UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549







FORM
10-K







x
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
      1934.




For the
fiscal year ended November 30, 2009




o
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
      1934.




For the
transition period from ___________ to ____________




Commission
file number 000-5131





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)





Securities
registered under Section 12(b) of the Act:





Common
      stock $.01 par value
            
            NASDAQ
      Capital Market(Title
      of each class)
            
            (Name
      of each exchange on which
registered)





Securities
registered pursuant to Section 12(g) of the Act:





None





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.     o  Yes x  No





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.     o  Yes x  No





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  o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, 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 o  No o





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.  o





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.




Large
      accelerated filer  o
                  Accelerated
      filer  oNon-accelerated
      filer  o
                  Smaller
      reporting company x




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





State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter. $13,073,748





As of
February 11, 2010, there were 3,990,352 shares of the registrant’s common stock
outstanding.





DOCUMENTS
INCORPORATED BY REFERENCE





Portions
of the Definitive Proxy Statement for the registrant’s 2010 Annual Meeting of
Stockholders to be filed within 120 days of November 30, 2009, are incorporated
by reference into Part III of this Form 10-K.





Transitional
Small Business Disclosure Format (Check one):    o  Yes 
x  No





Art’s-Way
Manufacturing Co., Inc.


Index
to Annual Report on Form 10-K





PageItem
      1.
                  BUSINESS
                  3Item
      2.
                  PROPERTIES
                  9Item
      3.
                  LEGAL
      PROCEEDINGS
                  9Item
      4.
                  SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
                  9Item
      5.
                  MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES
                  9Item
      7.
                  MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
                  10Item
      8.
                  FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA
                  16Item
      9.
                  CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
                  33Item
      9A(T).
                  CONTROLS
      AND PROCEDURES
                  33Item
      9B.
                  OTHER
      INFORMATION
                  34Item
      10.
                  DIRECTORS,
      EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
                  34Item
      11.
                  EXECUTIVE
      COMPENSATION
                  34Item
      12.
                  SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
                  34Item
      13.
                  CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE
                  34Item
      14.
                  PRINCIPAL
      ACCOUNTING FEES AND SERVICES
                  34Item
      15.
                  EXHIBITS,
      FINANCIAL STATEMENT SCHEDULES
                  35




2


FORWARD
LOOKING STATEMENTS





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.  Our forward-looking statements in
this report relate to the following: our intent to focus our Modular Building
segment’s product offerings on research facilities in primary market sectors;
our expectations regarding fluctuations in backlogs; our beliefs regarding
competitive factors and our competitive strengths; our expectations regarding
sales, future production levels and demand; our beliefs about the importance of
intellectual property; our predictions regarding the impact of seasonality; our
beliefs regarding the impact of the farming industry on our business; our
expectation that continued participation of Miller Pro dealers will foster
product recognition and acceptance; anticipated improvements to our facilities;
our cash position and ability to obtain or renew financing; and our intentions
for paying dividends. Many of these forward-looking statements are located in
this report under “Item 1. BUSINESS;” “Item 2. “PROPERTIES” and “Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS,” but they may appear in other sections as well.





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 the
reasons described in this report. These factors include, but are not limited to:
economic conditions that affect demand for our products; our ability to maintain
compliance with our loan covenants, renew our line of credit and retain
sufficient cash during the economic downturn; the ability of our suppliers to
meet our demands for raw materials and component parts; fluctuations in the
price of raw materials, especially steel; our ability to predict and meet the
demands of each market in which our segments operate; our ability to predict and
respond to any seasonal fluctuations in demand; the existence and outcome of
product liability claims; changes in environmental, health and safety
regulations and employment laws; our ability to retain our principal executive
officer; the cost of complying with laws, regulations, and standards relating to
corporate governance and public disclosure, including Section 404 of the
Sarbanes-Oxley Act and related regulations implemented by the SEC, and the
demand such compliance places on management’s time; and loan covenant
restrictions on our ability to pay dividends. We do not intend to update the
forward-looking statements contained in this report. We cannot guarantee future
results, levels of activity, performance or achievements. 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.





PART
I





Item
1.  BUSINESS.





General





Art’s-Way
Manufacturing Co., Inc., a Delaware corporation (“we,” “us,” “our,” and the
“Company”), 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 our 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 14 to our financial statements in Item 8 of this
report.


3





Business
of Our Segments





Business
of Art’s-Way Manufacturing





Art’s-Way
Manufacturing (our “Agricultural Products” segment), which accounted for 79.6%
of our net revenue in the 2009 fiscal year, manufactures a variety of
specialized farm machinery under our own label, including: portable and
stationary animal feed processing equipment and related attachments used to mill
and mix feed grains into custom animal feed rations; a high bulk mixing wagon to
mix animal feeds containing silage, hay and grain; a line of portable grain
augers; a line of stalk shredders; sugar beet harvesting equipment; and a line
of land maintenance equipment, moldboard plows and grain drill
equipment.  We sell our labeled products through independent farm
equipment dealers throughout the United States.  In addition, we
manufacture and supply hay blowers under an original equipment manufacturer
(OEM) agreement with Case New Holland (CNH).  Sales under our OEM
agreement with CNH accounted for 8.0% of our consolidated sales for the fiscal
year ended November 30, 2009.





In
September 2007, we purchased certain assets of Miller-St. Nazianz, Inc.,
specifically portions of its Miller Pro and Badger lines of agricultural
products, to further strengthen the product offerings of our Agricultural
Products segment. These product lines are hay and forage lines, and our purchase
generally included all distribution agreements, dealership agreements, customer
lists, inventories, tooling and other proprietary rights to these product lines.
Under the purchase agreement, Miller-St. Nazianz also granted us a license to
use the Badger product line trademark in connection with the sale and production
of the Badger product line which consists of forage boxes, forage blowers,
running gears, dump boxes and options for any of those products. We also
purchased the entire Miller Pro product line except for pole-type sprayers
marketed under the Miller Pro brand and products manufactured by
Ziegler.  The Miller Pro product line consists of forage boxes,
receiver boxes, running gears and tires, forage blowers, dump boxes, rotary
rakes, finger-wheel rakes, Miller produced hay-mergers and all “Hay Buddy”
equipment and options for any of those products.  In addition to
purchasing rights to certain trade names and goodwill relating to those names,
we purchased the Hay Buddy trademark, the Miller Pro trademark and a patent
related to the hay merger.





We moved
the production of the lines to our main manufacturing facility in Armstrong,
Iowa, as the purchased lines were incorporated into our existing Art’s-Way
Manufacturing business.





Miller-St.
Nazianz and its President, John Miller, agreed to sign non-compete agreements in
consideration for the purchase of the product lines.  For a period of
five years after the closing, Miller-St. Nazianz and Mr. Miller agreed not to
compete with the products or activities of the purchased assets.





Business
of Art’s-Way Vessels





Art’s-Way
Vessels, Inc. (our “Pressurized Vessels” segment), which accounted for 3.1% of
our net revenue in the 2009 fiscal year, is an Iowa corporation with its
principal place of business located in Dubuque, Iowa.  Art’s-Way
Vessels produces and sells pressurized vessels, both American Society of
Mechanical Engineers (ASME) code and non-code. Art’s-Way Vessels provides a
combination of services as a manufacturer and supplier of steel vessels and
steel containment systems. We build in carbon steel and stainless steel, ranging
from atmospheric (0 PSI) storage vessels up to any PSI pressure rating
required.  We provide vessels ranging in size from 4 inches to 168
inches in diameter and in various lengths as our customers require. The vessels
are primarily sold to manufacturing facilities that will use the vessel as a
component part of their end product.  We primarily serve the following
industries: water treatment; air receivers; refineries; co-generation; chemical;
petrochemical; storage tanks; agriculture; marine; refrigeration; hydro
pneumatic; heavy equipment; pharmaceuticals and mining.  In addition
to our role as a fabricator of vessels, we provide services
including:  custom CAD drawing; welding; interior linings and exterior
finishing; passivation of stainless steel; hydrostatic and pneumatic testing;
design, build and finishing of skids; installation of piping; non-destructive
examination and heat treating.





Business
of Art’s-Way Scientific





Art’s-Way
Scientific, Inc. (our “Modular Buildings” segment), which accounted for 17.3% of
our net revenue in the 2009 fiscal year, is an Iowa corporation with its
principal place of business in Monona, Iowa. Art’s-Way Scientific produces and
sells modular buildings, which are custom designed to meet the research needs of
our customers. Buildings commonly produced range from basic swine buildings to
complex containment research laboratories. In 2010, we plan to focus on
providing research facilities for academic research institutions, government
research and diagnostic centers, public health institutions and private research
and pharmaceutical companies, as those are our primary market
sectors.  Art’s-Way Scientific provides services from start to finish
by designing, manufacturing, delivering and installing our building
units.


4





Our
Principal Products





Art’s-Way
Manufacturing





From its
beginnings as a producer of portable grinder mixers, our Agricultural Products
segment has grown through developing several new products and with our
acquisition of portions of the Miller Pro and Badger Product lines of Miller-St.
Nazianz in 2007.  Today, our Agricultural Products segment
manufactures an array of feed processing, hay and forage, tillage and land
management and sugar beet harvesting equipment.  Our Agricultural
Products segment also maintains a high volume of OEM work for the industry’s
leading manufacturers.  Brand names include Art’s-Way, Miller Pro, and
Badger.





Grinder mixer
line.The grinder mixer line represents our original product
line.  Our founder, Arthur Luscombe, designed the original PTO powered
grinder-mixer prior to the company’s inception.  Grinder mixers are
used to grind grain and mix in proteins for animal feed.  They have
several agricultural applications, and are commonly used in livestock
operations.  Our grinder mixers have wide swing radiuses to allow
users to reposition the discharge tube from one side of the tank to the other in
one step.  Our PM25 grinder mixer offers a 105-bushel tank with a
20-inch hammermill, and it was recently upgraded to our new 5105 grinder mixer
model.  Our 5165 grinder mixer is the largest in the industry, with a
165-bushel tank and a 26-inch hammermill. Our Cattle Maxx rollermill mixer
products offer consistent feed grain rations for beef and dairy operations and
are available in 105-bushel and 165-bushel capacities.





Stationary feed grain processing
line.We offer stationary hammermills and
rollermills.  Harvesting leaves various amounts of extraneous
materials that must be removed through processing the
seeds.  Hammermills are aggressive pre-cleaners that are designed to
remove appendages, awns and other chaff from seeds by vigorously scraping the
seed over and through the screen.  The screen has holes that are big
enough to let the seed pass through undamaged, but are small enough to catch and
remove the appendages.  Our rollermills roll the feed grain to
minimize dust, and they fracture the outside hull to release the digestive
juices more rapidly.  Rolling feed provides more palatable and
digestible feed for use in animal feeding operations.





Crop Production line.Our
no-till drills are farm implements designed to plant seed and spread fertilizer
in one operation and are generally used by farmers to plant or improve their
pastures.  Art’s-Way shredders assure maximum crop shredding and
destroy insect habitats. The shredded crop material allows for faster
decomposition and restores nutrients to the soil more quickly while providing
ground cover to reduce wind and water erosion.





Land management line.Land
planes are used to ensure even distribution of rainfall or irrigation by
eliminating water pockets, furrows and implement scars in fields.  Our
land planes have a patented Art’s-Way floating hitch design.  Our
moldboard plows are designed to slice and invert the soil to leave a rough
surface exposed, and they are primarily used on clean-tilled cropland with high
amounts of crop residue.  We offer pull-type graders to help our
customers perform many tasks such as maintaining terraces and waterways,
leveling ground, cleaning ditches and removing snow.  The pull-type
graders follow close to the back of a tractor for leveling uneven areas or for
turning in smaller spaces.





Moldboard Plow
line.  The Art’s-Way moldboard plows offer conservation tillage
choices to match each customer’s preference.  The moldboard plow
delivers all the advantages recognized over the years.





Sugar beet harvesting
line.  Our sugar beet defoliators and harvesters are innovative
products in the industry due to our focus on continuous improvement, both in
reaction to customer requests and in anticipation of our customers’
needs.  Our machines can harvest six, eight, or twelve rows at one
time, and we were the first manufacturer to introduce a larger, 12-row
harvester.  We have obtained patents on certain components of our
sugar beet harvesting line.  Our sugar beet defoliators cut and remove
the leaves of the sugar beets without damaging them, and the leaf particles are
then incorporated back into the soil.





Hay and forage
line.We offer highly productive hay and forage tools for the
full range of producers.  This product line includes high capacity
forage boxes for transporting hay from the field with optional running gear to
provide superior stability and tracking.  High velocity, high volume
forage blowers are able to fill the tallest silos with lower power
requirements.  Cam action rotary rakes and power mergers will gently
lift the crop, carry it to the windrow and release it, saving more leaves and
forming a faster drying, fluffier windrow.  High performance V-style
and carted finger wheel rakes offer growers value and include such features as
large capacity and high clearance with ease of adjustment and
operation.


5




Augers line.We
established a portable grain auger manufacturing plant in Salem, South Dakota in
December 2009.  Models are available painted white or hot dipped
galvanized. Rolling Hopper Augers are constructed from 12 gauge tube and 1⁄4”
flighting. These augers feature an internal drive with externally mounted gear
boxes for proper venting and easier maintenance. Driveline augers are also
available with either power take-off unit (PTO) or electric drive. These
heavy-duty augers have a reversible gear box which permits PTO operation from
either side.





Art’s-Way
Vessels





We build
vessels in carbon steel and stainless steel, ranging from atmospheric (0 PSI)
storage vessels up to any PSI pressure rating required.  Sizes range
from 4” to 168” diameter and larger and to any length of vessel the customer
requires.





Art’s-Way
Scientific





We supply
laboratories for bio-containment, animal science, public health, and
security requirements. We custom design, manufacture, deliver, and install
laboratories and research facilities to meet customers’ critical
requirements





Product
Distribution and Markets





We
distribute goods for our Agricultural Products segment primarily through a
network of approximately 1,850 U.S. and Canadian independent dealers whose
customers require specialized agricultural machinery. We have sales
representation in 47 states and seven Canadian provinces; however, many dealers
sell only service parts for our products.  Our dealers sell our
products to various agricultural and commercial customers.  We also
maintain a local sales force in our Armstrong, Iowa facility to provide
oversight services for our distribution network, communicate with end users, and
recruit and train dealers on the uses of our products.  Our local
service parts staff is available to help customers and dealers with their
service parts needs. Our vessel and modular building divisions traditionally
sell products customized to the end-users’ requirements directly to the
end-users.





We began
exporting new agricultural products during the latter part of 2006, and we
currently export products to six foreign countries. We have been shipping
grinder mixers abroad since 2006, and have recently begun exporting portable
rollermills as well. At the Agritechnica 2009 and Eurotier 2008 exhibitions in
Germany, we met with prospective European distributors.  We look
forward to strengthening these relationships and developing new international
markets as well.





Backlog.Our
backlogs of orders vary on a daily basis.  As of February 12, 2010,
Art’s-Way Vessels had $416,000 of backlog, Art’s-Way Scientific had
approximately $4,522,000 backlog and Art’s-Way Manufacturing had a backlog of
$12,498,000.  Because we expect that our order backlogs will continue to
fluctuate as orders are received, filled, or cancelled, and due to dealer
discount arrangements we may enter into from time to time, these figures are not
necessarily indicative of future revenue.





Recent
Product Developments





During
2009, developments in our Agricultural Products segment consisted of a line of
portable roller mills for domestic and export markets, a material carrying
scraper to expand the product line of land management equipment, and
enhancements of the sugar beet harvesting equipment to increase efficiencies in
the manufacturing process.  We also introduced a comprehensive
offering of top drive and rolling hopper portable augers.





Our
Pressurized Vessels and Modular Buildings segments fill orders based on customer
specifications, so we did not engage in significant product developments for
these segments during 2009.





Competition





Competition.Our
Agricultural Products segment competes in a highly competitive agricultural
equipment industry. We compete with larger manufacturers and suppliers that have
broader product offerings and significant resources at their disposal; however,
we believe that our competitive strengths allow us to compete effectively in our
market.


6





Management
believes that grain and livestock producers, as well as those who provide
services to grain and livestock operations, are the primary purchasers of
agricultural equipment. Many factors influence a buyer’s choice for agricultural
equipment. Any one or all factors may be determinative, but they include brand
loyalty, the relationship with our dealers, product quality and performance,
product innovation, product availability, parts and warranty programs, price and
customer service. While our larger competitors may have resources greater than
ours, we believe we compete effectively in the farm equipment industry by
serving smaller markets in specific product areas rather than directly competing
with larger competitors across an extensive range of products.





We expect
continued competition from Art’s-Way Scientific’s existing competitors as well
as competition from new entrants into the modular building market. To some
extent, we believe barriers to entry in the modular building industry limit the
competition we face in the industry. Barriers to entry in the market consist
primarily of access to capital, access to a qualified labor pool, and the
bidding process that accompanies many jobs in the health and education markets.
Despite these barriers, manufacturers who have a skilled work force and adequate
production facilities could adapt their manufacturing facilities to produce
modular structures.





Competition
in the pressurized vessel industry is intense.  We believe that
Art’s-Way Vessels competes effectively by being responsive to its customers’
specifications and by offering quality tanks at competitive prices.





Competitive
Strengths.We believe that our competitive strengths include
competitive pricing, product quality and performance, a network of worldwide and
domestic distributors and our strong market share for many of our products. In
addition, we believe our Company has a diversified revenue base. Our Pressurized
Vessels and Modular Buildings segments provide the Company with diversified
revenues rather than solely relying on the agricultural machinery sector. We are
also diversified on the basis of our sales presence and customer
base.





Art’s-Way
Manufacturing caters to niche markets in the agricultural industry. We do not
have a direct competitor that has the same product offerings that we do;
instead, each of our product lines for Art’s-Way Manufacturing competes with
similar products of many other manufacturers.  Some of our product
lines face greater competition than others, but we believe that our products are
competitively priced with greater diversity than most competitor product lines.
Other companies produce feed processing equipment, sugar beet harvesting and
defoliating equipment, grinders, shredders and other products similar to ours;
therefore, we focus on providing the best product available at a reasonable
price. Overall, we believe our products are competitively priced with above
average quality and performance, in a market where price, product performance
and quality are principal elements.





In order
to capitalize on brand recognition for our Agricultural Products segment, we
have numerous product lines produced under our label and private labels, and
have made strategic acquisitions to strengthen our dealer base.  In
addition, we provide aftermarket service parts which are available to keep our
branded and OEM-produced equipment operating to the satisfaction of the
customer.  Art’s-Way Manufacturing sells products to customers in the
United States and six foreign countries through a network of approximately 1,850
independent dealers in the United States and Canada, as well as overseas dealers
in the United Kingdom and Australia.





We
believe the main competitive strength of our Pressurized Vessels segment is our
ability to provide products and services under one entity.  Often, the
services provided by Art’s-Way Vessels are handled by two or more of our
competing suppliers. We have the ability to fabricate pressurized vessels to our
customers’ specifications, and we also provide a variety of services before and
after installation.  Our high quality products and services save our
customers time in an industry where time and quality are of utmost
importance.





We
believe the competitive strength of our Modular Buildings segment is our ability
to design and produce high-tech modular buildings in a fraction of the time of
conventional design/build firms.  Conventional design/build
construction may take two to five years, while our modular laboratories can be
delivered in as little as six months.  As one of the few companies in
the industry to supply turnkey modular buildings and laboratories, we believe we
provide high quality buildings at reasonable prices that meet our customers’
time, flexibility and security expectations.





Raw
Materials, Principal Suppliers and Customers





Raw
materials for Art’s-Way Manufacturing, Art’s-Way Vessels and Art’s-Way
Scientific are acquired from domestic and foreign sources and normally are
readily available.  Currently, we purchase the lifter wheels used to
manufacture our sugar beet harvesters from a supplier located in China. We also
purchase rake tines and gearboxes from a supplier in Italy.  However,
there are domestic sources for these materials available.


7





We have
an original equipment manufacturer (OEM) supplier agreement with Case New
Holland (CNH) for our Agricultural Products segment. Under the OEM agreement, we
have agreed to supply CNH’s requirements for certain feed processing and service
parts, primarily blowers, under CNH’s label.  The agreement has no
minimum requirements and can be cancelled upon certain
conditions.  The agreement with CNH ran through September 2006, but
the agreement continues in force until terminated or cancelled. We have not
terminated or cancelled the agreement as of November 30, 2009. For the years
ended November 30, 2009 and 2008, sales under the CNH label aggregated
approximately 8.0% and 5.4% of consolidated sales, respectively.





In our
modular building segment we regularly partner with construction companies to
provide excavation and other services that are required for project
completion.  Over the last two years, we have partnered with Lockard
Construction on various projects..  Our sales to Lockard Construction
were 1.3% of consolidated sales in 2009 and 16.9% of consolidated sales in 2008.
We believe that competitively priced, high quality alternative partners are
available should the need arise.





Intellectual
Property





We
maintain manufacturing rights on several products, including those purchased
from Miller-St. Nazianz in 2007, which cover unique aspects of design. We also
have trademarks covering product identification.  We believe our
trademarks and licenses help us to retain existing business and secure new
relationships with customers.  We currently have no pending
applications for intellectual property rights.





We pay
royalties for our use of certain manufacturing rights. Under our OEM and royalty
agreement with CNH, CNH sold us the license to manufacture, sell and distribute
certain plow products designed by CNH and their replacement and component
parts.  We pay semi-annual royalty payments based on the invoiced
price of each licensed product and service part we sell.





Research
and Development Activities





Art’s-Way
Manufacturing is continually engaged in research and development activities to
improve and enhance our existing products.  We perform research and
development activities internally, and the cost of our research and development
activities is not borne by our customers.  Our research and
development expenses are cyclical; they may be high in one year, but would tend
to be lower the next, with an increase in production expenses as our new ideas
are manufactured.  Research and development expenses during our 2009
fiscal year accounted for $212,000 of our overall engineering expenses. For more
information please see “Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.”





Art’s-Way
Vessels produces custom tanks and vessels that are manufactured in accordance
with specifications provided by our customers. Similarly, Art’s-Way Scientific
designs modular buildings in accordance with customer
specifications.  Art’s-Way Vessels and Art’s-Way Scientific did not
incur any research and development costs in 2009.




Government
Relationships and Regulations; Environmental Compliance





Art’s-Way
Scientific must design, manufacture and install its modular buildings in
accordance with state building codes, and the company has been able to achieve
the code standards in all instances.  In addition, we are subject to
various federal, state and local laws and regulations pertaining to
environmental protection and the discharge of materials into the environment.
During our 2009 fiscal year, we expended $13,177 on environmental compliance,
which is consistent with our expenditures in prior years.





Employees





During
the fiscal year ended November 30, 2009, we employed 113 employees at Art’s-Way
Manufacturing, five of whom were employed on a part-time basis.  For
the same period, we had twelve full-time employees at Art’s-Way
Vessels.  In addition Art’s-Way Scientific employed 24 employees, one
of whom worked on a part-time basis.  Employee levels fluctuate based
upon the seasonality of the product line, and the numbers provided above do not
necessarily represent our peak employment during our 2009 fiscal
year.  See “Item 2. PROPERTIES.”




8





Item
2.  PROPERTIES.




Our
executive offices, production and warehousing facilities are located in
Armstrong, Iowa.  These facilities were constructed after 1965 and
remain in good condition.  The facilities in Armstrong contain
approximately 249,000 square feet of usable space, which includes a 9,200 square
foot addition built in fiscal 2009. During fiscal year 2008, we installed
approximately 40,100 square feet of raised steel roofing at a cost of
$300,000.  We plan to complete the reroofing project over the next
several years.  In addition, we own approximately 127 acres of land
west of Armstrong, on which the factory and inventory storage space is situated.
We currently lease excess land to third parties for farming.




We
currently lease a small manufacturing facility on a month-to-month basis in
Salem, South Dakota.




We
completed construction on a new facility for Art’s-Way Vessels as of February
2008.  The facility is 34,450 square feet, steel-framed, with a crane
that runs the length of the building.  A paint booth and a blast booth
were installed in the first quarter of 2009. The new facility gives us capacity
to hire additional employees and increase production.  We expect that
production levels will increase in the future, at which point the size of our
new facility will give us a competitive advantage.




We
completed construction in November 2007 of our facility in Monona, Iowa, which
houses the manufacturing for Art’s-Way Scientific. The previous facility was
completely destroyed by fire in January 2007.  The facility was
custom-designed to meet our production needs. It has approximately 50,000 square
feet and accommodates a sprinkler system and crane.




All of
our real property is subject to mortgages granted to West Bank as security for
our long-term debt.  See “Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – Capital Resources and Credit
Facilities” for more information.





Item
3.  LEGAL PROCEEDINGS.





From time
to time in the ordinary course of business, we may be named as a defendant in
legal proceedings related to various issues, including without limitation,
workers’ compensation claims, tort claims, or contractual
disputes.  We are not currently involved in any material legal
proceedings, directly or indirectly, and we are not aware of any claims pending
or threatened against us or any of the directors that could result in the
commencement of material legal proceedings.





Item
4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.





We did
not submit any matter to a vote of our stockholders through the solicitation of
proxies or otherwise during the fourth fiscal quarter of 2009.




PART
II





Item
5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.





Market
Information





Our
common stock trades on the NASDAQ Capital Market®under
the symbol “ARTW.”  The ranges of high and low sales prices for each
quarter, as reported by NASDAQ, are shown below.




Common Stock High and Low Sales Prices Per Share by QuarterFiscal Year Ended November 30, 2009
                
                
                Fiscal Year Ended November 30, 2008High
                
                
                Low
                
                
                High
                
                
                LowFirst
      Quarter
                
                $
                5.00
                
                
                $
                2.90
                
                
                $
                19.875
                
                
                $
                7.75Second
      Quarter
                
                $
                6.35
                
                
                $
                3.06
                
                
                $
                12.50
                
                
                $
                8.435Third
      Quarter
                
                $
                6.27
                
                
                $
                3.95
                
                
                $
                19.52
                
                
                $
                9.00Fourth
      Quarter
                
                $
                5.40
                
                
                $
                3.42
                
                
                $
                13.88
                
                
                $
                2.919




9




Stockholders





We have
one class of $0.01 par value common stock.  As of November 30, 2009,
we had approximately 103 stockholders of record.  As of February 12,
2010, we have approximately 102 stockholders of record.





Stock
Split





On July
9, 2008, we declared a two-for-one stock split.  Each stockholder of
record at the close of business on July 23, 2008 received one additional share
for every outstanding share held on the record date, and trading began on a
split-adjusted basis on July 30, 2008. All granted but unexercised stock options
were also adjusted for the stock split.





Dividends





On
November 2, 2009, we declared a dividend of $0.06 per share that was paid on
November 30, 2009 to stockholders of record as of November 16,
2009.   We expect that the payment of and the amount of any
future dividends will depend on our financial condition at that time, and we may
have to request permission from our lender to declare dividends in the
future.





Unregistered
Sales of Equity Securities





During
our 2009 fiscal year, we issued the following unregistered equity securities
pursuant to stock option exercises by one director under our 2007 Director Stock
Option Plan:





Date
      of Issuance
                  
                  Number
      of Shares
                  
                  
                  Price5/21/2009
                  
                  
                  2,000
                  
                  
                  $
                  3.845/21/2009
                  
                  
                  2,000
                  
                  
                  $
                  3.88





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 the Company took appropriate measures to restrict
transfer.





Equity
Compensation Plans





For
information on our equity compensation plans, refer to Item 12, “SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.”





Item
7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.





This
report contains forward-looking statements that involve significant risks and
uncertainties.  The following discussion, which focuses on our results
of operations, contains forward-looking information and
statements.  Actual events or results may differ materially from those
indicated or anticipated, as discussed in the section entitled “Forward Looking
Statements.”  The following discussion of our financial condition and
results of operations should also be read in conjunction with our financial
statements and notes to financial statements contained in Item 8 of this
report.





Financial
Position





We
believe that our consolidated balance sheet indicates a strong financial
position.  During fiscal year 2009, we reduced our inventories
dramatically, which increased our cash available by $3,244,489.  This
additional cash available also helped us to reduce our current liabilities by
$3.8 million.





The
operations of our Art’s-Way Scientific subsidiary require us to include
long-term construction contract disclosures to our consolidated balance
sheet.  For purposes of our financial statement presentation, we
estimate a percentage of revenue earned based on percentage of
completion.  The outcome for 2009 is an asset representing our cost
and profit in excess of billing, and a liability representing our billings in
excess of cost and profit.




As
discussed earlier in “Item 2. PROPERTIES,” our Monona, Iowa facility for
Art’s-Way Scientific was completely destroyed by fire in January
2007.  We have recently negotiated a final settlement with our
insurance company of $909,700, which was received in January 2010.




10




Critical
Accounting Policies





Our
significant accounting policies are described in Note 1 to our Consolidated
Financial Statements contained in Item 8 of this report, which were prepared in
accordance with GAAP. Critical accounting policies are those that we believe are
both important to the portrayal of our financial condition and results and
require our most difficult, subjective or complex judgments, often as a result
of the need to make estimates about the effect of matters that are inherently
uncertain.





We
believe that the following discussion represents our more critical accounting
policies and estimates used in the preparation of our consolidated financial
statements, although it is not inclusive.





Inventories





Inventories
are stated at the lower of cost or market, and cost is determined using the
standard costing method.  Management monitors the carrying value of
inventories using inventory control and review processes that include, but are
not limited to, sales forecast review, inventory status reports, and inventory
reduction programs.  We record inventory write downs to market based
on expected usage information for raw materials and historical selling trends
for finished goods. Additional write downs may be necessary if the assumptions
made by management do not occur.





Income
Taxes





Income
taxes are accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
losses. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is entirely dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversals of deferred tax
liabilities, projected future taxable income, and tax planning strategies in
making this assessment.





Revenue
Recognition





Revenue
is recognized when risk of ownership and title pass to the buyer, generally upon
the shipment of the product. All sales are made to an authorized dealer that has
submitted an application for dealer status, and was informed of general sales
policies when approved. Any changes in Company terms are documented in the most
recently published price lists. Pricing is fixed and determinable according to
the Company’s published equipment and parts price lists. Title to all equipment
and parts sold shall pass to the buyer upon delivery to the carrier and is not
subject to a customer acceptance provision. Proof of the passing of title is
documented by the signing of the delivery receipt by a representative of the
carrier. Post shipment obligations are limited to any claim with respect to the
condition of the equipment or parts. A provision for warranty expenses, based on
sales volume, is included in the financial statements. Our returns policy allows
for new and saleable parts to be returned, subject to inspection and a
restocking charge which is included in net sales. Whole goods are not
returnable. Shipping costs charged to customers are included in net
sales.  Freight costs incurred are included in cost of goods
sold.





In
certain circumstances, upon the customer’s written request, we may recognize
revenue when production is complete and the good is ready for shipment. At the
buyer’s request, we will bill the buyer upon completing all performance
obligations, but before shipment. The buyer dictates that we ship the goods per
their direction from our manufacturing facility, as is customary with this type
of agreement, in order to minimize shipping costs. The written agreement with
the customer specifies that the goods will be delivered on a schedule to be
determined by the customer, with a final specified delivery date, and that we
will segregate the goods from our inventory, such that they are not available to
fill other orders. This agreement also specifies that the buyer is required to
purchase all goods manufactured under this agreement. Title of the goods will
pass to the buyer when the goods are complete and ready for shipment, per the
customer agreement. At the transfer of title, all risks of ownership have passed
to the buyer, and the buyer agrees to maintain insurance on the manufactured
items that have not yet been shipped.  We have operated using bill and
hold agreements with certain customers for many years, with consistent
satisfactory results for both buyer and seller. The credit terms on this
agreement are consistent with the credit terms on all other
sales.  All risks of loss are shouldered by the buyer, and there are
no exceptions to the buyer’s commitment to accept and pay for these manufactured
goods. Revenues recognized at the completion of production in 2009 and 2008 were
$2,115,533 and $1,122,037, respectively.


11




Art’s-Way
Scientific, Inc. is in the construction industry, and as such accounts for
long-term contracts on the percentage-of-completion method. Revenue and gross
profit are recognized as work is performed based on the relationship between
actual costs incurred and total estimated costs at completion. Contract losses
are recognized when current estimates of total contract revenue and contract
cost indicate a loss. Estimated contract costs include any and all costs
appropriately allocable to the contract. The provision for these contact losses
will be the excess of estimated contract costs over estimated contract
revenues.





Costs and
profit in excess of amounts billed are classified as current assets and billings
in excess of cost and profit are classified as current liabilities.





Stock
Based Compensation





Stock-based
compensation expense reflects the fair value of stock-based awards measured at
the grant date and recognized over the relevant vesting period.  We
estimate the fair value of each stock-based award on the measurement date using
the Black-Scholes option valuation model which incorporates assumptions as to
stock price volatility, the expected life of the options, risk-free interest
rate and dividend yield.





Results
of Operations





Fiscal
Year Ended November 30, 2009 Compared to Fiscal Year Ended November 30,
2008





On a
consolidated basis, our sales and gross profit decreased during our 2009 fiscal
year.  Our consolidated net sales totaled $26,296,133 for the period
ended November 30, 2009, which represents a 17.9% decrease from our consolidated
net sales of $32,041,138 in 2008.  Our gross margin decreased by 32.5%
between our 2008 and 2009 fiscal years, from $7,962,391 to $5,372,247,
respectively.  Our consolidated expenses decreased by 10.2%, from
$5,196,131 to $4,663,858. Because the majority of our corporate general and
administrative expenses are borne by Art’s-Way Manufacturing, that entity
represented $3, 398,405 of our total consolidated operating expenses, while
Art’s-Way Vessels and Art’s-Way Scientific represented $436,275 and $829,178 of
the total, respectively. Art’s-Way Manufacturing was responsible for $1,633,023
of our consolidated income from operations, while Art’s-Way Scientific and
Art’s-Way Vessels had operating losses of $118,856 and $805,778,
respectively.





Art’s-Way Manufacturing.Art’s-Way Manufacturing’s sales revenue in our 2009 fiscal year totaled
$20,926,385 which represented a 0.6% decrease in revenues from our 2008 total of
$21,045,124.  The decrease in sales for Art’s-Way Manufacturing was
largely due to unfavorable economic conditions for the majority of fiscal 2009,
which kept many farmers from making equipment purchases.   Gross
margin for Art’s-Way Manufacturing decreased from 27.0% for 2008 to 24.0% for
2009. This decrease is due to several factors:  During fiscal 2008,
rising steel prices affected the gross margins on a large portion of our product
lines.  During 2009, we continued to use steel previously purchased at
the higher 2008 prices, which affected gross margins during the first portion of
the year.  Also, many of our dealers used floor plan financing to
purchase products.  This program allows us to receive payment for
sales immediately, but we pay interest on these sales for a fixed time period
after the sale.  This increased our interest expense for sold goods by
$149,000.  We also had higher warranty expenses during
2009.  These problems were due to faulty grab rolls on the 2008 beet
harvesters, and problems with paint quality.  We have since purchased
a new paint system to produce a better quality paint job.  Also, all
grab rolls on 2008 beet harvesters have been replaced.  These factors
negatively impacted our gross profit in fiscal 2009.





Art’s-Way
Manufacturing also incurred other infrastructure expenses in 2009.  We
continue to work on improving our use of our Enterprise Resource Planning system
in the inventory transactions area.  We have spent additional time
training key staff on the use of this system.  Also, we have increased
our cycle counts dramatically, which reduced our labor
efficiencies.


Total
operating expenses in our 2009 fiscal year were $3,398,405 for Art’s-Way
Manufacturing, representing approximately 16.2% of net sales and a 13.2%
decrease from the prior year.  These decreases are due to the decrease
of the bonus expenses, decreased recruiting efforts, and the reduction of
administrative staff.  Finally, total income from operations for
Art’s-Way Manufacturing decreased from $1,769,776 in our 2008 fiscal year to
$1,633,023, representing a 7.7% decrease for our 2009 fiscal year.




12




Art’s-Way Vessels.Art’s-Way
Vessels experienced a 147.8% increase in net sales for the fiscal year ended
November 30, 2009, from $330,643 to $819,239.  Our vessels business
suffered significant disruption to both manufacturing and sales due to having to
leave a leased facility in October 2007 and move into a newly constructed
wholly-owned facility that we believe will best serve our needs for the long
term. While we have seen dramatic increases in sales, we anticipate even larger
increases in fiscal 2010.  The increased sales volume at Art’s-Way
Vessels allowed us to reduce our gross losses from $619,000 in 2008 to $370,000
in 2009. Even with higher sales, our low production levels are not sufficient to
absorb our fixed overhead costs; consequently this segment still experiences
negative gross margins.





Art’s-Way Scientific.Fiscal
2009 was a difficult year for Art’s-Way Scientific.  The economic
downturn during late 2008 and 2009 not only slowed funding for new projects, but
also delayed projects that were already planned.  Engineering delays
on a project signed in January of 2009 stopped production for nearly 4 months as
well.   Net sales decreased to $4,550,509 in 2009 from
$10,665,371 in 2008.  Similarly, gross profit decreased to $710,322
from $2,897,873, a 75.5% decrease.  Operating expenses decreased from
$840,645 for the fiscal year ended November 30, 2008 to $829,178 for the fiscal
year ended November 30, 2009.  Income from operations totaled
$2,057,228 for the 2008 fiscal year, as compared to -$118,856 for the year ended
November 30, 2009.  Art’s Way Scientific also contributed $909,700 of
income under the caption “Other” on the Consolidated Statements of Operations as
a result of the gains from insurance proceeds due to the fire in January
2007.





Trends
and Uncertainties





We are
subject to a number of trends and uncertainties that may affect our short-term
or long-term liquidity, sales revenues and operations.  Similar to
other farm equipment manufacturers, we are affected by items unique to the farm
industry, including fluctuations in farm income resulting from the change in
commodity prices, crop damage caused by weather and insects, government farm
programs, interest rate fluctuations, and other unpredictable variables.
Management believes that our business is dependent on the farming industry for
the bulk of our sales revenues.  As such, our business tends to reap
the benefits of increases in farm net income, as farmers tend to purchase
equipment in lucrative times and forgo purchases in less profitable
years.  Direct government payments are declining and costs of
agricultural production are increasing; therefore, we anticipate that further
increases in the value of production will benefit our business, while any future
decreases in the value of production will decrease farm net income and may harm
our financial results.





As with
other farm equipment manufacturers, we depend on our network of dealers to
influence customers’ decisions, and dealer influence is often more persuasive
than a manufacturer’s reputation or the price of the
product.  Following our acquisition of the Miller Pro hay and forage
product lines in September 2007, former Miller Pro dealers began selling our
products, which management believes improves recognition and acceptance of our
products.





The price
of steel influences our cost of goods sold for Art’s-Way Manufacturing and
Art’s-Way Vessels.  In 2008, we experienced challenges due to a sharp
increase in the price of steel, which continued during the first portion of the
2009 fiscal year. We are no longer seeing negative effects due to the price of
steel.





Seasonality





Sales of
our agricultural products are seasonal; however, we have tried to decrease this
impact of seasonality through the development of shredders and beet harvesting
machinery coupled with private labeled products, as the peak periods for these
different products occur at different times.





We
believe that our pressurized vessel sales are not seasonal.  Our
modular building sales are somewhat seasonal, and we believe that this is due to
the budgeting and funding cycles of the universities that commonly purchase our
modular buildings.  We believe that this cycle can be offset by
building backlogs of inventory and through increased sales to other public and
private sectors.




Liquidity





Fiscal
Year Ended November 30, 2009




Sources
of liquidity during our 2009 fiscal year were due in large part to our reduction
of inventories, and our decrease in outstanding accounts
receivable.  See “Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – Capital Resources and Credit
Facilities” for more information.   We had cash provided by
operations of $1,547,696 for our 2009 fiscal year, largely due to the decrease
in inventories by over $3,200,000.  Our largest use of cash during the
year was to reduce accounts payable, which we decreased by nearly
$3,000,000.




13




Fiscal
Year Ended November 30, 2008





Sources
of liquidity during our 2008 fiscal year were due in large part to additional
proceeds from our construction loan and our revolving credit loan.  We
had cash used by operations of $1,773,811 for our 2008 fiscal
year.  Our accounts receivable increased from November 30, 2007 by
$163,545 to $3,251,326 as of November 30, 2008, and our consolidated inventory
increased by $6,536,121, to $15,172,723 as of November 30, 2008. This was
partially due to the dramatic increases in the price of steel seen during
2008.  Nearly all of our inventory items at Art’s-Way Manufacturing
and Art’s-Way Vessels are steel-based.  We also increased our
purchasing due to the production of items associated with our newly acquired
Miller Pro product line.  At November 30, 2008, our inventory of raw
materials and finished goods for the Miller Pro product line was approximately
$5,836,000.





Capital
Resources and Credit Facilities





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,
which was a $1,000,000 increase over the amounts available on November 30, 2008,
and the maturity date was extended through June 30, 2009.  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 November 30, 2009, the interest rate was the
minimum of 4.0%. Monthly interest-only payments are required and the unpaid
principal is due on the maturity date.  As of November 30, 2009 and
November 30, 2008, we had borrowed $2,438,892 and $2,581,775, respectively,
against the Line of Credit.  The available amounts remaining on the
Line of Credit were $3,561,108 and $918,225 on November 30, 2009 and November
30, 2008, respectively.  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. Our 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 $3,457,625 as of November 30, 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 of our new facilities in Monona, Iowa and Dubuque,
Iowa.  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 November 30, 2009, the
outstanding principal balance on this loan was $1,230,104.





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 November 30, 2009 the
outstanding principal balance on this loan was
$1,399,751.


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. We and our
subsidiaries were required to execute Agreements to Provide Insurance that set
forth the insurance requirements for the collateral.


14


If we or
either of our subsidiaries (as guarantors) commits an event of default under the
Business Loan Agreement and fail or are 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 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.





We were
in compliance with all debt covenants as measured on November 30,
2009.





On June
1, 2009, Art’s-Way Scientific, Inc. received funds from two $95,000 promissory
notes in connection with an agreement signed August 7, 2007 between Art’s-Way
Manufacturing Co., Inc. and the Iowa Department of Economic
Development.  The first $95,000 promissory note is a 0% interest loan
requiring 60 monthly payments of $1,583.33, with a final payment due July 1,
2014.  The second $95,000 promissory note is a forgivable loan subject
to certain contract obligations.  These obligations include
maintaining our principal place of business in Iowa, complying with certain tax
and insurance requirements, and creating 16 full-time positions and retaining 21
full-time positions in Iowa, which must be maintained for a two-year period.
Art’s-Way Manufacturing Co., Inc. has provided a guarantee in connection with
these loans to Art’s-Way Scientific, Inc.





The
following table represents our working capital and current ratio for the past
two fiscal years:





Fiscal Year EndedNovember 30, 2009
                
                
                November 30, 2008Current
      Assets
                
                $
                16,726,088
                
                
                $
                19,756,362Current
      Liabilities
                
                
                4,843,108
                
                
                
                8,642,633Working
      Capital
                
                $
                11,882,980
                
                
                $
                11,113,729Current
      Ratio
                
                
                3.45
                
                
                
                2.29





Off
Balance Sheet Arrangements





None.


15




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To the
Board of Directors and Stockholders
 Art's-Way
Manufacturing Co., Inc.
 Armstrong,
Iowa
  We have
audited the accompanying consolidated balance sheets of Art's-Way Manufacturing
Co., Inc. and Subsidiaries as of November 30, 2009 and 2008, and the related
consolidated statements of operations, stockholders’ equity, and cash flows for
the years then ended. Art's-Way Manufacturing Co., Inc.’s management is
responsible for these financial statements. Our responsibility is to express an
opinion on these financial statements based on our audits.
  We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we do not express such an opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Art's-Way Manufacturing Co.,
Inc. and Subsidiaries as of November 30, 2009 and 2008, and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of
America.
  /s/ Eide
Bailly LLP
  Minneapolis,
Minnesota
 February
22, 2010


16




ART’S-WAY
MANUFACTURING CO., INC.


Consolidated
Balance Sheets


November
30, 2009 and 2008





2009
                            
                            
                            2008AssetsCurrent
      assets:Cash
                            
                            $
                            387,218
                            
                            
                            $
                            103,450Accounts
      receivable-customers, net of allowance for doubtfulaccounts
      of $194,185 and $177,434 in 2009 and 2008, respectively
                            
                            
                            2,347,956
                            
                            
                            
                            3,251,326Inventories,
      net
                            
                            
                            11,928,234
                            
                            
                            
                            15,172,723Deferred
      taxes
                            
                            
                            882,000
                            
                            
                            
                            780,000Cost
      and Profit in Excess of Billings
                            
                            
                            141,778
                            
                            
                            
                            250,330Income
      taxes receivable
                            
                            
                            -
                            
                            
                            
                            87,000Other
      current assets
                            
                            
                            1,038,902
                            
                            
                            
                            111,533Total
      current assets
                            
                            
                            16,726,088
                            
                            
                            
                            19,756,362Property,
      plant, and equipment, net
                            
                            
                            6,638,661
                            
                            
                            
                            6,855,042Covenant
      not to Compete
                            
                            
                            180,000
                            
                            
                            
                            240,000Goodwill
                            
                            
                            375,000
                            
                            
                            
                            375,000Total
      assets
                            
                            $
                            23,919,749
                            
                            
                            $
                            27,226,404Liabilities
      and Stockholders’ EquityCurrent
      liabilities:Notes
      payable to bank
                            
                            $
                            2,438,892
                            
                            
                            $
                            2,581,775Current
      portion of term debt
                            
                            
                            473,341
                            
                            
                            
                            429,689Accounts
      payable
                            
                            
                            439,127
                            
                            
                            
                            3,425,885Checks
      issued in excess of deposits
                            
                            
                            -
                            
                            
                            
                            274,043Customer
      deposits
                            
                            
                            249,278
                            
                            
                            
                            75,980Billings
      in Excess of Cost and Profit
                            
                            
                            28,884
                            
                            
                            
                            531,736Accrued
      expenses
                            
                            
                            791,381
                            
                            
                            
                            1,323,525Income
      taxes payable
                            
                            
                            422,205
                            
                            
                            
                            -Total
      current liabilities
                            
                            
                            4,843,108
                            
                            
                            
                            8,642,633Long-term
      liabilitiesDeferred
      taxes
                            
                            
                            613,000
                            
                            
                            
                            490,000Term
      debt, excluding current portion
                            
                            
                            5,796,223
                            
                            
                            
                            6,083,159Total
      liabilities
                            
                            
                            11,252,331
                            
                            
                            
                            15,215,792Stockholders’
      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
                            
                            
                            
                            39,864Additional
      paid-in capital
                            
                            
                            2,219,286
                            
                            
                            
                            2,085,349Retained
      earnings
                            
                            
                            10,408,228
                            
                            
                            
                            9,885,399Total
      stockholders’ equity
                            
                            
                            12,667,418
                            
                            
                            
                            12,010,612Total
      liabilities and stockholders’ equity
                            
                            $
                            23,919,749
                            
                            
                            $
                            27,226,404




See
accompanying notes to consolidated financial statements.


17





ART’S-WAY
MANUFACTURING CO., INC.


Consolidated
Statements of Operations


Years
ended November 30, 2009 and 2008





2009
                        
                        
                        2008Net
      sales
                        
                        $
                        26,296,133
                        
                        
                        $
                        32,041,138Cost
      of goods sold
                        
                        
                        20,923,886
                        
                        
                        
                        24,078,747Gross
      profit
                        
                        
                        5,372,247
                        
                        
                        
                        7,962,391Expenses:Engineering
                        
                        
                        358,132
                        
                        
                        
                        323,265Selling
                        
                        
                        1,629,330
                        
                        
                        
                        1,735,936General
      and administrative
                        
                        
                        2,676,396
                        
                        
                        
                        3,136,930Total
      expenses
                        
                        
                        4,663,858
                        
                        
                        
                        5,196,131Income
      from operations
                        
                        
                        708,389
                        
                        
                        
                        2,766,260Other
      income (expense):Interest
      expense
                        
                        
                        (508,145
                        )
                        
                        
                        (461,412
                        )Other
                        
                        
                        1,014,911
                        
                        
                        
                        445,802Total
      other expense
                        
                        
                        506,766
                        
                        
                        
                        (15,610
                        )Income
      before income taxes
                        
                        
                        1,215,155
                        
                        
                        
                        2,750,649Income
      tax
                        
                        
                        452,905
                        
                        
                        
                        921,082Net
      income
                        
                        $
                        762,250
                        
                        
                        $
                        1,829,567Net
      income per share:Basic
                        
                        
                        0.19
                        
                        
                        
                        0.46Diluted
                        
                        
                        0.19
                        
                        
                        
                        0.46





See
accompanying notes to consolidated financial statements.


18





ART’S-WAY
MANUFACTURING CO., INC.


Consolidated
Statements of Cash Flows


Years
ended November 30, 2009 and 2008





2009
                        
                        
                        2008Cash
      flows from operations:Net
      income
                        
                        $
                        762,250
                        
                        
                        $
                        1,829,567Adjustments
      to reconcile net income tonet
      cash provided by operating activities:Stock
      based compensation
                        
                        
                        118,537
                        
                        
                        
                        198,452(Gain)
      Loss on disposition of property, plant, and equipment
                        
                        
                        -
                        
                        
                        
                        (418,269
                        )Depreciation
      expense
                        
                        
                        596,118
                        
                        
                        
                        534,673Amortization
      expense
                        
                        
                        60,000
                        
                        
                        
                        60,000Bad
      debt expense
                        
                        
                        134,543
                        
                        
                        
                        -Deferred
      income taxes
                        
                        
                        21,000
                        
                        
                        
                        277,557Changes
      in assets and liabilities:Miller
      Pro acquisition in 2007:(Increase)
      decrease in:Accounts
      receivable
                        
                        
                        768,827
                        
                        
                        
                        (163,545
                        )Inventories
                        
                        
                        3,244,489
                        
                        
                        
                        (6,536,121
                        )Other
      current assets
                        
                        
                        (927,369
                        )
                        
                        
                        48,465Income
      taxes receivable
                        
                        
                        87,000
                        
                        
                        
                        (87,000
                        )Other,
      net
                        
                        
                        -
                        
                        
                        
                        9,771Increase
      (decrease) in:Accounts
      payable
                        
                        
                        (2,986,758
                        )
                        
                        
                        2,056,897Contracts
      in progress, net
                        
                        
                        (394,300
                        )
                        
                        
                        539,346Customer
      deposits
                        
                        
                        173,298
                        
                        
                        
                        22,784Income
      taxes payable
                        
                        
                        422,205
                        
                        
                        
                        (146,905
                        )Accrued
      expenses
                        
                        
                        (532,144
                        )
                        
                        
                        517Net
      cash provided (used) by operating activities
                        
                        
                        1,547,696
                        
                        
                        
                        (1,773,811
                        )Cash
      flows from investing activities:Purchases
      of property, plant, and equipment
                        
                        
                        (379,737
                        )
                        
                        
                        (1,892,515
                        )Proceeds
      from insurance recoveries
                        
                        
                        -
                        
                        
                        
                        666,591Proceeds
      from sale of property, plant, and equipment
                        
                        
                        -
                        
                        
                        
                        550Net
      cash (used in) investing activities
                        
                        
                        (379,737
                        )
                        
                        
                        (1,225,374
                        )Cash
      flows from financing activities:Net
      change in line of credit
                        
                        
                        (142,883
                        )
                        
                        
                        2,183,916Net
      activity as a result of checks issued in excess of
deposits
                        
                        
                        (274,043
                        )
                        
                        
                        274,043Payments
      of notes payable to bank
                        
                        
                        (433,284
                        )
                        
                        
                        (306,836
                        )Proceeds
      from term debt
                        
                        
                        190,000
                        
                        
                        
                        500,000Proceeds
      from the exercise of stock options
                        
                        
                        15,440
                        
                        
                        
                        78,492Dividends
      paid to stockholders
                        
                        
                        (239,421
                        )
                        
                        
                        (239,181
                        )Net
      cash provided (used) by financing activities
                        
                        
                        (884,191
                        )
                        
                        
                        2,490,434Net
      increase/(decrease) in cash
                        
                        
                        283,768
                        
                        
                        
                        (508,751
                        )Cash
      at beginning of period
                        
                        
                        103,450
                        
                        
                        
                        612,201Cash
      at end of period
                        
                        $
                        387,218
                        
                        
                        $
                        103,450Supplemental
      disclosures of cash flow information:Cash
      paid/(received) during the period for:Interest
                        
                        $
                        512,314
                        
                        
                        $
                        504,191Income
      taxes
                        
                        
                        95,072
                        
                        
                        
                        877,380Supplemental
      disclosures of noncash investing activities:Proceeds
      from insurance recoveries
                        
                        $
                        -
                        
                        
                        $
                        666,591Insurance
      recoveries receivable
                        
                        
                        -
                        
                        
                        
                        -Gain
      recognized in previous years
                        
                        
                        -
                        
                        
                        
                        (248,872
                        )Gain
      on insurance recovery
                        
                        $
                        -
                        
                        
                        $
                        417,719





See
accompanying notes to consolidated financial statements.


19





ART’S-WAY
MANUFACTURING CO., INC.


Consolidated
Statements of Stockholders’ Equity


Years
ended November 30, 2009 and 2008





Common stock
                        
                        
                        AdditionalNumber of
                        
                        
                        
                        
                        
                        paid-in
                        
                        
                        Retainedshares
                        
                        
                        Par value
                        
                        
                        capital
                        
                        
                        earnings
                        
                        
                        TotalBalance,
      November 30, 2007
                        
                        
                        1,984,176
                        
                        
                        $
                        19,842
                        
                        
                        $
                        1,828,427
                        
                        
                        $
                        8,295,013
                        
                        
                        $
                        10,143,282Additional
      shares available due totwo-for-one
      common stock split
                        
                        
                        1,984,176
                        
                        
                        
                        19,842
                        
                        
                        
                        (19,842
                        )
                        
                        
                        
                        
                        
                        
                        —Exercise
      of stock options
                        
                        
                        18,000
                        
                        
                        
                        180
                        
                        
                        
                        78,312
                        
                        
                        
                        —
                        
                        
                        
                        78,492Stock
      based compensation
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        198,452
                        
                        
                        
                        —
                        
                        
                        
                        198,452Dividends
      paid, $0.06 per share
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        (239,181
                        )
                        
                        
                        (239,181
                        )Net
      income
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        1,829,567
                        
                        
                        
                        1,829,567Balance,
      November 30, 2008
                        
                        
                        3,986,352
                        
                        
                        $
                        39,864
                        
                        
                        $
                        2,085,349
                        
                        
                        $
                        9,885,399
                        
                        
                        $
                        12,010,612Exercise
      of stock options
                        
                        
                        4,000
                        
                        
                        
                        40
                        
                        
                        
                        15,400
                        
                        
                        
                        —
                        
                        
                        
                        15,440Stock
      based compensation
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        118,537
                        
                        
                        
                        —
                        
                        
                        
                        118,537Dividends
      paid, $0.06 per share
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        (239,421
                        )
                        
                        
                        (239,421
                        )Net
      income
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        762,250
                        
                        
                        
                        762,250Balance,
      November 30, 2009
                        
                        
                        3,990,352
                        
                        
                        $
                        39,904
                        
                        
                        $
                        2,219,286
                        
                        
                        $
                        10,408,228
                        
                        
                        $
                        12,667,418





See
accompanying notes to consolidated financial statements.


20





Notes
to Consolidated Financial Statements





(1)
            Summary
      of Significant Accounting Policies





(a)
              Nature
      of Business





Art’s-Way
Manufacturing Co., Inc. is primarily engaged in the fabrication and sale of
metal products in the agricultural sector of the United States
economy.  Major product offerings include animal feed processing
equipment, hay and forage equipment, sugar beet harvesting equipment, land
maintenance equipment and crop shredding equipment.  One part of the
Company’s business is supplying hay blowers to original equipment manufacturers
(OEMs).  Another part of the Company’s business is after market
service parts that are available to keep its branded and OEM produced equipment
operating to the satisfaction of the end user of the Company’s
products.





Art’s-Way
Vessels, Inc. is primarily engaged in the fabrication and sale of pressurized
vessels and tanks.





Art’s-Way
Scientific, Inc. is primarily engaged in the construction of modular
laboratories and animal housing facilities.





(b)
              Principles
      of Consolidation





The
consolidated financial statements include the accounts of Art’s-Way
Manufacturing Co., Inc. and its wholly-owned subsidiaries, Art’s-Way Vessels,
Inc. and Art’s-Way Scientific, Inc.  Art’s-Way Vessels became active
in October 2005 after purchasing certain assets of Vessel Systems, Inc., while
Art’s-Way Scientific, Inc. became active in August 2006 after purchasing certain
assets of Tech Space, Inc.  All material inter-company accounts and
transactions are eliminated in consolidation.





(c)
              Cash
      Concentration





The
Company maintains its cash balances in several different accounts in two
different banks, and balances in these accounts are periodically in excess of
federally insured limits.





(d)
            Customer
      Concentration





One
      of the Company’s customers accounted for approximately 1.3% and 16.9% of
      consolidated revenues for the years ended November 30, 2009 and November
      30, 2008, respectively.





(e)
              Accounts
      Receivable





Accounts
receivable are carried at original invoice amount less an estimate made for
doubtful accounts based on a review of all outstanding amounts on a monthly
basis.  Management determines the allowance for doubtful accounts by
identifying troubled accounts and by using historical experience applied to an
aging of accounts.  Accounts receivable are written-off when deemed
uncollectible.  Recoveries of accounts receivable previously
written-off are recorded when received.  Accounts receivable are
generally considered past due 60 days past invoice date, with the exception of
international sales which primarily are sold with a letter of credit for 120 day
terms.





(f)
              Inventories





Inventories
are stated at the lower of cost or market, and cost is determined using the
standard costing method.  Management monitors the carrying value of
inventories using inventory control and review processes that include, but are
not limited to, sales forecast review, inventory status reports, and inventory
reduction programs.  The Company records inventory write downs to
market based on expected usage information for raw materials and historical
selling trends for finished goods.  Additional write downs may be
necessary if the assumptions made by management do not occur.


21





(g)
            Property,
      Plant, and Equipment





Property,
plant, and equipment are recorded at cost.  Depreciation of plant and
equipment is provided using the straight-line method, based on the estimated
useful lives of the assets which range from three to forty years.





(h)
            Goodwill and Other Intangible
      Assets and Impairment





Goodwill
represents costs in excess of the fair value of net tangible and identifiable
net intangible assets acquired in business combinations. Art’s-Way performs an
annual test for impairment of goodwill during the fourth
quarter.  This test is performed by comparing, at the reporting unit
level, the carrying value of the reporting unit to its fair value.





Intangible
assets with finite lives are amortized on a straight-line basis over their
estimated useful lives, which is five years.  Estimated future
amortization of intangible assets is $60,000 in each of the next 3
years.





(i)
            Income
      Taxes





Income
taxes are accounted for under the asset and liability
method.  Deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating losses.  Deferred tax assets
and liabilities are measured using enacted tax rates in effect for the year in
which those temporary differences are expected to be recovered or
settled.  The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.  In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized.  The
ultimate realization of deferred tax assets is entirely dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible.  Management considers the scheduled
reversals of deferred tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment.





(j)
            Revenue
      Recognition


Revenue
is recognized when risk of ownership and title pass to the buyer, generally upon
the shipment of the product.  All sales are made to an authorized
dealer that has submitted an application for dealer status, and was informed of
general sales policies when approved.   Any changes in Company
terms are documented in the most recently published price
lists.  Pricing is fixed and determinable according to the Company’s
published equipment and parts price lists.  Title to all equipment and
parts sold shall pass to the Buyer upon delivery to the carrier and is not
subject to a customer acceptance provision.  Proof of the passing of
title is documented by the signing of the delivery receipt by a representative
of the carrier.   Post shipment obligations are limited to any
claim with respect to the condition of the equipment or
parts.  Applicable sales taxes imposed on our revenues are presented
on a net basis on the consolidated statements of operations and therefore do not
impact net revenues or cost of goods sold.  A provision for warranty
expenses, based on sales volume, is included in the financial
statements.  The Company returns policy allows for new and saleable
parts to be returned, subject to inspection and a restocking charge which is
included in net sales.  Whole goods are not
returnable.    Shipping costs charged to customers are
included in net sales.  Freight costs incurred are included in cost of
goods sold.





In
certain circumstances, upon the customer’s written request, we may recognize
revenue when production is complete and the good is ready for
shipment.  At the buyer’s request, we will bill the buyer upon
completing all performance obligations, but before shipment.  The
buyer dictates that we ship the goods per their direction from our manufacturing
facility, as is customary with this type of agreement, in order to minimize
shipping costs. The written agreement with the customer specifies that the goods
will be delivered on a schedule to be determined by the customer, with a final
specified delivery date, and that we will segregate the goods from our
inventory, such that they are not available to fill other orders. This agreement
also specifies that the buyer is required to purchase all goods manufactured
under this agreement.  Title of the goods will pass to the buyer when
the goods are complete and ready for shipment, per the customer
agreement.  At the transfer of title, all risks of ownership have
passed to the buyer, and the buyer agrees to maintain insurance on the
manufactured items that have not yet been shipped.  We have operated
using bill and hold agreements with certain customers for many years, with
consistent satisfactory results for both buyer and seller.  The credit
terms on this agreement are consistent with the credit terms on all other
sales.  All risks of loss are shouldered by the buyer, and there are
no exceptions to the buyer’s commitment to accept and pay for these manufactured
goods.   Revenues recognized at the completion of production in
2009 and 2008 were $2,115,533 and $1,122,037, respectively.


22




Art’s-Way
Scientific, Inc. is in the construction industry, and as such accounts for
long-term contracts on the percentage of completion
method.   Revenue and gross profit are recognized as work is
performed based on the relationship between actual costs incurred and total
estimated costs at completion.  Contract losses are recognized when
current estimates of total contract revenue and contract cost indicate a
loss.  Estimated contract costs include any and all costs
appropriately allocable to the contract.  The provision for these
contract losses will be the excess of estimated contract costs over estimated
contract revenues.





Costs and
profit in excess of amounts billed are classified as current assets and billings
in excess of cost and profit are classified as current liabilities.





(k)
            Research
      and Development





Research
and development costs are expensed when incurred.  Such costs
approximated $212,000 and $207,000 for the years ended November 30, 2009
and 2008, respectively.





(l)
            Advertising





Advertising
costs are expensed when incurred.  Such costs approximated $224,000
and $210,000 for the years ended November 30, 2009 and 2008,
respectively.





(m)
              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 July 30, 2008.





Basic and
diluted earnings per common share have been computed based on the following as
of November 30, 2009 and 2008:





2009
                                        
                                        
                                        2008Basic:Numerator,
      net income
                                        
                                        $
                                        762,250
                                        
                                        
                                        $
                                        1,829,567Denominator:
      Average numberof
      common sharesOutstanding
                                        
                                        
                                        3,988,478
                                        
                                        
                                        
                                        3,973,816Basic
      earnings percommon
      share
                                        
                                        $
                                        0.19
                                        
                                        
                                        $
                                        0.46DilutedNumerator,
      net income
                                        
                                        $
                                        762,250
                                        
                                        
                                        $
                                        1,829,567Denominator:
      Average numberof
      common shares outstanding
                                        
                                        
                                        3,988,478
                                        
                                        
                                        
                                        3,973,816Effect
      of dilutive stock options
                                        
                                        
                                        1,879
                                        
                                        
                                        
                                        16,6843,990,357
                                        
                                        
                                        
                                        3,990,500Diluted
      earnings percommon
      share
                                        
                                        $
                                        0.19
                                        
                                        
                                        $
                                        0.46


23





(n)
              Stock
      Based Compensation





Stock-based
compensation expense reflects the fair value of stock-based awards measured at
the grant date and recognized over the relevant vesting period.  We
estimate the fair value of each stock-based award on the measurement date using
the Black-Scholes option valuation model which incorporates assumptions as to
stock price volatility, the expected life of the options, risk-free interest
rate and dividend yield.





(o)
              Use
      of Estimates





Management
of the Company has made a number of estimates and assumptions related to the
reported amount of assets and liabilities, reported amount of revenues and
expenses, and the disclosure of contingent assets and liabilities to prepare
these financial statements in conformity with generally accepted accounting
principles.  These estimates include the valuation of the Company’s
accounts receivable, inventories and realizability of the deferred tax
assets.  Actual results could differ from those
estimates.





(p)
              Recently
      Issued Accounting
Pronouncements




Fair Value
Measurements





In
September 2006, the Financial Accounting Standards Board (“FASB”) issued a
statement that 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 was adopted by the Company
without a material impact on the financial statements.





Business
Combinations





In
December 2007, the FASB issued standards on 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.  These standards apply 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 these standards will have on the
financial results of the Company.





Noncontrolling
Interests





In
December 2007, the FASB issued a standard which causes noncontrolling interests
in subsidiaries to be included in the equity section of the balance
sheet.  The standard 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 adoptions of this standard will have on the financial results of the
Company.





Accounting Standards
Codification





In June 2009,
the Financial Accounting Standards Board (“FASB”) issued The FASB Accounting
Standards Codification (the Codification.)  The Codification is the
official single source of authoritative accounting principles recognized by the
FASB to be applied by non-governmental entities in the preparation of financial
statements in conformity with GAAP in the United States. We adopted the
Codification in the fourth quarter of 2009, which only impacted our
disclosures.


24





(2)
            Allowance
      for Doubtful Accounts





A summary
of the Company’s activity in the allowance for doubtful accounts is as
follows:





2009
                  
                  
                  2008Balance,
      beginning
                  
                  $
                  177,434
                  
                  
                  $
                  148,636Provision
      charged to expense
                  
                  
                  134,543
                  
                  
                  
                  37,835Less
      amounts charged-off
                  
                  
                  (117,792
                  )
                  
                  
                  (9,037
                  )Balance,
      ending
                  
                  $
                  194,185
                  
                  
                  $
                  177,434




(3)
            Inventories





Major
classes of inventory are:





2009
                    
                    
                    2008Raw
      materials
                    
                    $
                    9,209,873
                    
                    
                    $
                    10,622,204Work
      in process
                    
                    
                    258,621
                    
                    
                    
                    825,330Finished
      goods
                    
                    
                    4,060,163
                    
                    
                    
                    5,667,449$
                    13,528,657
                    
                    
                    $
                    17,114,983Less:
      Reserves
                    
                    
                    (1,600,423
                    )
                    
                    
                    (1,942,260
                    )$
                    11,928,234
                    
                    
                    $
                    15,172,723




(4)
            Contracts
      in Progress





Amounts
included in the consolidated financial statements related to uncompleted
contracts are as follows:





Cost and Profit in
                    Excess of Billings
                  
                  
                  Billings in Excess of Costs
                    and ProfitNovember
      30, 2009Costs
                  
                  $
                  1,479,846
                  
                  
                  $
                  1,141,949Estimated
      earnings
                  
                  
                  679,661
                  
                  
                  
                  309,5172,159,507
                  
                  
                  
                  1,451,466Less:  amounts
      billed
                  
                  
                  (2,017,729
                  )
                  
                  
                  (1,480,350
                  )$
                  141,778
                  
                  
                  $
                  (28,884
                  )November
      30, 2008Costs
                  
                  $
                  1,718,066
                  
                  
                  $
                  6,068,582Estimated
      earnings
                  
                  
                  468,486
                  
                  
                  
                  2,435,5502,186,552
                  
                  
                  
                  8,504,132Less:  amounts
      billed
                  
                  
                  (1,936,222
                  )
                  
                  
                  (9,035,867
                  )$
                  250,330
                  
                  
                  $
                  (531,736
                  )





The
amounts billed on these long term contracts are due 30 days from invoice
date.  All amounts billed are expected to be collected within the next
12 months.  As of November 30, 2009, no retainages were
receivable.


25





(5)
            Property,
      Plant, and Equipment





Major
classes of property, plant, and equipment are:




2009
                        
                        
                        2008Land
                        
                        $
                        455,262
                        
                        
                        $
                        455,262Buildings
      and improvements
                        
                        
                        6,893,473
                        
                        
                        
                        6,721,957Construction
      in Progress
                        
                        
                        12,491
                        
                        
                        
                        169,559Manufacturing
      machinery and equipment
                        
                        
                        10,471,800
                        
                        
                        
                        10,162,377Trucks
      and automobiles
                        
                        
                        278,530
                        
                        
                        
                        231,331Furniture
      and fixtures
                        
                        
                        116,649
                        
                        
                        
                        107,98218,228,205
                        
                        
                        
                        17,848,468Less
      accumulated depreciation
                        
                        
                        (11,589,544
                        )
                        
                        
                        (10,993,426
                        )Property,
      plant and equipment
                        
                        $
                        6,638,661
                        
                        
                        $
                        6,855,042




Depreciation
expense totaled $596,118 and $534,673 for the fiscal years ended November 30,
2009 and 2008, respectively.





(6)
            Accrued
      Expenses





Major
components of accrued expenses are:





2009
                  
                  
                  2008Salaries,
      wages, and commissions
                  
                  $
                  425,133
                  
                  
                  $
                  780,293Accrued
      warranty expense
                  
                  
                  96,370
                  
                  
                  
                  327,413Other
                  
                  
                  269,878
                  
                  
                  
                  215,819$
                  791,381
                  
                  
                  $
                  1,323,525





(7)
            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 1 year from 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 years ended November 30,
2009 and 2008 are as follows:





2009
                    
                    
                    2008Balance,
      beginning
                    
                    $
                    327,413
                    
                    
                    $
                    262,665Settlements
      made in cash or in-kind
                    
                    
                    (487,123
                    )
                    
                    
                    (275,158
                    )Warranties
      issued
                    
                    
                    256,080
                    
                    
                    
                    339,906Balance,
      ending
                    
                    $
                    96,370
                    
                    
                    $
                    327,413





(8)
            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, which was a $1,000,000 increase over the amounts available
on November 30, 2008, and the maturity date was extended through June 30,
2009.  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
November 30, 2009, the interest rate was the minimum of 4.0%. Monthly
interest-only payments are required and the unpaid principal is due on the
maturity date.  As of November 30, 2009 and November 30, 2008, the
Company had borrowed $2,438,892 and $2,581,775, respectively, against the Line
of Credit.  The available amounts remaining on the Line of Credit were
$3,561,108 and $918,225 on November 30, 2009 and November 30, 2008,
respectively.  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.


26





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 $3,457,625 as of November 30, 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
November 30, 2009, the outstanding principal balance on this loan was
$1,230,104.





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 November
30, 2009 the outstanding principal balance on this loan was
$1,399,751.





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 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.





The
Company was in compliance with all debt covenants as measured on November 30,
2009.





On June
1, 2009, Art’s-Way Scientific, Inc. received funds from two $95,000 promissory
notes in connection with an agreement signed August 7, 2007 between the Company
and the Iowa Department of Economic Development.  The first $95,000
promissory note is a 0% interest loan requiring 60 monthly payments of
$1,583.33, with a final payment due July 1, 2014.  The second $95,000
promissory note is a forgivable loan subject to certain contract
obligations.  These obligations include maintaining our principal
place of business in Iowa, complying with certain tax and insurance
requirements, and creating 16 full-time positions and retaining 21 full-time
positions in Iowa, which must be maintained for a two-year period. Art’s-Way
Manufacturing Co., Inc. has provided a guarantee in connection with these loans
to Art’s-Way Scientific, Inc.


27





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





2009
                
                
                2008West
      Bank loan payable in monthly installments of $42,500 including interest at
      5.75%, due May 1, 2013
                
                $
                3,457,625
                
                
                $
                3,757,213West
      Bank loan payable in monthly installments of $11,000 including interest at
      5.75%, due May 1, 2013
                
                
                1,230,104
                
                
                
                1,288,758West
      Bank loan payable in monthly installments of $12,550 including interest at
      5.75%, due May 1, 2013
                
                
                1,399,751
                
                
                
                1,466,878IDED
      loan payable in monthly installments of $1,583.33 including interest at
      0%, due July 1, 2014
                
                
                87,084
                
                
                
                0IDED
      loan payable in monthly installments of $0 including interest at 0%, due
      July 1, 2014
                
                
                95,000
                
                
                
                0Total
      term debt
                
                
                6,269,564
                
                
                
                6,512,849Less
      current portion of term debt
                
                
                (473,341
                )
                
                
                (429,689
                )Term
      debt, excluding current portion
                
                $
                5,796,223
                
                
                $
                6,083,159





A summary
of the minimum maturities of term debt follows for the years ending November
30:





Year:
                      
                      Amount2010
                      
                      $
                      473,3412011
                      
                      
                      499,2012012
                      
                      
                      527,6132013
                      
                      
                      4,663,3262014
                      
                      
                      106,083$
                      6,269,564





(9)
            Employee
      Benefit Plans





The
Company sponsors a defined contribution 401(k) savings plan which covers
substantially all full-time employees who meet eligibility
requirements.  Participating employees may contribute as salary
reductions any amount of their compensation up to the limit prescribed by the
Internal Revenue Code.  The Company began making 25% matching
contributions to employees contributing a minimum of 4% of their compensation,
up to 1% of eligible compensation starting June 2005.  The Company
recognized an expense of $23,886 and $32,348 related to this plan during the
years ended November 30, 2009 and 2008, respectively.





(10)
            Stock
      Option Plan





On
November 30, 2009, the Company has two stock options plans, which are described
below.  The compensation cost that has been charged against income for
those plans was $170,009 and $280,710 for 2009 and 2008,
respectively.  The total income tax benefit recognized in the income
statement for share-based compensation arrangements was $51,472 and $82,258 for
2009 and 2008, respectively.  No compensation cost was capitalized as
part of inventory or fixed assets.


28





On
January 25, 2007 the Board of Directors adopted the 2007 Non-Employee Directors’
Stock Option Plan, which was also approved by the stockholders at the annual
stockholders meeting on April 24, 2008.  This plan authorizes 200,000
shares to be issued.  Options will be granted to non-employee
directors to purchase shares of common stock of the Company at a price not less
than fair market value at the date the options are
granted.  Non-employee directors are automatically granted options to
purchase 2,000 shares of common stock annually or initially upon their election
to the Board, which are automatically vested.  Options granted are
nonqualified stock options and expire five years after the date of grant, if not
exercised.  Shares received upon the exercise of options are
previously authorized, but unissued shares.





On
February 5, 2007 the Board of Directors adopted the 2007 Employee Stock Option
Plan which was approved by the stockholders at the Annual Stockholders’ Meeting
on April 26, 2007.  This plan authorizes 200,000 shares to be
issued.  Options will be granted to employees to purchase shares of
common stock of the Company at a price not less than fair market value at the
date the options are granted.  Options are granted to employees at the
discretion of the Board of Directors.  Options granted are either
nonqualified stock options or incentive stock options and expire ten years after
the date of grant, if not exercised.  Shares received upon the
exercise of options are previously authorized, but unissued
shares.  Options shall vest and become first exercisable as determined
by the Board of Directors.  Compensation cost is determined through
use of the Black Scholes model, which is communicated to employees receiving
options.





The fair
value of each option award is estimated on the date of grant using the Black
Scholes option-pricing model.  Expected volatility is based on
historical volatility of the Company’s stock and other factors.  The
Company uses historical option exercise and termination data to estimate the
expected term the options are expected to be outstanding.  The
risk-free rate is based on the U.S. Treasury yield curve in effect at the time
of grant.  The expected dividend yield is calculated using historical
dividend amounts and the stock price at the option issuance date.





A summary
of activity under the plans as of November 30, 2009, and changes during the year
then ended as follows:





2009
                    
                    
                    2008Expected
      Volatility
                    
                    
                    71.90
                    %
                    
                    57.61% to 78.53
                    %Expected
      Dividend Yield
                    
                    
                    0.825
                    %
                    
                    0.001% to 0.780
                    %Expected
      Term (in years)
                    
                    
                    2
                    
                    
                    
                    2Risk-free
      Rate
                    
                    
                    4.25
                    %
                    
                    
                    4.25
                    %





2009
Option Activity





Options
                
                Shares
                
                
                Weighted-
                  Average
                  Exercise
                  Price
                
                
                Weighted-
                  Average
                  Remaining
                  Contractual
                  Term
                
                
                Aggregate
                  Intrinsic
                  ValueOptions
      outstanding at beginning of period
                
                
                126,000
                
                
                $
                9.88Granted
                
                
                14,000
                
                
                $
                3.88Exercised
                
                
                (4,000
                )
                
                $
                3.86
                
                
                
                
                
                $
                0Options
      Expired or Forfeited
                
                
                (0
                )
                
                $
                0.00Options
      outstanding at end of period
                
                
                136,000
                
                
                $
                9.44
                
                
                
                6.79
                
                
                $
                0Options
      exercisable at end of period
                
                
                128,500
                
                
                $
                9.75
                
                
                
                7.80
                
                
                $
                0





2008
Option Activity


Options
                
                Shares
                
                
                Weighted-
                  Average
                  Exercise
                  Price
                
                
                Weighted-
                  Average
                  Remaining
                  Contractual
                  Term
                
                
                Aggregate
                  Intrinsic
                  ValueOptions
      outstanding at beginning of period
                
                
                54,000
                
                
                $
                7.60Granted
                
                
                92,000
                
                
                $
                10.16Exercised
                
                
                (18,000
                )
                
                $
                4.07
                
                
                
                
                
                $
                0Options
      Expired or Forfeited
                
                
                (2,000
                )
                
                $
                13.38Options
      outstanding at end of period
                
                
                126,000
                
                
                $
                9.88
                
                
                
                8.36
                
                
                $
                0Options
      exercisable at end of period
                
                
                78,500
                
                
                $
                10.71
                
                
                
                7.76
                
                
                $
                0




29





The
weighted-average grant-date fair value of options granted during the year 2009
and 2008 was $3.88 and $4.07, respectively.





A summary
of the status of the Company’s nonvested shares as of November 30, 2009, and
changes during the year ended November 30, 2009, is presented
below:





Nonvested Shares
                  
                  Shares
                  
                  
                  Weighted-Average Grant-
                    Date Fair ValueNonvested
      at beginning of period
                  
                  
                  47,500
                  
                  
                  $
                  3.20Granted
                  
                  
                  14,000
                  
                  
                  $
                  3.88Vested
                  
                  
                  (54,000
                  )
                  
                  $
                  3.26Forfeited
                  
                  
                  0
                  
                  
                  
                  0Nonvested
      at end of period
                  
                  
                  7,500
                  
                  
                  $
                  1.78





As of
November 30, 2009, there was $13,356 of total unrecognized compensation cost
related to non-vested share-based compensation arrangements under the
plans.  That cost is expected to be recognized during the next
year.  The total fair value of shares vested during the years ended
November 30, 2009 and 2008 was $118,537 and $198,452, respectively.





The cash
received from the exercise of options during fiscal year 2009 was
$15,440.





(11)
            Income
      Taxes





Total
income tax expense (benefit) for the years ended November 30, 2009 and 2008
consists of the following:





November
      302009
                
                
                2008Current
      expense
                
                $
                431,905
                
                
                $
                643,525Deferred
      expense
                
                
                21,000
                
                
                
                277,557$
                452,905
                
                
                $
                921,082





The
reconciliation of the statutory Federal income tax rate and the effective tax
rate are as follows:





November
      302009
                  
                  
                  2008Statutory
      federal income tax rate
                  
                  
                  34.0
                  %
                  
                  
                  34.0
                  %Other
                  
                  
                  3.2
                  
                  
                  
                  (0.5
                  )37.2
                  %
                  
                  
                  33.5
                  %





Tax
effects of temporary differences that give rise to significant portions of the
deferred tax assets (liabilities) at November 30, 2009 and 2008 are
presented below:


30





November
      302009
                              
                              
                              2008Current
      deferred tax  assets:Accrued
      expenses
                              
                              $
                              72,000
                              
                              
                              $
                              242,000Inventory
      capitalization
                              
                              
                              148,000
                              
                              
                              
                              148,000Asset
      reserves
                              
                              
                              662,000
                              
                              
                              
                              390,000Total
      current deferred tax assets
                              
                              $
                              882,000
                              
                              
                              $
                              780,000Non-current
      deferred tax  assets (liabilities):Property,
      plant, and equipment
                              
                              $
                              (613,000
                              )
                              
                              $
                              (490,000
                              )Total
      non-current deferred tax assets (liabilities)
                              
                              $
                              (613,000
                              )
                              
                              $
                              (490,000
                              )





In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized.  The ultimate realization of deferred tax assets
is dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible.





The
Company files income tax returns in the U.S. federal jurisdiction and various
states.  The company is no longer subject to U.S. federal or state
income tax examinations by tax authorities for years ended before November 30,
2006.





The
Company shall classify interest and penalties to be paid on an underpayment of
taxes as income tax expense.  For the years ended November 30, 2009
and 2008 no interest or penalty amounts have been recognized in the consolidated
statements of operations or the consolidated balance sheets.





(12)
            Disclosures
      About the Fair Value of Financial
Instruments





The fair
value of a financial instrument is defined as the amount at which the instrument
could be exchanged in a current transaction between willing
parties.  At November 30, 2009 and 2008, the carrying amount
approximates fair value for cash, accounts receivable, accounts payable, notes
payable to bank, term debt, and other current and long-term
liabilities.  The carrying amounts approximate fair value because of
the short maturity of these instruments.  The fair value of the
Company’s installment term loans payable also approximate recorded value because
the interest rates charged under the loan terms are not substantially different
than current interest rates.





(13)
            Litigation
      and Contingencies





Various
legal actions and claims that arise in the normal course of business are pending
against the Company. In the opinion of management adequate provisions have been
made in the accompanying financial statements for all pending legal actions and
other claims.





(14)
            Segment
      Information





On
October 4, 2005, the Company purchased certain assets of Vessels Systems, Inc.
which created a separate operating segment.  Then on August 2, 2006,
the Company purchased certain assets of Tech Space, Inc. which created a third
operating segment.  Prior to these acquisitions the Company operated
in one reportable segment.





Our
reportable segments are strategic business units that offer different
products.  They are managed separately because each business requires
different technology and marketing strategies.





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.


31


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.





Twelve Months Ended November 30, 2009Agricultural
                      Products
                    
                    
                    Pressurized
                      Vessels
                    
                    
                    Modular
                      Buildings
                    
                    
                    ConsolidatedRevenue
      from  external customers
                    
                    $
                    20,926,000
                    
                    
                    $
                    819,000
                    
                    
                    $
                    4,551,000
                    
                    
                    $
                    26,296,000Income
      from operations
                    
                    
                    1,633,000
                    
                    
                    
                    (806,000
                    )
                    
                    
                    (119,000
                    )
                    
                    
                    708,000Income
      before tax
                    
                    
                    1,490,000
                    
                    
                    
                    (987,000
                    )
                    
                    
                    712,000
                    
                    
                    
                    1,215,000Total
      Assets
                    
                    
                    16,654,000
                    
                    
                    
                    2,904,000
                    
                    
                    
                    4,362,000
                    
                    
                    
                    23,920,000Capital
      expenditures
                    
                    
                    312,000
                    
                    
                    
                    57,000
                    
                    
                    
                    11,000
                    
                    
                    
                    380,000Depreciation
      & Amortization
                    
                    
                    460,000
                    
                    
                    
                    98,000
                    
                    
                    
                    98,000
                    
                    
                    
                    656,000





Twelve
      Months Ended November 30, 2008Agricultural
                      Products
                    
                    
                    Pressurized
                      Vessels
                    
                    
                    Modular
                      Buildings
                    
                    
                    ConsolidatedRevenue
      from  external customers
                    
                    $
                    21,045,000
                    
                    
                    $
                    331,000
                    
                    
                    $
                    10,665,000
                    
                    
                    $
                    32,041,000Income
      from operations
                    
                    
                    1,770,000
                    
                    
                    
                    (1,061,000
                    )
                    
                    
                    2,057,000
                    
                    
                    
                    2,766,000Income
      before tax
                    
                    
                    1,585,000
                    
                    
                    
                    (1,216,000
                    )
                    
                    
                    2,382,000
                    
                    
                    
                    2,751,000Total
      Assets
                    
                    
                    20,764,000
                    
                    
                    
                    2,734,000
                    
                    
                    
                    3,728,000
                    
                    
                    
                    27,226,000Capital
      expenditures
                    
                    
                    680,000
                    
                    
                    
                    1,036,000
                    
                    
                    
                    177,000
                    
                    
                    
                    1,893,000Depreciation
      & Amortization
                    
                    
                    453,000
                    
                    
                    
                    54,000
                    
                    
                    
                    88,000
                    
                    
                    
                    595,000





(15)  Subsequent
Events





In
preparing the financial statements, management has evaluated subsequent events
through February 22, 2010.  On January 19, 2010, we purchased a manure
spreader product line, related inventory, and other assets of Roda, Inc. for
approximately $1,189,000.  The manure spreader product line will be
integrated into the Armstrong, Iowa manufacturing plant.


32


Item
9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.





None.





Item
9A(T).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 Rule 13a-15(e) or Rule 15d-15(e), as of the end of the period
subject to this Report.  Based on this evaluation, the person serving
as our principal executive officer and principal financial officer concluded
that our disclosure controls and procedures were not effective to provide
reasonable assurance that information required to be disclosed by us in the
periodic and current reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the periods specified by the
Securities and Exchange Commission’s rules and forms. Due to the material
weakness described below, our disclosure controls and procedures did not ensure
that the information required to be disclosed in the reports that we file or
submit under the Exchange Act was collected and communicated to our management,
including the person serving as our principal executive officer and principal
financial officer, in a manner to allow timely decisions regarding required
disclosures.




Management’s
Report on Internal Control over Financial Reporting




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rules
13a-15(f) and 15d-15(f). Internal control over financial reporting is a process
designed 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. Under the supervision
and with the participation of management, including our principal executive
officer and principal financial officer, we conducted an evaluation of the
effectiveness of our internal controls over financial reporting based on the
framework in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this
evaluation, management has concluded that our internal control over financial
reporting was not effective as of November 30, 2009.




A
material weakness (as defined in SEC Rule 12b-2) is a deficiency, or
combination of deficiencies, in internal control over financial reporting such
that there is a reasonable possibility that a material misstatement of the
annual or interim financial statements will not be prevented or detected on a
timely basis. Management has identified the following material weakness in
internal control over financial reporting as of November 30, 2009:




Inventory Accounting –
Management has concluded that in our Armstrong, Iowa facility we had a
significant number of variances between the actual quantities on hand for
various items as compared to the quantities recorded in the accounting systems
before the year-end physical inventory count.  The Company’s key
internal control over the recording of accurate inventory quantities is its
cycle count process, which did not identify these variances.  While
management has made significant changes to these procedures during the last
fiscal year, these changes were only partially effective in remediating this
weakness.   Additionally, management’s process for evaluating and
testing this control in conjunction with its assessment of internal controls
over financial reporting has yet to remedy this weakness; therefore we will
continue to remain closely involved with this issue.




Management,
under the oversight of the Audit Committee, is in the process of remediating the
material weakness. Management believes it has taken the appropriate action
through the physical inventory count to ensure that inventory is properly
reflected in the Company’s financial statements.




This
Annual Report does not include an attestation report of our independent
registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by the Company’s
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit us to provide only management’s report in
this Annual Report.


33





Limitations
on Controls





Our
management, including our principal executive officer and principal financial
officer, does not expect that our disclosure controls or our internal control
over financial reporting will prevent or detect all errors and all fraud. A
control system, no matter how well designed and operated, can provide only
reasonable, not absolute, assurance that the control system’s objectives will be
met. Internal control over financial reporting is a process that involves human
diligence and compliance and is subject to lapses in judgment and breakdowns
resulting from human failures. In addition, the design of any system of controls
is based in part on certain assumptions about the likelihood of future events,
and controls may become inadequate if conditions change. There can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions.




Changes
to Internal Control Over Financial Reporting





We are
undertaking efforts to remediate the material weakness identified above. During
fiscal 2009, we implemented additional inventory control
procedures.  These procedural changes include additional and more
comprehensive training of key staff members, additional analysis and assessment,
and factory layout enhancements. We will continue to evaluate the effectiveness
of these controls.





Item
9B.  OTHER INFORMATION





On
January 19, 2010, we purchased a manure spreader product line, related
inventory, and other assets of Roda, Inc. for approximately
$1,189,000.  The manure spreader product line will be integrated into
the Armstrong, Iowa manufacturing plant.   The foregoing summary
does not purport to be complete and is qualified in its entirety by reference to
the Roda Agreement, a copy of which is attached hereto as Exhibit 10.32 and is
incorporated herein by reference.





PART
III





Item
10.DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCE.





The
information required by Item 10 is incorporated by reference to the sections
entitled “Election of Directors,” “Compliance with Section 16(a) of the Exchange
Act,” and “Corporate Governance” in our definitive proxy statement relating to
our 2010 Annual Meeting of Stockholders.





Item
11.EXECUTIVE COMPENSATION.





The
information required by Item 11 is incorporated by reference to the section
entitled “Executive Compensation” in our definitive proxy statement relating to
our 2010 Annual Meeting of Stockholders.





Item
12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.





The
information required by Item 12 is incorporated by reference to the section
entitled “Principal Stockholders and Management Shareholdings” and “Equity
Compensation Plan Information” in our definitive proxy statement relating to our
2010 Annual Meeting of Stockholders.





Item
13.CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE.





The information
required by Item 13 is incorporated by reference to the sections entitled
“Corporate Governance” and “Certain Transactions and Business Relationships” in
our definitive proxy statement relating to our 2010 Annual Meeting of
Stockholders.





Item
14.     PRINCIPAL ACCOUNTING FEES AND SERVICES





The information required by Item 14 is
incorporated by reference to the section entitled “Independent Registered Public
Accounting Firm” in our definitive proxy statement relating to our 2010 Annual
Meeting of Stockholders.


34





PART
IV





Item
15.       EXHIBITS, FINANCIAL
STATEMENT SCHEDULES.





(a)
            Documents
      filed as part of this report.





(1)
            Financial
      Statements. The following financial statements are included in Part II,
      Item 8 of this Annual Report on Form
10-K:





Report of
Eide Bailly, LLP on Consolidated Financial Statements and Financial Statement
Schedule as of November 30, 2009 and 2008





Consolidated
Balance Sheets as of November 30, 2009 and 2008





Consolidated
Statements of Operations for each of the two years in the period ended November
30, 2009





Consolidated
Statements of Stockholders’ Equity for each of the two years in the period ended
November 30, 2009





Consolidated
Statements of Cash Flows for each of the two years in the period ended November
30, 2009





Notes to
Consolidated Financial Statements





(2)
            Financial
      Statement Schedules. The following consolidated financial statement
      schedule is included in Item 8: Not
applicable.





(3)
            Exhibits.
      See “Exhibit Index to Form 10-K” immediately following the signature page
      of this Form 10-K





SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, 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:
              02/22/2010
              
              /s/ Carrie L.
  MajeskiCarrie
      L. MajeskiPresident,
      Chief Executive Officer and Principal Financial
  Officer





POWER OF ATTORNEY





Each
person whose signature appears below constitutes CARRIE L. MAJESKI his or her
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any or all amendments to this Annual Report on Form
10-K and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all said attorney-in-fact and agent, or
her substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.


35





Date:  2/22/2010
              /s/
      Carrie L. MajeskiCarrie
      L. Majeski
                President,
      Chief Executive Officer and Principal Financial OfficerDate:  2/22/2010
              /s/
      Amber J. Murra, CPAAmber
      J. Murra, CPA
                Director
      of Finance, Principal Accounting OfficerDate:
      2/22/2010
              /s/
      J. Ward McConnell, Jr.,J.
      Ward McConnell, Jr., Executive Chairman, DirectorDate:
      2/22/2010
              /s
      / David R. CastleDavid
      R. Castle, DirectorDate:  2/22/2010
              /s/
      Fred W. KrahmerFred
      W. Krahmer, DirectorDate:  2/22/2010
              /s/
      James LynchJames
      Lynch, DirectorDate:  2/22/2010
              /s/
      Douglas McClellanDouglas
      McClellan, DirectorDate:
      2/22/2010
              /s/
      Marc H. McConnellMarc
      H. McConnell, Executive Vice Chairman, DirectorDate:  2/22/2010
              /s/
      Thomas E. BuffamanteThomas
      E. Buffamante, Director


36





Exhibit
Index


Art’s-Way
Manufacturing Co., Inc.


Form
10-K


For
Fiscal Year Ended November 30, 2009





Exhibit
                  No.
              
              Description3.1
              
              Articles
      of Incorporation of Art’s-Way Manufacturing Co., Inc.– incorporated by
      reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for
      the fiscal year ended November 30, 20083.2
              
              Bylaws
      of Art’s-Way Manufacturing Co., Inc.– incorporated by reference to Exhibit
      3.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended
      November 30, 20083.3
              
              Amendments
      to Bylaws of Art’s-Way Manufacturing Co., Inc. – incorporated by reference
      to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-QSB for the
      quarter ended May 31, 200410.1*
              
              Art’s-Way
      Manufacturing Co., Inc. 2001 Director Stock Option Plan – incorporated by
      reference to Exhibit 10.3.1 of the Company’s Annual Report on Form 10-K
      for the year ended November 30, 200210.2*
              
              Art’s-Way
      Manufacturing Co., Inc. 2007 Non-Employee Directors Stock Option Plan –
      incorporated by reference as Exhibit 10.1 of the Quarterly Report on Form
      10-Q for the quarter ended February 28, 200710.3*
              
              Art’s-Way
      Manufacturing Co., Inc. 2007 Employee Stock Option Plan – filed
      herewith10.4*
              
              Form
      of Non-Qualified Option Agreement under 2007 Non-Employee Directors’ Stock
      Option Plan and 2007 Employee Stock Option Plan – incorporated by
      reference to Exhibit 10.30 of the Quarterly Report on Form 10-Q for the
      Quarter ended May 31, 200910.5*
              
              Summary
      of Compensation Arrangements with Directors for 2008 fiscal year–incorporated by reference to Exhibit
      10.5 to the Company’s Annual Report on Form 10-K for the fiscal year ended
      November 30, 200810.6*
              
              Summary
      of Compensation Arrangements with Executive Officer for 2008 fiscal
      year–incorporated by reference to
      Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the fiscal
      year ended November 30, 200810.7*
              
              Summary
      of Compensation Arrangements with Directors for 2009 fiscal year– filed herewith10.8*
              
              Summary
      of Compensation Arrangements with Executive Officer for 2009 fiscal
      year–filed
  herewith10.9
              
              Promissory Note to West Bank dated December 16,
      2008 –incorporated by reference to Exhibit 10.7 to the Company’s
      Annual Report on Form 10-K for the fiscal year ended November 30,
      200810.10
              
              Commitment Letter from West Bank dated April 8,
      2008 –incorporated by reference to Exhibit 10.8 to the Company’s
      Annual Report on Form 10-K for the fiscal year ended November 30,
      200810.11
              
              Commercial Security Agreement between
      Art’s-Way Manufacturing Co., Inc. and West Bank dated
      April 25, 2003 –incorporated by reference to Exhibit 10.9 to the
      Company’s Annual Report on Form 10-K for the fiscal year ended November
      30, 200810.12
              
              Commercial Security Agreement between
      Art’s-Way Scientific Inc. and West Bank dated April
      20, 2007 –incorporated by reference to Exhibit 10.10 to the
      Company’s Annual Report on Form 10-K for the fiscal year ended November
      30, 200810.13
              
              Commercial Security Agreement between
      Art’s-Way Vessels, Inc. and West Bank dated December
      16, 2008 –incorporated by reference to Exhibit 10.11 to the
      Company’s Annual Report on Form 10-K for the fiscal year ended November
      30, 200810.14
              
              Form of Agreement to Provide Insurance for loan
      dated December 16, 2008 –incorporated by reference to Exhibit
      10.12 to the Company’s Annual Report on Form 10-K for the fiscal year
      ended November 30, 200810.15
              
              Real Estate Mortgage to West Bank dated April 23,
      2003 for property located in Armstrong, Iowa –incorporated by
      reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K for
      the fiscal year ended November 30, 200810.16
              
              Real Estate Mortgage to West Bank dated October 9,
      2007 for property located in Monona, Iowa –incorporated by
      reference to Exhibit 10.141 to the Company’s Annual Report on Form 10-K
      for the fiscal year ended November 30, 200810.17
              
              Real Estate Mortgage to West Bank dated November
      30, 2007 for property located in Dubuque, Iowa –incorporated by
      reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K for
      the fiscal year ended November 30, 200810.18
              
              Change in Terms Agreement between Art’s-Way
      Manufacturing Co., Inc. and West Bank dated May 1, 2008 for Loan No.
      1260080536 –incorporated by reference to Exhibit 10.16 to the
      Company’s Annual Report on Form 10-K for the fiscal year ended November
      30, 2008


37





10.19
                
                Business Loan Agreement between Art’s-Way
      Manufacturing Co., Inc. and West Bank dated May 1, 2008 for Loan No.
      1260080536 –incorporated by reference to Exhibit 10.17 to the
      Company’s Annual Report on Form 10-K for the fiscal year ended November
      30, 200810.20
                
                Change in Terms Agreement between Art’s-Way
      Manufacturing Co., Inc. and West Bank dated May 1, 2008 for Loan No. 81290
      –incorporated by reference to Exhibit 10.18 to the Company’s
      Annual Report on Form 10-K for the fiscal year ended November 30,
      200810.21
                
                Business Loan Agreement between Art’s-Way
      Manufacturing Co., Inc. and West Bank dated May 1, 2008 for Loan No. 81290
      –incorporated by reference to Exhibit 10.19 to the Company’s
      Annual Report on Form 10-K for the fiscal year ended November 30,
      200810.22
                
                Change in Terms Agreement between Art’s-Way
      Manufacturing Co., Inc. and West Bank dated May 1, 2008 for Loan No. 81289
      –incorporated by reference to Exhibit 10.20 to the Company’s
      Annual Report on Form 10-K for the fiscal year ended November 30,
      200810.23
                
                Business Loan Agreement between Art’s-Way
      Manufacturing Co., Inc. and West Bank dated May 1, 2008 for Loan No. 81289
      –incorporated by reference to Exhibit 10.21 to the Company’s
      Annual Report on Form 10-K for the fiscal year ended November 30,
      200810.24
                
                Letter Agreement from West Bank dated January 20,
      2009 –incorporated by reference to Exhibit 10.22 to the Company’s
      Annual Report on Form 10-K for the fiscal year ended November 30,
      200810.25
                
                Promissory
      Note from Art’s-Way Manufacturing Co., Inc. to West Bank dated April 30,
      2009 –  incorporated by reference to Exhibit 10.23 of the
      Quarterly Report on Form 10-Q for the Quarter ended May 31,
      200910.26
                
                Letter
      Agreement from West Bank dated May 21, 2009 – incorporated by reference to
      Exhibit 10.24 of the Quarterly Report on Form 10-Q for the Quarter ended
      May 31, 200910.27
                
                Business
      Loan Agreement between Art’s-Way Manufacturing Co., Inc. and West Bank
      dated June 8, 2009 – incorporated by reference to Exhibit 10.25 of the
      Quarterly Report on Form 10-Q for the Quarter ended May 31,
      200910.28
                
                Promissory
      Note from Art’s-Way Manufacturing Co., Inc. to West Bank dated June 8,
      2009 –  incorporated by reference to Exhibit 10.26 of the
      Quarterly Report on Form 10-Q for the Quarter ended May 31,
      200910.29
                
                Art’s-Way
      Manufacturing Co., Inc. Agreement to Provide Insurance for loan dated June
      8, 2009 – incorporated by reference to Exhibit 10.27 of the Quarterly
      Report on Form 10-Q for the Quarter ended May 31, 200910.30
                
                Art’s-Way
      Vessels, Inc. Agreement to Provide Insurance for loan dated June 8, 2009
      –  incorporated by reference to Exhibit 10.28 of the Quarterly
      Report on Form 10-Q for the Quarter ended May 31, 200910.31
                
                Art’s-Way
      Scientific, Inc. Agreement to Provide Insurance for loan dated June 8,
      2009 –  incorporated by reference to Exhibit 10.29 of the
      Quarterly Report on Form 10-Q for the Quarter ended May 31,
      200910.32
                
                Asset
      Purchase Agreement between Art’s-Way Manufacturing Co., Inc. and Roda,
      Inc. dated January 19, 2010 – filed herewith. Pursuant to item 601(b)(2)
      of Regulation S-K, and subject to claims of confidentiality pursuant to
      Rule 24B-2 under the Securities Exchange Act of 1934, upon the request of
      the Commission, the Registrant undertakes to furnish supplementally to the
      Commission a copy of any schedule or exhibit to the Asset Purchase
      Agreement as follows:
                  
                  Exhibit
      A                                         
      Description of Product Line
                    Schedule
      1.1(a)                                List
      of Equipment
                    Schedule
      1.1(b)                                Inventory
                    Schedule
      1.1(c)                                Show
      Contracts
                    Schedule
      1.1(d)                                Distributor
      Contracts
                    Schedule
      3.3                                   
      Asset Allocation Statement21.1
                
                List
      of Subsidiaries: Art’s-Way Scientific, Inc. (Iowa corporation); Art’s Way
      Vessels, Inc. (Iowa corporation)23.1
                
                Consent
      of independent registered public accounting firm – filed
      herewith24.1
                
                Power
      of Attorney (included on the “Signatures” page of this report on Form
      10-K)31.1
                
                Certificate
      pursuant to 17 CFR 240 13(a)-14(a) – filed herewith32.1
                
                Certificate
      pursuant to 18 U.S.C. Section 1350 – filed
  herewith








(*)
            Indicates
      a management contract or compensatory plan or
  arrangement.


38





CORPORATE
INFORMATION





DIRECTORS





J.
      Ward McConnell, Jr.
                Executive
      Chairman of the Board of Directors
                Private
      Investor
              
              Fred
      W. Krahmer
                President
      of Krahmer & Nielsen, PA
                Vice
      Chair, Profinium Financial, Inc.David
      R. Castle
                Chairman
      of the Audit Committee
                Chairman
      of Compensation & Stock Option Committee
              
              James
      Lynch
                President
      of Rydell Enterprises, LLC
                Secretary
      of Rydell Development, LLC
                President
      of San Fernando Valley Automotive Group, LLCThomas
      E. Buffamante
                Director
      of Buffamante Whipple  Buttafaro, P.C
              
              Douglas
      McClellan
                President
      of Filtration Unlimited





Marc H.
McConnell


Executive
Vice Chairman of the Board of Directors


President
of Babcock Co., Inc.


President
of Bauer Corporation


President
of Adamson Global Technology Corporation


Director
of Mountain Aircraft Services, Inc.


Director
of Farm Equipment Manufacturers Association


President
of American Ladder Institute





OFFICERS





Carrie L.
Majeski


President,
Chief Executive Officer and Principal Financial Officer





Amber J.
Murra, CPA


Director
of Finance





ART’S-WAY
MANUFACTURING





Kent
      C. Kollasch
                Manager
      of Information Service
              
              Donald
      R. Leach
                Manager
      of PurchasingGene
      L. Tonne
                Director
      of Manufacturing
              
              Thomas
      W. Spisak
                Manager
      of EngineeringRoger
      Murdock
                Director
      of Sales and Marketing





ART’S-WAY
VESSELS





Patrick
M. O’Neill


General
Manager





ART’S-WAY
SCIENTIFIC





Dan
      Palmer
                Sales
      Manager
              John
      Fuelling
                Production
      Manager


1





CORPORATE
INFORMATION





Principal
      Office
                5556
      Highway 9 West
                P.O.
      Box 288
                Armstrong,
      Iowa 50514-0288
              Transfer
      Agent
                American
      Stock Transfer & Trust Company
                New
      York, New YorkRegistered
      Office
                The
      Corporation Trust Co.
                1209
      Orange Street
                Wilmington,
      Delaware
              Stock
      Information
                Carrie
      L. Majeski
                (712)
      864-3131Auditors
                Eide
      Bailly, LLP
                Minneapolis,
      Minnesota
              Trading
      Information
                NASDAQ
      Capital Market
                NASDAQ
      symbol: ARTW


2