Note be less than 4.000% per annum or more than the maximum rate allowed by applicable law.

INTEREST CALCULATION METHOD . Interest on this Note is computed on a 365/360 basis; that is, by applying the ratio of the interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. All interest payable under this Note is computed using this method.

PREPAYMENT; MINIMUM INTEREST CHARGE . In any event, even upon full prepayment of this Note, Borrower understands that Lender is entitled to a minimum interest charge of $7.50. Other than Borrower’s obligation to pay any minimum interest charge, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower’s obligation to continue to make payments of accrued unpaid interest. Rather, early payments will reduce the principal balance due. Borrower agrees not to send Lender payments marked “paid in full”, “without recourse”, or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender’s rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes “payment in full” of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: WEST BANK, MAIN BANK, 1601 22ND STREET, WEST DES MOINES, IA 50266.

LATE CHARGE . If a payment is 11 days or more late, Borrower will be charged $15.00.

INTEREST AFTER DEFAULT . Upon default, including failure to pay upon final maturity, the interest rate on this Note shall be increased by adding a 2.000 percentage point margin (“Default Rate Margin”). The Default Rate Margin shall also apply to each succeeding interest rate change that would have applied had there been no default. However, in no event will the interest rate exceed the maximum interest rate limitations under applicable law.

DEFAULT . Each of the following shall constitute an event of default (“Event of Default”) under this Note:

Payment Default . Borrower fails to make any payment when due under this Note.

Other Defaults . Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.

Default in Favor of Third Parties . Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower’s property or Borrower’s ability to repay this Note or perform Borrower’s obligations under this Note or any of the related documents.

False Statements . Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower’s behalf under this Note or the related documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

Insolvency . The dissolution or termination of Borrower’s existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower’s property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.

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Creditor or Forfeiture Proceedings . Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrower’s accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

Events Affecting Guarantor . Any of the preceding events occurs with respect to any guarantor, endorser, surety, or accommodation party of any of the indebtedness or any guarantor, endorser, surety, or accommodation party dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the indebtedness evidenced by this Note.

Change In Ownership . Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower.

Adverse Change . A material adverse change occurs in Borrower’s financial condition, or Lender believes the prospect of payment or performance of this Note is impaired.

Insecurity . Lender in good faith believes itself insecure.

Cure Provisions . If any default, other than a default in payment is curable and if Borrower has not been given a notice of a breach of the same provision of this Note within the preceding twelve (12) months, it may be cured if Borrower, after receiving written notice from Lender demanding cure of such default: (1) cures the default within twenty (20) days; or (2) if the cure requires more than twenty (20) days, immediately initiates steps which Lender deems in Lender’s sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical.

LENDER’S RIGHTS . Upon default, Lender may declare the entire unpaid principal balance under this Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount.

ATTORNEYS’ FEES; EXPENSES . Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable law, Lender’s attorneys’ fees and Lender’s legal expenses, whether or not there is a lawsuit, including without limitation all attorneys’ fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law.

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GOVERNING LAW . This Note will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Iowa without regard to its conflicts of law provisions. This Note has been accepted by Lender in the State of Iowa.

CHOICE OF VENUE . If there is a lawsuit, Borrower agrees upon Lender’s request to submit to the jurisdiction of the courts of POLK County, State of Iowa.

RIGHT OF SETOFF . To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower’s accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the indebtedness against any and all such accounts, and, at Lender’s option, to administratively freeze all such accounts to allow Lender to protect Lender’s charge and setoff rights provided in this paragraph.

COLLATERAL . Borrower acknowledges this Note is secured by REAL ESTATE MORTGAGE DATED 04/25/03; SECURITY AGREEMENT DATED 04/25/03; UNLIMITED SECURED GUARANTEES OF ARTS-WAY VESSELS, INC. AND ART’S-WAY SCIENTIFIC, INC; LOAN AGREEMENT DATED 06/08/09.

LINE OF CREDIT . This Note evidences a revolving line of credit. Advances under this Note, as well as directions for payment from Borrower’s accounts, may be requested orally or in writing by Borrower or by an authorized person. Lender may, but need not, require that all oral requests be confirmed in writing. Borrower agrees to be liable for all sums either: (A) advanced in accordance with the instructions of an authorized person or (B) credited to any of Borrower’s accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender’s internal records, including daily computer print-outs., Lender will have no obligation to advance funds under this Note if: (A) Borrower or any guarantor is in default under the terms of this Note’ or any agreement that Borrower or any guarantor has with Lender, including any agreement made in connection with the signing of this Note; (B) Borrower or any guarantor ceases doing business or is insolvent; (C) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor’s guarantee of this Note or any other loan with Lender; (D) Borrower has applied funds provided pursuant to this Note for purposes other than those authorized by Lender; or (E) Lender in good faith believes itself insecure.

PURPOSE OF LOAN . The specific purpose of this loan is: WORKING CAPITAL.

SUCCESSOR INTERESTS . The terms of this Note shall be binding upon Borrower and upon Borrower’s heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender and its successors and assigns.

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GENERAL PROVISIONS . If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such-parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender’s security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Note are joint and several.

PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE.

BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE AND ALL OTHER DOCUMENTS RELATING TO THIS DEBT.

BORROWER:

ARTS-WAY MANUFACTURING COMPANY, INC.

By:	/s/ Carrie L. Majeski
	CARRIE L. MAJESKI, PRESIDENT of ART’S-WAY
	MANUFACTURING COMPANY, INC.

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Exhibit 10.5

AGREEMENT TO PROVIDE INSURANCE

Borrower:	ART’S-WAY MANUFACTURING COMPANY, INC.	Lender:	WEST BANK
	(TIN: _________________)		MAIN BANK
	5556 HIGHWAY 9 WEST, BOX 288		1601 22ND STREET
	ARMSTRONG, IA 50514		WEST DES MOINES, IA 50266
			(515) 222-2300

INSURANCE REQUIREMENTS . Grantor, ART’S-WAY MANUFACTURING COMPANY, INC. (“Grantor”), understands that insurance coverage is required in connection with the extending of a loan or the providing of other financial accommodations to Grantor by Lender. These requirements are set forth in the security documents for the loan. The following minimum insurance coverages must be provided on the following described collateral (the “Collateral”):

Collateral :		All Inventory and Equipment.
		Type : All risks, including fire, theft and liability.
		Amount : Loan Amount.
		Basis : Replacement value.
		Endorsements : Lender loss payable clause with stipulation that coverage will not be cancelled or diminished without a minimum of 30 days prior written notice to Lender.
		Latest Delivery Date : By the loan closing date.

Collateral :		5555 HIGHWAY 9 WEST, ARMSTRONG, IA 50514.
		Type : Fire and extended coverage,
		Amount : Loan Amount.
		Basis : Replacement value.
		Endorsements : Standard mortgagee’s clause with stipulation that coverage will not be cancelled or diminished without a minimum of 30 days prior written notice to Lender, and without disclaimer of the insurer’s liability for failure to give such notice.
		Latest Delivery Date : By the loan closing date.

INSURANCE COMPANY . Grantor may obtain insurance from any insurance company Grantor may choose that is reasonably acceptable to Lender. Grantor understands that credit may not be denied solely because insurance was not purchased through Lender.

FLOOD INSURANCE . Flood Insurance for the Collateral securing this loan is described as follows:

Real Estate at 5556 HIGHWAY 9 WEST, ARMSTRONG, IA 50514 .

Should the Collateral at any time be deemed to be located in an area designated by the Director of the Federal Emergency Management Agency as a special flood hazard area. Grantor agrees to obtain and maintain Federal Flood Insurance, if available, for the full unpaid principal balance of the loan and any prior liens on the property securing the loan, up to the maximum policy limits set under the National Flood Insurance Program, or as otherwise required by Lender, and to maintain such insurance for the term of the loan. Flood insurance may be purchased under the National Flood Insurance Program or from private insurers.

INSURANCE MAILING ADDRESS . All documents and other materials relating to insurance for this loan should be mailed, delivered or directed to the following address:

WEST BANK

P.O. BOX 65020

WEST DES MOINES, IA 50265

FAILURE TO PROVIDE INSURANCE . Grantor agrees to deliver to Lender, on the latest delivery date stated above, proof of the required insurance as provided above, with an effective date of June 8, 2009, or earlier. Grantor acknowledges and agrees that if Grantor fails to provide any required insurance or fails to continue such insurance in force, Lender may do so at Grantor’s expense as provided in the applicable security document. The cost of any such insurance, at the option of Lender, shall be added to the indebtedness as provided in the security document. GRANTOR ACKNOWLEDGES THAT IF LENDER SO PURCHASES ANY SUCH INSURANCE, THE INSURANCE WILL PROVIDE LIMITED PROTECTION AGAINST PHYSICAL DAMAGE TO THE COLLATERAL, UP TO AN AMOUNT EQUAL TO THE LESSER OF (1) THE UNPAID BALANCE OF THE DEBT, EXCLUDING ANY UNEARNED FINANCE CHARGES, OR (2) THE VALUE OF THE COLLATERAL; HOWEVER, GRANTOR’S EQUITY IN THE COLLATERAL MAY NOT BE INSURED. IN ADDITION, THE INSURANCE MAY NOT PROVIDE ANY PUBLIC LIABILITY OR PROPERTY DAMAGE INDEMNIFICATION AND MAY NOT MEET THE REQUIREMENTS OF ANY FINANCIAL RESPONSIBILITY LAWS.

AUTHORIZATION . For purposes of insurance coverage on the Collateral, Grantor authorizes Lender to provide to any person (including any insurance agent or company) at information Lender deems appropriate, whether regarding the Collateral, the loan or other financial accommodations, or both.

GRANTOR ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS AGREEMENT TO PROVIDE INSURANCE AND ALL OTHER DOCUMENTS RELATING TO THIS DEBT.

GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO PROVIDE INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JUNE 8, 2009.

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GRANTOR:

ART’S-WAY MANUFACTURING COMPANY, INC.

By:	/s/ Carrie L. Majeski
	CARRIE L. MAJESKI, PRESIDENT of ART’S-WAY
	MANUFACTURING COMPANY, INC.

	FOR LENDER USE ONLY
DATE: __________	INSURANCE VERIFICATION	PHONE__________

AGENT’S NAME:

AGENCY:

ADDRESS:

INSURANCE COMPANY:

POLICY NUMBER:

EFFECTIVE DATES:

COMMENTS:

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AGREEMENT TO PROVIDE INSURANCE

(Continued)

	FOR LENDER USE ONLY
DATE: __________	INSURANCE VERIFICATION	PHONE__________

AGENT’S NAME:

AGENCY:

ADDRESS:

INSURANCE COMPANY:

POLICY NUMBER:

EFFECTIVE DATES:

COMMENTS:

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Exhibit 10.6

AGREEMENT TO PROVIDE INSURANCE

Borrower:	ART’S-WAY MANUFACTURING COMPANY, INC.	Lender:	WEST BANK
	(TIN: _________________)		MAIN BANK
	5556 HIGHWAY 9 WEST, BOX 288		1601 22ND STREET
	ARMSTRONG, IA 50514		WEST DES MOINES, IA 50266
			(515) 222-2300

Grantor:	ART’S-WAY VESSELS, INC. (TIN: _________________)
	7010 CHAVENELLE
	DUBUQUE, IA 52001

INSURANCE REQUIREMENTS . Grantor, ART’S-WAY VESSELS, INC. (“Grantor”), understands that insurance coverage is required in connection with the extending of a loan or the providing of other financial accommodations to ART’S-WAY MANUFACTURING COMPANY, INC. (“Borrower) by Lender. These requirements are set forth in the security documents for the loan. The following minimum insurance coverages must be provided on the following described collateral (the “Collateral”):

Collateral :		All Inventory and Equipment.
		Type : All risks, including fire, theft and liability.
		Amount : Loan Amount.
		Basis : Replacement value.
		Endorsements : Lender loss payable clause with stipulation that coverage will not be cancelled or diminished without a minimum of 30 days prior written notice to Lender.
		Latest Delivery Date : By the loan closing date.

Collateral :		7010 CHAVENELLE, DUBUQUE, IA 52001.
		Type : Fire and extended coverage.-
		Amount : Loan Amount.
		Basis : Replacement value.
		Endorsements : Standard mortgagee’s clause with stipulation that coverage will not be cancelled or diminished without a minimum of 30 days prior written notice to Lender, and without disclaimer of the insurer’s liability for failure to give such notice.
		Latest Delivery Date : By the loan closing date.

FLOOD INSURANCE . Flood Insurance for the Collateral securing this loan is described as follows:

Real Estate at 7010 CHAVENELLE, DUBUQUE, IA 52001.

INSURANCE MAILING ADDRESS . All documents and other materials relating to insurance for this loan should be mailed, delivered or directed to the following address:

WEST BANK

P.O. BOX 65020

WEST DES MOINES, IA 50265

AUTHORIZATION . For purposes of insurance coverage on the Collateral, Grantor authorizes Lender to provide to any person (including any insurance agent or company) all information Lender deems appropriate, whether regarding the Collateral, the loan or other financial accommodations, or both.

GRANTOR ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS AGREEMENT TO PROVIDE INSURANCE AND ALL OTHER DOCUMENTS RELATING TO THIS DEBT.

GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO PROVIDE INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JUNE 8, 2009.

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GRANTOR:

ART’S-WAY VESSELS, INC.

By:	/s/ Carrie L. Majeski
	CARRIE L. MAJESKI, PRESIDENT of ART’S-WAY
	VESSELS, INC.

	FOR LENDER USE ONLY
DATE: __________	INSURANCE VERIFICATION	PHONE__________

AGENT’S NAME:

AGENCY:

ADDRESS:

INSURANCE COMPANY:

POLICY NUMBER:

EFFECTIVE DATES:

COMMENTS:

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AGREEMENT TO PROVIDE INSURANCE

(Continued)

	FOR LENDER USE ONLY
DATE: __________	INSURANCE VERIFICATION	PHONE__________

AGENT’S NAME:

AGENCY:

ADDRESS:

INSURANCE COMPANY:

POLICY NUMBER:

EFFECTIVE DATES:

COMMENTS:

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Exhibit 10.7

AGREEMENT TO PROVIDE INSURANCE

Borrower:	ART’S-WAY MANUFACTURING COMPANY, INC.	Lender:	WEST BANK
	(TIN: _________________)		MAIN BANK
	5556 HIGHWAY 9 WEST, BOX 288		1601 22ND STREET
	ARMSTRONG, IA 50514		WEST DES MOINES, IA 50266
			(515) 222-2300
	ART’S-WAY SCIENTIFIC, INC. (TIN: _________________)
	203 OAK ST
	MONONA, IA 52159

INSURANCE REQUIREMENTS . Grantor, ARTS-WAY SCIENTIFIC, INC. (“Grantor”), understands that insurance coverage is required in connection with the extending of a loan or the providing of other financial accommodations to ARTS-WAY MANUFACTURING COMPANY, INC. (“Borrower) by Lender. These requirements are set forth in the security documents for the loan. The following minimum insurance coverages must be provided on the following described collateral (the “Collateral”):

Collateral :		All Inventory and Equipment.
		Type : All risks, including fire, theft and liability.
		Amount : Loan Amount,
		Basis : Replacement value.
		Endorsements : Lender loss payable clause with stipulation that coverage will not be cancelled or diminished without a minimum of 30 days prior written notice to Lender.
		Latest Delivery Date : By the loan closing date.

Collateral :		203 OAK STREET, MONONA, IA 52159.
		Type : Fire and extended coverage.
		Amount : Loan Amount.
		Basis : Replacement value.
		Endorsements : Standard mortgagee’s clause with stipulation that coverage will not be cancelled or diminished without a minimum of 30 days prior written notice to Lender, and without disclaimer of the insurer’s liability for failure to give such notice.
		Latest Delivery Date : By the loan closing date.

FLOOD INSURANCE . Flood insurance for the Collateral securing this loan is described as follows:

Real Estate at 203 OAK STREET, MONONA, IA 52159 .

INSURANCE MAILING ADDRESS . All documents and other materials relating to insurance for this loan should be mailed, delivered or directed to the following address:

WEST BANK

P.O. BOX 65020

WEST DES MOINES, IA 50265

GRANTOR ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS AGREEMENT TO PROVIDE INSURANCE AND ALL OTHER DOCUMENTS RELATING TO THIS DEBT.

GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO PROVIDE INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JUNE 8, 2009.

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GRANTOR:

ART’S-WAY SCIENTIFIC, INC.

By:	/s/ Carrie L. Majeski
	CARRIE L. MAJESKI, PRESIDENT of ART’S-WAY
	SCIENTIFIC, INC.

	FOR LENDER USE ONLY
DATE: __________	INSURANCE VERIFICATION	PHONE__________

AGENT’S NAME:

AGENCY:

ADDRESS:

INSURANCE COMPANY:

POLICY NUMBER:

EFFECTIVE DATES:

COMMENTS:

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AGREEMENT TO PROVIDE INSURANCE

(Continued)

	FOR LENDER USE ONLY
DATE: __________	INSURANCE VERIFICATION	PHONE__________

AGENT’S NAME:

AGENCY:

ADDRESS:

INSURANCE COMPANY:

POLICY NUMBER:

EFFECTIVE DATES:

COMMENTS:

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ART’S-WAY MANUFACTURING CO., INC.

Form of Non-Qualified Stock Option Agreement

For Awards Granted Under The

2007 Non-Employee Directors’ Stock Option Plan

And

2007 Employee Stock Option Plan

STOCK OPTION AGREEMENT

OPTIONEE:

GRANT DATE:

VESTING DATE:

NUMBER OF SHARES: _____ Shares

EXERCISE PRICE PER SHARE: _____ per Share

EXPIRATION DATE:

OPTION NO.: 200_-___

THIS AGREEMENT is made as of the Grant Date set forth above by and between Art’s-Way Manufacturing Co., Inc., a Delaware corporation (the “Company”), and the Optionee named above, who is [a Non-Employee Director/an Employee] of the Company.

The Company desires, by affording the Optionee an opportunity to purchase its Common Stock (the “Shares”), to carry out the purpose of the [2007 Non-Employee Directors’ Stock Option Plan/2007 Employee Stock Option Plan] (the “Option Plan”).

NOW, THEREFORE , in consideration of the mutual covenants hereinafter set forth, and for other good and valuable consideration, the parties hereby agree as follows:

1. Option Plan. The terms, provisions and definitions of the Option Plan are incorporated herein. Any capitalized term used herein that is not expressly defined herein shall have the meaning ascribed to it in the Option Plan, a copy of which has been made available to the Optionee. This Agreement is in all respects subject to and governed by all of the provisions of the Option Plan.

2. Grant of Option. Company hereby grants to the Optionee the right and option (the “Option”) to purchase all or any part of the aggregate number of Shares set forth above (the “Option Shares”) (such number being subject to adjustment as provided in the Option Plan) on the terms and subject to the conditions set forth in this Agreement. This Option is not intended to qualify as an “Incentive Stock Option” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended.

3. Purchase Price. The per share purchase price of the Option Shares shall be the Exercise Price Per Share set forth above (such Exercise Price Per Share being determined under and subject to adjustment as provided in the Option Plan).

4. Term, Vesting, Non-transferability and Exercise of Option.

(a) Term . The term of this Option shall commence on the Grant Date set forth above and shall continue until the Expiration Date set forth above, which shall be five (5) years from the Grant Date unless earlier terminated as provided in the Option Plan.

(b) Vesting . If this Option is automatically granted to Optionee as provided in the Option Plan, the Option Shares shall vest and become first exercisable immediately upon the Grant Date provided above. If this Option was granted pursuant to the Board of Director’s discretion, the Option Shares shall vest as provided by the Board of Directors on the Vesting Date provided above. The failure of Option Shares to vest for any reason whatsoever shall cause the Option to expire and be of no further force or effect.

(c) Non-transferability . This Option shall not be transferable by the Optionee otherwise than by will or by the laws of descent and distribution, and shall be exercisable during the lifetime of the Optionee only by him or her, or by his or her guardian or legal representative, and after death of the Optionee pursuant to will or applicable law provided, however, that any exercise after death of the Optionee shall occur within one (1) year of the date of death or prior to the Expiration Date, whichever is sooner. This Option or any interest herein may not be transferred, assigned, pledged or hypothecated by the Optionee during his or her lifetime whether by operation of law or otherwise, or be made subject to execution, attachment or similar process.

(d) Exercise . Payment for the Option Shares to be received upon exercise of this Option may be made in cash, in Shares (determined with reference to their Fair Market Value on the date of exercise) or any combination thereof. To exercise this Option, the Optionee shall (i) deliver written notice to the Company at its principal office prior to the Expiration Date, which written notice must be in the form of attached Exhibit A to this Agreement, and (ii) deliver payment in full for the Option Shares with respect to which this Option is then being exercised. Notwithstanding the foregoing, this Option shall be subject to termination, adjustment, restrictive covenants and all other provisions of the Option Plan.

5. Restrictive Stock Legend . The Optionee hereby acknowledges that the Option Shares to be received upon exercise of this Option will be subject to transfer restrictions in accordance with federal and state securities laws. Optionee hereby represents and warrants to the Company that the Optionee’s acquisition of the Option Shares upon exercise of this Option will be made as principal for such Optionee’s own account and not for resale or distribution of such Option Shares. The Optionee further hereby agrees that the following legend may be placed upon any counterpart of this Agreement, the stock certificate, or any other document or instrument evidencing ownership of Option Shares:

THE TRANSFERABILITY OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS RESTRICTED. SUCH SHARES MAY NOT BE SOLD, ASSIGNED, OR TRANSFERRED, NOR WILL ANY ASSIGNEE, VENDEE, TRANSFEREE, OR ENDORSEE THEREOF BE RECOGNIZED AS HAVING ACQUIRED ANY SUCH SHARES FOR ANY PURPOSES, UNLESS AND TO THE EXTENT SUCH SALE, TRANSFER, HYPOTHECATION, OR ASSIGNMENT IS PERMITTED BY, AND IS COMPLETED IN STRICT ACCORDANCE WITH, APPLICABLE STATE AND FEDERAL LAW AND TERMS OF THE COMPANY’S BYLAWS AND ANY SHAREHOLDERS’ AGREEMENTS CURRENTLY IN EFFECT.

THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, OFFERED FOR SALE, OR TRANSFERRED IN THE ABSENCE OF EITHER AN EFFECTIVE REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND UNDER APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND UNDER APPLICABLE STATE SECURITIES LAWS.

IN WITNESS WHEREOF , the Company has caused this Stock Option Agreement to be executed in its corporate name by its duly authorized officer as of the Grant Date set forth above.

COMPANY:	ART’S-WAY MANUFACTURING CO., INC.


	By:
	Its:

OPTIONEE:
	Signature of Optionee


	Name of Optionee Typed or Printed

	Address:



	SS# _____ - ____ - _____

Exhibit A

NOTICE OF EXERCISE OF

OPTION

TO: Art’s-Way Manufacturing Co., Inc.

FROM:

DATE:

RE: Exercise of Stock Option

I hereby exercise my option to purchase ______ Shares at $_______ per share (total exercise price of $___________) (“Option”). This notice is given in accordance with the terms of my Stock Option Agreement (“Agreement”) dated _____________. The option price and vested amount is in accordance with Sections 3 and 4 of the Agreement.

I hereby represent that I am exercising the Option and acquiring the Shares for my own account, for long term investment and without the intention of reselling or redistributing the Shares. I understand that the shares are subject to the Company’s articles of incorporation, bylaws and any shareholder agreements in effect. I understand that the transfer of shares received upon exercise of the Option is restricted by federal and state securities laws, and that a legend to this effect will be placed upon stock certificates evidencing the Shares in accordance with the Agreement.

Check one:

____	Enclosed is cash or a cashier’s or certified check payable to Art’s-Way Manufacturing Co., Inc. for the total exercise price of the shares being purchased.

____	Attached is a certificate(s) for _____________ shares duly endorsed in blank and surrendered for the exercise price of the Option Shares being purchased.

Please prepare the certificate for the Shares in the following name(s):

Sincerely,

(Signature)

(Print or Type Name)

Letter and consideration

received on _______________

(effective date of exercise)

CERTIFICATION PURSUANT TO 17 CFR 240.13(a)-14(a)

(SECTION 302 CERTIFICATION)

I, Carrie L. Majeski, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Art’s-Way Manufacturing Co., Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant, as of, and for, the periods presented in this report;

4.	I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: June 8, 2009		/s/ Carrie L. Majeski
		Carrie L. Majeski, President, Chief Executive Officer
		(principal executive and financial officer)

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report on Form 10-Q of Art’s-Way Manufacturing Co., Inc. (the “Company”) for the quarter ended May 31, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Carrie L. Majeski, as the President, Chief Executive Officer and Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: June 8, 2009		/s/ Carrie L. Majeski
		Carrie L. Majeski, President, Chief Executive Officer
		(principal executive and financial officer)