-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CYRH4T8N/Y8okg6RuRcJK54SNEbQW+GrXB1fBXNDmRqSf4VwZ9T3X1vKMYt85aIe Gaoqk4My08nlao8s0pCJgg== 0000950134-03-011721.txt : 20030814 0000950134-03-011721.hdr.sgml : 20030814 20030814082708 ACCESSION NUMBER: 0000950134-03-011721 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ASV INC /MN/ CENTRAL INDEX KEY: 0000926763 STANDARD INDUSTRIAL CLASSIFICATION: CONSTRUCTION MACHINERY & EQUIP [3531] IRS NUMBER: 411459569 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25620 FILM NUMBER: 03843376 BUSINESS ADDRESS: STREET 1: P O BOX 5160 STREET 2: 840 LILY LANE CITY: GRAND RAPIDS STATE: MN ZIP: 55744-5160 BUSINESS PHONE: 2183273434 MAIL ADDRESS: STREET 1: PO BOX 5160 STREET 2: 840 LILY LANE CITY: GRAND RAPIDS STATE: MN ZIP: 55744-5160 10-Q 1 c78947e10vq.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended JUNE 30, 2003 Commission file number: 0-25620 A.S.V., INC. (Exact name of registrant as specified in its charter) MINNESOTA 41-1459569 --------- ---------- State or other jurisdiction of I.R.S. Employer Identification No. incorporation of organization 840 LILY LANE 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 [ ] Indicate by check mark if the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). [X] Yes [ ] No As of July 31, 2003, 10,136,786 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)
JUNE 30, December 31, 2003 2002 ----------- ----------- ASSETS CURRENT ASSETS Cash and cash equivalents ............................ $ 8,516,443 $ 4,058,091 Short-term investments ............................... 300,894 739,307 Accounts receivable, net ............................. 19,950,476 14,397,958 Inventories .......................................... 29,234,051 31,834,620 Prepaid expenses and other ........................... 681,650 1,099,685 ----------- ----------- Total current assets 58,683,514 52,129,661 Property and equipment, net ............................. 5,362,083 5,080,536 ----------- ----------- Total Assets $64,045,597 $57,210,197 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term liabilities ............. 132,920 129,550 Accounts payable ..................................... 5,329,886 2,838,370 Accrued liabilities Compensation ....................................... 300,928 265,649 Warranty reimbursements ............................ 508,000 555,200 Warranties ......................................... 650,000 600,000 Other .............................................. 524,823 374,707 Income taxes payable ................................. 569,231 - ----------- ----------- Total current liabilities 8,015,788 4,763,476 ----------- ----------- LONG-TERM LIABILITIES, less current portion ............. 1,913,285 1,979,798 ----------- ----------- COMMITMENTS AND CONTINGENCIES ........................... - - SHAREHOLDERS' EQUITY Capital stock, $.01 par value: Preferred stock, 11,250,000 shares authorized; no shares outstanding ............................ - - Common stock, 33,750,000 shares authorized; shares issued and outstanding - 10,119,036 in 2003 10,063,901 in 2002 .......................... 101,190 100,639 Additional paid-in capital ........................... 39,262,974 38,666,925 Retained earnings .................................... 14,752,360 11,699,359 ----------- ----------- 54,116,524 50,466,923 ----------- ----------- Total Liabilities and Shareholders' Equity $64,045,597 $57,210,197 =========== ===========
See notes to consolidated financial statements. 2 A.S.V., INC. CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------------- ---------------------------- 2003 2002 2003 2002 ------------ ------------ ------------ ------------ Net sales .......................................... $ 26,414,478 $ 14,713,936 $ 41,026,708 $ 20,891,764 Cost of goods sold ................................. 21,082,229 11,241,963 32,890,995 15,995,103 ------------ ------------ ------------ ------------ Gross profit .............................. 5,332,249 3,471,973 8,135,713 4,896,661 Operating expenses: Selling, general and administrative ........... 1,591,223 1,252,804 3,044,183 2,584,836 Research and development ...................... 202,182 708,312 363,886 1,382,745 ------------ ------------ ------------ ------------ Operating income .......................... 3,538,844 1,510,857 4,727,644 929,080 Other income (expense) Interest expense .............................. (32,053) (32,550) (68,676) (63,697) Other, net .................................... 49,627 46,196 87,033 112,539 ------------ ------------ ------------ ------------ Income before income taxes ................ 3,556,418 1,524,503 4,746,001 977,922 Provision for income taxes ......................... 1,271,000 511,000 1,693,000 330,000 ------------ ------------ ------------ ------------ NET EARNINGS .............................. $ 2,285,418 $ 1,013,503 $ 3,053,001 $ 647,922 ============ ============ ============ ============ Net earnings per common share Basic ......................................... $ .23 $ .10 $ .30 $ .06 ============ ============ ============ ============ Diluted ....................................... $ .22 $ .10 $ .30 $ .06 ============ ============ ============ ============ Weighted average number of common shares outstanding Basic ......................................... 10,089,161 10,180,519 10,076,531 10,187,591 ============ ============ ============ ============ Diluted ....................................... 10,432,661 10,296,860 10,273,147 10,245,762 ============ ============ ============ ============
See notes to consolidated financial statements. 3 A.S.V., INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2003 2002 ----------- ----------- Cash flows from operating activities: Net earnings ............................................ $ 3,053,001 $ 647,922 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation ........................................ 316,693 201,509 Tax benefit from stock option exercises ............. 50,000 - Deferred income taxes ............................... 100,000 600,000 Changes in assets and liabilities: Accounts receivable ............................... (5,552,518) (4,421,153) Inventories ....................................... 2,600,569 (3,241,400) Prepaid expenses and other ........................ 318,035 226,404 Accounts payable .................................. 2,491,516 2,054,658 Accrued liabilities ............................... 188,195 (197,985) Income taxes payable .............................. 569,231 (149,993) ----------- ----------- Net cash provided by (used in) operating activities ........ 4,134,722 (4,280,038) ----------- ----------- Cash flows from investing activities: Purchase of property and equipment ...................... (598,240) (92,467) Purchase of short-term investments ...................... (300,894) (935,141) Redemption of short-term investments .................... 739,307 725,249 ----------- ----------- Net cash used in investing activities ...................... (159,827) (302,359) ----------- ----------- Cash flows from financing activities: Advances on line of credit, net ......................... - 455,000 Principal payments on long-term liabilities ............. (63,143) (51,855) Proceeds from exercise of stock options, net of costs.... 581,600 18,750 Retirements of common stock ............................. (35,000) (335,663) ----------- ----------- Net cash provided by financing activities .................. 483,457 86,232 ----------- ----------- Net increase (decrease) in cash and cash equivalents ....... 4,458,352 (4,496,165) Cash and cash equivalents at beginning of period ........... 4,058,091 5,221,591 ----------- ----------- Cash and cash equivalents at end of period ................. $ 8,516,443 $ 725,426 =========== =========== Supplemental disclosure of cash flow information: Cash paid for interest .................................. $ 65,118 $ 122,701 Cash paid for income taxes .............................. 730,547 479,993
See notes to consolidated financial statements. 4 A.S.V., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2003 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying unaudited, consolidated financial statements follows: REVENUE RECOGNITION The Company generally recognizes revenue on its product sales when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable and collectibility is reasonable assured. The Company considers delivery to have occurred at the time of shipment. RESEARCH AND DEVELOPMENT All research and development costs are expensed as incurred. INTERIM FINANCIAL INFORMATION The accompanying unaudited, consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) for interim financial information. Accordingly, they do not include all of the footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal, recurring adjustments) considered necessary for a fair presentation have been included. Results for the interim periods are not necessarily indicative of the results for an entire year. Preparation of the Company's consolidated financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and related revenues and expenses. Actual results could differ from these estimates. WARRANTIES The Company provides a limited warranty to its customers. Provision for estimated warranty costs are recorded when revenue is recognized based on the Company's estimate of product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual failure rates, material usage or service delivery costs differ from the Company's estimates, revisions to the accrued warranty liability may be required. Changes in the Company's accrued warranty liability are as follows:
June 30, ---------------------- 2003 2002 --------- --------- Balance, beginning of period $ 600,000 $ 500,000 Expense for new warranties issued 237,430 421,775 Warranty claims (187,430) (321,775) --------- --------- Balance, end of period $ 650,000 $ 600,000 ========= =========
5 STOCK-BASED COMPENSATION At June 30, 2003, the Company has three stock-based compensation plans. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net earnings, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net earnings and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------------------- -------------------------------- 2003 2002 2003 2002 --------------- --------------- --------------- --------------- Net earnings, as reported $ 2,285,418 $ 1,013,503 $ 3,053,001 $ 647,922 Less total stock-based employee compensation determined under fair value methods for all awards (202,364) (136,596) (379,292) (273,191) --------------- --------------- --------------- --------------- Pro forma net earnings $ 2,083,054 $ 876,907 $ 2,673,709 $ 374,731 =============== =============== =============== =============== Earnings per share: Basic - as reported $ .23 $ .10 $ .30 $ .06 =============== =============== =============== =============== Basic - pro forma $ .21 $ .09 $ .27 $ .04 =============== =============== =============== =============== Diluted - as reported $ .22 $ .10 $ .30 $ .06 =============== =============== =============== =============== Diluted - pro forma $ .20 $ .09 $ .26 $ .04 =============== =============== =============== ===============
ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. The changes in this statement will result in a more complete depiction of an entity's liabilities and equity and will, thereby, assist investors and creditors in assessing the amount, timing, and likelihood of potential future cash outflows and equity share issuances. Reliability of accounting information will be improved by providing a portrayal of an entity's capital structure that is unbiased, verifiable, and more representationally faithful than information reported prior to issuance of this statement. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. Management does not believe the adoption of this statement will have any immediate material impact on the Company. In April 2003, the FASB issued SFAS 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This statement amends SFAS 133, Accounting for Derivative Instruments and Hedging Activities, to clarify financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. The changes in this statement improve financial reporting by requiring that contracts with comparable characteristics be accounted for similarly, resulting in more consistent reporting of contracts as either derivatives or hybrid instruments. This statement is effective for contracts entered into or modified after June 30, 2003. Because the Company does not currently utilize derivative instruments or engage in hedging activities, management does not believe the adoption of this statement will have any immediate material impact on the Company. 6 NOTE 2. INVENTORIES Inventories consist of the following:
JUNE 30, December 31, 2003 2002 ----------- ----------- Raw materials, semi-finished and work in process inventory $17,404,741 $16,502,994 Finished goods 9,019,955 10,779,010 Used equipment held for resale 2,809,355 4,552,616 ----------- ----------- $29,234,051 $31,834,620 =========== ===========
NOTE 3. LINE OF CREDIT In July of 2003, the Company amended its $10 million line of credit agreement with its primary bank. The amended line of credit provides for an expiration date of the earlier of demand or July 1, 2004. The amended line of credit requires, among other items, certain levels of tangible net worth be maintained at the end of each calendar quarter. All other major terms and conditions remained the same. As of June 30, 2003, the Company was in compliance with all requirements of the amended line of credit agreement. 7 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 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:
Three Months Ended June 30, Six Months Ended June 30, 2003 2002 2003 2002 ----- ----- ----- ----- Net sales .............................. 100.0% 100.0% 100.0% 100.0% Gross profit ........................... 20.2 23.6 19.8 23.4 Selling, general and administrative .... 6.0 8.5 7.4 12.4 Research and development ............... 0.8 4.8 0.9 6.6 Operating income ....................... 13.4 10.3 11.5 4.4 Net earnings ........................... 8.7 6.9 7.4 3.1
8 FOR THE THREE MONTHS ENDED JUNE 30, 2003 AND 2002. Net Sales. Net sales for the three months ended June 30, 2003 increased 80.0% to approximately $26.4 million, compared with approximately $14.7 million for the same period in 2002. The increase in sales was due primarily to an increase in the number of products available for sale and an increase in the general market acceptance of rubber track loaders. The second quarter of 2003 was the first full quarter of sales of the Company's RC-100 Posi-Track, which was introduced in January 2003 and has generated significant orders since its introduction. In addition, the Company's RC-50 Posi-Track experienced strong sales during the second quarter of 2003. This product competes with the mid-sized traditional wheeled skid-steer. The RC-100 and the RC-50 Posi-Tracks accounted for approximately 41% of the Company's sales in the second quarter of 2003. The second quarter of 2003 marked the first full quarter of sales of all three undercarriages to Caterpillar Inc. for use in their five models of Multi-Terrain Loaders (MTL). During the second quarter of 2002, ASV only shipped one model of undercarriage to Caterpillar for use on the two MTL models that were in production at that time. The second quarter of 2003 also included approximately $1.0 million of sales from ASV's first ever public auction of used equipment. In addition, the Company experienced increased parts sales during the second quarter of 2003 as the number of machines and undercarriages in the field continues to increase. Offsetting these increases were decreases in the sale of the Company's model 4810 Posi-Track and 2800 series Posi-Tracks. The Company believes these decreases were due to the introduction of the RC-100 Posi-Track in January of 2003 and the introduction of additional MTL models in 2002 and 2003. Gross Profit. Gross profit for the three months ended June 30, 2003 increased to approximately $5,332,000, or 20.2% of net sales, from approximately $3,472,000, or 23.6% of net sales, for the same period in 2002. The increase in gross profit for the second quarter of 2003 was due to the increased sales as discussed above. The decrease in gross profit percentage for the second quarter of 2003 was due primarily to a change in the mix of products sold. For the second quarter of 2002, ASV shipped only the Beta model MTL undercarriage to Caterpillar, which is a larger undercarriage and has a higher gross profit percentage. In contrast, during the second quarter of 2003, slightly over half of the MTL undercarriages sold were the Alpha model undercarriage, which is a smaller undercarriage and has a lower comparative gross profit percentage. Also contributing to the decrease in gross profit percentage for the second quarter of 2003 was the reduced sales of the Company's higher margin 4810 Posi-Track machine as discussed above. In addition, sales of used equipment from the Company's auction caused a reduction in the overall gross profit as the total sales price of the items sold was approximately $150,000 less than their carrying value. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased from approximately $1,253,000, or 8.5% of net sales, in the second quarter of 2002, to approximately $1,591,000, or 6.0% of net sales, in the second quarter of 2003. The level of expenses in 2003 was a return to more historical levels, compared to an atypically low level of expenses in the second quarter of 2002. In the second quarter of 2002, selling, general and administrative expenses were lower than historical levels due primarily to the reversal of a portion of a remarketing reserve during the second quarter of 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 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 new 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. The remaining increase in selling, general and administrative expenses in 2003 was primarily due to increased marketing costs related to the introduction of new products and the Company's marketing efforts to rental facilities. Research and Development Expenses. Research and development expenses decreased from approximately $708,000 in the second quarter of 2002 to approximately $202,000 in the second quarter of 2003. The decrease was due to the Company completing the development of undercarriages for Caterpillar's MTL product line in 2002. The Company anticipates its investment in research and development will be approximately 1% of its anticipated net sales for 2003. Net Earnings. Net earnings for the second quarter of 2003 were approximately $2,285,000, compared with approximately $1,014,000 for the second quarter of 2002. The increase was primarily a result of significantly increased sales and decreased operating expenses, offset in part by a decreased gross profit percentage and a higher effective income tax rate. 9 FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002. Net Sales. Net sales for the six months ended June 30, 2003 increased 96.4%, to approximately $41.0 million compared with approximately $20.9 million for the same period in 2002. This increase was due primarily to the increase in sales of MTL undercarriages to Caterpillar in 2003. The Company is selling three models of MTL undercarriages to Caterpillar for use on five models of MTLs in 2003. In contrast, the Company was only selling one model undercarriage for use on two MTL models in 2002. In addition, during 2002, ASV only supplied MTL undercarriages to Caterpillar during the second quarter, as Caterpillar had placed its MTLs on production hold for the first quarter, thereby preventing ASV from shipping undercarriages in the first quarter. Also contributing to the sales increase in 2003 was increased sales of the Company's RC-50 and RC-100 products due to increased popularity. Offsetting these increases were decreases in the sales of ASV's model 4810 Posi-Track and 2800 series Posi-Tracks in 2003. The Company believes these decreases were due to the introduction of the RC-100 Posi-Track in January of 2003 and the introduction of additional MTL models in 2002 and 2003. Gross Profit. Gross profit for the six months ended June 30, 2003 was approximately $8,136,000, or 19.8% of net sales, compared with approximately $4,897,000, or 23.4% of net sales, for the six months ended June 30, 2002. The reasons for the increased gross profit and decreased gross profit percentage for the six month period ended June 30, 2003 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 increased from approximately $2,585,000, or 12.4% of net sales, for the six months ended June 30, 2002, to approximately $3,044,000, or 7.4% of net sales, for the six months ended June 30, 2003. This increase in expenses was due primarily to two factors. First, the reduction of the Company's previously established remarketing reserve as discussed above caused selling general and administrative expenses to decrease approximately $148,000 in 2002. Second, selling, general and administrative expenses increased due to increased marketing costs related to the introduction of new products and the Company's marketing efforts to rental facilities in 2003. Research and Development Expenses. Research and development expenses decreased from approximately $1,383,000 for the six months ended June 30, 2002 to approximately $364,000 for the six months ended June 30, 2003. The decrease was due to the Company completing the development of undercarriages for Caterpillar's MTL product line in 2002. Net Earnings. Net earnings for the six months ended June 30, 2003 increased to approximately $3,053,000 from approximately $648,000 for the six months ended June 30, 2002. The increase was primarily a result of increased sales and decreased operating expenses, offset in part by a lower gross profit percentage and a higher effective income tax rate. LIQUIDITY AND CAPITAL RESOURCES At June 30, 2003, the Company had working capital of approximately $50.7 million compared with approximately $47.4 million at December 31, 2002, an increase of approximately $3.3 million. Cash and short-term investments increased approximately $4.0 million due to increased sales, better accounts receivable collection, proceeds received from the Company's auction and proceeds received from the exercise of stock options. Accounts receivable increased approximately $5.6 million due to the increased sales during the second quarter of 2003. Overall inventory levels decreased approximately $2.6 million during 2003, due primarily to the sale of finished goods and used equipment in inventory at December 31, 2002. Partially offsetting the overall inventory decrease was an increase of approximately $900,000 in raw materials to support higher production levels. Current liabilities increased approximately $3.3 million due primarily to increased accounts payable from increased production levels. In addition, the Company's income taxes payable increased approximately $569,000 due to increased profitability in 2003. In October 2000, the Company and Caterpillar entered into an alliance agreement to jointly develop and manufacture a new product line of Caterpillar rubber track skid steer loaders called Multi-Terrain Loaders, or MTLs. The product line, which includes five new models, features Caterpillar's patented skid steer loader technology and ASV's patented Maximum Traction Support System(TM) rubber track undercarriage. The machines complement existing models in both ASV's and Caterpillar's current product lines. They are being sold through the Caterpillar dealer network. 10 The Company recognizes as sales its cost for the undercarriage, as defined in the agreement, plus a portion of the gross profit that Caterpillar recognizes 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. The Company anticipates sales of MTL undercarriages to Caterpillar could be in the range of $45-47 million for the twelve months ended December 31, 2003. In December 2000, the Company made a sale to one customer totaling approximately $4.0 million. During 2001, this customer did not make payments in accordance with the terms of its agreement with the Company, including approximately $800,000 of machines and attachments sold by the customer for which payment was not remitted to the Company. In January 2002, the Company and the customer entered into a note agreement for the value of the machines that had been previously sold by the customer for which payment was not remitted to the Company. The initial amount of the note was $800,000 and is due in 48 monthly installments plus interest at the prime rate plus 2%, beginning March 15, 2002. As of July 31, 2003, the customer was three payments in arrears under this note. The Company anticipates it may refinance the existing note balance over a term not to exceed 60 months with payments due in monthly principal installments plus interest at the prime rate plus 2%. 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. This customer is in the process of pursuing $6-7 million of debt and equity financing through a private placement offering with non-affiliated investors. The customer is also pursuing external financing for approximately $600,000 of the amount owed the Company under its trade account receivable balance. The Company anticipates it may convert a portion of the amount owed to it under its trade account receivable balance to equity in the private placement, such amount not to exceed $300,000. The Company does not currently anticipate it will incur a loss on the amounts owed to it by this customer. On October 7, 2002, the Company announced a stock buy-back program whereby ASV may repurchase up to $5 million of its common stock in the open market. The Company is funding the repurchases with available funds. The repurchase program is expected to last until October 7, 2003 or until such amount of common stock is repurchased. As of August 1, 2003, the Company had repurchased 110,700 shares of its common stock under this new buy-back program at an aggregate purchase price of approximately $1,004,000. In October 2002, the Company began a program to market its RC-30 and RC-50 products directly to rental facilities. Under this program, ASV identifies rental facilities that will lease ASV machines from an unaffiliated finance company. ASV records the sale of the machines to the finance company when they are delivered to the rental facility and receives payment from the finance company at that time. The lease agreement between the rental facility and the finance company provides the rental facility a 90-day period during which any rental income generated is split between the rental facility and ASV. After the 90-day period has expired, the rental facility has the option of terminating the lease, in which case ASV is responsible for the costs associated with transferring the machines to another rental facility. If the rental facility elects to continue the lease, ASV will refund any rental payments received during the 90-day period. At the end of the four-year lease, should the rental facility elect not to purchase the leased machines, ASV has guaranteed to pay a residual value equal to 25% of the original selling price of the financed equipment should the rental facility choose not to make the residual payment. At that point, ASV would take possession of the equipment. As of June 30, 2003, the total amount of future residual payments the Company may be required to make in the event of nonpayment by rental facilities totaled approximately $570,000. The Company believes the value of the related equipment will equal or exceed the amount of residual payment. Accordingly, the Company does not anticipate any loss will be incurred should any residual payments need to be made. The Company believes cash expected to be generated from operations, its existing cash and short-term investments, together with its available, unused $10 million credit line, will satisfy the Company's projected working capital needs and other cash requirements for the next twelve months and for the foreseeable future. The statements set forth above under "Liquidity and Capital Resources" and elsewhere in this Form 10-Q regarding ASV's future sales levels, product mix, profitability, expense levels and liquidity are forward-looking statements based on current expectations and assumptions, and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. Certain factors may affect whether these anticipated events occur including ASV's ability to successfully manufacture the machines, unanticipated delays, costs or other difficulties in the development and manufacture of the machines, market acceptance of the machines, general market conditions, corporate developments at ASV, Polaris or Caterpillar and ASV's ability to realize the anticipated benefits from 11 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 this Current Report on Form 10-Q. 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 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 Exchange Act) as of the end of the period covered by this report. 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 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. Changes in Internal Controls. During our second fiscal quarter, there have not been any significant changes in the Company's internal control over financial reporting (as defined in Rule 13(a)-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 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 The annual meeting of shareholders of A.S.V., Inc. was held on May 30, 2003. Matters submitted at the meeting for vote by the shareholders were as follows: 12 (a) Election of Directors. The following directors were elected at the Annual Meeting, each with the following votes:
For Against --- ------- Gary D. Lemke 9,575,849 260,750 Edgar E. Hetteen 9,575,939 260,660 Jerome T. Miner 9,759,648 76,751 Leland T. Lynch 9,760,548 76,051 James H. Dahl 9,630,039 206,560 R. E. "Teddy" Turner, IV 9,759,506 77,013 Richard A. Benson 9,623,189 213,410 Robert R. Macier 9,680,009 156,590
(b) Ratification of Appointment of Independent Public Accountants. Shareholders ratified the appointment of Grant Thornton LLP as the Company's independent auditors for the fiscal year ending December 31, 2003, with a vote of 9,741,458 votes for, 6,725 votes against and 88,416 shares abstaining. ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS Exhibit Number Description 3.1 Second Restated Articles of Incorporation of the Company (a) 3.1a Amendment to Second Restated Articles of Incorporation of the Company filed January 6, 1997 (d) 3.1b Amendment to Second Restated Articles of Incorporation of the Company filed May 4, 1998 (g) 3.2 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) 13 4.12 Replacement Warrant issued to Caterpillar Inc. on October 31, 2000 (n) 10.1 Development Agreement dated July 14, 1994 among the Iron Range Resources and Rehabilitation Board, the Grand Rapids Economic Development Authority ("EDA") and the Company (b) 10.2 Lease and Option Agreement dated July 14, 1994 between the EDA and the Company (b) 10.3 Option Agreement dated July 14, 1994 between the EDA and the Company (b) 10.4 Supplemental Lease Agreement dated April 18, 1997 between the EDA and the Company (e) 10.5 Supplemental Development Agreement dated April 18, 1997 between the EDA and the Company (e) 10.6 Line of Credit dated May 22, 1997 between Norwest Bank Minnesota North, N.A. and the Company (e) 10.7* Employment Agreement dated October 17, 1994 between the Company and Thomas R. Karges (c) 10.8 Extension of Lease Agreement dated May 13, 1998 between the EDA and the Company (g) 10.9 First Amendment to Credit Agreement dated June 30, 1998 between Norwest Bank Minnesota North, N.A. and the Company (g) 10.10 Commercial Alliance Agreement dated October 14, 1998 between Caterpillar Inc. and the Company (h) 10.11 Management Services Agreement dated January 29, 1999 between Caterpillar Inc. and the Company (j) 10.12 Marketing Agreement dated January 29, 1999 between Caterpillar Inc. and the Company (j) 10.13 Third Amendment to Credit Agreement dated June 9, 1999 between Norwest Bank Minnesota North, N.A. and the Company (k) 10.14 Fourth Amendment to Credit Agreement dated June 1, 2000 between Norwest Bank Minnesota North, N.A. and the Company (m) 10.15** Multi-Terrain Rubber-Tracked Loader Alliance Agreement dated October 31, 2000 between Caterpillar Inc. and the Company (n) 10.16** Manufacturing and Distribution Agreement dated January 2, 2001 between Polaris Industries Inc. and the Company (o) 10.17 Fifth Amendment to Credit Agreement dated June 1, 20021 between Wells Fargo Bank Minnesota, N.A. and the Company (p) 10.18 Sixth Amendment to Credit Agreement dated June 1, 2002 between Wells Fargo Bank Minnesota, N.A. and the Company (q) 10.19 Seventh Amendment to Credit Agreement dated June 1, 2002 between Wells Fargo Bank Minnesota, N.A. and the Company (r) 10.20** Marketing Agreement dated March 13, 2003 between Jacobsen, a division of Textron, Inc., and the Company (s) 10.21 Business Loan Agreement dated July 7, 2003 between Wells Fargo Bank Minnesota, N.A. and the Company 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. 14 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 99 Risk Factors - ------------------- (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. (i) Incorporated by reference to the Company's Current Report on Form 8-K (File No. 0-25620) filed electronically February 11, 1999. (j) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 0-25620) filed electronically March 26, 1999. (k) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (File No. 0-25620) filed electronically August 9, 1999. (l) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 (File No. 0-25620) filed electronically November 12, 1999. (m) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 (File No. 0-25620) filed electronically August 10, 2000. (n) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000 (File No. 0-25620) filed electronically November 13, 2000. (o) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 2000 (File No. 0-25620) filed electronically March 30, 2001. (p) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 (File No. 0-25620) filed electronically August 13, 2001. (q) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (File No. 0-25620) filed electronically August 14, 2002. (r) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 (File No. 0-25620) filed electronically November 14, 2002. 15 (s) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 (File No. 0-25620) filed electronically May 14, 2003. * Indicates management contract or compensation plan or arrangement. ** Certain information contained in this document has been omitted and filed separately accompanied by a confidential request pursuant to Rule 24b-2 of the Securities Exchange Act of 1934. (B) REPORTS ON FORM 8-K The following current Reports on Form 8-K were filed by the Company during the quarter ended June 30, 2003: Current Report on Form 8-K dated April 24, 2003 reporting under Item 9. "Regulation FD Disclosure" that on April 24, 2003, ASV issued a press release disclosing its financial results for the three months ended March 31, 2003. In addition, the press release contained information regarding a conference call held April 25, 2003 during which ASV discussed its financial results for the three months ended March 31, 2003 and its outlook for the year ending December 31, 2003. Current Report on Form 8-K dated May 29, 2003 reporting under Item 9. "Regulation FD Disclosure" that on May 29, 2003, ASV issued a press release disclosing it has revised its outlook for its level of anticipated net sales and earnings per share for its second quarter of 2003 and its fiscal year 2003. 16 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 14, 2003 By /s/ Gary Lemke -------------------------------- Gary Lemke President Dated: August 14, 2003 By /s/ Thomas R. Karges -------------------------------- Thomas R. Karges Chief Financial Officer (principal financial and accounting officer) 17 EXHIBIT INDEX
EXHIBIT METHOD OF FILING - ------- ---------------- 10.21 Business Loan Agreement........................................... Filed herewith electronically 11 Statement re: Computation of Per Share Earnings................... Filed herewith electronically 31.1 Certification of the Chief Executive Officer...................... Filed herewith electronically 31.2 Certification of the Chief Financial Officer...................... Filed herewith electronically 32.1 Certification of the Chief Executive Officer...................... Filed herewith electronically 32.2 Certification of the Chief Financial Officer...................... Filed herewith electronically 99 Risk Factors...................................................... Filed herewith electronically
18 EX-10.21 3 c78947exv10w21.txt BUSINESS LOAN AGREEMENT EXHIBIT 10.21 PRINCIPAL LOAN DATE MATURITY LOAN NUMBER $10,000,000.00 07-07-2003 07-01-2004 0369592810 BORROWER: A.S.V., INC. LENDER: WELLS FARGO BANK MINNESOTA, 840 LILY LANE NATIONAL ASSOCIATION GRAND RAPIDS, MN 55744 220 NW 1st AVE. GRAND RAPIDS, MN 55744 THIS BUSINESS LOAN AGREEMENT DATED JULY 7, 2003, IS MADE AND EXECUTED BETWEEN A.S.V., INC. ("BORROWER") AND WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION ("LENDER") ON THE FOLLOWING TERMS AND CONDITIONS, BORROWER HAS RECEIVED PRIOR COMMERCIAL LOANS FROM LENDER OR HAS APPLIED TO LENDER FOR A COMMERCIAL LOAN OR LOANS OR OTHER FINANCIAL ACCOMMODATIONS, INCLUDING THOSE WHICH MAY BE DESCRIBED ON ANY EXHIBIT OR SCHEDULE ATTACHED TO THIS AGREEMENT ("LOAN"). BORROWER UNDERSTANDS AND AGREES THAT: (A) IN GRANTING, RENEWING, OR EXTENDING ANY LOAN, LENDER IS RELYING UPON BORROWER'S REPRESENTATIONS, WARRANTIES, AND AGREEMENTS AS SET FORTH IN THIS AGREEMENT; (B) THE GRANTING, RENEWING, OR EXTENDING OF ANY LOAN BY LENDER AT ALL TIMES SHALL BE SUBJECT TO LENDER'S SOLE JUDGMENT AND DISCRETION; AND (C) ALL SUCH LOANS SHALL BE AND REMAIN SUBJECT TO THE TERMS AND CONDITIONS OF THIS AGREEMENT. TERM. This Agreement shall be effective as of July 7, 2003, and shall continue in full force and effect until such time as all of Borrower's Loans in favor of Lender have been paid in full, including principal, interest, costs, expenses, attorneys' fees, and other fees and charges, or until such time as the parties may agree in writing to terminate this Agreement. CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial Advance and each subsequent Advance under this Agreement shall be subject to the fulfillment to Lender's satisfaction of all of the conditions set forth in this Agreement and in the Related Documents. LOAN DOCUMENTS. Borrower shall provide to Lender the following documents for the Loan: (1) the Note; (2) Security Agreements granting to Lender security interests in the Collateral; (3) financing statements and all other documents perfecting Lender's Security Interest; (4) evidence of insurance as required below; (5) together with all such Related Documents as Lender may require for the Loan; all in form and substance satisfactory to Lender and Lender's counsel. BORROWER'S AUTHORIZATION. Borrower shall have provided in form and substance satisfactory to Lender properly certified resolutions, duly authorizing the execution and delivery of this Agreement, the Note and the Related Documents. In addition, Borrower shall have provided such other resolutions, authorizations, documents and instruments as Lender or its counsel, may require. PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to Lender all fees, charges, and other expenses which are then due and payable as specified in this Agreement or any Related Document. REPRESENTATIONS AND WARRANTIES. The representations and warranties set forth in this Agreement, in the Related Documents, and in any document or certificate delivered to lender under this Agreement are true and correct. NO EVENT OF DEFAULT. There shall not exist at the time of any Advance a condition which would constitute an Event of Default under this Agreement or under any Related Document. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as of the date of each disbursement of loan proceeds, as of the date of any renewal, extension or modification of any Loan and at all times any Indebtedness exists: ORGANIZATION. Borrower is a corporation for profit which is, and at all times shall be, duly organized, validly existing, and in good standing under and by virtue of the laws of the State of Minnesota, Borrower maintains an office at 840 Lily Lane, Grand Rapids, MN 55744. Unless Borrower has designated otherwise in writing, the principal office is the office at which Borrower keeps its books and records including its records concerning the Collateral. Borrower will notify Lender prior to any change in the location of Borrower's state of organization or any change in Borrower's name. ASSUMED BUSINESS NAMES. Borrower has filed or recorded all documents or filings required by law relating to all assumed business names used by Borrower. Excluding the name of Borrower, the following is a complete list of all assumed business names under which Borrower does business: NONE. AUTHORIZATION. Borrower's execution, delivery, and performance of this Agreement and all the Related Documents have been duly authorized by all necessary action by Borrower and do not conflict with, result in a violation of, or constitute a default under (1) any provision of Borrower's articles of incorporation or organization, or bylaws, or any agreement or other instrument binding upon Borrower or (2) any law, governmental regulation, court decree, or order applicable to Borrower or to Borrower's properties. PROPERTIES. Except as contemplated by this Agreement or as previously disclosed in Borrower's financial statements or in writing to Lender as accepted by Lender, and except for property tax liens for taxes not presently due and payable, Borrower owns and has good title to all of Borrower's properties free and clear of all liens and security interests, and has not executed any security documents or financing statements relating to such properties. All of Borrower's properties are titled in borrower's legal name, and Borrower has not used or filed a financing statement under any other name for at least the last five (5) years. AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, so long as this Agreement remains in effect, Borrower will: NOTICES OF CLAIMS AND LITIGATION. Promptly inform Lender in writing of (1) all material adverse changes in Borrower's financial condition, and (2) all existing and all threatened litigation, claims, investigations, administrative proceedings or similar actions affecting Borrower or any Guarantor which could materially affect the financial condition of Borrower or the financial condition of any Guarantor. FINANCIAL RECORDS. Maintain its books and records in accordance with accounting principles acceptable to Lender, applied on a consistent basis, and permit Lender to examine and audit Borrower's books and records at all reasonable times. FINANCIAL STATEMENTS. Furnish Lender with such financial statements and other related information at such frequencies and in such detail as Lender may reasonably request. LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business operations, unless specifically consented to the contrary by Lender in writing. TAXES, CHARGES AND LIENS. Pay and discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, in unpaid, might become a lien or charge upon any of Borrower's properties, income, or profits. 2 PERFORMANCE. Perform and comply, in a timely manner, with all terms, conditions, and provisions set forth in this Agreement, in the Relate Documents, and in all other instruments and agreements between Borrower and Lender. Borrower shall notify Lender immediately in writing of any default in connections with any agreement. OPERATIONS. Maintain executive and management personnel with substantially the same qualifications and experience as the present executive and management personnel; provide written notice to Lender of any change in executive and management personnel; conduct its business affairs in a reasonable and prudent manner. COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Comply with all laws, ordinances, and regulations, now or hereafter in effect, of all governmental authorities applicable to the conduct of Borrower's properties, businesses and operations, and to the use or occupancy of the Collateral, including without limitation, the Americans With disabilities Act. Borrower may contest in good faith any such law, ordinance or regulation and withhold compliance during any proceeding including appropriate appeals, so long as Borrower has notified Lender in writing prior to doing so and so long as, in Lender's sole opinion, Lender's interests in the Collateral are not jeopardized. Lender may require Borrower to post adequate security or a surety bond, reasonably satisfactory to Lender, to protect Lender's interest. INSPECTION. Permit employees or agents of Lender at any reasonable time to inspect any and all Collateral for the Loan or Loans and Borrower's other properties and to examine or audit Borrower's books, accounts, and records and to make copies and memoranda of Borrower's books, accounts, and records. If Borrower now or at any time hereafter maintains any records (including without limitation computer generated records and computer software programs for the generation of such records) in the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all at Borrower's expense. LENDER'S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender's interest in the Collateral or if Borrower fails to comply with any provision of this Agreement or any Related documents, including but not limited to Borrower's failure to discharge or pay when due any amounts Borrower is required to discharge or pay under this Agreement or any Related Documents, Lender on Borrower's behalf may (but shall not be obligated to) take any action that Lender deems appropriate on any Collateral and paying all costs for insuring, maintaining and preserving any Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Borrower. All such expenses will become a part of the Indebtedness and, at Lender's option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable at the Note's maturity. NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior written consent of Lender: CONTINUITY OF OPERATIONS. (1) Engage in any business activities substantially different than those in which Borrower is presently engaged, (2) cease operations, liquidate, merge, transfer, acquire or consolidate with any other entity, change its name, dissolve or transfer or sell Collateral out of the ordinary course of business, or (3) pay any dividends on Borrower's stock (other than dividends payable in its stock), provided, however that notwithstanding the foregoing, but only so long as no Event of Default has occurred and is continuing or would result from the payment of dividends, if Borrower is a "Subchapter S Corporation" (as defined in the Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends on its stock to its shareholders from time to time in amounts necessary to enable the shareholders to pay income taxes and make estimated income tax payments to satisfy their liabilities under federal and state law which arise solely from their status as Share holders of a Subchapter S Corporation because of their ownership of shares of Borrower's stock, or purchase or retire any of Borrower's outstanding shares or alter or amend Borrower's capital structure. 3 CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to Borrower, whether under this Agreement or under any other agreement, Lender shall have no obligation to make loan advances or to disburse Loan proceeds if: (A) Borrower or any guarantor is in default under the terms of this Agreement or any other agreement that Borrower or any guarantor has with Lender; (B) Borrower or any guarantor dies, becomes incompetent or becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; (C) there occurs a material adverse change in Borrower's financial condition, in the financial conditions of any guarantor, or in the value of any collateral securing any Loan; or (D) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor's guaranty of the Loan or any other loan with Lender; or (E) Lender in good faith deems itself insecure, even though no Event of Default shall have occurred. RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the Indebtedness against any and all such accounts, and, at Lender's option, to administratively freeze all such accounts to allow Lender to protect Lender's charge and setoff rights provided in this paragraph. DEFAULT. Each of the following shall constitute an Event of default under this Agreement: PAYMENT DEFAULT. Borrower fails to make any payment when due under the Loan. OTHER DEFAULT. Borrower fails to comply with any other term, obligation, covenant or condition contained in this Agreement or in any of the related Documents. DEFAULT IN FAVOR OF THIRD PARTIES. Borrower defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's ability to repay the Loans or perform Borrower's obligations under this Agreement or any related document. FALSE STATEMENTS. Any representation or statement made by Borrower to Lender is false in any material respect. INSOLVENCY. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower. CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the Loan. EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness. CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower. INSECURITY. Lender in good faith believes itself insecure. EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where otherwise provided in this Agreement or the Related Documents, all commitments and obligations of Lender under this agreement immediately will terminate (including any obligation to make further Loan Advances or disbursements), and, at Lender's option, all Indebtedness immediately will become due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the "Insolvency" subsection above, such acceleration shall be automatic and not optional. In addition, Lender shall have all the rights and remedies provided in the Related Documents or available at law, in equity, or otherwise. Except as may be prohibited by applicable law, all of Lender's rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, 4 and an election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not affect Lender's right to declare a default and to exercise its rights and remedies. FACSIMILE AND COUNTERPART. This document may be signed in any number of separate copies, each of which shall be effective as an original, but all of which taken together shall constitute a single document. An electronic transmission or other facsimile of this document or any related document shall be deemed an original and shall be admissible as evidence of the document and the signer's execution. THIS AGREEMENT APPLICABLE TO ALL LOANS. Notwithstanding anything to the contrary herein, (1) the terms "Loan" and "Loans" shall mean and include the Note and any and all other notes, lines of credit and other financial accommodations from Lender to Borrower which presently exist or which are being executed in connection with this Agreement, excluding any such other loans or financial accommodations which are not serviced by the Wells Fargo Business Banking Group or Regional Banking, or their successors, and the terms "Loan" and "Loans" shall also mean and include all notes and credit agreements entered into subsequent to the date hereof which specifically provide and they shall be governed by this Agreement, and (2) the term "Indebtedness" shall mean and include all indebtedness evidenced by the Note and every other note or credit agreement evidencing a Loan, and all other indebtedness for which Borrower is responsible under this Agreement or any of the Related Documents. INSURANCE. Borrower shall assure that insurance is maintained pursuant to any insurance requirements set forth in the Agreement To Provide Insurance and / or other Related Documents, if applicable. FINANCIAL CONDITION. Borrower shall maintain its financial conditions as follows using generally accepted accounting principles consistently applied and used consistently with prior practices (except to the extent modified by the definitions herein), with compliance determined commencing with Borrower's financial statements for the period ending Dec 31st. Definitions: "Cash Flow" means the sum of net income after taxes, depreciation expense, amortization expense, and interest expense less the sum of dividends and distributions. "Current Maturities of Long Term Debt" means that portion of the Borrower's long term debt and capital leases maturing or scheduled to be paid in the prior period. "Current Liabilities" means the aggregate amount of Borrower's items properly shown as current liabilities on its balance sheet (less any portion of such current liabilities that constitute Subordinated Debt). "EBITDA" means net income before tax plus interest expense (net of capitalized interest expense), depreciation expense and amortization expense. "Net Worth" means total owner's equity plus Subordinated Debt. "Subordinated Debt" means debt that is expressly subordinated to Lender in a writing acceptable to Lender. "Tangible Net Worth" means Net Worth less any intangible assets. "Total Liabilities" means the aggregate amount of Borrower's items properly shown as liabilities on its balance sheet less Subordinated Debt. Current Ratio as of the end of each fiscal year not less than 3.00 to 1.0, with "Current Ratio" defined as current assets divided by Current Liabilities. Total Liabilities divided by Net Worth as of the end of each fiscal year not greater than 2.00 to 1.0. Debt Coverage Ratio as of the end of each fiscal year not less than 1.50 to 1.0, with "Debt Coverage Ratio" defined as the ratio of Cash Flow to the sum of Current Maturities of Long Term Debt plus interest expense. 5 ANNUAL FINANCIAL STATEMENTS. Borrower shall provide to Lender audited financial statements, prepared by a certified public accountant not later than 90 days after and as of the end of each fiscal year, to include an income statement and a statement of changes to owner's equity. If Borrower has subsidiaries, all financial statements shall be provided on a consolidated and consolidating basis. INTERIM FINANCIAL STATEMENTS. Borrower shall provide to Lender interim financial statements not later than 20 days after and as of the end of each month, prepared by Borrower to include a balance sheet as of the end of each such period, and a statement of profit and loss and of changes in owners equity, from the beginning of the then fiscal year to the end of such period. If Borrower has subsidiaries, interim financial statements shall be provided on a consolidated and consolidating basis. ACCOUNTS RECEIVABLE AND INVENTORY ADVANCE RATES. Limitation on Advances. Amounts outstanding under any line of credit governed by this Agreement, to a maximum of the principal remaining available, shall not exceed 75% of Borrowers Eligible Accounts Receivable and 50% of Eligible Inventory as determined by Lender ("Borrowing Base"). Inventory advances shall not at any time exceed an aggregate of $10,000,000.00. All of the foregoing shall be determined by Lender upon receipt and review of all collateral reports and borrowing base certificates required hereunder and such other documents and collateral information as Lender may from time to time require. As used herein, "eligible accounts receivable" shall consist solely of trade accounts created in the ordinary course of Borrower's business, upon which Borrower's right to receive payment is absolute and not contingent upon the fulfillment of any condition whatsoever, and in which Lender has a perfected security interest of first priority, and shall not include: (i) any account which is more than 90 days past due, except with respect to any account for which Borrower has provided extended payment terms to exceed 90 days, any such account which is more than 30 days past due; (ii) that portion of any account which constitutes a pre-billing or a "bill and hold", or a credit memo balance, service charge or finance charge, or for which there exists any right of setoff, defense, discount allowance (except regular discounts allowed in the ordinary course of business to promote prompt payment) or for which any defense or counterclaim has been asserted; (iii) any account which represents an obligation of any state or municipal government or of the United States government, any political subdivision thereof, or a Native American sovereign Nation (except accounts which represent obligations of the United States government and for which the assignment provisions of the Federal Assignment of Claims Act, as amended or re-codified from time to time, have been complied with to Lender's satisfaction); (iv) any account which represents an obligation of an account debtor located in a foreign country, except to the extent any such account, in Lender's determination, is supported by a letter of credit or insured under a policy of foreign credit insurance, in each case in form, substance and issued by a party acceptable to Lender; (v) any account which arises from the sale or lease to or performance of services for, or represents an obligation of, an employee, affiliate partner, member, parent or subsidiary of Borrower; (vi) that portion of any account, which represents interim or progress billings or retention rights on the part of the account debtor, and any accounts subject to rights under third-party payment or performance bonds; (vii) any account which represents an obligation of any account debtor when ten percent (10%) or more of Borrower's accounts from such account debtor are not eligible pursuant to (i) above; (viii) any account deemed ineligible by Lender when Lender in its sole discretion, deems the creditworthiness or financial condition of the account debtor, or the industry in which the account debtor is engaged, to be unsatisfactory. "Eligible Inventory" shall mean goods that in Lender's determination have broad, well-defined markets and for which grading and valuation are standardized, excluding: 6 (ix) goods with limited liquidation value, including but not limited to, work in process, and goods that are obsolete, unsaleable, damaged, slow moving, custom, private labeled, proprietary or perishable, packaging materials, supplies, samples, demos, prototypes or cost capitalized to inventory for tax purposes; (i) goods over which Borrower has limited control, including but not limited to, goods consigned to others, goods not on Borrower's premises and goods in transit; and goods at public warehouses for which proper protective documentation has not been executed; or (ii) goods for which Lender does not hold a first priority perfected security interest, goods subject to legal restrictions, including but not limited to, goods consigned to Borrower by others, goods located in foreign nations, U.S. territories or possessions, bill and hold inventory, goods subject to a vendor's purchase money security interest or other lien, goods in which there are questions of title or for which an assignment of license has not been perfected, and in the case of agricultural commodities, goods associated with un- subordinated grower payables. Eligible Inventory shall be valued at the lower of cost or market value, as determine by Lender upon receipt and review of collateral reports and documents as Lender may require. ACCOUNTS RECEIVABLE AND OTHER REPORTS. Borrower shall provide the following reports to Lender, all in a form satisfactory to lender: a. not later than 20 days following, and as of the end of each month, a Borrowing Base Certificate. b. not later than 20 days following, and as of the end of each month, an Accounts Receivable list and aging. c. not later than 20 days following, and as of the end of each month, an Accounts Payable list and aging. d. Semi-annual detailed inventory listing for the periods ending June 30th and December 31st, due within 30 days of each period ending. ADDITIONAL PROVISION. Minimum Tangible Net Worth of $50,500,000.00 as of 6/30/2003. Copies of SEC reports Financial Projections for coming year 30 days prior to Financial Year End. Minimum Tangible Net Worth of $52,000,000.00 as of 6/30/2004 Minimum Tangible Net Worth of $51,200,000.00 as of 9/30/2003 Minimum Tangible Net Worth of $51,750,000.00 as of 03/31/2004 Minimum Tangible Net Worth of $51,500,000.00 as of 12/31/2003 UNUSED COMMITMENT FEE. Borrower shall pay to Lender a quarterly fee on the unused portion of the line of credit equal to one-eighth percent (0.125%) per annum (computed on the basis of a 360 day year, actual days elapsed) on the daily unused amount of all lines of credit governed by this Agreement, which fee shall be calculated on a quarterly basis by Lender and shall be due and payable by Borrower in arrears as part of each billing sent by Lender. DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. Accounting words and terms not otherwise defined in this Agreement shall have the meanings assigned to them in accordance with generally accepted accounting principles as in effect on the date of this Agreement: 7 ADVANCE. The word "Advance" means a disbursement of Loan funds made, or to be made, to Borrower or on Borrower's behalf on a line of credit or multiple advance basis under the terms and conditions of this Agreement. AGREEMENT. The word "Agreement" means this Business Loan Agreement, as this Business Loan Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement from time to time. BORROWER. The word "Borrower" means A.S.V., Inc., and all other persons and entities signing the Note in whatever capacity. COLLATERAL. The word "Collateral" means all property and assets granted as collateral security for a Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, collateral mortgage, deed of trust, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise. EVENT OF DEFAULT. The words "Event of Default" mean any of the events of default set forth in this Agreement in the default section of this Agreement. GRANTOR. The word "Grantor" means each and all of the persons or entities granting a Security Interest in any Collateral for the Loan, including without limitation all Borrowers granting such a Security Interest. GUARANTOR. The word "Guarantor" means the guaranty from Guarantor to Lender, including without limitation a guaranty of all or part of the Loan. GUARANTY. The word "Guaranty" means the guaranty from Guarantor to Lender, including without limitation a guaranty of all or part of the Note. INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other indebtedness and costs and expenses for which Borrower is responsible under this Agreement or under any of the Related Documents. LENDER. The word "Lender" means Wells Fargo Bank Minnesota, National Association, its successors and assigns. LOAN. The word "Loan" means any and all loans and financial accommodations from Lender to Borrower whether now or hereafter existing, and however evidenced, including without limitation those loans and financial accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time. NOTE. The word "Note" means the Note executed by A.S.V., Inc. in the principal amount of $10,000,000.00 dated July 7, 2003, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the note or credit agreement. RELATED DOCUMENTS. The words "Related Documents" mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Loan. SECURITY AGREEMENT. The words "Security Agreement" mean and include without limitation any agreements, promises, covenants, arrangements, understandings or other agreements, whether created by law, contract or otherwise, evidencing, governing, representing, or creating a Security Interest. SECURITY INTEREST. The words "Security Interest" mean without limitation, any and all types of collateral security, present and future, whether in the form of a lien, charge, encumbrance, mortgage, deed of trust, security deed, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever whether created by law, contract, or otherwise. 8 BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT AND BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT IS DATED JULY 7, 2003. BORROWER: A.S.V. INC. BY: /s/ THOMAS R. KARGES ---------------------------------------------------- THOMAS R. KARGES, CHIEF FINANCIAL OFFICER OF A.S.V. INC. LENDER: WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION BY: /s/ GERALD K. JOHNSON ---------------------------------------------------- GERALD K. JOHNSON VICE PRESIDENT 9 EX-11 4 c78947exv11.txt STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS . . . A.S.V., INC. EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
Three Months Ended Six Months Ended June 30, June 30, ------------------------------- ------------------------------- 2003 2002 2003 2002 ---- ---- ---- ---- BASIC Earnings Net earnings $ 2,285,418 $ 1,013,503 $ 3,053,001 $ 647,922 ============= ============= ============= =========== Shares Weighted average number of common shares outstanding 10,089,161 10,180,519 10,076,531 10,187,591 ============= ============= ============= =========== Basic earnings per common share $ .23 $ .10 $ .30 $ .06 ============= ============= ============= =========== DILUTED Earnings Net earnings $ 2,285,418 $ 1,013,503 $ 3,053,001 $ 647,922 ============= ============= ============= =========== Shares Weighted average number of common shares outstanding 10,089,161 10,180,519 10,076,531 10,187,591 Assuming exercise of options and warrants reduced by the number of shares which could have been purchased with the proceeds from the exercise of such options and warrants 343,500 116,341 196,616 58,171 ------------- ------------- ------------- ----------- Weighted average number of common and common equivalent shares outstanding 10,432,661 10,296,860 10,273,147 10,245,762 ============= ============= ============= =========== Diluted earnings per common share $ .22 $ .10 $ .30 $ .06 ============= ============= ============= ===========
EX-31.1 5 c78947exv31w1.txt CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER EXHIBIT 31.1 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 report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 14, 2003 /s/ Gary Lemke ------------------------ President EX-31.2 6 c78947exv31w2.txt CERTIFICATION OF THE CHIEF FINANCIAL OFFICER EXHIBIT 31.2 CERTIFICATIONS I, Thomas R. Karges, Chief Financial Officer of A.S.V., Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of A.S.V., Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 14, 2003 /s/ Thomas R. Karges ------------------------------------ Chief Financial Officer EX-32.1 7 c78947exv32w1.txt CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. Section 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of A.S.V., Inc. (the "Company") on Form 10-Q for the period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gary Lemke, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Gary Lemke ---------------------------------------- Gary Lemke President August 14, 2003 A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 HAS BEEN PROVIDED TO A.S.V., INC. AND WILL BE RETAINED BY A.S.V., INC. AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. EX-32.2 8 c78947exv32w2.txt CERTIFICATION OF THE CHIEF FINANCIAL OFFICER EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. Section 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of A.S.V., Inc. (the "Company") on Form 10-Q for the period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Thomas R. Karges, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Thomas R. Karges ---------------------------------------- Thomas R. Karges Chief Financial Officer August 14, 2003 A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 HAS BEEN PROVIDED TO A.S.V., INC. AND WILL BE RETAINED BY A.S.V., INC. AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. 14 EX-99 9 c78947exv99.txt RISK FACTORS EXHIBIT 99 RISK FACTORS Forward-looking statements made by A.S.V., Inc. (the "Company" or "ASV") constitute the Company's current expectations or beliefs concerning future events. Any forward-looking statements made by the Company are qualified by important factors that could cause actual results to differ materially from those projected in the forward-looking statements. Important factors which may cause actual results to differ from those projected in forward-looking statements include the factors set forth herein. RELATIONSHIP WITH CATERPILLAR INC. In January 1999, Caterpillar Inc. ("Caterpillar") purchased 1,000,000 shares of the Company's Common Stock and a warrant to purchase an additional 10,267,127 shares of the Company's Common Stock (the "Warrant"). In connection with the purchase of the Common Stock and the Warrant, the Company and Caterpillar entered into several agreements, including a Commercial Alliance Agreement, a Marketing Agreement and a Management Services Agreement. These agreements contemplate that the Company and Caterpillar will also enter into several additional agreements, including a Trademark and Trade Dress License Agreement, Supply Agreements, a Services Agreement, a Technology License Agreement and a Joint Venture Agreement (these agreements, the Commercial Alliance Agreement, the Marketing Agreement and the Management Services Agreement are collectively referred to as the "Commercial Agreements"). On October 31, 2000 Caterpillar Inc. purchased 500,000 newly issued shares of ASV Common Stock at $18 per share pursuant to the terms of a Securities Purchase Agreement. Concurrent with the closing of the Securities Purchase Agreement, the Company cancelled the Warrant and issued in its place, a replacement warrant to purchase 9,767,127 shares of the Company's Common Stock (the "Replacement Warrant"). In connection with the purchase of the Common Stock and the issuance of the Replacement Warrant, the Company and Caterpillar entered into a Multi-Terrain Rubber-Tracked Loader Alliance Agreement (the "Loader Alliance Agreement"). DEPENDENCE ON LOADER ALLIANCE AGREEMENT WITH CATERPILLAR. Under the terms of the Loader Alliance Agreement, the Company and Caterpillar agreed to jointly develop and manufacture a five-model line of Caterpillar branded rubber tracked skid steer loaders called Multi-Terrain Loaders (the "Alliance Machines"). These new loaders utilize Caterpillar's skid steer technology and the Company's 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 ASV's facilities in Grand Rapids, Minnesota. The successful manufacturing and marketing of the Alliance Machines entail significant risks as is described below: The Alliance Machines have not been manufactured on the scale anticipated and there is no assurance that the necessary raw materials will be able to be obtained in sufficient quantities or the necessary manufacturing processes be developed and on the schedule needed to meet the anticipated production schedule. The development and introduction of the Alliance Machines was scheduled on an aggressive time table 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, ASV did not ship its undercarriages to Caterpillar while the production issues were resolved, resulting in decreased revenue to ASV. Additional production or other issues may be experienced by Caterpillar or ASV in the future, which could cause ASV's 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. The Company and Caterpillar 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 the Company and Caterpillar. The Company will be relying significantly on Caterpillar for their continued interest in manufacturing and marketing the Alliance Machines. For the six months ended June 30, 2003, sales of MTL undercarriages to Caterpillar accounted for approximately 47% of the Company's net sales. It is anticipated that MTL undercarriage sales to Caterpillar could exceed 50% of the Company's net sales for the twelve months ended December 31, 2003. 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, the Company's revenue would be decreased and its business would be harmed. As part of the Loader Alliance Agreement, the Company has agreed not to manufacture machines that are similar to and would compete with the Alliance Machines. Also, the Company may not knowingly sell its 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 Company may, however, continue to manufacture its own models that do not substantially compete with the Alliance Machines. The Loader Alliance Agreement calls for the Company to receive a portion of the gross profit on the sale of the Alliance Machines to Caterpillar dealers. Therefore, a portion of the Company's future revenue will be dependent on the success of Caterpillar in selling the Alliance Machines to Caterpillar dealers. DEPENDENCE ON CATERPILLAR DEALER NETWORK. The Company relies on the Caterpillar dealer network to sell certain of its products. Therefore, the Company is dependent upon the cooperation of Caterpillar and the Caterpillar dealers to sell its products. There can be no assurance that the Caterpillar dealers will dedicate adequate resources or attention to the sale of the Company's products or that Caterpillar will continue to encourage its dealers to promote the Company's products. If Caterpillar stopped promoting the Company's products to its dealers or Caterpillar dealers did not adequately promote the sale of the Company's products, the Company's revenue would be decreased and its business would be harmed. DEPENDENCE UPON SUCCESS OF RELATIONSHIP WITH CATERPILLAR. As a result of its transactions with Caterpillar, the Company intends to increasingly rely on services provided by or through Caterpillar for the operation of its business, including marketing, management, financing, development, warranty and parts services. As a result, the Company will become increasingly dependent upon the cooperation of Caterpillar for the operation of its business. Although Caterpillar is obligated under the terms of the Commercial Agreements to provide certain services to the Company, the specific obligations of Caterpillar under those agreements are not explicitly defined. Therefore, if Caterpillar chose not to cooperate with the Company in providing those services, it may be impractical for the Company to require Caterpillar to provide any such services to the extent necessary to be beneficial to the Company. If Caterpillar were to decide not to actively support the Company and to cooperate with the Company to provide it services, the Company's business would be materially harmed. ABILITY OF CATERPILLAR TO INFLUENCE OR CONTROL THE COMPANY. Caterpillar owns approximately 16% of the outstanding shares of Common Stock (approximately 13% assuming the exercise of all outstanding options and warrants), and has the right to acquire up to approximately 51% of the Company's Common Stock (assuming the exercise of all outstanding options and warrants) upon exercise in full of the Replacement Warrant. As a result, Caterpillar has the ability to influence the business and operations of the Company to a significant extent, and has the ability to greatly influence any vote of the shareholders, including votes concerning the election of directors and changes in control. In addition, to the extent Caterpillar acquires a controlling interest in the Company through the exercise of the Replacement Warrant, other purchases of Common Stock, or otherwise, Caterpillar will have the ability to control the outcome of any such shareholder votes regardless of the votes of any other shareholder, including any such vote relating to the acquisition of the remaining interest in the Company by Caterpillar. Therefore, Caterpillar may be in a position to control the timing and the terms upon which any such acquisition or other business combination involving the Company may occur, subject to the fiduciary duties it might have as a majority shareholder to the remaining shareholders. In addition to its rights as a shareholder to influence or control the Company, Caterpillar has certain rights under the Securities Purchase Agreement between the Company and Caterpillar dated October 14, 1998, including the right to designate directors for election to the Board of Directors and a right of first offer with respect to future financings by the Company, which increases Caterpillar's ability to influence and control the Company. MANAGEMENT OF GROWTH The Company's management has had limited experience in managing companies experiencing growth like that of the Company. Further growth and expansion of the Company's business will place additional demands upon the Company's current management and other resources. The Company believes that future growth and success depends to 2 a significant extent on the Company's ability to be able to effectively manage growth of the Company 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 the Company's business will grow in the future and that the Company will be able to effectively manage such growth. If the Company is unable to manage growth effectively, the Company's business, results of operations and financial condition would be materially adversely affected. DEPENDENCE ON CERTAIN SUPPLIES Certain of the components included in the Company's products are obtained from a limited number of suppliers, including the rubber track component used on the Company's products. Disruption or termination of supplier relationships could have a material adverse effect on the Company's operations. The Company believes 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 the Company's operating results and customer relationships. COMPETITION Companies whose products compete in the same markets as the Posi-Track have substantially more financial, production and other resources than the Company, as well as established reputations within the industry and more extensive dealer networks. Also, the growth potential of the markets being pursued by the Company could attract more competitors. There can be no assurance that the Company will be able to compete effectively in the marketplace or that it will be able to establish a significantly dominant position in the marketplace before its potential competitors are able to develop similar products. MARKET ACCEPTANCE OF RUBBER TRACK VEHICLES The success of the Company is dependent upon increasing market acceptance of rubber track vehicles in the markets in which the Company's 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 the Company's products will gain sufficient market acceptance to enable the Company to sustain profitable operations. DEVELOPMENT OF NEW PRODUCTS The Company intends to increase its market penetration by developing and marketing new rubber-tracked vehicles. There can be no assurance that the Company will be able to successfully develop the new products, or that any new products developed by the Company will gain market acceptance. FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING The Company anticipates that it may require additional financing in order to expand its business, including capital to expand its current marketing efforts, expand its production facilities, purchase capital equipment, increase inventory and accounts receivable and add to its dealer network. Such financing may be obtained through the exercise of the Replacement Warrant held by Caterpillar or through additional equity or debt financings. Such financing may not be available when needed or on terms acceptable to the Company. Moreover, any additional equity financings may be dilutive to existing shareholders, and any debt financing may involve restrictive covenants. An inability to raise expansion funds when needed will likely require the Company to delay or scale back some of its planned market expansion activities. 3 INDUSTRY CONDITIONS; CYCLICALITY; SEASONALITY 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 the Company's products may be affected by the seasonal nature of the activities in which they are used and by overall economic conditions in general. DEPENDENCE ON KEY PERSONNEL The Company's future success depends to a significant extent upon the continued service of certain key personnel, including its President, Gary Lemke. The loss of the services of any key member of the Company's management could have a material adverse effect on the Company's ability to achieve its objectives. The Company has key-person life insurance on the life of Mr. Lemke. RELATIONSHIP WITH POLARIS INDUSTRIES INC. In January 2001, the Company entered into a licensing agreement that allows Polaris Industries, Inc., (Polaris) to sell an ASV-built, rubber track, all-surface utility loader similar to the Company's RC-30 All Surface Loader. The agreement gives Polaris the right to market and sell the utility loader under its own nameplate through its worldwide dealer network. Polaris will purchase the machines, as well as parts and attachments, directly from ASV. The agreement also provides the option for Polaris to manufacture the machines under a royalty arrangement. Dependence on Polaris Dealer Network. Under the terms of the agreement with Polaris, the Company will manufacture the Polaris vehicle, called the ASL-300, and sell it to Polaris for distribution to Polaris dealers. Polaris has the exclusive worldwide right to market the ASL-300 to its dealers. The Company, therefore, will be dependent on Polaris to establish dealer outlets to distribute the ASL-300. To date, ASV has not experienced the level of sales of the ASL-300 that it anticipated. There can be no assurance that Polaris will ever reach the level of sales of the ASL-300 that the Company anticipated. In addition, it is possible that some of the Polaris dealers that elect to carry the ASL-300 product could have been dealers for the Company's RC-30 All Surface Loader, but, under the terms of the agreement, will not be able to carry it. Dependence on Polaris to Market to Certain National Rental Centers. Under the terms of the agreement, Polaris has the exclusive worldwide right to market either company's version of the RC-30 All Surface Loader and related work tools to national rental centers, as defined in the agreement. The agreement requires that this exclusivity feature be reviewed after the third anniversary of the effective date of the agreement to determine if Polaris is adequately marketing to these national rental centers. Therefore, the Company will be dependent on Polaris to successfully market and distribute to these national rental centers and ASV will not be permitted to market its RC-30 directly to these national centers until at least January 2004. Effect on the Company's Gross Profit Level. The ASL-300, related work tools and parts will be sold to Polaris on a cost plus basis, for which the gross profit is expected to be less than the gross profit the Company obtains on the sale of its RCo30 All Surface Loader, related work tools and parts. However, the Company anticipates its sales and marketing costs will be significantly less on the Polaris product compared with the RC-30 All Surface Loader. Fixed Selling Price to Polaris. Under the terms of the agreement, the Company determines the price at which it will sell the ASL-300 to Polaris once each year. Any changes in cost subsequent to this date will be borne by the Company until the next determination of price. Therefore, any price increases incurred subsequent to the determination of the price will reduce the Company's profitability on the sale of these machines. Opportunity for Polaris to Manufacture the Product. Under the terms of the agreement, Polaris shall have the right to assume the manufacturing of the RC-30 product and the ASL-300 product, provided Polaris provides ASV twelve months written notice of its intention to begin manufacturing the products and subject to a reasonable transition to be mutually agreed to by the Company and Polaris. Should this occur, Polaris will pay the Company a royalty for each machine manufactured and sold. Therefore, the Company may be subject to reductions in its manufacturing output, which could potentially increase the cost of its products. 4 Vehicle Sales in 2003. Under the terms of the agreement, should Polaris fail to distribute a minimum number of vehicles in 2003, the Company has the right to terminate this agreement effective March 1, 2004. Through July 31, 2003, the Company has received no orders from Polaris for the ASL-300 product for 2003. Therefore, the Company may not be manufacturing the ASL-300 product after 2003. RISK OF PRODUCT LIABILITY; PRODUCT LIABILITY INSURANCE Like most manufacturing companies, the Company 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. The Company currently has product liability insurance and has not been subject to material claims for product liability. There can be no assurance that the Company will be able to obtain adequate insurance in the future or that the Company's present or future insurance would prove adequate to cover potential product claims. INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS The Company currently holds two patents, one on certain aspects of the steering mechanism used in certain of the Company's products and the other on the certain aspects of the suspension and drive mechanism used on certain of the Company's products. The Company has 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 the Company, that any of the Company's 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 the Company. Furthermore, there can be no assurance that others have not developed or will not develop similar products, duplicate any of the Company's products or design around such patents. Litigation, which could result in substantial cost to and diversion of effort by the Company, may be necessary to enforce patents issued to the Company, to defend the Company against claimed infringement of the rights of others or to determine the ownership, scope or validity of the proprietary rights of the Company and others. DEPENDENCE ON SOLE MANUFACTURING FACILITY The Company's products are manufactured exclusively at its sole manufacturing facility in Grand Rapids, Minnesota. In the event that the manufacturing facility were to be damaged or destroyed or become otherwise inoperable, the Company would be unable to manufacture its products for sale until the facility were either repaired or replaced, either of which could take a considerable period of time. Although the Company maintains business interruption insurance, there can be no assurance that such insurance would adequately compensate the Company for the losses it would sustain in the event that its manufacturing facility were unavailable for any reason. REGULATION The operations, products and properties of the Company are subject to environmental and safety regulations by governmental authorities. The Company may be liable under environmental laws for waste disposal and releases into the environment. In addition, the Company's products are subject to regulations regarding emissions and other environmental and safety requirements. While the Company believes that compliance with existing and proposed environmental and safety regulations will not have a material adverse effect on the financial condition or results of operations of the Company, there can be no assurance that future regulations or the cost of complying with existing regulations will not exceed current estimates. 5 -----END PRIVACY-ENHANCED MESSAGE-----