ASV 10-Q 2005 Q2 Quarterly report

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 June 30, 2005

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 incorporation or organization)	(I.R.S. Employer Identification No.)
840 Lily Lane P.O. Box 5160 Grand Rapids, MN 55744	(218) 327-3434
(Address of principal executive offices, including zip code)	(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

     Check 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.þ Yeso No

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).þ Yeso No

     As of July 29, 2005, 13,427,389 shares of the issuer’s Common Stock were issued and outstanding.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
	ITEM 1 — FINANCIAL STATEMENTS
	ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II — OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 5. OTHER INFORMATION
	ITEM 6. EXHIBITS
SIGNATURES
EXHIBIT INDEX
Statement Re: Computation of Per Share Earnings
Certification of the CEO Pursuant to Section 302
Certification of the CFO Pursuant to Section 302
Certification of the CEO Pursuant to Section 906
Certification of the CFO Pursuant to Section 906

PART I — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS

A.S.V., Inc.

CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

	June 30,		December 31,
	2005		2004
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	25,344,339	$	27,437,885
Short-term investments		209,960		9,562,744
Accounts receivable, net
Trade		28,740,775		20,408,436
Caterpillar Inc.		7,296,146		16,023,338
Inventories		52,246,334		34,832,868
Deferred income taxes		2,500,000		1,835,000
Other current assets		774,015		1,062,096
Total current assets		117,111,569		111,162,367
PROPERTY AND EQUIPMENT, net		20,569,978		11,108,132
LONG-TERM INVESTMENTS		7,992,428		5,912,747
OTHER NON-CURRENT ASSET		621,111		703,445
INTANGIBLES, net		7,950,754		8,002,251
GOODWILL		8,385,827		8,385,827
	$	162,631,667	$	145,274,769
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Current portion of long-term liabilities	$	193,497	$	189,656
Accounts payable		14,451,907		11,452,026
Accrued liabilities
Warranties		3,485,586		2,587,282
Other		2,304,812		1,907,240
Income taxes payable		206,072		533,995
Total current liabilities		20,641,874		16,670,199
LONG-TERM LIABILITIES, less current portion		1,772,434		1,873,768
DEFERRED INCOME TAXES		775,000		660,000
COMMITMENTS AND CONTINGENCIES		—		—
SHAREHOLDERS’ EQUITY
Capital stock, $.01 par value:
Preferred stock, 11,250,000 shares authorized; no shares issued or outstanding		—		—
Common stock, 33,750,000 shares authorized; shares issued and outstanding — 13,405,639 in 2005; 13,336,657 in 2004		134,056		133,367
Additional paid-in capital		89,989,000		88,345,024
Retained earnings		49,319,303		37,592,411
		139,442,359		126,070,802
	$	162,631,667	$	145,274,769

See notes to consolidated financial statements.

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A.S.V., INC.

CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2005			2004			2005			2004
Net sales
Trade	$	37,564,569		$	27,414,377		$	67,806,934		$	46,812,281
Caterpillar		19,127,886			11,666,788			42,065,363			25,322,655
Total net sales		56,692,455			39,081,165			109,872,297			72,134,936
Cost of goods sold		42,827,140			30,313,383			83,247,794			55,796,952
Gross profit		13,865,315			8,767,782			26,624,503			16,337,984
Operating expenses:
Selling, general and administrative		3,900,431			2,095,334			7,684,002			3,995,856
Research and development		439,616			181,980			867,756			337,535
Operating income		9,525,268			6,490,468			18,072,745			12,004,593
Other income (expense)
Interest income		325,666			181,450			628,909			359,337
Interest expense		(28,015	)		(28,168	)		(56,191	)		(56,777	)
Other, net		5,998			446			51,429			2,076
Income before income taxes		9,828,917			6,644,196			18,696,892			12,309,229
Income taxes		3,645,000			2,462,000			6,970,000			4,532,000
NET EARNINGS	$	6,183,917		$	4,182,196		$	11,726,892		$	7,777,229
Net earnings per common share
Basic	$	.46		$	.33		$	.88		$	.62
Diluted	$	.45		$	.32		$	.85		$	.58
Weighted average number of common shares outstanding
Basic		13,393,602			12,632,363			13,378,570			12,548,440
Diluted		13,805,186			13,110,823			13,813,041			13,408,714

See notes to consolidated financial statements.

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A.S.V., INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

	Six months ended June 30,
	2005			2004
Cash flows from operating activities:
Net earnings	$	11,726,892		$	7,777,229
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation		909,544			442,753
Amortization		51,497			—
Tax benefit from stock option exercises		630,000			686,000
Deferred income taxes		(550,000	)		720,000
Changes in assets and liabilities:
Accounts receivable		394,853			(11,547,607	)
Inventories		(17,413,466	)		(2,950,550	)
Other assets		370,415			2,013,933
Accounts payable		2,999,881			3,005,268
Accrued liabilities		1,295,876			791,525
Income taxes payable		(327,923	)		540,776
Net cash provided by operating activities		87,569			1,479,327
Cash flows from investing activities:
Purchase of property and equipment		(10,371,390	)		(2,070,431	)
Purchase of short-term investments		(108,446	)		(4,126,238	)
Purchase of long-term investments		(2,079,681	)		—
Redemption of short-term investments		9,461,230			205,894
Net cash used in investing activities		(3,098,287	)		(5,990,775	)
Cash flows from financing activities:
Principal payments on long-term liabilities		(97,493	)		(66,646	)
Proceeds (costs) from issuance of common stock, net		(35,867	)		21,826,431
Proceeds from exercise of stock options, net of costs		1,160,641			1,340,311
Retirements of common stock		(110,109	)		(9,311,398	)
Net cash provided by financing activities		917,172			13,788,698
Net increase (decrease) in cash and cash equivalents		(2,093,546	)		9,277,250
Cash and cash equivalents at beginning of period		27,437,885			29,402,756
Cash and cash equivalents at end of period	$	25,344,339		$	38,680,006
Supplemental disclosure of cash flow information:
Cash paid for interest	$	56,679		$	57,257
Cash paid for income taxes	$	7,235,664			2,506,414

See notes to consolidated financial statements.

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A.S.V., INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

June 30, 2005

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:

Principles of Consolidation

     The consolidated financial statements include the accounts of A.S.V., Inc. (ASV or the Company) and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Revenue Recognition

     ASV 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 reasonably 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 estimated 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, revision to the warranty liability may be required.

     Changes in the Company’s warranty liability are as follows:

	Three months ended June 30,
	2005			2004
Balance, beginning of period	$	3,006,222		$	1,150,000
Expense for new warranties issued		1,017,595			929,475
Warranty claims		(538,231	)		(394,475	)
Balance, end of period	$	3,485,586		$	1,685,000

Reclassification

     Certain 2004 balance sheet amounts have been reclassified to conform with the 2005 financial statement presentation, with no effect on previously reported operating results.

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A.S.V., INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(UNAUDITED)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

Stock-Based Compensation

     At June 30, 2005, the Company had three stock-based compensation plans. The Company accounts for those plans under the recognition and measurement principles of Accounting Principles Board (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 the six months ended June 30, 2005 and 2004 were $17.46 and $18.30, respectively. 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 grants during the six months ended June 30, 2005 and 2004, respectively: zero dividend yield; expected volatility of 39.45% and 52.3%, risk-free interest rate of 4.09% and 3.64% and expected lives of 6.05 and 6.88 years.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2005			2004			2005			2004
Net earnings, as reported	$	6,183,917		$	4,182,196		$	11,726,892		$	7,777,229
Less total stock-based employee compensation determined under fair value methods for all awards, net of income taxes		(418,404	)		(403,135	)		(819,679	)		(735,543	)
Pro forma net earnings	$	5,765,513		$	3,779,061		$	10,907,213		$	7,041,686
Earnings per share:
Basic — as reported	$	.46			.33		$	.88		$	.62
Basic — pro forma	$	.43			.30		$	.82		$	.56
Diluted — as reported	$	.45			.32		$	.85		$	.58
Diluted — pro forma	$	.42			.29		$	.79		$	.53

NOTE 2. INVENTORIES

     Inventories consist of the following:

	June 30,		December 31,
	2005		2004
Raw materials, service parts and work-in-process	$	42,017,089	$	23,630,644
Finished goods		9,105,101		9,647,769
Used equipment held for resale		1,124,144		1,554,455
	$	52,246,334	$	34,832,868

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A.S.V., INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(UNAUDITED)

NOTE 3. NEW ACCOUNTING PRONOUNCEMENTS

SFAS 123 (Revised 2004),Share-Based Payment

     This revision to Statement No. 123,Accounting for Stock-Based Compensation, requires the fair value of all share-based payment transactions be recognized in the financial statements. SFAS 123 (Revised 2004) establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value-based measurement method in accounting for share-based payment transactions with employees, except for equity instruments held by employee share ownership plans. This Statement is effective for the Company beginning January 1, 2006. The Company anticipates the effect of adopting this Statement could be material, but the impact on its diluted earnings per share for the year ended December 31, 2006 for those share-based payment transactions in existence as of July 29, 2005 cannot currently be calculated.

SFAS 151, Inventory Costs

     This Statement requires the accounting for idle facility expense, freight, handling costs and wasted material be recognized as current period charges. This Statement also requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This Statement is effective for the Company beginning January 1, 2006. Management does not believe the adoption of this pronouncement will have a material effect on the Company.

NOTE 4. INCOME TAXES

     On October 22, 2004, congress passed the American Jobs Creation Act of 2004 (the Act). The Act provides a deduction for income from qualified domestic production activities, which will be phased in from 2005 through 2010, as well as other tax implications. The domestic production deduction will be accounted for as a special deduction, and as such, will have no effect on deferred tax assets and liabilities existing at the date of enactment. It is not currently possible to predict what impact this Act will have on future earnings, as final implementation information is not expected to be available until later in 2005.

NOTE 5. CONTINGENCIES

     The Company’s current contract to provide undercarriages and service parts to Caterpillar Inc. (Caterpillar) is in effect through October 31, 2005 and both parties have been actively negotiating the terms of a new supply agreement which would replace the existing contract. In July 2005, the Company signed a term sheet with Caterpillar which, while non-binding, outlines the key terms of the relationship going forward. The parties are now in the process of negotiating a definitive supply agreement and expect to have it completed prior to the expiration of the existing contract.

NOTE 6. SUBSEQUENT EVENT

     On July 26, 2005, the Company announced a 2-for-1 stock split in the form of a 100% stock dividend to shareholders of record as of August 10, 2005. The stock dividend will be payable on August 24, 2005. The Company has not made any adjustment to the per share data included in these financial statements.

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ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

     ASV designs, manufactures and sells rubber-tracked, all-purpose crawlers and related accessories and attachments. ASV also manufactures rubber-tracked undercarriages, which are a primary component on Caterpillar’s Multi Terrain Loaders (MTL). ASV’s products are able to traverse nearly any terrain with minimal damage to the ground, making it effective in industries such as construction, landscaping and agriculture. ASV distributes its products through an independent dealer network in the United States, Canada, Australia, New Zealand and Portugal. The undercarriages sold to Caterpillar are incorporated by Caterpillar in their MTL products and sold exclusively through the Caterpillar dealer network, primarily in North America.

     ASV experienced a significant increase in sales in the six months ended June 30, 2005 due to several reasons as explained below:

• The Company believes there is a greater acceptance of rubber track machines in the marketplace as users experience the benefits that a rubber track machine can provide over a standard wheeled machine.

• The number of companies entering into the rubber track machine market has increased in the last few years, thereby contributing to the increased awareness and market acceptance of the products.

• ASV has increased its number of product offerings over the past few years thereby making it easier to attract prospective dealers to carry the R-Series Posi-Track product line. In addition, the number of dealers selling the Company’s R-Series Posi-Track product line has increased over the past few years.

• The current low interest rate environment has provided for easier financing by end users.

• The Company’s results of operations for the six months ended June 30, 2005 include sales of $11.3 million from Loegering Mfg. Inc. (Loegering). On October 4, 2004, ASV closed on its acquisition of Loegering of Casselton, North Dakota in a merger transaction. Loegering is a manufacturer of over-the-tire steel tracks for wheeled skid-steers and also provides attachments for the skid-steer market. Following completion of the transaction, Loegering became a wholly owned subsidiary of ASV.

Critical Accounting Policies

     The following discussion and analysis of the Company’s financial condition and results of operations is based upon its consolidated financial statements, which have been prepared in accordance with US GAAP. 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 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 the Company’s 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 has determined that the time of shipment is

8

most appropriate point to recognize revenue as the risk of loss passes to the customer when placed with a carrier for delivery (i.e., upon shipment). Any post-sale obligations on the part of ASV, consisting primarily of warranty obligations, are estimated and accrued for at the time of shipment. 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 does not believe its inventories are subject to rapid obsolescence. The Company evaluates the adequacy of the inventories’ carrying value quarterly.

     Warranties.The Company provides limited warranties to purchasers of its products which vary by product. The warranties generally cover defects in materials and workmanship for one year from the delivery date to the first end user. The rubber tracks used on the Company’s products carry a pro-rated warranty up to 1,500 hours of usage. 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.

     Income Taxes. The Company records income taxes using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. A valuation allowance is established when management determines it is more likely than not that a deferred tax asset is not realizable in the foreseeable future.

     Stock-Based Compensation.The Company accounts for employee stock-based compensation under the “intrinsic value” method prescribed in APB Opinion No. 25,Accounting for Stock Issued to Employees, and related interpretations, as opposed to the “fair value” method prescribed by Statement of Financial Accounting Standards (SFAS) No. 123,Accounting for Stock-Based Compensation. Pursuant to the provisions of APB 25, the Company generally does not record an expense for the value of stock-based awards granted to employees.

     The FASB issued an amendment to SFAS No. 123,Share-Based Payment, (“SFAS No. 123R”), which will be effective for public companies in periods beginning after December 15, 2005. We are required to implement the proposed standard no later than the quarter that begins January 1, 2006. SFAS No. 123R eliminates the ability to account for share-based compensation transactions using APB Opinion No. 25, and generally would require instead that such transactions be accounted for using a fair-value-based method. Companies are required to recognize an expense for compensation cost related to share-based payment arrangements including stock options and employee stock purchase plans. The Company anticipates the effect of adopting this Statement could be material, but the impact on its diluted earnings per share for the year ended December 31, 2006 for those share-based payment transactions in existence as of July 29, 2005 cannot currently be calculated.

Results of Operations

     The following table sets forth certain Statement of Earnings data as a percentage of net sales:

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Gross profit		24.5			22.4			24.2			22.6
Selling,general and administrative		6.9			5.4			7.0			5.5
Research and development		0.8			0.5			0.8			0.5
Operating income		16.8			16.6			16.4			16.6
Net earnings		10.9			10.7			10.7			10.8

9

For the three months ended June 30, 2005 and 2004.

     Net Sales.For the three months ended June 30, 2005, net sales increased 45% to $56.7 million, compared with $39.1 million for the same period in 2004. This increase was primarily the result of three factors. First, sales of the Company’s R-Series products increased 26% due to the addition of one new model, the RCV, which went into production in the second quarter of 2005, and a greater number of R-Series dealers in 2005. Sales of R-Series products represented 51%, or $28.7 million, of the Company’s sales in the second quarter of 2005, compared with 58%, or $22.7 million, in the second quarter of 2004. Second, sales of the Company’s undercarriages to Caterpillar for use on its Multi-Terrain Loader (MTL) product line increased 68% during the second quarter of 2005 compared with the second quarter of 2004 due to a greater demand for the MTL products and a low 2004 comparison quarter. In 2004, Caterpillar was in the process of changing over its production of MTLs to a newer series in the first half of 2004. Third, sales from Loegering, acquired in October 2004, totaled $4.9 million for the second quarter of 2005, compared to none in the second quarter of 2004.

     Gross Profit.Gross profit for the three months ended June 30, 2005 increased to $13.9 million, compared with $8.8 million for the same period in 2004, and the gross profit percentage increased to 24.5% in the second quarter of 2005 compared with 22.4% for the same period in 2004. The increase in gross profit was due primarily to the increased sales experienced during the second quarter of 2005. The increase in gross profit percentage was due primarily to a shift in the mix of products sold as the Company had increased sales of R-Series Posi-Track products in the second quarter of 2005 over the second quarter of 2004. R-Series products generally carry a higher gross profit percentage than MTL undercarriages. The Company believes its raw material unit cost reduction project initiated in the first quarter of 2004 as well as operational efficiencies obtained from higher production volumes helped increase the gross profit percentage in 2005. The Company also believes the 3% price increase that was put in place for all machines ordered after February 15, 2005 contributed to the increase in the second quarter of 2005. In addition, the inclusion of Loegering’s sales for the second quarter of 2005 helped increase the overall gross profit percentage as Loegering’s products carry a higher gross profit percentage, on average, when compared with ASV’s products. Offsetting these increases were steel surcharges of $1.4 million in the second quarter of 2005, compared with $550,000 in the second quarter of 2004.

     Selling, General and Administrative.Selling, general and administrative expenses increased from $2.1 million, or 5.4% of net sales in the second quarter of 2004, to $3.9 million, or 6.9% of net sales in the second quarter of 2005. The increase was due primarily to the inclusion of Loegering, which does not yet enjoy the same degree of leverage as does ASV. In addition, the Company had increased advertising and promotion costs to promote the technology benefits of the Company’s products, increased sales commissions from increased sales of the Company’s R-Series products and the overall increase in the volume of the Company’s business.

     Research and Development.Research and development expenses increased from $182,000 in the second quarter of 2004 to $440,000 in the second quarter of 2005. The increase was due to the on-going development of new products, including the Company’s newest R-Series product, the RCV, which went into production in April 2005, and additional applications of its track technology. The Company also began the development of a smaller version of the Loegering Versatile Track System product, which is expected to be available in the third quarter of 2005. The Company anticipates its future spending on research and development activities will focus on additional product offerings and additional applications of its track technology.

     Other Income (Expense).For the three months ended June 30, 2005, other income (expense) totaled $304,000, compared with $154,000 for the second quarter of 2004. This increase was due primarily to increased interest income from greater funds available for investment in 2005. Funds increased in 2005 due to proceeds received from the exercise of employee stock options and net earnings generated in 2005 and 2004.

     Net Earnings.For the second quarter of 2005, net earnings were $6.2 million, compared with net earnings of $4.2 million for the second quarter of 2004. The increase was primarily a result of increased sales with an increased gross profit percentage, offset in part by increased operating expenses.

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For the six months ended June 30, 2005 and 2004.

     Net Sales.Net sales for the six months ended June 30, 2005 increased 52% to $109.9 million, compared with $72.1 million for the same period in 2004. This increase was primarily the result of four factors. First, sales of the Company’s undercarriages to Caterpillar for use on its MTL product line increased 60% during the first half of 2005 compared with the first half of 2004 due to a greater demand for the MTL products and a low comparison figure for 2004 as discussed above. Second, sales from Loegering, acquired in October 2004, totaled $11.3 million for the first half of 2005, compared to none in 2004. Third, sales of the Company’s R-Series products increased 25% in the first half of 2005 compared with the first half of 2004 due to the addition of one new model, the RCV, which went into production in the second quarter of 2005, and a greater number of R-Series dealers in 2005. The Company’s dealer count increased 47% to 251 dealers at June 30, 2005 compared with June 30, 2004. Finally, sales of service parts and other items increased 34% during the first half of 2005 compared with the first half of 2004 due to a greater number of machines and undercarriages in service.

     Gross Profit.For the six months ended June 30, 2005, gross profit increased to $26.6 million, compared with $16.3 million for the same period in 2004, and the gross profit percentage increased from 22.6% in 2004 to 24.2% in 2005. The increase in gross profit was due primarily to the increased sales experienced during the first half of 2005 as discussed above. The increase in gross profit percentage was due primarily to a shift in the mix of products sold as the Company had increased sales of R-Series Posi-Track products in the first half of 2005 over the first half of 2004. R-Series products generally carry a higher gross profit percentage than MTL undercarriages. The Company believes its raw material unit cost reduction project initiated in the first quarter of 2004 as well as operational efficiencies obtained from higher production volumes helped increase the gross profit percentage in 2005. The Company also believes the 3% price increase that was put in place for all machines ordered after February 15, 2005 contributed to the increase in 2005. In addition, the inclusion of Loegering’s sales for 2005 helped increase the overall gross profit percentage as Loegering’s products carry a higher gross profit percentage, on average, when compared with ASV’s products. Offsetting these increases were steel surcharges of $2.4 million in the first half of 2005, compared with $670,000 in the first half of 2004.

     Selling, General and Administrative.For the six months ended June 30, 2005, selling, general and administrative expenses increased to $7.7 million, or 7.0% of net sales, compared with $4.0 million, or 5.5% of net sales, for the same period in 2004. The increase was due primarily to the inclusion of Loegering, which does not yet enjoy the same degree of leverage as does ASV. In addition, the Company had increased advertising and promotion costs to promote the technology benefits of the Company’s products, increased sales commissions from increased sales of the Company’s R-Series products and the overall increase in the volume of the Company’s business.

     Research and Development.Research and development expenses more than doubled to $868,000 for the six months ended June 30, 2005, compared with $338,000 for the six months ended June 30, 2004. The increase was due to the on-going development of new products, including the Company’s newest R-Series product, the RCV, which went into production in April 2005, and additional applications of its track technology and the inclusion of Loegering’s operations in 2005. The Company also began the development of a smaller version of the Loegering Versatile Track System product, which is expected to be available in the third quarter of 2005. The Company anticipates its future spending on research and development activities will focus on additional product offerings and additional applications of its track technology.

     Other Income (Expense).For the six months ended June 30, 2005, other income (expense) was $624,000, compared with $305,000 for the same period in 2004. This increase was due primarily to greater funds available for investment in 2005. Funds increased in 2005 due to proceeds received from the exercise of employee stock options and net earnings generated in 2005 and 2004.

     Net Earnings.Net earnings were $11.7 million for the six months ended June 30, 2005, compared with $7.8 million for the six months ended June 30, 2004. The increase was primarily a result of increased sales with an increased gross profit percentage, offset in part by increased operating expenses.

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Liquidity and Capital Resources

     For the six months ended June 30, 2005, the Company used $2.1 million of cash and cash equivalents compared with generating $9.3 million of cash and cash equivalents for the six months ended June 30, 2004. During the first half of 2005, the Company generated $88,000 of cash from operations, as increased profitability and increased payables were offset primarily by increased raw materials to facilitate expected future production levels and parts sales for the remainder of 2005. The Company used $3.1 million of cash in investing activities during the six months ended June 30, 2005, as the Company invested $10.2 million to purchase equipment integral to the manufacturing of certain inventory components. This cash use was partially offset by the redemption of certain short-term investments. In 2005, the Company chose to eliminate the use of auction-rate securities from its investment portfolio, which were classified as short-term investments, and replaced them with short-term tax-exempt investments, which are classified as cash equivalents. Financing activities generated an additional $900,000 of cash due primarily to the exercise of stock options by employees and directors.

Caterpillar Revenue Recognition/Gross Profit

     The Company recognizes as sales its cost for the MTL undercarriages, as defined in the Commercial Alliance Agreement between the Company and Caterpillar, plus a portion of the anticipated gross profit that Caterpillar expects to recognize upon sale of the MTLs to Caterpillar dealers, when the Company ships undercarriages to Caterpillar. The gross profit percentage that we receive for two of the three undercarriages we currently sell to Caterpillar was reduced by 33% on January 1, 2005, with the overall gross profit percentage on the sale of all three undercarriages expected to exceed 20% for 2005. The gross profit percentage that we expect to receive for the third undercarriage sold to Caterpillar is also scheduled to be reduced by 33% effective January 1, 2006. Both of these reductions would reduce the amount of gross profit we will recognize on the sale of these undercarriages to Caterpillar if the level of net sales in 2005 and 2006 were to be the same as in 2004.

     The Company’s current contract to provide undercarriages and service parts to Caterpillar is in effect through October 31, 2005 and both parties have been actively negotiating the terms of a new supply agreement which would replace the existing contract. In July 2005, the Company signed a term sheet with Caterpillar which, while non-binding, does outline the key terms of the relationship going forward. The parties are now in the process of negotiating a definitive supply agreement and expect to have it completed prior to the expiration of the existing contract.

Customer Note Receivable

     Included in accounts receivable at June 30, 2005 is a note receivable for $774,000 from a customer. The note bears interest at 6% and is due in 60 monthly installments beginning February 2004. As of July 29, 2005, the customer is current on all amounts owed the Company under this note.

Off-Balance Sheet Arrangements

     The Company has guaranteed the repayment of a note made by a customer to a non-affiliated finance company for payment of amounts owed to the Company by this customer. To determine the value of the financing guarantee, the lending institution provided us with the cost of the financing both with and without the guarantee. This differential was used to determine the amount of the financing guarantee of $35,000. This amount was recorded as a reduction of net sales for the year ended December 31, 2003, when the note and guarantee were entered into. A similar amount has been included in other accrued liabilities at June 30, 2005 and December 31, 2004. The balance of this note at July 29, 2005 was $351,000. As of July 29, 2005, the customer is current on all amounts owed to the finance company under this note.

Relationship with Finance Companies

     The Company has affiliated itself with several finance companies that finance the sale of the Company’s products. By using these finance companies, the Company receives payment for its products shortly after their shipment. The Company pays a portion of the interest cost associated with financing these shipments that would normally be paid by the customer, over a period generally ranging from three to twelve months, depending on the amount of down payment made by the customer. The Company is also providing twelve-month terms for one machine to be used for demonstration purposes for each qualifying dealer. In addition, the Company does, from time to time, offer extended term financing on the sale of certain products to its dealers for periods ranging from 90 days to two years.

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New Accounting Pronouncements

     SFAS 123 (Revised 2004) Share-Based Payment. This revision to Statement No. 123,Accounting for Stock-Based Compensation, requires the fair value from all share-based payment transactions be recognized in the financial statements. SFAS 123 (Revised 2004) establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value-based measurement method in accounting for share-based payment transactions with employees, except for equity instruments held by employee share ownership plans. This Statement is effective for the Company beginning January 1, 2006. The Company anticipates the effect of adopting this Statement could be material, but the impact on its diluted earnings per share for the year ended December 31, 2006 for those share-based payment transactions in existence as of July 29, 2005 cannot currently be calculated.

     SFAS 151 Inventory Costs. This Statement requires the accounting for idle facility expense, freight, handling costs and wasted material be recognized as current period charges. This Statement also requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This Statement is effective for the Company beginning January 1, 2006. Management does not believe the adoption of this pronouncement will have a material effect on the Company.

Stock Split

     On July 26, 2005, the Company announced a 2-for-1 stock split in the form of a 100% stock dividend to shareholders of record as of August 10, 2005. The stock dividend will be payable on August 24, 2005. The Company has not made any adjustment to the per share data included in the financial statements in this Form 10-Q.

Cash Requirements

     The Company believes cash expected to be generated from operations and its existing cash, cash equivalents and investments will satisfy the Company’s projected working capital needs and other cash requirements for the next twelve months and the foreseeable future.

Forward-Looking Statements

     The statements set forth above under “Results of Operations” and elsewhere in this Form 10-Q regarding ASV’s future sales levels, gross profit percentage, new product availability, product mix, profitability, expense levels, liquidity and future agreements with Caterpillar 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 or Caterpillar, and ASV’s ability to realize the anticipated benefits from its alliances with 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.

Risk Factors

Our revenue and business would be harmed if Caterpillar ceased manufacturing and marketing products under our Loader Alliance Agreement.

     Under the terms of the Alliance Agreement we entered into with Caterpillar Inc. in October 2000, we agreed with Caterpillar to jointly develop and manufacture a five-model line of Caterpillar branded rubber tracked skid steer loaders called Multi-Terrain Loaders (the Alliance Machines). The term of the Alliance Agreement expires October 31, 2005. These new loaders utilize Caterpillar’s skid steer technology and our rubber track undercarriage technology. All five models have been developed and are available to all Caterpillar dealers. The Alliance Machines are assembled in Sanford, North Carolina, at Caterpillar’s skid steer loader facility. The undercarriages are manufactured at our facility in Cohasset, Minnesota.

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     The successful manufacturing and marketing of the Alliance Machines entail significant risks as described below:

• The development and introduction of the Alliance Machines were scheduled on an aggressive timetable and there exists the possibility this time table may not have detected all potential issues regarding the production or function of the machines. For example, in 2002, Caterpillar experienced production issues which caused them to stop production of the Alliance Machines. As a result, we did not ship undercarriages to Caterpillar while the production issues were resolved, resulting in decreased revenue to us. Additional production or other issues may be experienced by Caterpillar or us in the future, which could cause our sales of undercarriages to Caterpillar to decrease or terminate while the issues are resolved.

• The overall market for rubber track machines is relatively new and the benefits of rubber track machines are not currently widely known. Caterpillar and ASV believe the market potential for rubber track machines justifies the necessary investment in the Alliance Machines. However, there is no assurance the Alliance Machines will attract sufficient demand to warrant their continued production and produce the returns anticipated by us and Caterpillar.

• We will be relying significantly on Caterpillar for their continued interest in manufacturing and marketing the Alliance Machines. In 2004, total sales to Caterpillar accounted for 40% of our net sales. If Caterpillar stopped manufacturing the Alliance Machines, or stopped marketing the Alliance Machines to its dealers or Caterpillar dealers did not adequately promote the sale of the Alliance Machines, our revenue would be decreased and our business would be harmed.

• As part of the Alliance Agreement, we agreed not to knowingly sell our undercarriages to any party who shall manufacture, or resell an undercarriage to a party who shall manufacture, a machine that substantially competes with the Alliance Machines.

• The Alliance Agreement calls for us to receive a portion of the gross profit on the sale of the Alliance Machines to Caterpillar dealers. Therefore, a portion of our future revenue will be dependent on the success of Caterpillar in selling the Alliance Machines to Caterpillar dealers. In addition, the gross profit percentage that we receive for two of the three undercarriages we currently sell to Caterpillar was reduced by 33% on January 1, 2005, with the overall gross profit percentage on the sale of all three undercarriages expected to exceed 20% for 2005. The gross profit percentage that we expect to receive for the third undercarriage sold to Caterpillar is also scheduled to be reduced by 33% effective January 1, 2006. Both of these reductions would reduce the amount of gross profit we will recognize on the sale of these undercarriages to Caterpillar if the level of net sales in 2005 and 2006 were to be the same as in 2004.

• The Company’s current contract to provide undercarriages and service parts to Caterpillar is in effect through October 31, 2005 and both parties have been actively negotiating the terms of a new supply agreement which would replace the existing contract. In July 2005, the Company signed a term sheet with Caterpillar which, while non-binding, outlines the key terms of the relationship going forward. The parties are now in the process of negotiating a definitive supply agreement and expect to have it completed prior to the expiration of the existing contract. If a new agreement is not able to be negotiated, our revenue would be decreased and our business would be harmed.

Our business could be materially harmed if Caterpillar did not actively support and cooperate with us to provide us with various commercial services.

     As a result of our transactions with Caterpillar, we may rely on commercial services provided by or through Caterpillar for the operation of our business, including marketing, development, warranty and parts services. As a result, to the extent we avail ourselves of these services, we may become dependent upon the cooperation of Caterpillar for the operation of our business.

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     In connection with Caterpillar’s purchase of shares of our common stock and a warrant to purchase shares of our common stock in January 1999, we entered into several agreements with Caterpillar, including a Commercial Alliance Agreement, a Marketing Agreement and a Management Services Agreement. These agreements contemplate that we would also enter into several additional agreements with Caterpillar, including a Trademark and Trade Dress License Agreement, Supply Agreements, a Services Agreement and a Technology License Agreement (which agreements, together with the Commercial Alliance Agreement, the Marketing Agreement and the Management Services Agreement, we collectively refer to as the “Commercial Agreements”).

     Although Caterpillar is obligated under the terms of the Commercial Agreements to provide various services to us, including marketing, development, warranty and parts services, the specific obligations of Caterpillar under those agreements are not explicitly defined. Therefore, if Caterpillar chose not to cooperate with us in providing these services, it may be impractical for us to require Caterpillar to provide any such services to the extent necessary to be beneficial to us. If Caterpillar were to decide not to actively support and cooperate with us to provide us with these services, our business could be materially harmed.

Caterpillar has the ability to influence or control us, which could negatively affect other shareholders and could discourage offers by third parties to acquire us.

     Caterpillar owns approximately 23.4% of the outstanding shares of our Common Stock. Accordingly, Caterpillar has the ability to influence our business and operations to a certain extent. In addition to its rights as a shareholder to influence us, Caterpillar has the right to designate directors for election to the Board of Directors under the Securities Purchase Agreement between us and Caterpillar dated October 14, 1998, proportionate to its stock ownership interest, which increases Caterpillar’s ability to influence us. Currently, one of our nine directors has been designated by Caterpillar, despite the fact that Caterpillar would be entitled to designate two directors, assuming a board comprised of nine directors. If Caterpillar were to exercise its right to designate an additional director, based on its current stock ownership interest, we anticipate that, assuming there were no vacancies on our board, we would expand the size of our board and elect an additional director designated by Caterpillar.

     Given the significant percentage of the outstanding shares of our Common Stock owned by Caterpillar, third parties also may be discouraged from making an offer to acquire control or ownership of us.

If Caterpillar begins selling, or is perceived to be selling, its shares of our common stock, the market price of our Common Stock may fall.

     Caterpillar owns approximately 23.4% of the outstanding shares of our Common Stock. Under our agreements with Caterpillar, Caterpillar has agreed not to sell any shares of our Common Stock for so long as the Alliance Agreement, as it may be amended, modified or supplemented from time to time, remains in effect. However, sales by Caterpillar of substantial amounts of our Common Stock, or the perception that such sales could take place, could negatively affect the market price of our Common Stock. If this happens, then stockholders may face difficulty in selling their shares and the price at which they sell their shares may be reduced.

If we are unable to manage growth effectively, our business, results of operations and financial condition would be materially adversely affected.

     Our management has had limited experience in managing companies experiencing growth like ours. Further growth and expansion of our business will place additional demands upon our current management and other resources. We believe that future growth and success depends to a significant extent on our ability to be able to effectively manage our growth in several areas, including, but not limited to: (i) production facility expansion/construction; (ii) entrance to new geographic and use markets; (iii) international sales, service and production; and (iv) employee and management development. No assurance can be given that our business will grow in the future and that we will be able to effectively manage such growth. If we are unable to manage growth effectively, our business, results of operations and financial condition would be materially adversely affected.

A disruption or termination of our relationships with certain suppliers could have a material adverse effect on our operations.

     Certain of the components included in our products are obtained from a limited number of suppliers, including the rubber track component used on our products. Disruption or termination of supplier relationships could have a material adverse effect on our operations. We believe

15

that alternative sources could be obtained, if necessary, but the inability to obtain sufficient quantities of the components or the need to develop alternative sources, if and as required in the future, could result in delays or reductions in product shipments which in turn may have an adverse effect on our operating results and customer relationships.

A number of our competitors have more resources and more established reputations than us. If we do not compete effectively, our business will be harmed.

     Companies whose products compete in the same markets as the R-Series Posi-Track products have substantially more financial, production and other resources than us, as well as established reputations within the industry and more extensive dealer networks. For the six months ended June 30, 2005 sales of R-Series Posi-Track products accounted for approximately 46% of our net sales. Also, the growth potential of the markets being pursued by us could attract more competitors. There can be no assurance that we will be able to compete effectively in the marketplace or that we will be able to establish a significantly dominant position in the marketplace before our potential competitors are able to develop similar products.

If our rubber track vehicles do not continue to receive market acceptance, our operating results will be harmed.

     Our success is dependent upon increasing market acceptance of rubber track vehicles in the markets in which our products compete. Most small to medium sized tractor-type vehicles in competition with the Posi-Track are wheeled vehicles and most track-driven vehicles are designed for specific limited tasks. The market for rubber track vehicles is relatively new and there can be no assurance that our products will gain sufficient market acceptance to enable us to sustain profitable operations.

If we are not able to manage and integrate the operations of Loegering Mfg. Inc., our operating results will be harmed.

     In October 2004, we acquired all the outstanding common stock of Loegering Mfg. Inc. (Loegering) of Casselton, North Dakota for a combination of cash and shares of our Common Stock. We have not previously been involved in an acquisition of this nature, and there can be no assurance that we will be able to successfully manage and integrate the operations of Loegering.

     The process of integrating Loegering may be a difficult and time-consuming process. In particular, the process of combining sales and marketing forces, consolidating administrative functions, and coordinating product offerings can take longer, cost more, and provide fewer benefits than initially anticipated. Management may face difficulties, delays and costs as it works to retain customers, to minimize the risk of loss or reduction of customer orders due to the potential for market confusion, hesitation and delay, to coordinate infrastructure operations in an effective and efficient manner and to combine certain operations and functions using common information and communication systems, operating procedures, financial controls and human resource practices. To the extent any of these events occurs, the benefits of the transaction may be reduced, at least for a period of time.

Our business may be adversely affected if we are unable to successfully develop new products or if new products developed are unable to gain market acceptance.

     We intend to increase our market penetration by developing and marketing new rubber-tracked vehicles and other new products. There can be no assurance that we will be able to successfully develop the new products, or that any new products developed by us will gain market acceptance.

     One of the expected benefits of the Loegering acquisition is future sales of its proprietary Versatile Track System^â (VTS), which we expect to account for a majority of net sales of Loegering products in 2005. If we are unable to achieve our anticipated timing of introduction and sales of the VTS product, or if adequate quantities of raw materials to meet the expected demand for this product in 2005 are not available, the benefits of the transaction may be reduced or delayed for a period of time. Our business may also be adversely affected if the VTS product does not gain market acceptance as quickly as we anticipate or at all.

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A cyclical, economic downturn in the construction and farm equipment industries could materially harm our business.

     The construction and farm equipment industries, in which the Posi-Track competes, have historically been cyclical. Sales of construction and agricultural equipment are generally affected by the level of activity in the construction and agricultural industries, including farm production and demand, weather conditions, interest rates and construction levels (especially housing starts). In addition, the demand for our products may be affected by the seasonal nature of the activities in which they are used and by overall economic conditions in general. Therefore, an economic downturn in the construction and farm equipment industries, which could result in part based upon seasonal factors, could materially harm our business.

The loss of the services of any key member of our management could have a material adverse effect on our ability to achieve our objectives.

     Our future success depends to a significant extent upon the continued service of certain key personnel, including our CEO, Gary Lemke. We have key-person life insurance on the life of Mr. Lemke, but we do not have an employment agreement with Mr. Lemke. The loss of the services of any key member of our management could have a material adverse effect on our ability to achieve our objectives.

We may face product liability claims, which could result in losses in excess of our insurance coverage or in our inability to obtain adequate insurance coverage in the future.

     Like most manufacturing companies, we may be subject to significant claims for product liability and may have difficulty in obtaining product liability insurance or be forced to pay high premiums. We currently have product liability insurance and have not been subject to material claims for product liability. However, there can be no assurance that we will be able to obtain adequate insurance in the future or that our present or future insurance would prove adequate to cover potential product claims.

Our business would be adversely affected if we are not able to protect our intellectual property rights or if we get involved in litigation relating to our intellectual property rights.

     We currently hold four patents on certain aspects of the suspension and drive mechanisms used in certain of our products. We have also filed additional patent applications. There can be no assurance that the patents will be granted or that patents under any future applications will be issued, or that the scope of the current or any future patent will exclude competitors or provide competitive advantages to us, that any of our patents will be held valid if subsequently challenged or that others will not claim rights in or ownership to the patents and other proprietary rights held by us. Furthermore, there can be no assurance that others have not developed or will not develop similar products, duplicate any of our products or design around such patents. Litigation, which could result in substantial cost to and diversion of effort by us, may be necessary to enforce patents issued to us, to defend us against claimed infringement of the rights of others or to determine the ownership, scope or validity of our and other’s proprietary rights.

We may be unable to manufacture our products if either of our manufacturing facilities is damaged, destroyed or becomes otherwise inoperable.

     Our products are manufactured exclusively at our two manufacturing facilities in Grand Rapids and Cohasset, Minnesota and at our Loegering facility in Casselton, North Dakota. In the event that any of these manufacturing facilities were to be damaged or destroyed or become otherwise inoperable, we may be unable to manufacture our products for sale until the facility is either repaired or replaced, either of which could take a considerable period of time. Although we maintain business interruption insurance, there can be no assurance that such insurance would adequately compensate us for the losses we would sustain in the event that our manufacturing facilities were unavailable for any reason.

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     We are subject to extensive governmental regulations which are costly.

     Our operations, products and properties are subject to environmental and safety regulations by governmental authorities. We may be liable under environmental laws for waste disposal and releases into the environment. In addition, our products are subject to regulations regarding emissions and other environmental and safety requirements. While we believe that compliance with existing and proposed environmental and safety regulations will not have a material adverse effect on our financial condition or results of operations, there can be no assurance that future regulations or the cost of complying with existing regulations will not exceed current estimates.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company’s interest income on cash equivalents and long-term investments is affected by changes in interest rates in the United States. Cash equivalents include money market funds and 7-day variable rate demand notes which are highly liquid instruments with interest rates set every 7 days that can be tendered to the remarketer upon 7 days notice for payment of principal and accrued interest amounts. The 7-day tender feature of these variable rate demand notes is further supported by irrevocable letters of credit from banks. To the extent a bond is not remarketed at par plus accrued interest, the difference is drawn from the bank’s letter of credit. The Company’s cash and cash equivalents are held primarily in money market mutual funds and variable rate demand notes. The Company’s long-term investments consist of highly-rated securities, including U.S. Treasury and tax-exempt municipal obligations. Changes in interest rates have not had a material effect on the Company, and the Company does not anticipate that future exposure to interest rate market risk will be material.

     The Company has no history of, and does not anticipate in the future, investing in derivative financial instruments. Most transactions with international customers are entered into in U.S. dollars, precluding the need for foreign currency cash flow hedges.

ITEM 4. CONTROLS AND PROCEDURES

     Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934, as amended (the Exchange Act)). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.

     Changes in Internal Control Over Financial Reporting. During the second fiscal quarter, there has been no change in the Company’s internal control over financial reporting (as defined in Rule 13(a)-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     None

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     None

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

     The annual meeting of shareholders of A.S.V., Inc. was held on May 27, 2005. Matters submitted at the meeting for vote by the shareholders were as follows:

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(a) Election of Directors.

The following directors were elected at the Annual Meeting, each with the following votes:

	For		Withheld
Richard A. Benson		12,501,182		102,147
James H. Dahl		12,589,044		14,285
Bruce D. Iserman		12,589,264		14,065
Gary D. Lemke		12,473,761		129,568
Leland T. Lynch		12,361,392		241,937
Jerome T. Miner		12,472,387		130,942
Karlin S. Symons		12,591,399		11,930
R. E. “Teddy” Turner, IV		12,588,799		14,530
Kenneth J. Zika		12,501,382		101,947

(b)	Ratification of Appointment of Independent Registered Public Accounting Firm.
	Shareholders ratified the appointment of Grant Thornton LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2005, with a vote of 12,441,905 votes for, 152,909 votes against and 8,515 shares abstaining.

ITEM 5. OTHER INFORMATION

     None

ITEM 6. 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 (b)
3.1b	Amendment to Second Restated Articles of Incorporation of the Company filed May 4, 1998 (c)
3.2	Bylaws of the Company (a)
3.3	Amendment to Bylaws of the Company adopted April 13, 1999 (d)
4.1	Specimen form of the Company’s Common Stock Certificate (a)
10.1	Summary of Board of Director Compensation for the Company (e)
11	Statement re: Computation of Per Share Earnings
31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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(a)	Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form SB-2 (File No. 33-61284C) filed July 7, 1994.
(b)	Incorporated by reference to Exhibit 3.1a 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.
(c)	Incorporated by reference to Exhibit 3.1b 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.
(d)	Incorporated by reference to Exhibit 3.3 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.
(e)	Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 18, 2005.

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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: August 9, 2005	By /s/ Gary Lemke
	Gary Lemke
	Chief Executive Officer (duly authorized officer)

Dated: August 9, 2005	By /s/ Thomas R. Karges
	Thomas R. Karges
	Chief Financial Officer (principal financial and accounting officer)

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EXHIBIT INDEX

Exhibit	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 (b)
3.1b	Amendment to Second Restated Articles of Incorporation of the Company filed May 4, 1998 (c)
3.3	Bylaws of the Company (a)
3.3	Amendment to Bylaws of the Company adopted April 13, 1999 (d)
4.2	Specimen form of the Company’s Common Stock Certificate (a)
10.1	Summary of Board of Director Compensation for the Company (e)
11	Statement re: Computation of Per Share Earnings
31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(a)	Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form SB-2 (File No. 33-61284C) filed July 7, 1994.
(b)	Incorporated by reference to Exhibit 3.1a 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.
(c)	Incorporated by reference to Exhibit 3.1b 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.
(d)	Incorporated by reference to Exhibit 3.3 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.
(e)	Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 18, 2005.

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