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 SEPTEMBER 30, 2002 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 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. Yes[X] No [ ] As of November 4, 2002, 10,111,737 shares of registrant's $.01 par value Common Stock were outstanding. PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS A.S.V., INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) <Table> <Caption> SEPTEMBER 30, December 31, 2002 2001 --------------- --------------- ASSETS CURRENT ASSETS Cash and cash equivalents ................................ $ 713,536 $ 5,221,591 Short-term investments ................................... 934,833 725,249 Accounts receivable, net ................................. 18,123,195 16,828,489 Inventories .............................................. 34,961,445 28,614,053 Prepaid expenses and other ............................... 762,119 1,756,844 --------------- --------------- Total current assets .......................... 55,495,128 53,146,226 PROPERTY AND EQUIPMENT, net ................................. 4,763,237 4,794,578 --------------- --------------- Total Assets .................................. $ 60,258,365 $ 57,940,804 =============== =============== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Line of credit ........................................... $ 440,000 $ -- Current portion of long-term liabilities ................. 108,346 106,008 Accounts payable ......................................... 4,172,664 2,449,144 Accrued liabilities Compensation ........................................... 242,679 269,919 Warranty reimbursements ................................ 717,900 879,900 Warranties ............................................. 600,000 500,000 Other .................................................. 507,346 646,636 Income taxes payable ..................................... 244,993 505,062 --------------- --------------- Total current liabilities ..................... 7,033,928 5,356,669 --------------- --------------- LONG-TERM LIABILITIES, less current portion ................. 1,932,582 2,012,652 --------------- --------------- 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 - 10,170,964 in 2002 10,205,306 in 2001 ................................... 101,710 102,053 Additional paid-in capital ............................... 39,669,383 40,123,200 Retained earnings ........................................ 11,520,762 10,346,230 --------------- --------------- 51,291,855 50,571,483 --------------- --------------- Total Liabilities and Shareholders' Equity .... $ 60,258,365 $ 57,940,804 =============== =============== </Table> See notes to consolidated financial statements. 2 A.S.V., INC. CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) <Table> <Caption> THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------------- --------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------ Net sales ............................................. $ 11,474,655 $ 12,052,998 $ 32,366,419 $ 39,233,875 Cost of goods sold .................................... 9,352,291 9,848,404 25,347,394 32,774,236 ------------ ------------ ------------ ------------ Gross profit ................................. 2,122,364 2,204,594 7,019,025 6,459,639 Operating expenses: Selling, general and administrative .............. 1,120,999 1,429,160 3,705,835 4,302,697 Research and development ......................... 248,663 794,049 1,631,408 1,950,305 ------------ ------------ ------------ ------------ Operating income (loss) ...................... 752,702 (18,615) 1,681,782 206,637 Other income (expense) Interest expense ................................. (31,536) (37,004) (95,233) (110,742) Other, net ...................................... 60,444 119,501 172,983 408,731 ------------ ------------ ------------ ------------ Income before income taxes ................... 781,610 63,882 1,759,532 504,626 Provision for (benefit from) income taxes ............. 255,000 (29,000) 585,000 117,000 ------------ ------------ ------------ ------------ NET EARNINGS ..................................... $ 526,610 $ 92,882 $ 1,174,532 $ 387,626 ============ ============ ============ ============ Net earnings per common share Basic ............................................ $ .05 $ .01 $ .12 $ .04 ============ ============ ============ ============ Diluted .......................................... $ .05 $ .01 $ .11 $ .04 ============ ============ ============ ============ Weighted average number of common shares outstanding Basic ............................................ 10,176,714 10,224,760 10,183,965 10,215,205 ============ ============ ============ ============ Diluted .......................................... 10,253,347 10,445,298 10,248,290 10,366,486 ============ ============ ============ ============ </Table> See notes to consolidated financial statements. 3 A.S.V., INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, <Table> <Caption> 2002 2001 ----------- ----------- Cash flows from operating activities: Net earnings ........................................... $ 1,174,532 $ 387,626 Adjustments to reconcile net earnings to net cash used in operating activities: Depreciation ....................................... 316,424 322,799 Deferred income taxes .............................. 590,000 (65,000) Tax benefit from exercise of stock options ......... -- 55,000 Warrant earned ..................................... -- 113,400 Changes in assets and liabilities: Accounts receivable .............................. (1,294,706) (6,325,528) Inventories ...................................... (6,347,392) (2,430,421) Prepaid expenses and other ....................... 404,725 96,169 Accounts payable ................................. 1,723,520 1,530,747 Accrued liabilities .............................. (228,530) 243,247 Income taxes payable ............................. (260,069) (197,021) ----------- ----------- Net cash used in operating activities ..................... (3,921,496) (6,268,982) ----------- ----------- Cash flows from investing activities: Purchase of property and equipment ..................... (285,083) (393,095) Purchase of short-term investments ..................... (934,833) (2,752,943) Redemption of short-term investments ................... 725,249 3,211,705 ----------- ----------- Net cash provided by (used in) investing activities ....... (494,667) 65,667 ----------- ----------- Cash flows from financing activities: Advances on line of credit, net ........................ 440,000 -- Principal payments on long-term liabilities ............ (77,732) (59,902) Proceeds from exercise of stock options, net of costs .. 47,130 126,717 Retirements of common stock ............................ (501,290) (2,961) ----------- ----------- Net cash provided by (used in) financing activities ....... (91,892) 63,854 ----------- ----------- Net decrease in cash and cash equivalents ................. (4,508,055) (6,139,461) Cash and cash equivalents at beginning of period .......... 5,221,591 9,483,861 ----------- ----------- Cash and cash equivalents at end of period ................ $ 713,536 $ 3,344,400 =========== =========== Supplemental disclosure of cash flow information: Cash paid for interest ................................. $ 154,850 $ 215,307 Cash paid for income taxes ............................. 845,069 361,601 </Table> See notes to consolidated financial statements. 4 A.S.V., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2002 (UNAUDITED) 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. WARRANTIES Provision for estimated warranty costs is recorded at the time of sale and periodically adjusted to reflect actual experience. 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. NOTE 2. INVENTORIES Inventories consist of the following: <Table> <Caption> SEPTEMBER 30, December 31, 2002 2001 ------------------ ----------------- Raw materials, semi-finished and work in process inventory $ 18,782,027 $ 16,438,019 Finished goods 11,550,990 7,723,738 Used equipment held for resale 4,628,428 4,452,296 ------------------ ----------------- $ 34,961,445 $ 28,614,053 ================== ================= </Table> NOTE 3. LINE OF CREDIT During October 2002, the Company amended its $10 million line of credit agreement with its primary bank. The amended portion of the line of credit reduces the level of tangible net worth the Company must maintain at the end of each calendar quarter to provide for an increased level of repurchases under the Company's stock repurchase plan adopted in October 2002. All other terms and conditions of the line of credit remain the same. As of September 30, 2002, the Company was in compliance with all requirements of the line of credit agreement. NOTE 4. RECENTLY PASSED LEGISLATION On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002 (the Act), which immediately impacts Securities and Exchange Commission registrants, public accounting firms, lawyers and securities analysts. This legislation is the most comprehensive since the passage of the Securities Acts of 1933 and 1934. It has far reaching effects on the standards of integrity for corporate management, board of directors, and executive management. Additional disclosures, certifications and possible procedures will be required of the Company. The Company does not expect any material adverse effect as a result of the passage of this legislation; however, the full scope of the Act has not been determined. The Act provides for additional regulations and requirements of publicly-traded companies many of which have yet to be issued. 5 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 Statement of Earnings data as a percentage of net sales: <Table> <Caption> Three Months Ended Nine Months Ended September 30, September 30, 2002 2001 2002 2001 ---------- ---------- ---------- ---------- Net sales.......................... 100.0% 100.0% 100.0% 100.0% Gross profit....................... 18.5 18.3 21.7 16.5 Selling, general and administrative 9.8 11.9 11.4 11.0 Research and development........... 2.2 6.6 5.0 5.0 Operating income (loss)............ 6.6 (.2) 5.2 .5 Net earnings....................... 4.6 .8 3.6 1.0 </Table> 6 FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001. Net Sales. Net sales for the three months ended September 30, 2002 decreased 4.8% to approximately $11,475,000, compared with approximately $12,053,000 for the same period in 2001. The decrease in sales was due to a change in the mix of products sold during the third quarter of 2002. First, the Company had reduced shipments of certain undercarriages to Caterpillar Inc. (Caterpillar) for the jointly developed Multi-Terrain Loader (MTL) product line manufactured by Caterpillar. The reduced shipments were a result of a production issue experienced by Caterpillar unrelated to ASV's undercarriages. Caterpillar believes this issue has now been resolved and limited production of the affected models is expected to resume in the fourth quarter of 2002, with full production expected in the first quarter of 2003. Second, the Company had no sales of the private label version of its RCo30 product, the ASL-300, to Polaris Industries Inc. (Polaris) during the third quarter of 2002. ASL-300 sales accounted for approximately $1.8 million in the third quarter of 2001. The Company does not anticipate any ASL-300 sales to Polaris for the remainder of 2002. Third, the Company experienced decreased sales of its ASV branded products during the third quarter of 2002. The Company believes these decreased sales were due to an overall softening in the construction equipment market and the introduction of two additional models in the MTL product line in the third quarter of 2002. Offsetting these decreases were increased undercarriage shipments to Caterpillar for the MTL models that were introduced during the third quarter of 2002. In addition, the Company experienced increased parts sales during the third quarter of 2002 as the number of machines in the field continues to increase. Gross Profit. Gross profit for the three months ended September 30, 2002 was approximately $2,122,000, or 18.5% of net sales, compared to approximately $2,205,000, or 18.3% of net sales, for the same period in 2001. The slight increase in gross profit percentage for the third quarter of 2002 was due primarily to no sales of the ASL-300 product to Polaris during the third quarter of 2002. The ASL-300 was sold on a cost plus basis which was lower than the gross profit on an RCo30. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased from approximately $1,429,000, or 11.9% of net sales, in the third quarter of 2001, to approximately $1,121,000, or 9.8% of net sales, in the third quarter of 2002. The decreases were due primarily to decreased marketing costs including decreased commissions paid to Caterpillar from the change in sales mix experienced in 2002. ASV pays no commission to Caterpillar on the sale of any MTL undercarriages or any product in the R-Series product line. Research and Development Expenses. Research and development expenses decreased from approximately $794,000 in the third quarter of 2001 to approximately $249,000 in the third quarter of 2002. The decrease was a result of the Company nearing the completion of the development of undercarriages for Caterpillar's MTL product line in 2002. The Company anticipates research and development expenses will return to its historical level of approximately 1% of net sales in 2003. Other Income (Expense). Interest expense decreased from approximately $37,000 for the third quarter of 2001 to approximately $32,000 for the third quarter of 2002. The decrease was due to the Company refinancing approximately $784,000 of its long-term debt from 9.0% to 6.5% for a five-year term in December 2001. Other income decreased approximately $59,000 in the third quarter of 2002 due to lower interest income from decreased short-term investments as the Company used these investments to fund operations in 2002. Net Earnings. Net earnings for the third quarter of 2002 were approximately $527,000, compared with approximately $93,000 for the third quarter of 2001. The increase was primarily a result of increased gross profit percentage on slightly lower sales and decreased operating expenses. FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001. Net Sales. Net sales for the nine months ended September 30, 2002 decreased 17.5%, to approximately $32,366,000 compared with approximately $39,234,000 for the same period in 2001. This decrease was the result of a shift in product sales mix in 2002. First, the Company had no sales of the ASL-300 under its alliance with Polaris during 2002. These machines accounted for approximately 34% of ASV's unit sales for the nine months ended September 30, 2001. Second, sales of the Company's RCo30 All Surface Loader decreased in 2002, due in part to the introduction of the RCo50 in the first quarter of 2002. Third, the Company experienced decreased sales of its model 4810 Posi-Track in 2002. The Company believes this decrease was attributable to the overall softening of the construction equipment market and the introduction of the MTL products. Offsetting these decreases were increases in 2002 in sales of the Company's shipment of MTL undercarriages to Caterpillar, the RCo50 and parts. 7 Gross Profit. Gross profit for the nine months ended September 30, 2002 was approximately $7,019,000, or 21.7% of net sales, compared with approximately $6,460,000, or 16.5% of net sales, for the nine months ended September 30, 2001. The reasons for the increased gross profit and gross profit percentage for the nine month period ended September 30, 2002 were due to the change in mix of machines sold as described more fully above. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased from approximately $4,303,000, or 11.0% of net sales, for the nine months ended September 30, 2001, to approximately $3,706,000, or 11.4% of net sales, for the nine months ended September 30, 2002. This decrease in expenses was due primarily to two factors. First, the Company had decreased commissions to Caterpillar of approximately $225,000 as a result of the change in sales mix experienced during the first nine months of 2002. The Company pays no commission to Caterpillar on the sale of any MTL undercarriages or any R-Series product. Second, the reduction of the Company's previously established sales return reserve caused selling general and administrative expenses to decrease approximately $148,000 in 2002. The Company had previously established a remarketing reserve of $250,000 for any expected costs associated with remarketing existing machines at one customer's locations, some of which were ultimately returned to the Company. ASV had originally anticipated these machines would be remarketed to other dealers, but instead chose to have certain of these machines returned to ASV for use in its rental program which began in the second quarter of 2002. As these machines were returned to ASV and reflected as sales returns with a corresponding decrease in gross profit of approximately $148,000, a portion of the remarketing reserve was no longer needed. The Company reversed the portion of the remarketing reserve that related to the returned machines, which decreased selling, general and administrative expenses by approximately $148,000 during the second quarter of 2002. Research and Development Expenses. Research and development expenses decreased from approximately $1,950,000 for the nine months ended September 30, 2001 to approximately $1,631,000 for the nine months ended September 30, 2002. The decrease was due to the Company nearing the completion of the development of undercarriages for Caterpillar's MTL product line in 2002. Other Income (Expense). Interest expense decreased from approximately $111,000 for the first nine months of 2001 to approximately $95,000 for the first nine months of 2002. The decrease was due to the Company refinancing approximately $784,000 of its long-term debt from 9.0% to 6.5% for a five-year term in December 2001. Other income decreased to approximately $173,000 in the first nine months of 2002 from approximately $409,000 for the first nine months of 2001. This decrease was due primarily to lower interest income from decreased short-term investments as the Company used these investments to fund operations in 2002. Net Earnings. Net earnings for the nine months ended September 30, 2002 increased to approximately $1,175,000 from approximately $388,000 for the nine months ended September 30, 2001. The increase was primarily a result of increased gross profit percentage on decreased sales along with decreased operating expenses, offset in part by decreased non-operating income. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2002, the Company had working capital of approximately $48,461,000 compared with approximately $47,790,000 at December 31, 2001. While overall working capital remained relatively the same during the period, several components changed. First, cash and short-term investments decreased approximately $4,298,000 due primarily to funding operations during the first nine months of 2002. Second, accounts receivable increased approximately $1,295,000 as 46% of the sales for the third quarter of 2002 occurred during the final month of the quarter. Third, inventories increased approximately $6,347,000 from December 31, 2001. Included in this increase is an increase in finished goods of approximately $3,827,000 due to lower than anticipated sales in the first and third quarter of 2002. In addition, the Company elected to produce the majority of the RCo30s and 2800 series Posi-Tracks it expects to need for 2002 when it could not complete MTL undercarriages during the first quarter. Raw materials also increased approximately $2,344,000 at September 30, 2002 compared with December 31, 2001 due to the lower than expected sales and related production levels. Accounts payable increased approximately $1,724,000 at September 30, 2002 compared with December 31, 2001 due primarily to increased raw material levels. The Company also had outstanding advances of $440,000 on its line of credit at September 30, 2002. These advances were paid in full on October 1, 2002. 8 In October 2000, the Company and Caterpillar Inc. (Caterpillar) entered into an alliance agreement pursuant to which they plan to jointly develop and manufacture a new product line of Caterpillar rubber track skid steer loaders called Multi-Terrain Loaders (MTL). The product line, which is expected to include five new models, will feature Caterpillar's patented skid steer loader technology and ASV's patented Maximum Traction Support System rubber track undercarriage. The machines are expected to 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 Agreement with Caterpillar. 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 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 amount of the note is $800,000 and is due in 48 monthly installments plus interest at the prime rate plus 2%, beginning March 15, 2002. The customer has 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. In September 2002, the Company's stock buy-back program expired. Under that program, the Company repurchased 71,780 shares of its common stock at an aggregate purchase price of approximately $753,000. On October 7, 2002, the Company announced the implementation of 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 to October 7, 2003 or until such amount of stock is repurchased. As of November 4, 2002, the Company had repurchased 59,900 shares of its common stock under this new buy-back program at an aggregate purchase price of approximately $534,000. In October 2002, the Company began a new program to market directly to rental facilities. Under this new program, ASV identifies rental facilities that will lease ASV machines from an independent 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. ASV 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 a residual value equal to approximately 25% of the original selling price. During 2001 and 2000, the Company provided extended term financing programs, generally not exceeding 180 days, to its customers. This extended term financing program contributed to the increase in the Company's accounts receivable balance in 2001. The Company is not utilizing this type of program in 2002. Instead, the Company has affiliated itself with several finance companies that will be financing the sale of the Company's products. By using these finance companies, the Company will be receiving 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, 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. The Company believes this change in how the Company expects to receive payment for the sale of its products, its existing cash and marketable securities, 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. 9 The statements set forth above under "Liquidity and Capital Resources" and elsewhere in this Form 10-Q regarding ASV's plans to jointly develop and manufacture rubber-tracked machines with Caterpillar, including the number of models to be developed, the timing of their planned introduction, ASV's future product mix and ASV's future profitability and expense levels 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 US 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 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 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS 10 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 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 Consulting Agreement between the Company and Leo Partners, Inc. dated December 1, 1996 (d) 10.9 Extension of Lease Agreement dated May 13, 1998 between the EDA and the Company (g) 10.10 First Amendment to Credit Agreement dated June 30, 1998 between Norwest Bank Minnesota North, N.A. and the Company (g) 10.11 Commercial Alliance Agreement dated October 14, 1998 between Caterpillar Inc. and the Company (h) 11 10.12 Management Services Agreement dated January 29, 1999 between Caterpillar Inc. and the Company (j) 10.13 Marketing Agreement dated January 29, 1999 between Caterpillar Inc. and the Company (j) 10.14 Third Amendment to Credit Agreement dated June 9, 1999 between Norwest Bank Minnesota North, N.A. and the Company (k) 10.15 Fourth Amendment to Credit Agreement dated June 1, 2000 between Norwest Bank Minnesota North, N.A. and the Company (m) 10.16** Multi-Terrain Rubber-Tracked Loader Alliance Agreement dated October 31, 2000 between Caterpillar Inc. and the Company (n) 10.17** Manufacturing and Distribution Agreement dated January 2, 2001 between Polaris Industries Inc. and the Company (o) 10.18 Fifth Amendment to Credit Agreement dated June 1, 20021 between Wells Fargo Bank Minnesota, N.A. and the Company (p) 10.19 Sixth Amendment to Credit Agreement dated June 1, 2002 between Wells Fargo Bank Minnesota, N.A. and the Company (q) 10.20 Seventh Amendment to Credit Agreement dated June 1, 2002 between Wells Fargo Bank Minnesota, N.A. and the Company 11 Statement re: Computation of Per Share Earnings 22 List of Subsidiaries (a) 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. (h) Incorporated by reference to the Company's Current Report on Form 8-K (File No. 0-25620) filed electronically October 27, 1998. 12 (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. * 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 Report on Form 8-K was filed by the Company during the quarter ended September 30, 2002: Current Report on Form 8-K dated July 25, 2002 reporting under Item 9. "Regulation FD Disclosure" that on July 25, 2002, ASV issued a press release disclosing its financial results for the three and six months ended June 30, 2002. In addition, the press release contained information regarding a conference call held July 25, 2002 during which ASV discussed its financial results for the three and six months ended June 30, 2002 and its outlook for the year ending December 31, 2002. 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: November 14, 2002 By /s/ Gary Lemke -------------------------------------------- Gary Lemke President Dated: November 14, 2002 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: November 14, 2002 /s/ Gary Lemke ------------------ ---------------------------- President 15 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: November 14, 2002 /s/ Thomas R. Karges ------------------ ------------------------------ Chief Financial Officer 16 EXHIBIT INDEX <Table> <Caption> EXHIBIT METHOD OF FILING - ------- ---------------- 10.20 Seventh Amendment to Credit Agreement............................. 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 </Table> 17