10-Q 1 c77028e10vq.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended MARCH 31, 2003 Commission file number: 0-25620 A.S.V., INC. (Exact name of registrant as specified in its charter) MINNESOTA 41-1459569 ------------------------------ ------------------------------- State or other jurisdiction of I.R.S. Employer Identification No. incorporation of organization 840 LILY LANE P.O. BOX 5160 GRAND RAPIDS, MN 55744 (218) 327-3434 -------------------------------------- -------------------------- Address of principal executive offices Registrant's telephone number Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past 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. [X] Yes [ ] No Indicate by check mark if the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). [X] Yes [ ] No As of May 2, 2003, 10,086,161 shares of the registrant's Common Stock were issued and outstanding. PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS A.S.V., INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED)

MARCH 31, December 31, 2003 2002 ----------------- ----------------- ASSETS CURRENT ASSETS Cash and cash equivalents.................................. $ 3,358,200 $ 4,058,091 Short-term investments..................................... 300,894 739,307 Accounts receivable, net................................... 17,133,649 14,397,958 Inventories................................................ 33,885,327 31,834,620 Prepaid expenses and other................................. 884,414 1,099,685 ----------------- ----------------- Total current assets 55,562,484 52,129,661 PROPERTY AND EQUIPMENT, net................................... 5,135,912 5,080,536 ----------------- ----------------- Total Assets $ 60,698,396 $ 57,210,197 ================= ================= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term liabilities................... $ 131,214 $ 129,550 Accounts payable .......................................... 5,461,633 2,838,370 Accrued liabilities Compensation............................................. 268,046 265,649 Warranty reimbursements.................................. 525,700 555,200 Warranties............................................... 600,000 600,000 Other.................................................... 391,858 374,707 Income taxes payable....................................... 138,708 - ----------------- ----------------- Total current liabilities 7,517,159 4,763,476 ----------------- ----------------- LONG-TERM LIABILITIES, less current portion................... 1,946,731 1,979,798 ----------------- ----------------- COMMITMENTS AND CONTINGENCIES................................. - - SHAREHOLDERS' EQUITY Capital stock, $.01 par value: Preferred stock, 11,250,000 shares authorized; no shares outstanding.................................. - - Common stock, 33,750,000 shares authorized; shares issued and outstanding - 10,063,901............. 100,639 100,639 Additional paid-in capital................................. 38,666,925 38,666,925 Retained earnings.......................................... 12,466,942 11,699,359 ----------------- ----------------- 51,234,506 50,466,923 ----------------- ----------------- Total Liabilities and Shareholders' Equity $ 60,698,396 $ 57,210,197 ================= =================

See notes to consolidated financial statements. 2 A.S.V., INC. CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) THREE MONTHS ENDED MARCH 31,

2003 2002 ----------------- ----------------- Net sales..................................................... $ 14,612,230 $ 6,177,828 Cost of goods sold............................................ 11,808,766 4,753,140 ----------------- ----------------- Gross profit......................................... 2,803,464 1,424,688 Operating expenses Selling, general and administrative........................ 1,452,960 1,332,032 Research and development................................... 161,704 674,433 ----------------- ----------------- Operating income (loss).............................. 1,188,800 (581,777) Other income (expense) Interest expense........................................... (36,623) (31,147) Other, net................................................. 37,406 66,343 ----------------- ----------------- Income (loss) before income taxes.................... 1,189,583 (546,581) Provision for (benefit from) income taxes..................... 422,000 (181,000) ----------------- ----------------- NET EARNINGS (LOSS).................................. $ 767,583 $ (365,581) ================= ================= Net earnings (loss) per common share: Basic.................................................... $ .08 $ (.04) ================= ================= Diluted.................................................. $ .08 $ (.04) ================= ================= Weighted average number of common shares outstanding: Basic.................................................... 10,063,901 10,194,663 ================= ================= Diluted.................................................. 10,113,634 10,194,663 ================= =================

See notes to consolidated financial statements. 3 A.S.V., INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) THREE MONTHS ENDED MARCH 31,

2003 2002 ----------------- ----------------- Cash flows from operating activities: Net earnings (loss).......................................... $ 767,583 $ (365,581) Adjustments to reconcile net earnings (loss) to net cash used in operating activities: Depreciation............................................. 144,171 114,916 Deferred income taxes.................................... 36,000 60,000 Changes in assets and liabilities Accounts receivable.................................... (2,735,691) 594,893 Inventories............................................ (2,050,707) (4,837,919) Prepaid expenses and other............................. 179,271 (10,164) Accounts payable....................................... 2,623,263 2,018,173 Accrued expenses....................................... (9,952) (188,270) Income taxes payable................................... 138,708 (505,062) ----------------- ----------------- Net cash used in operating activities................ (907,354) (3,119,014) ----------------- ------------------ Cash flows from investing activities: Purchase of property and equipment........................... (199,547) (30,682) Purchase of short-term investments........................... (205,894) (935,449) Redemption of short-term investments......................... 644,307 725,249 ----------------- ----------------- Net cash provided by (used in) investing activities.. 238,866 (240,882) ----------------- ----------------- Cash flows provided by financing activities: Principal payments on long-term liabilities.................. (31,403) (26,224) Proceeds from exercise of stock options...................... - 9,375 Retirement of common stock................................... - (303,695) ----------------- ----------------- Net cash used in financing activities................ (31,403) (320,544) ------------------ ----------------- Net decrease in cash and cash equivalents............ (699,891) (3,680,440) Cash and cash equivalents at beginning of period................ 4,058,091 5,221,591 ----------------- ----------------- Cash and cash equivalents at end of period...................... $ 3,358,200 $ 1,541,151 ================= ================= Supplemental disclosure of cash flow information: Cash paid for interest....................................... $ 32,728 $ 65,973 Cash paid for income taxes................................... $ 4,070 $ 455,881

See notes to consolidated financial statements. 4 A.S.V., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 2003 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying unaudited, consolidated financial statements follows: REVENUE RECOGNITION The Company generally recognizes revenue on its product sales when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable and collectibility is reasonable assured. The Company considers delivery to have occurred at the time of shipment. RESEARCH AND DEVELOPMENT All research and development costs are expensed as incurred. INTERIM FINANCIAL INFORMATION The accompanying unaudited, consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) for interim financial information. Accordingly, they do not include all of the footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal, recurring adjustments) considered necessary for a fair presentation have been included. Results for the interim periods are not necessarily indicative of the results for an entire year. WARRANTIES The Company provides a limited warranty to its customers. Provision for estimated warranty costs are recorded when revenue is recognized based on product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual failure rates, material usage or service delivery costs differ from the Company's estimates, revisions to the accrued warranty liability may be required. Changes in the Company's accrued warranty liability are as follows:

March 31, -------------------------------------------- 2003 2002 ------------------ ----------------- Balance, beginning of period $ 600,000 $ 500,000 Expense for new warranties issued 126,031 258,664 Warranty claims (126,031) (258,664) ------------------ ----------------- Balance, end of period $ 600,000 $ 500,000 ================== =================

STOCK-BASED COMPENSATION At March 31, 2003, the Company has three stock-based compensation plans. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net earnings, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net earnings and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, using the following assumptions. The weighted average fair values of the options granted during 2003 and 2002 are $4.52 and $5.50. The fair value of each option grant is estimated on the date of grant using the Black-Scholes options-pricing model with the following weighted-average assumptions used for all grants in 2003 and 2002; zero dividend yield; expected volatility of 44.8% and 40.8%, risk-free interest rate of 3.55 and 4.75% and expected lives of 6.95 and 6.84 years. 5

Three Months Ended March 31, -------------------------------------------- 2003 2002 ------------------ ----------------- Net earnings (loss), as reported $ 767,583 $ (365,581) Less total stock-based employee compensation determined under fair value methods for all awards (231,824) (124,162) ------------------ ----------------- Pro forma net earnings (loss) $ 535,759 $ (489,743) ================== ================= Earnings (loss) per share: Basic - as reported $ .08 $ (.04) ================== ================= Basic - pro forma $ .05 $ (.05) ================== ================= Diluted - as reported $ .08 $ (.04) ================== ================= Diluted - pro forma $ .05 $ (.05) ================== =================

NEW ACCOUNTING PRONOUNCEMENTS FIN 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, was released in November 2002. This Interpretation states that a guarantor is required to measure and recognize the fair value of the guarantee at inception. It must also provide new disclosures regarding the nature of any guarantees and certain other items, including product warranties. The initial recognition and measurement provisions are effective prospectively, that is, for guarantees issued or modified on or after January 1, 2003. The Company adopted FIN 45 on January 1, 2003 with no material effect on the Company's financial statements. SFAS 143, Accounting for Asset Retirement Obligations. This statement establishes standards for recognition and measurement of legal obligations associated with the retirement of a tangible long-lived asset that results from the acquisition, construction, or development and (or) normal operation of a long-lived asset. This statement was effective for the Company beginning January 1, 2003. The Company adopted SFAS 143 on January 1, 2003 with no material effect on the Company's financial statements. SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities. This statement provides financial and reporting guidance for costs associated with exit or disposal activities, including one-time terminations benefits, contract termination costs other than for a capital lease, and costs to consolidate facilities or relocate employees. This statement was effective for the Company for all exit and disposal activities initiated after December 31, 2002. The Company adopted SFAS 146 on January 1, 2003 with no material effect on the Company's financial statements. NOTE 2. INVENTORIES Inventories consist of the following:

MARCH 31, December 31, 2003 2002 ------------------ ----------------- Raw materials, semi-finished and work in process inventory $ 17,433,341 $ 16,502,994 Finished goods 11,979,437 10,779,010 Used equipment held for resale 4,472,549 4,552,616 ------------------ ----------------- $ 33,885,327 $ 31,834,620 ================== =================

6 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CRITICAL ACCOUNTING POLICIES The following discussion and analysis of the Company's financial condition and results of operations is based upon its financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses, and related disclosures. On an on-going basis, management evaluates its estimates and judgments, including those related to accounts receivable, inventories and warranty obligations. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty. Management bases its estimates and judgments on historical experience, observance of trends in the industry, information provided by customers and other outside sources and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the amount of expenses and the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. Revenue Recognition and Accounts Receivable. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable and collectibility is reasonably assured. The Company generally obtains oral or written purchase authorizations from customers for a specified amount of product at a specified price and considers delivery to have occurred at the time of shipment. ASV maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of ASV's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Inventories. Inventories are stated at the lower of cost or market, cost being determined on the first-in, first-out method. Adjustments to slow moving and obsolete inventories to the lower of cost or market are provided based on historical experience and current product demand. The Company evaluates the adequacy of the inventories carrying value quarterly. Warranties. ASV provides for the estimated cost of product warranties at the time revenue is recognized. While ASV engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its component suppliers, ASV's warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from ASV's estimates, revisions to the estimated warranty liability may be required. RESULTS OF OPERATIONS The following table sets forth certain Statements of Earnings data as a percentage of net sales:

Three Months Ended March 31, ---------------------------- 2003 2002 ----- ------ Net sales.......................................... 100.0% 100.0% Gross profit....................................... 19.2 23.1 Selling, general and administrative................ 9.9 21.6 Research and development........................... 1.1 10.9 Operating income (loss)............................ 8.1 (9.4) Net earnings (loss)................................ 5.3 (5.9)

Net Sales. For the three months ended March 31, 2003, net sales increased 137% to approximately $14,612,000 compared with approximately $6,178,000 for the same period in 2002. This increase was the result of several factors. First, the Company had increased sales of its undercarriages to Caterpillar Inc. (Caterpillar) for use on its Multi-Terrain Loaders (MTLs) during the first quarter of 2003. MTL undercarriage sales accounted for 57% of the Company's net sales and consisted of three models of undercarriages during the first quarter of 2003. In the first quarter of 2002, the Company had no MTL undercarriage sales to Caterpillar due to a production issue experienced by Caterpillar unrelated to ASV's undercarriages. In addition, two of the three MTL undercarriage models had not yet gone into production in the first quarter of 2002. Second, sales of the Company's RC-30 and RC-50 products increased due to increased marketing efforts to rental 7 facilities. Third, the Company began shipments of its latest product, the RC-100 Posi-Track during the first quarter of 2003. Offsetting these increases were decreases in the sales of the Company's 4810 Posi-Track and 2800 series Posi-Tracks due in part to the introduction of the RC-100 Posi-Track and a greater number of MTL models available during 2003. Gross Profit. Gross profit for the three months ended March 31, 2003 increased to approximately $2,803,000, compared with approximately $1,425,000 for the same period in 2002 while the gross profit percentage decreased from 23.1% in 2002 to 19.2% in 2003. The increase in gross profit can be attributed to the increased sales experienced during the first quarter of 2003. The decrease in gross profit percentage was due primarily to a shift in the mix of products sold in the first quarter of 2003 as well as several other factors. As discussed above, the Company had significant sales of MTL undercarriages during the first quarter of 2003, and specifically a high concentration of lower priced MTL undercarriages, which carry a lower gross profit percentage than the Company's R-Series and Posi-Track products. Due to the level of pre-sold production, the Company worked overtime during the first quarter of 2003 to satisfy the order level. Also, the Company began production of the RC-100 Posi-Track during the first quarter of 2003 and certain production inefficiencies were experienced, due primarily to timing issues for the receipt of certain raw materials. Finally, a lesser number of 4810 Posi-Tracks were sold in the first quarter of 2003 compared with 2002 which carry a higher than average gross profit percentage. Selling, General and Administrative. Selling, general and administrative expenses increased from approximately $1,332,000, or 21.6% of net sales in the first quarter of 2002, to approximately $1,453,000, or 9.9% of net sales in the first quarter of 2003. The increase in expenses was due primarily to increased advertising to promote the Company's products and increased travel expenses to support the Company's marketing efforts to rental facilities. Research and Development. Research and development expenses decreased from approximately $674,000 in the first quarter of 2002 to approximately $162,000 in the first quarter of 2003. The decrease was due to the Company completing the development of undercarriages for Caterpillar's MTL product line in 2002. The Company anticipates its investment in research and development will be approximately 1% of its anticipated net sales for 2003. Other Income (Expense). Interest expense for the first quarter of 2003 was similar to the first quarter of 2002. Other income decreased from approximately $66,000 in the first quarter of 2002 to approximately $37,000 for the first quarter of 2003. This decrease was due primarily to lower interest income from decreased short-term investments as the Company used these investments to fund operations in the first quarter of 2003. Net Earnings (Loss). For the first quarter of 2003, net earnings were approximately $768,000, compared to a net loss of approximately $366,000 for the first quarter of 2002. The increase was primarily a result of increased sales and decreased operating expenses, offset in part by a decreased gross profit percentage and higher effective income tax rate. LIQUIDITY AND CAPITAL RESOURCES At March 31, 2003, the Company had working capital of approximately $48,045,000 compared with approximately $47,366,000 at December 31, 2002. While overall working capital remained relatively the same during the period, several components changed. First, cash and short-term investments decreased approximately $1,138,000 due primarily to funding operations during the first quarter of 2003. Second, accounts receivable increased approximately $2,736,000 from increased sales during the first quarter of 2003. Third, inventories increased approximately $2,051,000 from December 31, 2002. This increase was due to an increase in raw materials due to increased production levels and an increase in finished goods as the Company took advantage of available production time early in the quarter to produce certain models it anticipates will be needed later in the year. Current liabilities increased approximately $2,754,000 at March 31, 2003 compared with December 31, 2002, due primarily to increased accounts payable from the increased production levels and the timing of inventory purchases. In October 2000, the Company and Caterpillar entered into an alliance agreement to jointly develop and manufacture a new product line of Caterpillar rubber track skid steer loaders called Multi-Terrain Loaders, or MTLs. The product line, which includes five new models, features Caterpillar's patented skid steer loader technology and ASV's patented Maximum Traction Support System(TM) rubber track undercarriage. The machines complement existing models in both ASV's and Caterpillar's current product lines. They are being sold through the Caterpillar dealer network. The Company recognizes as sales its cost for the undercarriage, as defined in the agreement, plus a portion of the gross profit that Caterpillar will recognize upon sale of the MTL to Caterpillar dealers, when the Company ships undercarriages to Caterpillar. The MTLs are not a commissionable product under the Company's Commercial Alliance 8 Agreement with Caterpillar. The Company anticipates its 2003 sales of MTL undercarriages to Caterpillar could approach $30 million. In December 2000, the Company made a sale to one customer totaling approximately $4.0 million. During 2001, this customer did not make payments in accordance with the terms of its agreement with the Company, including approximately $800,000 of machines and attachments sold by the customer for which payment was not remitted to the Company. The Company has been working closely with this customer to develop a plan for the payment of the amounts owed. In January 2002, the Company and the customer entered into a note agreement for the value of the machines that had been previously sold by the customer for which payment was not remitted to the Company. The initial amount of the note was $800,000 and is due in 48 monthly installments plus interest at the prime rate plus 2%, beginning March 15, 2002. The customer has generally made payments on a timely basis under this note. Should the customer be successful in raising a minimum of $2.5 million through a private placement offering, the Company has agreed to convert $500,000 of the note balance to shares of convertible preferred stock in the private placement. The Company has also obtained a security interest in the machines that have not yet been sold by the customer. In addition, the customer has agreed to remit payment to the Company for any machines it sells, which the customer has been doing. On October 7, 2002, the Company announced a new stock buy-back program whereby ASV may repurchase up to $5 million of its common stock in the open market. The Company is funding the repurchases with available funds. The repurchase program is expected to last until October 7, 2003 or until such amount of common stock is repurchased. As of May 2, 2003, the Company had repurchased 110,700 shares of its common stock under this new buy-back program at an aggregate purchase price of approximately $1,004,000. In October 2002, the Company began a program to market its RC-30 and RC-50 products directly to rental facilities. Under this program, ASV identifies rental facilities that will lease ASV machines from an unaffiliated finance company. ASV records the sale of the machines to the finance company when they are delivered to the rental facility and receives payment from the finance company at that time. The lease agreement between the rental facility and the finance company provides the rental facility a 90-day period during which any rental income generated is split between the rental facility and ASV. After the 90-day period has expired, the rental facility has the option of terminating the lease, in which case ASV is responsible for the costs associated with transferring the machines to another rental facility. If the rental facility elects to continue the lease, ASV will refund any rental payments received during the 90-day period. At the end of the four-year lease, should the rental facility elect not to purchase the leased machines, ASV has guaranteed to pay a residual value equal to 25% of the original selling price of the financed equipment should the rental facility choose not to make the residual payment. At that point, ASV would take possession of the equipment. As of March 31, 2003, the total amount of future residual payments the Company may be required to make in the event of nonpayment by rental facilities totaled approximately $334,000. The Company believes the value of the related equipment will equal or exceed the amount of residual payment. Accordingly, the Company does not anticipate any loss will be incurred should any residual payments need to be made. The Company believes cash expected to be generated from operations, its existing cash and short-term investments, together with its available, unused $10 million credit line, will satisfy the Company's projected working capital needs and other cash requirements for the next twelve months and for the foreseeable future. NEW ACCOUNTING PRONOUNCEMENTS. FIN 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, was released in November 2002. This Interpretation states that a guarantor is required to measure and recognize the fair value of the guarantee at inception. It must also provide new disclosures regarding the nature of any guarantees and certain other items, including product warranties. The disclosure requirements are effective for the Company for the year ending December 31, 2002. The initial recognition and measurement provisions are effective prospectively, that is, for guarantees issued or modified on or after January 1, 2003. The Company adopted FIN 45 on January 1, 2003 with no material effect on the Company's financial statements. SFAS 143, Accounting for Asset Retirement Obligations. This statement establishes standards for recognition and measurement of legal obligations associated with the retirement of a tangible long-lived asset that results from the acquisition, construction, or development and (or) normal operation of a long-lived asset. This statement was effective for the Company beginning January 1, 2003. The Company adopted SFAS 143 on January 1, 2003 with no material effect on the Company's financial statements. 9 SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities. This statement provides financial and reporting guidance for costs associated with exit or disposal activities, including one-time terminations benefits, contract termination costs other than for a capital lease, and costs to consolidate facilities or relocate employees. This statement is effective for the Company for all exit and disposal activities initiated after December 31, 2002. The Company adopted SFAS 146 on January 1, 2003 with no material effect on the Company's financial statements. The statements set forth above under "Liquidity and Capital Resources" and elsewhere in this Form 10-Q regarding ASV's future sales levels, product mix, profitability, expense levels and liquidity are forward-looking statements based on current expectations and assumptions, and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. Certain factors may affect whether these anticipated events occur including ASV's ability to successfully manufacture the machines, unanticipated delays, costs or other difficulties in the development and manufacture of the machines, market acceptance of the machines, general market conditions, corporate developments at ASV, Polaris or Caterpillar and ASV's ability to realize the anticipated benefits from its alliances with Polaris and Caterpillar. Any forward-looking statements provided from time-to-time by the Company represent only management's then-best current estimate of future results or trends. Additional information regarding these risk factors and uncertainties is detailed in the Risk Factors filed as Exhibit 99 to the Current Report on Form 10-Q for the period ended June 30, 2002. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has no history of, and does not anticipate in the future, investing in derivative financial instruments, derivative commodity instruments or other such financial instruments. Transactions with international customers are entered into in U.S. dollars, precluding the need for foreign currency hedges. Additionally, the Company invests in money market funds and fixed rate U.S. government and corporate obligations, which experience minimal volatility. Thus, the exposure to market risk is not material. ITEM 4. CONTROLS AND PROCEDURES The Company's Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation within 90 days of the filing date of this report, that the Company's disclosure controls and procedures are adequately designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in applicable rules and forms. There have not been any significant changes in the Company's internal controls or in other factors that could significantly affect those controls, subsequent to the date of such evaluation, including any corrective actions taken with regard to significant deficiencies and material weaknesses. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS ASV is a party to certain claims arising in the ordinary course of business. In the opinion of management, the outcome of such claims will not materially affect ASV's current or future financial position or results of operation. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None 10 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS

Exhibit Number Description ------- -------------------------------------------------------------------------------------------------------- 3.1 Second Restated Articles of Incorporation of the Company (a) 3.1a Amendment to Second Restated Articles of Incorporation of the Company filed January 6, 1997 (d) 3.1b Amendment to Second Restated Articles of Incorporation of the Company filed May 4, 1998 (g) 3.2.1 Bylaws of the Company (a) 3.3 Amendment to Bylaws of the Company adopted April 13, 1999 (l) 4.1 Specimen form of the Company's Common Stock Certificate (a) 4.3 * 1994 Long-Term Incentive and Stock Option Plan (a) 4.4 Warrant issued to Leo Partners, Inc. on December 1, 1996 (d) 4.5 * 1996 Incentive and Stock Option Plan (e) 4.6 * 1996 Incentive and Stock Option Plan, as amended (f) 4.7 * 1998 Non-Employee Director Stock Option Plan (f) 4.8 * Amendment to 1998 Non-Employee Director Stock Option Plan (m) 4.9 Securities Purchase Agreement dated October 14, 1998 between Caterpillar Inc. and the Company (h) 4.10 Warrant issued to Caterpillar Inc. on January 29, 1999 (i) 4.11 Securities Purchase Agreement dated October 31, 2000 between Caterpillar Inc. and the Company (n) 4.12 Replacement Warrant issued to Caterpillar Inc. on October 31, 2000 (n) 10.1 Development Agreement dated July 14, 1994 among the Iron Range Resources and Rehabilitation Board, the Grand Rapids Economic Development Authority ("EDA") and the Company (b) 10.2 Lease and Option Agreement dated July 14, 1994 between the EDA and the Company (b) 10.3 Option Agreement dated July 14, 1994 between the EDA and the Company (b) 10.4 Supplemental Lease Agreement dated April 18, 1997 between the EDA and the Company (e) 10.5 Supplemental Development Agreement dated April 18, 1997 between the EDA and the Company (e) 10.6 Line of Credit dated May 22, 1997 between Norwest Bank Minnesota North, N.A. and the Company (e) 10.7 * Employment Agreement dated October 17, 1994 between the Company and Thomas R. Karges (c) 10.8 Extension of Lease Agreement dated May 13, 1998 between the EDA and the Company (g) 10.9 First Amendment to Credit Agreement dated June 30, 1998 between Norwest Bank Minnesota North, N.A. and the Company (g)

11 10.10 Commercial Alliance Agreement dated October 14, 1998 between Caterpillar Inc. and the Company (h) 10.11 Management Services Agreement dated January 29, 1999 between Caterpillar Inc. and the Company (j) 10.12 Marketing Agreement dated January 29, 1999 between Caterpillar Inc. and the Company (j) 10.13 Third Amendment to Credit Agreement dated June 9, 1999 between Norwest Bank Minnesota North, N.A. and the Company (k) 10.14 Fourth Amendment to Credit Agreement dated June 1, 2000 between Norwest Bank Minnesota North, N.A. and the Company (m) 10.15** Multi-Terrain Rubber-Tracked Loader Alliance Agreement dated October 31, 2000 between Caterpillar Inc. and the Company (n) 10.16** Manufacturing and Distribution Agreement dated January 2, 2001 between Polaris Industries Inc. and the Company (o) 10.17 Fifth Amendment to Credit Agreement dated June 1, 20021 between Wells Fargo Bank Minnesota, N.A. and the Company (p) 10.18 Sixth Amendment to Credit Agreement dated June 1, 2002 between Wells Fargo Bank Minnesota, N.A. and the Company (q) 10.19 Seventh Amendment to Credit Agreement dated June 1, 2002 between Wells Fargo Bank Minnesota, N.A. and the Company (r) 10.20** Marketing Agreement dated March 13, 2002 between Jacobsen, a division of Textron, Inc., and the Company 11 Statement re: Computation of Per Share Earnings 99.1 Risk Factors (q) 99.2 Certification of the Chief Executive Officer 99.3 Certification of the Chief Financial Officer ---------------------------------------------------------------------- (a) Incorporated by reference to the Company's Registration Statement on Form SB-2 (File No. 33-61284C) filed July 7, 1994. (b) Incorporated by reference to the Company's Post-Effective Amendment No. 1 to Registration Statement on Form SB-2 (File No. 33-61284C) filed August 3, 1994. (c) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1994 (File No. 33-61284C) filed November 11, 1994. (d) Incorporated by reference to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1996 (File No. 0-25620) filed electronically March 28, 1997. (e) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB for the quarter ended June 30, 1997 (File No. 0-25620) filed electronically August 13, 1997. (f) Incorporated by reference to the Company's Definitive Proxy Statement for the year ended December 31, 1997 (File No. 0-25620) filed electronically April 28, 1998. (g) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 (File No. 0-25620) filed electronically August 12, 1998. 12 (h) Incorporated by reference to the Company's Current Report on Form 8-K (File No. 0-25620) filed electronically October 27, 1998. (i) Incorporated by reference to the Company's Current Report on Form 8-K (File No. 0-25620) filed electronically February 11, 1999. (j) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 0-25620) filed electronically March 26, 1999. (k) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (File No. 0-25620) filed electronically August 9, 1999. (l) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 (File No. 0-25620) filed electronically November 12, 1999. (m) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 (File No. 0-25620) filed electronically August 10, 2000. (n) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000 (File No. 0-25620) filed electronically November 13, 2000. (o) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 2000 (File No. 0-25620) filed electronically March 30, 2001. (p) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 (File No. 0-25620) filed electronically August 13, 2001. (q) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (File No. 0-25620) filed electronically August 14, 2002. (r) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 (File No. 0-25620) filed electronically November 14, 2002. * Indicates management contract or compensation plan or arrangement. ** Certain information contained in this document has been omitted and filed separately accompanied by a confidential request pursuant to Rule 24b-2 of the Securities Exchange Act of 1934. (b) REPORTS ON FORM 8-K The following current Reports on Form 8-K were filed by the Company during the quarter ended March 31, 2003: Current Report on Form 8-K dated February 13, 2003 reporting under Item 9. "Regulation FD Disclosure" that on February 13, 2003, ASV issued a press release announcing the formation of a strategic sales alliance between ASV and Jacobsen, a division of Textron Inc. Under the sales alliance, ASV intends to sell its RC-30 Turf Edition and RC-50 Turf Edition all-surface loaders designed for the golf and sports turf markets. Jacobsen and ASV expect to enter into a formal agreement memorializing the terms and conditions of the sales alliance shortly. Current Report on Form 8-K dated March 6, 2003 reporting under Item 9. "Regulation FD Disclosure" that on March 6, 2003, ASV issued a press release disclosing its financial results for the three and twelve months ended December 31, 2002. In addition, the press release contained information regarding a conference call held March 6, 2003 during which ASV discussed its financial results for the three and twelve months ended December 31, 2002 and its outlook for fiscal 2003. 13 SIGNATURES Pursuant to the requirements 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. A.S.V., INC. Dated: May 15, 2003 By /s/ Gary Lemke ----------------------------------------------- Gary Lemke President Dated: May 15, 2003 By /s/ Thomas R. Karges ----------------------------------------------- Thomas R. Karges Chief Financial Officer (principal financial and accounting officer) 14 CERTIFICATIONS I, Gary Lemke, President of A.S.V., Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of A.S.V., Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 15, 2003 /s/ Gary Lemke ------------------------ President 15 CERTIFICATIONS I, Thomas R. Karges, Chief Financial Officer of A.S.V., Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of A.S.V., Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 15, 2003 /s/ Thomas R. Karges ------------------------ Chief Financial Officer 16 EXHIBIT INDEX

EXHIBIT METHOD OF FILING ------- ---------------- 10.20 Marketing Agreement dated March 13, 2003 between Jacobsen, a Division of Textron Inc., and the Company......................... Filed herewith electronically 11 Statement re: Computation of Per Share Earnings................... Filed herewith electronically 99.1 Certification of the Chief Executive Officer...................... Filed herewith electronically 99.2 Certification of the Chief Financial Officer...................... Filed herewith electronically