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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1996
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ________to___________
Commission file number: 0-25620
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A.S.V., INC.
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(Name of small business issuer in its charter)
MINNESOTA 41-1459569
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State or other jurisdiction I.R.S. Employer
of incorporation of organization Identification No.
840 LILY LANE, P.O. BOX 5160, GRAND RAPIDS, MN 55744 (218) 327-3434
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Address of principal executive offices Issuer's telephone
number
Securities registered under Section 12(b) of the Exchange Act:
NONE
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Title of each class
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $.01 PAR VALUE
----------------------------
Title of each class
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. [X] Yes [_] No
Check if there is no disclosure of delinquent filers in response to Items
405 of Regulation S-B in this form, and no disclosure will be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form-10-KSB.[_]
The registrant's revenues for the fiscal year ended December 31, 1996
totaled $12,266,499.
Based on the closing bid price at March 14, 1997, the aggregate market
value of the voting stock held by nonaffiliates of the registrant was
$78,106,381.
The number of shares outstanding of the registrant's $.01 par value common
stock, as of March 14, 1997 was 4,847,159 shares.
Transitional Small Business Issuer Format: [X] Yes [_] No
DOCUMENTS INCORPORATED BY REFERENCE:
------------------------------------
Portions of the registrant's Proxy Statement for its June 6, 1997 Annual Meeting
which will be filed by April 30, 1997, are incorporated by reference in Part
III.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
A.S.V., Inc. was incorporated in Minnesota in July 1983 and its wholly-
owned subsidiary, A.S.V. Distribution, Inc., was incorporated in Minnesota in
January 1989. A.S.V., Inc. and A.S.V. Distribution, Inc. are collectively
referred to herein as the "Company."
A.S.V., Inc. designs, manufactures and sells track-driven all-season
vehicles. The Company's two principal products, the Posi-Track/(TM)/ and the
Track Truck/(R)/, use a rubber track system that takes advantage of the benefits
of both traditional rubber wheels and steel tracks. Rubber track vehicles
provide the traction, stability and low ground pressure necessary for operation
on soft, wet, muddy, rough, boggy, slippery, snowy or hilly terrain, but, unlike
steel track vehicles, can be driven on groomed, landscaped and paved surfaces
without causing damage.
The versatility of the Company's vehicles allows them to be used
productively in a wide variety of ways. The Posi-Track is used primarily in the
construction, landscaping and agricultural industries to perform the functions
of skid-steer vehicles, such as the Bobcat(R) manufactured by a subsidiary of
Ingersoll Rand, small dozers and small tractors. The Posi-Track's quick-attach
mechanism and three-point hitch enable it to use attachments such as loaders,
backhoes, augers, planers and mowers. The low ground pressure of the Posi-Track
enables it to operate on difficult ground and to operate on landscaped or
groomed surfaces without causing damage or soil compaction. The Company's Track
Truck is designed to function in snow, mud, swamps, sand, brush, rocks and bogs.
The Track Truck is used primarily for grooming of snowmobile, cross-country ski,
hiking and biking trails and for off-road access by utility companies, rescue
vehicles and others. In February 1997, the Company introduced a new track
utility vehicle, the Model HD 125. The HD 125 contains certain features of the
Posi-Track and the Track Truck. Like the Posi-Track, it has a quick-attach
mechanism to enable it to accept various attachments. It has a completely
enclosed cab and hydraulic controls to allow the HD 125 to be used for grooming
trails like a Track Truck. It features a steel cab, maintenance-free
suspension and a 125 horsepower John Deere PowerTec turbo diesel engine. The
Company expects to begin delivery of the Model HD 125 in the Fall of 1997. The
Company also designs, manufactures and distributes accessories and attachments
for the Posi-Track and Track Truck.
In August 1994, the Company completed its initial public stock offering,
selling 1,866,210 shares (split-adjusted) of its common stock. The Company
received net proceeds of approximately $3,367,000 which it used to reduce
indebtedness, purchase inventory and equipment and for working capital purposes.
In May 1995, the Company occupied its new leased manufacturing and office
facility in Grand Rapids, Minnesota. See "Item 2. Description of Property."
In October 1996, the Company completed a $5 million private placement
offering of convertible debentures with an investor group. The Company intends
to use approximately $1,000,000 of the proceeds to purchase capital equipment
necessary for the expansion of its manufacturing and office facilities at its
Grand Rapids, Minnesota location. The remaining proceeds will be used for
working capital.
In January 1997, the Company completed a 3-for-2 stock split of its common
stock. All share and per share amounts included in this report have been
adjusted to reflect the stock split.
Track Truck is a registered trademark, and Posi-Track, Posi-Turn and Snow
Saver are trademarks, of A.S.V., Inc. This Annual Report also contains
trademarks of other companies.
MARKETS
Construction. The construction industry currently depends heavily on skid-
steer vehicles for a wide variety of functions. Skid-steers are small four-
wheeled vehicles that were originally designed and used primarily as loaders,
but in the last decade have become increasingly more popular for a variety of
functions and more versatile with the availability of attachments such as
backhoes, forklifts, breakers, planers, rakes and augers. Most skid-steer
attachments are designed to be used with an industry standard quick-attach
mechanism which allows attachments used by one manufacturer to be used on
vehicles manufactured by another. Prior to the wide-spread use of skid-steers
and the various attachments, most of the
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tasks performed by skid-steers were performed by single-function vehicles. The
skid-steer's ability to perform a number of functions previously performed by
numerous vehicles not only reduces the number of vehicles that must be
purchased, but also makes it more convenient to transport equipment to and from
work sites.
The primary disadvantage of skid-steer vehicles is that they are wheeled
vehicles and are not designed for operation on wet, soft, slippery or rough
ground, which means that they are inherently limited in when and where they can
function. Skid-steers often sit idle in the winter and spring or after rain
because the ground is not suitable for their operation. A skid-steer exerts ten
times or more ground pressure than a Posi-Track which makes a skid-steer less
suitable for operation on landscaped or groomed ground.
Recognizing the benefits of track vehicles, a few manufacturers have
created tracks that can be placed around a skid-steer's wheels. Add-on tracks
are generally steel; however, rubber add-on tracks are now available due to the
limitations imposed by steel tracks. Although rubber add-on tracks can decrease
a skid-steer's ground pressure to approximately 10 pounds per square inch, the
overall design of a Posi-Track gives it more versatility and less ground
pressure than a skid-steer with add-on tracks.
In addition to the tasks performed by skid-steers, the Posi-Track is used
for construction jobs performed by small steel track dozers. A skid-steer's
design lacks the power, traction and stability necessary for moving dirt and
other substances efficiently. Therefore, dozers have remained single purpose
machines and, because of their steel tracks and significant ground pressure,
cannot be operated on soft, groomed, landscaped or paved surfaces.
Landscaping. Like the construction industry, the landscaping industry
depends heavily on small dozers and skid-steers with loaders, backhoes, rakes
and other attachments. Landscapers have also been limited by these machines on
soft, wet, muddy, hilly or rough terrain or on groomed or paved surfaces,
thereby affecting productivity. Skid-steers and dozers cause greater soil
compaction than the Posi-Track, which is a concern for landscapers because the
more compact the soil, the more difficult it is for plants to grow. The Posi-
Track can also be adapted to perform special functions in the landscaping
industry. For example, the Company manufactured a Posi-Track attachment which
is used for laying a specially cut continuous roll of sod over 100 feet in
length and weighing over 1,200 pounds. The sod is held in front of the vehicle
and unrolls as the Posi-Track moves forward, laying the sod on the ground. The
Posi-Track's rubber tracks then move over the sod, gently setting it in place.
This procedure allows sod to be laid with significantly less manual labor and in
places such as sides of hills where traditional smaller sod sections could be
washed away by excessive rain.
Agricultural. The Posi-Track is used in the agricultural industry to
perform the functions of small tractors. Its three-point hitch and reversible
seating allow it to be used with pull-type attachments such as roto-tillers,
plows, disks and cultivators. The Posi-Track's hydraulic power take off allows
it to be used for farming chores such as grinding and unloading feed. Its low
ground pressure and rubber tracks allow it to be used on wet, soft, muddy ground
that would not be possible with traditional wheeled tractors, thereby increasing
the number of productive days. In addition, Posi-Track's low ground pressure
reduces compaction of soil. The Posi-Track is being used in several grape
vineyards in California's Napa Valley as a replacement to four-wheel drive
tractors.
Trail Grooming and Maintenance. Both the Posi-Track and Track Truck are
used for maintaining trails such as snowmobile, cross-country ski, biking and
hiking trails. The Company manufactures an attachment for the Track Truck which
is designed to efficiently groom snowmobile trails and can also be used to groom
cross-country ski trails. The Posi-Track is used with a mower attachment to
clear and maintain trails for biking, hiking and other purposes. The Company
believes the Track Truck has captured a significant portion of the United States
snowmobile trail grooming equipment market since its introduction in 1985.
Utility. The Track Truck is used in the utility industry for access to
off-road utility sites that would be otherwise inaccessible with traditional
vehicles. Utility companies may need to access remote areas to repair downed
power lines, inspect gas lines or to repair or maintain other remotely located
equipment. These areas may only be accessible through snow, ice, mud, swamps,
bogs, or rough, hilly or rocky terrain. The Track Truck is able to access and
transport tools, equipment and personnel to those sites.
Wildlife Management. Both the Posi-Track and Track Truck are used in
wildlife management by federal agencies and the departments of natural resources
of a number of states. The Posi-Track is used to mow trails for wildlife and to
mow clearings so that grass, clover and other vegetation needed for wildlife can
grow. The Posi-Track is also used to clear cattails
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and other unwanted vegetation from swamps to provide access for feeding to ducks
and other waterfowl. Both vehicles are used in the management of controlled
burning or the maintenance of fire lines to prevent the spread of forest fires
and for access to remote sites for a variety of other purposes.
Other. The versatility of the Posi-Track has allowed for its use in areas
where a typical skid-steer vehicle could not operate. A grain export company is
using Posi-Tracks in the hold of grain vessels to level out the grain for proper
weight distribution or before adding more cargo, eliminating many hours of hand
labor.
The Company anticipates its newly introduced Model HD 125 to serve some of
the same markets served by the Posi-Track and the Track Truck.
PRODUCTS
The Company's two principal products, the Posi-Track and the Track Truck,
utilize a rubber track system that takes advantage of the benefits of
traditional rubber wheels and steel tracks, without the disadvantages possessed
by each. Wheeled vehicles have less traction and are less stable than tracked
vehicles and cannot operate on soft, wet, slippery, rough or hilly terrain.
Steel tracks damage the surfaces on which they operate. Also, the significant
ground pressure of both wheeled and steel track vehicles creates compacted soil.
The rubber track on the Posi-Track and Track Truck provides the traction,
stability and mobility of tracked vehicles, but does not damage surfaces. In
addition, the Posi-Track has extremely low ground pressure which means it will
not cause significant soil compaction.
The Company began manufacturing the Track Truck in 1984 and has sold in
excess of 500 since their introduction. The current Track Truck model is the HP
2800. The Company began manufacturing the Posi-Track Model MD-70 for sale in
1991 and has sold in excess of 700 since their introduction. In February of
1997, the Company introduced a larger track utility vehicle, the HD 125.
The rubber tracks used on the Company's products are made of molded rubber
reinforced with layers of nylon, Kevlar and fiberglass rods. The Posi-Track
model MD-70 and the Track Truck model HP 2800 each have a 70 horsepower, 4-
cylinder Isuzu diesel engine and dual hydrostatic transmission and both can be
equipped with an optional 110 horsepower, 4-cylinder Isuzu turbo diesel engine.
The Track Truck model HD 125 uses a 125 horsepower, 4-cylinder John Deere
PowerTec turbo diesel engine.
Posi-Track Vehicle.
The Company believes the Posi-Track is an ideal replacement to skid-steers,
small dozers and small tractors and can perform many of the jobs handled by
these vehicles without the disadvantages they possess. The Posi-Track's
standard quick-attach mechanism enables it to operate the attachments used by
skid-steers. The Posi-Track is also designed to be used with a dozer
attachment. In addition, its three-point hitch and reversible seating allow it
to function as a small tractor.
The Posi-Track's weight is distributed over its two tracks, which have a
ground surface of approximately 102 x 18 inches per track, which results in an
average ground pressure of approximately 1.5 pounds per square inch, compared to
approximately 35 pounds per square inch for a typical wheeled skid-steer
weighing approximately the same as a Posi-Track. The Posi-Track's low ground
pressure allows it to operate on wet, soft, slippery, rough and hilly terrain.
Conventional wheeled vehicles may not be able to operate or may be destructive
in these conditions. The Posi-Track's low ground pressure also reduces
compaction which decreases the need for frequent tilling and conditioning of the
soil.
The Posi-Track is a multi-purpose vehicle which the Company believes is
attractive to customers principally because of its:
. Size. The Posi-Track with a loader weighs approximately 6,600 pounds
and has an approximate ground pressure of less than 2 pounds per
square inch.
. Features. The Posi-Track's loader includes a "quick-attach"
mechanism which allows for use of a wide range of attachments,
manufactured both by the Company and others such as a bucket,
forklift, rake, mower and snowblower. A three-point hitch, dozer
blade and backhoe are also available.
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. Price. The current retail price of a Posi-Track is approximately
$33,400 for a base model and approximately $37,800 with a loader,
bucket and quick-attach. Although the most common skid-steer vehicles
have a slightly lower base price, skid-steers with comparable
horsepower typically cost several thousand dollars more.
. Ease of Operation. A reversible driver's seat allows an operator to
face either end of the vehicle for better control. The Posi-Track is
maneuverable and can easily turn in its own length.
In addition to the attachments already available on the market from other
manufacturers, the Company also manufactures and sells attachments for the Posi-
Track for special functions not performed by other competing vehicles. Because
skid-steers are not designed for performing dozer functions, dozers have
traditionally been separate, single-function vehicles. However, because of its
rubber track and design, the Posi-Track is able to perform dozer functions with
the dozer attachment manufactured and sold by the Company. The Company also
modifies a mower attachment for the Posi-Track and designs, manufactures and
sells other attachments for special purposes.
Track Truck Vehicle.
The Track Truck is designed for utility use on snow, mud, swamps, sand,
brush, rocks and bogs. The Track Truck has a body similar to a pickup truck
with two front wheels and two rear tracks similar to the Posi-Track. The Track
Truck's wheels reduce the jarring and pitching usually experienced with other
track-driven vehicles on rough and hilly terrain, which creates a more
comfortable ride and reduces driver fatigue. Unlike other tracked vehicles,
which use levers for steering, the Track Truck has a steering wheel. The Track
Truck's Posi-Turn patented power steering system enables the steering wheel to
vary power to the tracks while also turning the front wheels.
The Company believes that the Track Truck is a unique product and is attractive
to customers principally because of its:
. Size. The Track Truck is smaller and more maneuverable than other
track-driven vehicles currently on the market. Each Track Truck is
about the size of a pickup truck and weighs approximately 4,200
pounds.
. Price. The current retail price of a Track Truck is approximately
$43,000. The retail prices of other track-driven vehicles generally
exceed $80,000.
. Safety. The front wheels of the Track Truck stabilize it on steep
grades and a roll-bar provides certified roll-over protection.
. User Friendliness. The cab's structure and features, including a
steering wheel instead of levers, are very similar to those of a
pickup truck and are familiar to most users. The Track Truck is
available with a radio and other features generally available on
trucks. The front wheels stabilize the ride making it more
comfortable than other tracked vehicles.
The Company also sells options and accessories for the Track Truck. The
options and accessories are either made and stocked at the Company's
manufacturing facility or manufactured by others to the Company's
specifications, and are integrated into the overall design of the Track Truck.
For instance, the snowmobile trail groomer option comes attached to the Track
Truck with the required controls placed in the climate controlled cab of the
vehicle. Other options include a snow plow, trailer and van body style. The
Company can also manufacture custom-designed units for specialty purposes. One
such unit was built for use by airport fire-fighters and was equipped with a
water pump, hoses and other fire-fighting equipment.
Model HD 125
In response to customer desires for a larger, rubber tracked utility
vehicle, the Company introduced the model HD 125 in February 1997. The HD 125
incorporates certain features of the Posi-Track and the Track Truck.
The Company believes the HD 125 will be an attractive market to certain markets
due to the following:
. Maintenance-Free Suspension. The suspension of the HD 125 has been
designed so that it does not require periodic greasing of the
bearings.
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. More Powerful Engine. The HD 125 is powered by a 125 horsepower John
Deere PowerTec turbo diesel engine.
. User-Friendliness. The HD 125 has a larger, more spacious steel cab.
The HD 125 incorporates the Company's patented Posi-Turn steering
system which utilizes a steering wheel rather than levers to steer
the vehicle.
. Features. The HD 125 comes standard with a "quick-attach" mounting
mechanism so it can accept a variety of attachments including brush
cutters, backhoes, buckets and dozer blades. It also has hydraulic
controls mounted inside the cab to allow for the use of trail
grooming attachments.
The Company believes the HD 125 can be sold into the snowmobile trail
grooming market as well as those seeking a vehicle to access remote work sites,
such as utilities, construction companies and governmental agencies. The
Company anticipates a retail selling price for the HD 125 of approximately
$75,000. The Company expects to begin delivery of the Model HD 125 in the Fall
of 1997. The Company anticipates selling the majority of the HD 125's through
in-house sales and marketing efforts.
The Company also intends to sell options and accessories for the HD 125.
It is anticipated the options and accessories will be either made and stocked at
the Company's manufacturing facility or manufactured by others to the Company's
specifications, and integrated into the overall design of the HD 125.
SALES AND MARKETING
In the United States and limited areas of Canada, the Company sells and
distributes the Posi-Track primarily through independent construction and farm
equipment dealers. The Company sells and distributes the Track Truck in the
United States primarily through both independent dealers and in-house sales and
marketing efforts. Sales of the Company's products in geographic areas
outside the above mentioned areas are made on a direct basis through in-house
sales and marketing efforts.
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. Sales of the
Posi-Track have generally been greater in the spring and sales of the Track
Truck have generally been greater in the fall. The Company believes the
versatility of its products and their suitability for multiple purposes may
reduce these factors.
In 1996, the Company had sales to two dealers which totaled approximately
21% of the Company's total net sales. In 1995 and 1994, sales to one of these
dealers accounted for approximately 13% and 14%, respectively, of the Company's
total sales. The Company believes that the loss of either of these dealers
would not have a significant effect on its future operations.
As of March 14, 1997, the Company had 48 Posi-Track dealer locations and
two Track Truck dealer locations in the United States and one Posi-Track dealer
location in Canada. As of March 15, 1996, the Company had 43 Posi-Track dealer
locations and two Track Truck dealer locations in the United States. The
Company intends to continue its marketing efforts in an attempt to attract more
dealers in the United States for its vehicles. The Company believes that it may
need as many as 200 dealers in the United States in order to adequately cover
the available market. There are currently in excess of 500 Bobcat(R) dealers in
the United States. Currently, the Company requires prospective dealers to
purchase a minimum of three vehicles to become one of the Company's dealers.
The Company's dealership agreements require the dealer to advertise and promote
the Company's products and provide service and warranty work. Dealership
agreements may be terminated upon 30 days' notice by either party.
The Company generally does not offer financing on its vehicles, but has
arrangements with several finance companies to finance the sale of the Company's
vehicles to its dealers and end purchasers. In January 1996, the Company
entered into an agreement with John Deere Credit whereby John Deere
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Credit will provide floor plan financing to the Company's Posi-Track dealers. In
1996, approximately 9% of the Company's sales were financed through John Deere
Credit. Prior to 1996, the Company had an arrangement with Bombardier Capital,
Inc. (BCI), pursuant to which BCI would finance the sale of the Company's
vehicles to its dealers. In 1995 and 1994, approximately 7% and 1%,
respectively, of the Company's sales were financed through this arrangement with
BCI.
In February 1996, the Company entered into an agreement to provide retail
financing for its products through Iowa Securities Leasing Corp. In 1996, less
than one percent of the Company's sales were financed through Iowa Securities
Leasing Corp. Prior to 1996, the Company had an agreement with Stearns
Financial pursuant to which Stearns Financial would finance the sale of the
Company's vehicles to the end purchaser. Approximately 1% and 2% of the
Company's sales were financed through this arrangement in 1995 and 1994,
respectively.
The agreement with John Deere Credit requires the Company to repurchase any
units not paid for by the purchaser within the terms of the respective
agreements. As of February 24, 1997, the total amount owed to John Deere Credit
by dealers under the Company's agreement was approximately $500,000.
COMPETITION
The market in which the Posi-Track competes is generally comprised of small
to medium sized tractor-type vehicles including skid-steers. The market is
dominated by large corporations producing models with substantial name
recognition, including Case, which manufactures the Uniloader skid-steer,
Ingersoll Rand which manufactures the Bobcat, Deere & Co. and Caterpillar Inc.
The competitors primarily produce wheeled or steel track vehicles in the markets
in which the Posi-Track competes. Caterpillar, John Deere and Case sell rubber
track vehicles in the medium to large sized tractor market.
The market in which the Track Truck competes generally is comprised of all-
terrain vehicles, principally larger, track-driven vehicles other than
snowmobiles. The Company believes that the principal participants in the
general all-terrain vehicle market include Bombardier, Inc. of Canada, Tucker
Corporation and LMC Corporation. The Company believes that the products most
closely competitive with the Track Truck are larger than the Track Truck, do not
provide the maneuverability of the Track Truck and are significantly more costly
than the Track Truck.
The Company expects its products to compete in the market based on, among
other things: adaptability, versatility, performance, convenience of operation,
features, size, brand loyalty, price and reputation. Some of the Company's
competitors possess significantly greater resources than the Company, as well as
established reputations within the industry. There is no assurance that a
competitor with greater capital resources will not enter and exploit the
Company's markets to the Company's detriment. The Company believes the
introduction of additional competitors could enhance market acceptance of rubber
track vehicles.
WARRANTY
The Company provides a limited warranty to purchasers of the Track Truck
and the Posi-Track. The Track Truck warranty covers defects in material or
workmanship for a period of two years from the delivery date or 1,000 operating
hours, whichever occurs first. The Posi-Track warranty covers defects in
material or workmanship for a period of one year from the delivery date or 500
operating hours, whichever occurs first. Components which are not manufactured
by the Company are subject only to the warranty of the manufacturer of the
component.
MANUFACTURING AND SUPPLIERS
The Company manufactures and assembles its products at its facility in
Grand Rapids, Minnesota, which it occupied in May 1995. See "Item 2.
Description of Property." The majority of the component parts are purchased
from outside vendors. Certain parts, such as engines and transmissions, are
standard "off-the-shelf" parts purchased by the Company and incorporated into
its vehicles. Others, such as the rubber track, undercarriage and loader, are
manufactured specifically for the Company. The remaining parts, such as the
Posi-Track and Track Truck frame, are manufactured on site for incorporation
into the vehicles. In order to help reduce production costs, the Company
periodically reviews those parts that may be more cost-effective to manufacture
in-house.
The Company owns the tooling used for manufacturing customized parts by
outside vendors. While current vendors are meeting the Company's quality and
performance expectations, the Company believes alternative contract
manufacturers are available should the necessity arise. However, shortages of
parts or the need to change vendors could result in production delays or
reductions in product shipments that could adversely affect the Company's
business. The Company believes that
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a change in suppliers for component parts other than the rubber track could
occur without material disruption of the Company business. Although the need to
obtain an alternate source for the rubber track used in the Company's vehicles
would cause a more significant delay in production, the Company believes
alternative sources are available. The Company intends to maintain approximately
eight to ten weeks of inventory of the rubber track in order to protect against
the negative effects of any interruption in the supply of the track.
INTELLECTUAL PROPERTY RIGHTS
In 1986, a patent was issued to the Company with respect to the Posi-Turn
power steering system. The steering system was invented by Gary Lemke,
President of the Company, and his rights with respect to the invention were
assigned by him to the Company. In connection with the assignment, the Company
did not pay any compensation to Mr. Lemke, but agreed that in the event the
Company licenses any of its rights under the patent to others, Mr. Lemke will
receive 25% of any royalties under such license. The Company has registered the
trademark "Track Truck" with the U.S. Patent and Trademark Office and claims
common law trademark rights in the names "Posi-Track", "Posi-Turn" and "Snow
Saver." Despite these protections, it may be possible for competitors or users
to copy aspects of the Company's products.
The Company believes that patent and trademark protection is less
significant to its competitive position than the knowledge, ability and
experience of the Company's personnel, product enhancements, new product
development and the ongoing reputation of the Company.
RESEARCH AND DEVELOPMENT
During the years ended December 31, 1996, 1995 and 1994, the Company spent
approximately $171,000, $81,000 and $30,000, respectively, on research and
development. The Company's research and development expenses have been incurred
in connection with development of new models and enhancements to existing
products.
INSURANCE
The Company maintains product liability insurance in the amount of
$1,000,000 per claim and in the aggregate. The Company has a commercial umbrella
insurance policy which provides an additional $1,000,000 of coverage per claim
and in the aggregate. The Company also maintains key-person life insurance in
the amount of $1,000,000 on the life of Mr. Lemke.
EMPLOYEES
As of March 14, 1997, the Company had 61 employees, three of whom are part-
time, and one independent contractor who is part-time. The Company's employees
and independent contractors include four in management, eight in administration,
five in sales and marketing and forty-five in manufacturing and engineering.
The Company believes its relations with its employees are good. None of the
Company's employees is represented by a labor union.
ITEM 2. DESCRIPTION OF PROPERTY
In July 1994, the Company entered into a development agreement relating to
the construction of its new facility in Grand Rapids, Minnesota with the Grand
Rapids Economic Development Authority ("EDA") and the Iron Range Resources and
Rehabilitation Board ("IRRRB'). The IRRRB provided approximately $1,050,000 to
the EDA to construct the facility to be used by the Company. The EDA also
provided approximately $300,000 for construction of the new facility. Total
costs of the new facility in excess of $1,350,000, totaling approximately
$140,000, were paid by the Company.
The Company leases its present production and office facility from the EDA.
The facility consists of 40,000 square feet of production space and 4,000 square
feet of office space in Grand Rapids, Minnesota, which is located approximately
170 miles north of Minneapolis. The Grand Rapids facility has been the
Company's primary production and office facility since it was occupied in May
1995. Rental payments under the lease are based on repayment of the amounts
expended in the construction of the facility over a period of 20 years, without
interest, with no lease payments due during the first two years of the lease and
reduced lease payments in the third and fourth years. The Company's lease
payments will be equal to approximately $38,000 per year for the period June
1997 through May 1999 and approximately $81,000 per year thereafter. Under the
terms of the lease, the Company is responsible for all real estate taxes,
utilities and insurance on the leased property. The lease has been recorded as
a capital lease for financial statement and income tax purposes. The
8
<PAGE>
Company has an option to purchase the facility at any time at the present value
of the remaining lease payments plus the current purchase price of the land on
which the facility was constructed. The present value of the remaining lease
payments is based upon a discount rate equal to the rate, at the time of
purchase, of a direct obligation of, or of obligations, the timely payment of
the principal of and interest on which is fully and unconditionally guaranteed
by, the United States of America, with the period of time until such obligation
or obligations mature equal to the number of full calendar months remaining in
the term of the lease at the time of purchase. The purchase price of the land is
currently $180,000, but can be reduced or forgiven over a period of 9 years if
certain minimum employment levels are met and maintained during the applicable
year. In the event the Company purchases the facility, the IRRRB has a right of
first refusal to purchase it if the Company desires to sell it within the first
10 years of the lease.
With the occupancy of the new facility, the Company became eligible to
receive up to $200,000 of grant monies through the State of Minnesota over a
three-year period, provided certain employment levels are attained. The Company
received the first installment of grant monies in 1996 of $50,000. Should the
Company attain the employment levels specified in the grant, the Company will be
eligible to receive $75,000 in each of 1997 and 1998.
In 1996, the Company decided to expand its present manufacturing facility
from 40,000 square feet to 100,000 square feet. In October 1996, the Company
announced it received approval for a financing package for the expansion of its
manufacturing facility in Grand Rapids, Minnesota. The IRRRB, together with
several participating agencies, agreed to provide loans totaling approximately
$1,800,000 to the Company for its plant expansion. The Company would then be
required to provide approximately $200,000 for the planned $2,000,000 expansion.
In addition, any costs in excess of $2,000,000 would be the responsibility of
the Company. It is anticipated the plant expansion and underlying land would be
owned by the EDA and leased to the Company over a term of twenty years. The
Company anticipates it will account for the lease of the plant expansion and
land as a capital lease for financial statement and income tax purposes. The
land upon which the expansion project will be constructed is presently owned by
the City of Grand Rapids and is being leased to the Itasca County - Grand Rapids
Airport Commission ("Commission"). Prior to the transfer of this land to the
EDA, the Federal Aviation Administration ("FAA") must approve any structure to
be constructed upon the site. To allow for the start of construction of this
expansion, the Company intends to enter into a ground lease of the site with the
Commission for a period of two years at the rate of $6,000 per year. During
this two year lease term, it is anticipated the necessary approvals will be
obtained from the FAA to allow for the transfer of the land to the EDA.
Subsequent to this announcement, the Company determined it would be in its
best interests to remove one of the participating agencies from the loan group
and fund that agency's portion of the expansion project itself. The Company
will now be required to fund approximately $400,000 of the planned $2,000,000
expansion project as well as any costs in excess of $2,000,000.
Terms of the loan package have not been finalized, but it is anticipated to
contain a term of approximately 20 years with a composite interest rate of 6-7%.
The Company began the expansion project in Fall 1996, and anticipates a
completion date of Summer 1997. As of March 14, 1997, the Company had expended
approximately $168,000 for the expansion project and has committed an additional
approximately $280,000 towards this project. The Company also anticipates it
will need to hire up to an additional 20-50 employees over the next twelve
months to meet projected demand for its products, the majority of whom will be
in the production area. Management believes the local work force is sufficient
to hire the additional employees.
The Company also has 13,000 square feet of production space and 2,000
square feet of office and engineering space on land owned by the Company in
Marcell, Minnesota, which is located approximately 30 miles north of Grand
Rapids. Up until May 1995, the Marcell property was the Company's primary
production facility. Currently, the Company uses the Marcell production and
office space for additional warehouse and storage space. In 1996, the Company
sold its Marcell research and development space to an unrelated party.
In addition to its facility in Marcell, the Company owns a 20-acre tract of
land near Marcell used for testing its vehicles and three acres of land and a
9,000 square foot building in Grand Rapids used for research and development and
warehousing. This Grand Rapids property was acquired from Company President,
Gary Lemke, pursuant to a contract for deed. The Company believes that its
properties are adequately covered by insurance.
ITEM 3. LEGAL PROCEEDINGS
During its 1996 fiscal year, the Company was not involved in any legal
proceedings.
9
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's common stock has been traded on the Nasdaq Smallcap
Market/SM/ under the ticker symbol ASVI since the completion of its initial
public offering, August 11, 1994. The following table sets forth sales price
information for the periods indicated, as adjusted to reflect the Company's
three-for-two stock split, effective January 21, 1997.
<TABLE>
<CAPTION>
Year Ended December 31, 1995 High Low
---------------------------- ------ ------
<S> <C> <C>
First Quarter $ 2.58 $ 2.00
Second Quarter 4.33 2.58
Third Quarter 5.33 3.58
Fourth Quarter 5.33 4.17
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1996 High Low
---------------------------- ------ ------
<S> <C> <C>
First Quarter $ 5.00 $ 4.17
Second Quarter 14.17 4.50
Third Quarter 13.33 8.67
Fourth Quarter 19.33 11.00
</TABLE>
The quotations reflect inter-dealer prices, without retail mark-up, mark-
down or commissions, and may not represent actual transactions.
The Company's common stock was approved for inclusion in the Nasdaq
National Market under the ticker symbol ASVI on February 26, 1997.
HOLDERS
As of March 14, 1997, the Company had approximately 144 holders of record
of its Common Stock (not including beneficial holders).
DIVIDENDS
The Company has never declared or paid a cash dividend on its Common Stock.
The Company currently intends to retain earnings for use in the operation and
expansion of its business and therefore does not anticipate paying any dividends
in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
During October 1996, the Company sold $5,000,000 of its senior,
unsecured, 6.5% Convertible Debentures, due October 15, 2006 (" the debentures")
in a cash transaction. The debentures were sold pursuant to an exemption from
registration under Rule 506 of Regulation D of the Securities Act of 1933, as
amended ("the 33 Act"). The debentures were sold only to "accredited investors"
as that term is defined in Regulation D of the 33 Act. There were no
underwriting discounts or commissions incurred for the sale of the debentures.
The debentures are convertible at any time into the Company's common stock at
$11.00 per share, the approximate fair market value of the common stock at the
time the debentures were sold.
10
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
Statements of Earnings data as a percentage of net sales:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Net sales.................................. 100.0% 100.0% 100.0%
Cost of goods sold......................... 76.2 78.2 80.2
Gross profit............................... 23.8 21.8 19.8
Selling, general & administrative expense.. 10.8 12.4 14.4
Operating income........................... 11.6 8.4 4.8
Interest expense........................... 1.0 0.4 1.6
Net income................................. 7.5 5.3 3.1
</TABLE>
Net Sales. For the year ended December 31, 1996, net sales totaled
approximately $12,266,000, a 49% increase over 1995. This increase is the
combination of increased sales of the Company's Posi-Track vehicle and related
accessories along with increased sales of parts and used equipment, offset by a
reduction in the sales of Track Truck vehicles. Posi-Track related sales
increased 63% over 1995 due to the continued expansion of the Posi-Track dealer
network, a full year in the Company's expanded manufacturing facility and full
year sales to one large dealer which was added in mid-1995. At March 14, 1997,
the Company had 49 Posi-Track dealer locations compared with 43 in March 1996.
Four of the ten largest Posi-Track dealers for 1996, based on sales volume, were
added during 1996. These four represented total sales volume of approximately
$1,900,000. In 1996, the Company was in its expanded manufacturing facility the
entire year, compared with eight months in 1995, thereby providing for increased
production capacity. Also in 1996, the Company had two Posi-Track dealers that
together accounted for 21% of the Company's net sales. In 1995, the Company had
only one Posi-Track dealer with sales in excess of 10%. Track Truck related
sales for 1996 decreased 18% as the Company did not experience, nor did it
anticipate, any large foreign shipments as was experienced in 1995. Excluding
foreign shipments, Track Truck unit sales actually increased 24% in 1996. Sales
of parts and used equipment increased 57% due to the greater number of vehicles
in service in 1996. Sales of used equipment increased 90% in 1996 due to the
Company devoting more of its resources to marketing used equipment and a greater
amount of used equipment.
Net sales for the year ended December 31, 1995 increased approximately
$3,438,000, or 72% over 1994 to approximately $8,245,000, due primarily to
increased sales of the Company's Posi-Track vehicle and related accessories.
Posi-Track related sales increased 102% over 1994 due to the Company's ability
to increase production from its new production facility, the addition of several
new dealers in 1995, a price increase during 1995 and increased marketing
efforts by the Company. While the number of Posi-Track dealer locations did not
change significantly in 1995, dealers which were added in 1995 were much more
active in marketing and selling the Posi-Track than were the dealers who were
removed from the active dealer roles in 1995. One new dealer with five
locations was added in 1995, with sales to this dealer totaling approximately
$726,000. Sales of the Company's Track Truck vehicle and related accessories
increased 43% in 1995, due to an increase in the number of units sold and an
increase in the average selling price. Included in the 1995 increase were two
export shipments, one to a Russian customer and one to a Japanese customer,
which accounted for approximately 33% of the 1995 unit sales. The increase in
the average selling price was attributed to a mid-year price increase, fewer
Track Trucks sold through the dealer network and more Track Trucks being sold
with a greater number of accessories. Sales of parts, used equipment and other
increased approximately 12% from 1994. This increase was due to increased parts
sales as there were a greater number of machines in service in 1995, offset by a
reduction in the sale of used equipment.
Gross Profit. For 1996, gross profit increased to approximately
$2,925,000, or 23.8% of net sales, compared with approximately $1,796,000, or
21.8% of net sales, in 1995. The increased gross profit amount can be
attributed to the large increase in the Company's net sales for 1996. The
increased gross profit percentage is due primarily to the increased efficiencies
gained as the number of vehicles produced increases. In 1996, the Company
produced approximately 42% more total units than in 1995. The Company also
occupied its new manufacturing facility for the entire twelve months of 1996
compared with approximately eight months for 1995, allowing for greater
efficiencies in the production process. In addition, the Company has been able
to obtain better pricing on its purchases of raw materials as well as negotiate
volume incentive discounts with several of its major vendors.
11
<PAGE>
Gross profit increased to approximately $1,796,000, or 21.8% of net sales,
in 1995, compared with approximately $951,000, or 19.8% of net sales, in 1994.
The increased gross profit was due to the large increase in net sales for 1995.
The increase in gross profit percentage was due to several factors. One, the
Company's move to its new production facility allowed the Company to expand its
production levels, resulting in more efficient operations. Certain items which
had been manufactured by outside vendors were brought in-house, enabling the
Company to manufacture the items at a lower cost. Two, with proceeds remaining
from the 1994 public stock offering and cash generated from operations, the
Company was able to take advantage of vendor discounts as well as purchase in
larger quantities to obtain lower unit costs. Last, a greater percentage of
Posi-Tracks and Track Trucks were sold at the retail level in 1995 compared with
1994, rather than through the Company's dealer network.
Selling, General and Administrative Expenses. For 1996, selling, general
and administrative expenses increased to approximately $1,330,000 from
approximately $1,023,000 in 1995. As a percentage of net sales, these expenses
decreased from 12.4 % of net sales in 1995 to 10.8% of net sales in 1996. The
increased expenses are due to the following: increased sales and marketing
costs, primarily advertising and travel costs; increased costs for
administrative personnel hired to support the Company's increased activity; and
the costs associated with a full year of occupancy in the Company's new
facility. The decreased percentage of selling, general and administrative
expenses is due to the increased sales volume in 1996.
Selling, general and administrative expenses were approximately $1,023,000,
or 12.4% of net sales in 1995, compared with approximately $691,000, or 14.4% of
net sales, in 1994. The increased expenses were due primarily to increased
sales and marketing expenditures promoting the Company's vehicles, higher
compensation costs as sales and administrative personnel were added to support
expanded sales and customer service and the increased reporting costs as a
publicly-held company. In addition, a portion of the 1995 increase was
attributable to the general increase in the Company's overall sales volume and
activity. The decreased percentage of selling, general and administrative
expenses was due to the increased sales volume in 1995.
Research and Development. For 1996, research and development expenses
increased to approximately $171,000 compared with approximately $81,000 in 1995.
The increase is due to the Company devoting more of its resources to this area
in 1996 from increased profitability and other available funds. The research
and development efforts in 1996 focused primarily on development of new products
and enhancements to existing products.
Research and development expenses increased from approximately $30,000 in
1994 to approximately $81,000 in 1995. The increase was due mainly to the
Company having the necessary funds available to invest in this area in 1995 from
increased profitability. The research and development efforts focused primarily
on improvements to the Company's existing product line.
Interest Expense. Interest expense was approximately $127,000, or 1.0% of
net sales, in 1996 compared with $36,000, or 0.4% of net sales, in 1995 and
approximately $75,000, or 1.6% of net sales, in 1994. The increase in 1996 was
due to the Company's $5,000,000 private placement of 6.5% convertible debentures
which was completed in October 1996. The decrease in 1995 was due to the Company
paying off its shareholder debt and bank debt with proceeds from its public
stock offering from August 1994.
Net Income. Net income for the twelve months ended December 31, 1996 was
approximately $922,000, compared with net income of approximately $440,000 in
1995 and $148,000 in 1994. The increases were due to increased sales and
profitability on those sales, offset, in part, by increased operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had working capital of approximately
$10,510,000, compared with approximately $4,372,000 at December 31, 1995.
Approximately $5,000,000 of the total increase of approximately $6,138,000 was
from proceeds of the Company's private placement of convertible debentures as
discussed below. The remainder of the increase was due primarily to the
increase in the Company's accounts receivables and inventories offset in part by
increased levels of accounts payable and accrued liabilities from the overall
volume increase in 1996.
At December 31, 1995, the Company had working capital of approximately
$4,372,000, compared with approximately $4,241,000 at December 31, 1994. Cash
and marketable securities decreased approximately $470,000 to $487,727 at
December 31, 1995 compared with December 31, 1994 as the Company increased its
accounts receivable and
12
<PAGE>
inventories and also equipped its new manufacturing facility in 1995. Accounts
receivable increased approximately $293,000, due primarily to shipments
occurring at the end of December. Inventories increased approximately $712,000,
due primarily to an increase in raw materials and purchased parts to accommodate
increased production levels and also an increase in the amount of service parts
as the number of machines in the field increased. The Company also spent
approximately $429,000 to equip its new manufacturing facility. Current
liabilities increased approximately $351,000, due to increases in accounts
payable and accrued expenses along with an increase of approximately $230,000 in
income taxes payable due to increased profitability and the utilization of all
net operating loss carryforwards in 1994.
As discussed above, the Company in the process of expanding its present
manufacturing facility. Under the expected terms of the construction and lease
arrangements, the Company would incur an additional $1,600,000 of long-term debt
for a twenty-year period at a composite interest rate of 6-7%. As of December
31, 1996, the Company has committed approximately $450,000 of its own funds for
the expansion project.
In October 1996, the Company completed a $5 million private placement
offering of convertible debentures with an investor group. The debentures are
convertible at any time into common stock at $11.00 per share, the approximate
fair market value of the common stock at the time the debentures were sold.
Interest at 6.5% per annum is payable quarterly. The debentures are non-callable
for five years and mature in October 2006. The Company intends to use
approximately $1,000,000 of the proceeds to purchase capital equipment necessary
for the expansion of its manufacturing and office facilities at its Grand
Rapids, Minnesota location. The remaining proceeds will be used for working
capital. Initially, working capital will be used to finance an increase in the
Company's sales and marketing efforts through increased advertising, pursuing
new dealer relationships, and compensating sales personnel. If the Company's
sales and marketing efforts generate additional sales, the Company anticipates
that additional amounts of working capital will be used to purchase additional
inventory and to finance higher levels of accounts receivable associated with
the higher level of sales. Pending utilization of the proceeds, the Company
plans to invest such proceeds in short-term, investment grade securities or
other short-term debt instruments.
The Company believes its existing cash and marketable securities, together
with cash expected to be provided by operations and available, unused credit
lines, will satisfy the Company's projected working capital needs and other cash
requirements for at least the next 12-18 months.
The Company has increased its number of employees approximately 50% in the
last 12 months. In order to meet its anticipated sales levels for 1997, the
Company expects it will increase its employees by approximately 30-50% over the
next twelve months. It is anticipated nearly all the additional employees will
be in the production area. The Company believes the local work force is
adequate to supply the additional employees it needs.
In order to maintain its competitive advantage over other manufacturers of
similar products, the Company believes it will increase the level of spending on
research and development activities. It is expected the main thrust of these
activities will be directed towards extensions of the Company's current product
lines and improvements of existing products.
The statements set forth above under 'Liquidity and Capital Resources' and
elsewhere in this Form 10-KSB which are not historical facts are forward-looking
statements and involve risks and uncertainties, many of which are outside the
Company's control and, accordingly, actual results may differ materially.
Factors that might cause such a difference include, but are not limited to, lack
of market acceptance of existing products, inability to attract new dealers for
the Company's products, unexpected delays in obtaining raw materials, unexpected
delays in expanding its plant capacity, unexpected additional expenses or
operating losses or the activities of competitors. Any forward-looking
statements provided from time-to-time by the Company represents only
management's then-best current estimate of future results or trends.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements are attached as a separate section
immediately following the signature page of the Annual Report on Form 10-KSB:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Earnings for the years ended December 31, 1996,
1995 and 1994
Consolidated Statements of Changes in Shareholders' Equity for the years
ended December 31, 1996, 1995 and 1994
13
<PAGE>
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994 Notes to Consolidated Financial Statements
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The information required by Item 9 is incorporated by reference to the
sections entitled "Election of Directors", "Executive Officers" and "Compliance
With Section 16(a) of the Exchange Act" in the Company's Proxy Statement for its
1997 Annual Meeting of Shareholders, which will be filed with the Securities and
Exchange Commission pursuant to Regulation 14A within 120 days of the Company's
fiscal year ended December 31, 1996.
ITEM 10. EXECUTIVE COMPENSATION
The information required by Item 10 is incorporated by reference to the
section entitled "Executive Compensation" in the Company's Proxy Statement for
its 1997 Annual Meeting of Shareholders, which will be filed with the Securities
and Exchange Commission pursuant to Regulation 14A within 120 days of the
Company's fiscal year ended December 31, 1996.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 11 is incorporated by reference to the
section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Company's Proxy Statement for its 1997 Annual Meeting of
Shareholders, which will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A within 120 days of the Company's fiscal year ended
December 31, 1996.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 12 is incorporated by reference to the
section entitled "Certain Relationships and Related Transactions" in the
Company's Proxy Statement for its 1997 Annual Meeting of Shareholders, which
will be filed with the Securities and Exchange Commission pursuant to Regulation
14A within 120 days of the Company's fiscal year ended December 31, 1996.
ITEM 13. EXHIBITS, LISTS 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
3.2 Bylaws of the Company (a)
4.1 Specimen form of the Company's Common Stock Certificate (a)
4.2 * 1987 Stock Option Plan (a)
4.3 * 1994 Long-Term Incentive and Stock Option Plan (a)
4.4 Form of Warrant issued to Summit Investment Corporation (b)
14
<PAGE>
4.5 Form of Debenture issued October 1996 (d)
4.6 Warrant issued to Leo Partners, Inc. on December 1, 1996
10.1 Development Agreement dated July 14, 1994 among the Iron Range
Resources and Rehabilitation Board ("IRRRB'), the Grand Rapids
Economic Development Agency ("EDA") and the Company (b)
10.2 Lease and Option Agreement dated July 14, 1994 between the Grand
Rapids Economic Development Agency and the Company (b)
10.3 Option Agreement dated July 14, 1994 between the EDA and the
Company (b)
10.4 Grant Contract dated July 1, 1994 between the Company and the
IRRRB (b)
10.5 Letter Credit Agreement dated June 15, 1994 between the Security
State Bank of Hibbing and the Company (a)
10.9 * Employment Agreement dated October 17, 1994 between the Company
and Thomas R. Karges (c)
10.10 Consulting Agreement between the Company and Leo Partners, Inc.
dated December 1, 1996
11 Statement re: Computation of Per Share Earnings
22 List of Subsidiaries (a)
23.1 Consent of Grant Thornton LLP, independent auditors
24.1 Power of Attorney (Included on Signature Page)
27 Financial Data Schedule
______________________
(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 Quarterly Report on
Form 10-QSB for the quarter ended September 30, 1996 (File No. 0-
25620) filed electronically November 13, 1996.
* Indicates management contract or compensation plan or
arrangement.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1996.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, A.S.V., Inc. has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized:
A.S.V., INC.
/s/ Gary Lemke Date: March 27, 1997
----------------------------- ----------------------
By: Gary Lemke, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated. Each person whose
signature to this report on Form 10-KSB appears below hereby constitutes and
appoints Gary Lemke and Thomas R. Karges, and each of them, as his or her true
and lawful attorney-in-fact and agent, with full power of substitution, to sign
on his or her behalf individually and in the capacity stated below and to
perform any acts necessary to be done in order to file all amendments to this
report on Form 10-KSB, and any and all instruments or documents filed as part of
or in connection with this report on Form 10-KSB or the amendments thereto and
each of the undersigned does hereby ratify and confirm all that said attorney-in
- -fact and agent, or his substitutes, shall do or cause to be done by virtue
hereof.
/s/ Philip C. Smaby Date: March 27, 1997
----------------------------------- -----------------------------------
By: Philip C. Smaby, Chairman
of the Board and Director
/s/ Jerome T. Miner Date: March 27, 1997
----------------------------------- -----------------------------------
By: Jerome T. Miner, Vice-
Chairman of the Board and
Director
/s/ Gary Lemke Date: March 27, 1997
----------------------------------- -----------------------------------
By: Gary Lemke, President and
Director (Chief Executive
Officer)
/s/ Edgar E. Hetteen Date: March 27, 1997
----------------------------------- -----------------------------------
By: Edgar E. Hetteen, Vice
President and Director
/s/ James Dahl Date: March 27, 1997
----------------------------------- -----------------------------------
By: James Dahl, Director
/s/ Leland T. Lynch Date: March 27, 1997
----------------------------------- -----------------------------------
By: Leland T. Lynch, Director
/s/ Karlin S. Symons Date: March 27, 1997
----------------------------------- -----------------------------------
By: Karlin S. Symons, Director
/s/ Thomas R. Karges Date: March 27, 1997
----------------------------------- -----------------------------------
By: Thomas R. Karges, Chief
Financial Officer
16
<PAGE>
A.S.V., INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,042,494 $ 437,727
Short-term investments 2,269,753 50,000
Accounts receivable (net of allowance for doubtful
accounts of $20,000) 1,261,228 737,323
Inventories 5,160,353 3,685,975
Prepaid expenses and other 201,943 62,224
---------- ----------
Total current assets 11,935,771 4,973,249
---------- ----------
Property and equipment, net 1,474,641 1,348,966
---------- ----------
$13,410,412 $ 6,322,215
========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 779,609 $ 179,382
Accrued liabilities
Compensation 87,695 70,220
Interest payable 78,785 -
Warranties 100,000 -
Other 181,168 122,073
Income taxes payable 198,954 229,591
---------- ----------
Total current liabilities 1,426,211 601,266
---------- ----------
LONG-TERM LIABILITIES
Convertible debentures 5,000,000 -
Capital lease obligation 697,068 643,207
---------- ----------
5,697,068 643,207
---------- ----------
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Capital stock, $.01 par value:
Preferred stock, 7,500,000 shares authorized; no shares outstanding - -
Common stock, 22,500,000 shares authorized;
4,810,659 shares issued and outstanding in 1996;
4,763,859 shares issued and outstanding in 1995 48,107 47,639
Additional paid-in capital 5,201,038 4,913,624
Retained earnings 1,037,988 116,479
---------- ----------
6,287,133 5,077,742
---------- ----------
$13,410,412 $ 6,322,215
========== ==========
The accompanying notes are an integral of these statements.
</TABLE>
F-1
<PAGE>
A.S.V., INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Net sales $12,266,499 $8,244,565 $4,806,174
Cost of goods sold 9,341,860 6,448,811 3,854,930
----------- ---------- ----------
Gross profit 2,924,639 1,795,754 951,244
----------- ---------- ----------
Operating expenses
Selling, general and administrative 1,329,705 1,023,056 691,014
Research and development 171,340 80,569 30,236
----------- ---------- ----------
1,501,045 1,103,625 721,250
----------- ---------- ----------
Operating income 1,423,594 692,129 229,994
----------- ---------- ----------
Other income (expense)
Interest income 99,706 32,215 14,898
Interest expense (127,069) (36,300) (75,112)
Other, net 63,278 2,808 1,414
----------- ---------- ----------
35,915 (1,277) (58,800)
----------- ---------- ----------
Income before income taxes 1,459,509 690,852 171,194
Provision for income taxes 538,000 251,000 23,500
----------- ---------- ----------
NET INCOME $ 921,509 $ 439,852 $ 147,694
=========== ========== ==========
Net income per common and common equivalent share $ .18 $ .09 $ .04
=========== ========== ==========
Weighted average number of common and common
equivalent shares outstanding 5,329,067 5,000,514 3,686,819
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
A.S.V., INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Retained
Additional earnings
Common stock paid-in (accumulated
----------------------------
Shares Amount capital deficit) Total
--------- -------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 2,867,649 $28,677 $1,535,873 $(471,067) $1,093,483
Sale of common stock and
warrant, net of offering costs of
$676,104 1,866,210 18,662 3,348,739 - 3,367,401
Net income - - - 147,694 147,694
---------- ------ --------- --------- ---------
Balance at December 31, 1994 4,733,859 47,339 4,884,612 (323,373) 4,608,578
Exercise of stock options 30,000 300 29,012 - 29,312
Net income - - - 439,852 439,852
--------- ------ --------- --------- ---------
Balance at December 31, 1995 4,763,859 47,639 4,913,624 116,479 5,077,742
Exercise of stock options 46,800 468 78,814 - 79,282
Tax benefit from exercise of stock
options - - 196,000 - 196,000
Warrant earned - - 12,600 - 12,600
Net income - - - 921,509 921,509
--------- ------ --------- --------- ---------
Balance at December 31, 1996 4,810,659 $48,107 $5,201,038 $1,037,988 $6,287,133
========= ====== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
A.S.V., INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ---------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 921,509 $ 439,852 $ 147,694
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 114,000 95,482 59,990
Interest accrued on capital lease obligation 46,417 29,912 -
Deferred income taxes (49,000) (23,000) (33,000)
Effect of warrant earned 12,600 - -
Changes in assets and liabilities
Accounts receivable (523,905) (292,811) (278,723)
Inventories (1,474,378) (711,554) (930,591)
Prepaid expenses and other (90,719) 66,686 (17,256)
Accounts payable 600,227 56,179 (110,868)
Accrued compensation 17,475 55,339 11,085
Accrued interest payable 78,785 - -
Accrued warranties 100,000 - -
Other accrued liabilities 59,095 70,634 (8,689)
Income taxes payable (30,637) 229,591 -
----------- --------- -----------
Net cash provided by (used in) operating activities (218,531) 16,310 (1,160,358)
----------- --------- -----------
Cash flows from investing activities:
Purchase of property and equipment (232,231) (428,568) (117,600)
Purchase of short-term investments (2,269,753) (361,282) (500,000)
Redemption of short-term investments 50,000 811,282 -
----------- --------- -----------
Net cash provided by (used in) investing activities (2,451,984) 21,432 (617,600)
----------- --------- -----------
Cash flows from financing activities:
Proceeds from convertible debenture 5,000,000 - -
Proceeds from notes payable - bank - - 573,500
Principal payments on notes payable - bank - - (1,290,929)
Principal payments on notes payable - related parties - (63,193) (359,042)
Principal payments on long-term liabilities - (24,114) (153,538)
Sale of common stock and warrant, net of offering costs - - 3,367,401
Proceeds from exercise of stock options 79,282 29,312 -
Tax benefit related to exercise of options 196,000 - -
Other - - 46,005
----------- --------- -----------
Net cash provided by (used in) financing activities 5,275,282 (57,995) 2,183,397
----------- --------- -----------
Net increase (decrease) in cash and cash equivalents 2,604,767 (20,253) 405,439
Cash and cash equivalents at beginning of period 437,727 457,980 52,541
----------- --------- -----------
Cash and cash equivalents at end of period $ 3,042,494 $ 437,727 $ 457,980
=========== ========= ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,867 $ 6,538 $ 88,714
Cash paid for income taxes 452,110 29,288 34,769
Supplemental disclosure of investing and financing activities:
Asset acquired by incurring capital lease obligation $ 7,444 $ 613,295 $ -
Warrant earned for consulting services 12,600 - -
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
A.S.V., INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE A - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The Company designs and manufactures track-driven, all-season vehicles and
related accessories and attachments in one facility in northern Minnesota. The
Company sells its products through a national dealer network and also directly
to the end user throughout the United States and internationally.
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows:
1. Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of A.S.V., Inc. and
its wholly-owned subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.
2. Cash Equivalents
----------------
The Company considers all highly liquid temporary cash investments with an
original maturity of three months or less to be cash equivalents. At December
31, 1996 and 1995, the Company had cash equivalents of approximately $2,772,000
and $251,000, which consisted of various highly liquid temporary cash
investments. The fair value of these investments approximates cost.
3. Short-Term Investments
----------------------
The Company considers its short-term investments at December 31, 1996 as
"available for sale" and, therefore, states its short-term investments at fair
value with unrealized gains and losses reported as a separate component of
shareholders' equity. At December 31, 1996, the fair value of all short-term
investments approximated cost. At December 31, 1995, the Company's marketable
security was classified as "held to maturity" and, therefore, recorded at cost.
This security matured during 1996.
4. Accounts Receivable
-------------------
The Company grants credit to customers in the normal course of business.
Management performs on-going credit evaluations of customers and maintains
allowances for potential credit losses which, when realized, have generally
been within management expectations.
5. Inventories
-----------
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out method.
6. Property and Equipment
----------------------
Property and equipment are carried at cost. Building and improvements are
depreciated over periods of 18 to 39 years using the straight-line method.
Tooling, machinery and equipment, and vehicles are depreciated over periods of
3 to 20 years using straight-line and accelerated methods. Accelerated methods
are used for income tax purposes.
7. Product Warranty Costs
----------------------
Provision for estimated warranty costs is recorded at the time of sale and
periodically adjusted to reflect actual experience.
8. Revenue Recognition
-------------------
The Company recognizes revenue when products are shipped.
9. Accounting Estimates
--------------------
The preparation of the Company's consolidated financial statements requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, and related revenues and expenses. Actual results
could differ from those estimates.
10. Net Income Per Common and Common
--------------------------------
Equivalent Share
----------------
Net income per common and common equivalent share is computed by dividing net
income, plus the tax affected interest related to the convertible debentures,
by the weighted average number of common and common equivalent shares
outstanding, when dilutive, during the year. Primary and fully diluted net
income per share are the same.
11. Reclassifications
-----------------
Certain amounts in the 1995 and 1994 financial statements have been
reclassified to conform with the presentation in the 1996 financial statements,
with no effect on shareholders' equity or net income.
F-5
<PAGE>
A.S.V., INC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
NOTE B - SHORT-TERM INVESTMENTS
Short-term investments consist primarily of a diversified portfolio of taxable
and tax exempt governmental agency and municipal bonds as of December 31, 1996.
The contractual maturities of available for sale debt securities at December
31, 1996 are as follows: $261,053 due within one year, $508,700 due after one
year through five years and $1,500,000 due after five years.
NOTE C - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1996 1995
----------- ----------
<S> <C> <C>
Production parts
and materials $2,789,440 $1,914,463
Finished goods
and service parts 1,475,162 1,004,694
Used equipment
held for resale 895,751 766,818
---------- ----------
$5,160,353 $3,685,975
========== ==========
</TABLE>
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Land $ 32,367 $ 32,367
Building and
improvements 1,103,741 1,063,624
Tooling 147,563 83,722
Machinery and
equipment 612,510 485,309
Vehicles 126,748 134,199
---------- ----------
2,022,929 1,799,221
Less accumulated
depreciation 548,288 450,255
---------- ----------
$1,474,641 $1,348,966
========== ==========
</TABLE>
During 1996, the Company received approval for a financing package for the
expansion of its manufacturing facility in Grand Rapids, Minnesota, with
completion estimated during Summer 1997. The Iron Range Resource and
Rehabilitation Board, together with a participating bank, have agreed to
provide loans totaling approximately $1,600,000. As of December 31, 1996, the
Company is committed to approximately $450,000 in expansion costs.
NOTE E - LINES OF CREDIT
The Company has a $600,000 line of credit with one bank and an additional
$300,000 line with another participating bank. These lines of credit are
collateralized by substantially all of the assets of the Company. The interest
rates are variable at prime plus 1.75% (10.0% and 10.25% as of December 31,
1996 and 1995). As of December 31, 1996 and 1995, there were no outstanding
advances under these lines of credit.
NOTE F - LONG-TERM LIABILITIES
Convertible Debentures
----------------------
During October 1996, the Company issued $5,000,000 of unsecured senior
convertible debentures which carry interest at 6.5% and are due October 15,
2006. The debentures are convertible at any time into the Company's common
stock at $11.00 per share, approximately the fair market value of the stock at
the time the debentures were sold. Interest is payable quarterly. The Company
may redeem the debentures any time after October 15, 2001.
Capital Lease Obligation
------------------------
The Company leases its manufacturing and office building from the Grand Rapids
Economic Development Authority over a twenty-year period, which commenced May
1995. Terms of the lease agreement provide for no rent in the first two years,
rental payments of approximately $38,000 per year in years three and four and
approximately $81,000 per year in years five through twenty. The Company has an
option to purchase the facility at any time during the lease period for the
present value of the remaining lease payments plus the purchase price of the
land. The purchase price of the land is $180,000, but can be reduced or
forgiven if certain minimum employment levels are met and maintained.
Future minimum lease payments under this capital lease obligation at December
31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $ 22,107
1998 37,898
1999 62,769
2000 80,534
2001 80,534
Thereafter 1,080,494
----------
Total payments 1,364,336
Amounts representing interest 667,268
----------
Present value of minimum
capitalized lease payments $ 697,068
==========
</TABLE>
F-6
<PAGE>
A.S.V., INC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
NOTE F - LONG-TERM LIABILITIES -
Continued
Assets and accumulated amortization related to the capital lease were
approximately $620,739 and $25,740 at December 31, 1996 and $613,295 and
$10,222 at December 31, 1995.
NOTE G - PROVISION FOR INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Current
Federal $520,500 $250,000 $ 50,000
State 66,500 24,000 6,500
-------- -------- --------
587,000 274,000 56,500
Deferred (49,000) (23,000) (33,000)
-------- -------- --------
Provision for
income taxes $538,000 $251,000 $ 23,500
======== ======== ========
</TABLE>
Deferred income taxes as of December 31 relate to the tax effect of temporary
differences as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Accruals and reserves $ 67,400 $ 21,000
Other 4,600 2,000
</TABLE>
The net deferred tax asset is included with prepaid expenses and other in the
financial statements. The 1994 deferred tax benefit reflects the elimination of
the valuation allowance as net operating loss carryforwards were utilized.
The following is a reconciliation of the Federal statutory income tax rate to
the effective tax rate:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- ------
<S> <C> <C> <C>
Statutory federal rate 34.0% 34.0% 34.0%
State income taxes, net
of federal benefit 3.0 2.3 2.6
Benefit of income taxed
at lower rates - - (4.8)
Net operating loss
carryforward - - (11.7)
Research and
development credit - (1.2) (7.6)
Other (.1) 1.2 1.2
---- ---- -----
36.9% 36.3% 13.7%
==== ==== =====
</TABLE>
NOTE H - SHAREHOLDERS' EQUITY
Initial Public Offering
-----------------------
During 1994, the Company issued 1,866,210 shares of common stock in an initial
public offering at a price of $2.17 per share. The net proceeds from the
offering totaled $3,367,401.
Stock Option Plans
------------------
The Company's 1987 Stock Option Plan reserved 300,000 shares of its common
stock. Options to purchase 255,000 shares of the Company's common stock at a
weighted average exercise price of $1.37 per share were granted under this
plan. Under the plan the option term is fixed at the date of grant and may not
exceed ten years. The plan was terminated in September 1992.
The Company's 1994 Long-Term Incentive and Stock Option Plan (the 1994 Plan)
provides for the granting of stock options, stock appreciation rights,
restricted stock awards and performance awards to officers, directors,
employees and independent contractors of the Company at an exercise price which
is equal to the fair market value of the stock on the date of grant. Under the
plan the option term is fixed at the date of grant and may not exceed ten years
for an incentive stock option or fifteen years for non-qualified stock options.
In the year of adoption, the Company reserved 187,500 shares of common stock
for issuance under this plan. Each year thereafter, one and one-half percent of
the number of shares of the Company's common stock outstanding at the previous
fiscal year end are available for issuance under the plan with a maximum of
750,000 shares available. Options awarded under the 1994 Plan are exercisable
in 25% cumulative amounts beginning one year from the date of issuance.
The Company is in the process of adopting the 1996 Stock Option Plan (the 1996
Plan). The Plan, which is subject to shareholder approval, has similar terms
and vesting requirements as the 1994 Plan. Options to purchase 442,500 shares
of the Company's common stock at an exercise price of $18.33 were granted under
this plan.
F-7
<PAGE>
A.S.V., INC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
NOTE H - SHAREHOLDERS' EQUITY -
Continued
Option transactions under the plans during each of the three years in the
period ended December 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price
-------- --------
<S> <C> <C>
Outstanding at
December 31, 1993 255,000 $ 1.37
Granted 127,500 2.12
------- ------
Outstanding at
December 31, 1994 382,500 1.57
Granted 75,000 4.30
Exercised (30,000) .98
------- ------
Outstanding at
December 31, 1995 427,500 2.10
Granted 541,500 18.07
Exercised (46,800) 1.69
------- ------
Outstanding at
December 31, 1996 922,200 $11.67
======= ======
</TABLE>
A total of 262,575, 256,875 and 255,000 options were exercisable at December
31, 1996, 1995 and 1994 with a weighted average exercise price of $1.78, $1.55
and $1.37.
The following information applies to grants that are outstanding at December
31, 1996:
<TABLE>
<CAPTION>
Options outstanding
---------------------------------------
Weighted-
Number average Weighted-
Range of outstanding remaining average
exercise at contractual exercise
prices period end life price
-------------- ----------- ----------- ----------
<S> <C> <C> <C>
$1.47 to $2.17 296,250 1.5 years $ 1.68
$2.29 to $3.00 17,700 4.5 years 2.44
$3.83 to $4.83 77,250 5.0 years 4.49
$18.33 531,000 5.0 years 18.33
-------
922,200
=======
</TABLE>
<TABLE>
<CAPTION>
Options outstanding
-------------------------------
Number Weighted-
Range of exercisable average
exercise at exercise
prices period end price
-------------- ----------- -----------
<S> <C> <C>
$1.47 to $2.17 240,000 $1.59
$2.29 to $3.00 6,450 2.29
$3.83 to $4.83 16,125 4.43
-------
262,575
=======
</TABLE>
The weighted average fair value of the options granted during 1996 and 1995 is
$9.49 and $2.29. The fair value of each option grant is estimated on the date
of grant using the Black-Scholes options-pricing model with the following
weighted-average assumptions used for all grants in 1996 and 1995; zero
dividend yield; expected volatility of 30%; risk-free interest rate of 6.16%
and expected life of 5.56 years.
The Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock Based Compensation," (SFAS 123) introduces an alternative method for
recognizing compensation costs based upon the fair value of the awards on the
date they are granted. The Company elected to continue using the intrinsic
value based method while disclosing pro forma net income, as if the fair value
method had been used. The Company's pro forma net income and net income per
common and common equivalent share for 1996 was $860,685 and $.17 under the
fair value based method. The effect was not material to the Company's 1995 pro
forma net income. These effects may not be representative of the future effects
of applying this statement.
Stock Warrant
-------------
In connection with the public offering, the Company issued a warrant to the
Underwriter to purchase up to 180,000 shares of the Company's common stock at
the exercise price of $2.60 per share. The warrant is exercisable until August
11, 1999 and contains certain anti-dilution provisions. The warrant has not
been exercised as of December 31, 1996.
Stock Split
-----------
On December 21, 1996, the Board of Directors authorized a three-for-two stock
split to shareholders of record as of January 6, 1997. All share and per share
information has been restated to reflect the stock split.
NOTE I - CONSULTING AGREEMENT
Effective December 1, 1996, the Company entered into a five year consulting
agreement with a consulting firm. In connection with the agreement, the
Company issued a warrant for the purchase of 225,000 shares of the Company's
common stock at $11.00 per share, expiring December 1, 2006, in exchange for
monthly consulting services to be received over the term of the agreement. The
warrant is not exercisable until December 1997. Subsequently, an individual
who contracts with the consulting firm was appointed a member of the Board of
Directors.
F-8
<PAGE>
A.S.V., INC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
NOTE I - CONSULTING AGREEMENT -
Continued
The fair value of the warrant granted is $3.36 and was calculated on the date
of grant using the average of the Black-Scholes and Shelton options-pricing
models with the following assumptions: zero dividend yield; risk-free
interest rate of 6.3%; expected life of ten years; expected volatility of 30%
and a marketability discount factor of 40%. The marketability discount factor
was determined based upon no public market for the warrant and the limit on
exercisability.
Compensation costs are recognized evenly over the term of the consulting
agreement.
NOTE J - COMMITMENTS AND CONTINGENCIES
In 1996, the Company entered in to an agreement with a financing company (the
"Creditor"), whereby the Creditor extends credit to the Company's dealers to
finance goods sold to the dealers. The agreement requires the Company to
repurchase goods and pay the Creditor for the unpaid balance of the credit,
along with repossession costs, in the event of default by dealers. As of
December 31, 1996, approximately $690,000 was outstanding in credit that had
been extended to the Company's dealers.
NOTE K - MAJOR CUSTOMER
During 1996, 21% of total sales were made to two unaffiliated customers, each
accounting for over 10% of net sales. In 1995 and 1994, one of these customers
accounted for 13.3% and 13.9% of net sales. At December 31, 1996, the accounts
receivable from one customer was $165,098, with no amounts owing from the other
major customer.
NOTE L - EMPLOYEE BENEFIT PLAN
The Company adopted a 401(k) employee savings and profit sharing plan on July
1, 1995 which provides for employee salary deferrals of up to $9,500 and
discretionary Company contributions. The plan covers employees who have
completed three months of service, as defined in the plan, and who have
attained the age of 20 and one-half. Discretionary Company contributions for
the years ended December 31, 1996 and 1995 were $15,881 and $6,647.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Board of Directors
A.S.V., Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of A.S.V., Inc.
and Subsidiary as of December 31, 1996 and 1995, and the related consolidated
statements of earnings, changes in shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above, present fairly in
all material respects, the consolidated financial position of A.S.V., Inc. and
Subsidiary as of December 31, 1996 and 1995, and the consolidated results of
their operations and their consolidated cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
GRANT THORNTON LLP
Minneapolis, Minnesota
February 14, 1997
F-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT METHOD OF FILING
- ------- ----------------
<S> <C> <C>
3.1a Amendment to Second Restated Articles of Incorporation Filed herewith electronically
4.6 Warrant issued to Leo Partners, Inc. Filed herewith electronically
10.10 Consulting Agreement with Leo Partners, Inc. Filed herewith electronically
11 Statement re: Computation of Per Share Earnings Filed herewith electronically
23.1 Consent of Grant Thornton LLP, independent auditors Filed herewith electronically
27 Financial Data Schedule Filed herewith electronically
</TABLE>
<PAGE>
EXHIBIT 3.1A
AMENDMENT TO
SECOND RESTATED ARTICLES OF INCORPORATION
OF
A.S.V., INC.
1. The name of the corporation is A.S.V., Inc., a Minnesota corporation.
2. The following amendment to the Second Restated Articles of
Incorporation of A.S.V., Inc. was adopted by the Board of Directors of A.S.V.,
Inc. at a duly called meeting held December 21, 1996, pursuant to Section
302A.402, Subdivision 3 of the Minnesota Business Corporation Act:
RESOLVED, that Article 3, Section 1 of the Second Restated Articles of
Incorporation is hereby amended in its entirety to read as follows:
"1. Authorized Shares.
-----------------
The total number of shares of capital stock which the
corporation is authorized to issue shall be 30,000,000
shares, consisting of 22,500,000 shares of common stock,
par value $.01 per share ("Common Stock"), and 7,500,000
shares of preferred stock, par value $.01 per share
("Preferred Stock")."
3. The amendment will not adversely affect the rights or preferences of
the holders of outstanding shares of any class or series and will not result in
the percentage of authorized shares that remain unissued after such amendment
exceeding the percentage of authorized shares that were unissued before such
amendment.
4. The document attached hereto as Exhibit A sets forth resolutions duly
adopted by the members of the Board of Directors of A.S.V., Inc. at a duly
called meeting held December 21, 1996, which resolutions state the manner in
which the Company's share division will be effected.
<PAGE>
5. The amendment has been adopted pursuant to Chapter 302A of the
Minnesota Business Corporation Act.
IN WITNESS WHEREOF, the undersigned, the Secretary of A.S.V., Inc.,
being duly authorized on behalf of A.S.V., Inc., has executed this document on
this 21st day of December, 1996.
/s/ Edgar Hetteen
-------------------------------
Edgar Hetteen
Secretary
<PAGE>
EXHIBIT 4.6
WARRANT
-------
TO PURCHASE 150,000 SHARES OF
COMMON STOCK OF
A.S.V., Inc.
THIS CERTIFIES THAT, for good and valuable consideration, Leo Partners,
Inc., or its registered assigns ("Holder"), is entitled to subscribe for and
purchase from A.S.V., Inc., a Minnesota corporation (the "Company"), at any time
after December 1, 1997, up to and including December 1, 2006, one hundred fifty
thousand (150,000) fully paid and nonassessable shares of the Common Stock of
the Company at the price of $16.50 per share (the "Warrant Exercise Price"),
subject to the antidilution provisions of this Warrant. Reference is made to
this Warrant in the Consulting Agreement dated as of December 1, 1996, by and
between the Company and Leo Partners, Inc. as "Consultant." The shares which
may be acquired upon exercise of this Warrant are referred to herein as the
"Warrant Shares." As used herein, the term "Holder" means the Consultant, any
party who acquires all or a part of this Warrant as a registered transferee of
the Consultant, or any record holder or holders of the Warrant Shares issued
upon exercise, whether in whole or in part, of the Warrant; the term "Common
Stock" means and includes the Company's presently authorized common stock, $.01
par value, and shall also include any capital stock of any class of the Company
hereafter authorized which shall not be limited to a fixed sum or percentage in
respect of the rights of the holders thereof to participate in dividends or in
the distribution of assets upon the voluntary or involuntary liquidation,
dissolution, or winding up of the Company.
This Warrant is subject to the following provisions, terms and conditions:
1. Exercise; Transferability.
-------------------------
(a) Subject to the provisions of Section 3 of this Warrant, the rights
represented by this Warrant may be exercised by the Holder hereof, in whole or
in part (but not as to a fractional share of Common Stock or in amounts of fewer
than 1,000 shares of Common Stock), by written notice of exercise (in the form
attached hereto) delivered to the Company at the principal office of the Company
prior to the expiration of this Warrant and accompanied or preceded by the
surrender of this Warrant along with a certified or bank cashier's check in
payment of the Warrant Exercise Price for such shares.
(b) Subject to the provisions of Section 7 hereof, this Warrant shall not
be transferable at any time without the prior written consent of the Company.
2. Exchange and Replacement. Subject to Section 7 hereof, this Warrant
------------------------
is exchangeable upon the surrender hereof by the Holder to the Company at its
office for new Warrants of like tenor and date representing in the aggregate the
right to purchase the number of Warrant Shares purchasable hereunder, each of
such new Warrants to represent the right to purchase such number of Warrant
Shares (not to exceed the aggregate total number purchasable hereunder) as shall
be designated by the Holder at the time of such surrender. Upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction, or mutilation of this Warrant, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will make
and deliver a new Warrant of like tenor, in lieu of this Warrant; provided,
however, that if the Consultant shall be such Holder, an agreement of indemnity
by such Holder shall be sufficient for all purposes of this Section 2. This
Warrant shall be promptly canceled by the
<PAGE>
Company upon the surrender hereof in connection with any exchange or
replacement. The Company shall pay all expenses, taxes (other than stock
transfer taxes), and other charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Section 2.
3. Issuance of the Warrant Shares.
------------------------------
(a) The Company agrees that the shares of Common Stock purchased hereby
shall be and are deemed to be issued to the Holder as of the close of business
on the date on which this Warrant shall have been surrendered and the payment
made for such Warrant Shares as aforesaid. Subject to the provisions of the
next section, certificates for the Warrant Shares so purchased shall be
delivered to the Holder within a reasonable time, not exceeding fifteen (15)
days after the rights represented by this Warrant shall have been so exercised,
and, unless this Warrant has expired, a new Warrant representing the right to
purchase the number of Warrant Shares, if any, with respect to which this
Warrant shall not then have been exercised shall also be delivered to the Holder
within such time.
(b) Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for Warrant Shares upon exercise of this
Warrant except in accordance with (i) an opinion of counsel reasonably
acceptable to it to the effect that an exemption from the applicable securities
registration requirements is available or (ii) registrations under applicable
securities laws. Nothing herein, however, shall obligate the Company to effect
registrations under federal or state securities laws, except as provided in
Section 9. If registrations are not in effect to the extent required as
provided in Section 9 and if the Company has not received an opinion of counsel
reasonably acceptable to it to the effect that an exemption is available when
the Holder seeks to exercise the Warrant, the Warrant exercise period will be
extended, if need be, to prevent the Warrant from expiring, until such time as
either such registrations become effective or an opinion with respect to such
exemptions is available, and the Warrant shall then remain exercisable for a
period of at least 45 calendar days from the date the Company delivers to the
Holder written notice of the availability of such registrations or exemptions.
The Holder agrees to execute such documents and make such representations,
warranties, and agreements as may be required solely to comply with the
exemptions relied upon by the Company, or the registrations made, for the
issuance of the Warrant Shares.
4. Covenants of the Company. The Company covenants and agrees that all
------------------------
Warrant Shares will, upon issuance, be duly authorized and issued, fully paid,
nonassessable, and free from all taxes, liens, and charges with respect to the
issue thereof. The Company further covenants and agrees that during the period
within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved for the purpose of issue
or transfer upon exercise of the subscription rights evidenced by this Warrant a
sufficient number of shares of Common Stock to provide for the exercise of the
rights represented by this Warrant.
5. Antidilution Adjustments. The provisions of this Warrant are subject
------------------------
to adjustment as provided in this Section 5.
(a) The Warrant Exercise Price shall be adjusted from time to time such
that in case the Company shall hereafter:
(i) pay any dividends on any class of stock of the Company payable
in Common Stock or securities convertible into Common Stock;
2
<PAGE>
(ii) subdivide its then outstanding shares of Common Stock into a
greater number of shares; or
(iii) combine outstanding shares of Common Stock, by reclassification
or otherwise;
then, in any such event, the Warrant Exercise Price in effect immediately prior
to such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price (calculated to the nearest full cent)
determined by dividing (a) the total number of shares of Common Stock
outstanding immediately prior to such event (including the maximum number of
shares of Common Stock issuable in respect of any securities convertible into
Common Stock), multiplied by the then existing Warrant Exercise Price, by (b)
the total number of shares of Common Stock outstanding immediately after such
event (including the maximum number of shares of Common Stock issuable in
respect of any securities convertible into Common Stock), and the resulting
quotient shall be the adjusted Warrant Exercise Price per share. An adjustment
made pursuant to this subsection shall become effective immediately after the
record date in the case of a dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification. If, as a result of an adjustment made pursuant to this
subsection, the Holder of any Warrant thereafter surrendered for exercise shall
become entitled to receive shares of two or more classes of capital stock or
shares of Common Stock and other capital stock of the Company, the Board of
Directors (whose determination shall be conclusive) shall determine the
allocation of the adjusted Warrant Exercise Price between or among shares of
such classes of capital stock or shares of Common Stock and other capital stock.
All calculations under this subsection shall be made to the nearest cent or to
the nearest 1/100 of a share as the case may be. In the event that at any time
as a result of an adjustment made pursuant to this subsection, the holder of any
Warrant thereafter surrendered for exercise shall become entitled to receive any
shares of the Company other than shares of Common Stock, thereafter the Warrant
Exercise Price of such other shares so receivable upon exercise of any Warrant
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to Common Stock
contained in this Section.
(b) If the Company, by dividend or otherwise, distributes to all holders
of its Common Stock evidences of its indebtedness or assets (including
securities, but excluding (i) capital stock of the Company or securities
convertible into capital stock of the Company, (ii) any sudivision or
combination of the Common Stock or (iii) any dividend or distribution paid in
cash out of the retained earnings of the Company), the Warrant Exercise Price
shall be adjusted in accordance with the following formula:
3
<PAGE>
M - F
C/1/ = C x _______
M
where
C/1/ = the adjusted Warrant Exercise Price.
C = the current Warrant Exercise Price
M = the current Market Price (as defined in Section 8) per
share of Common Stock on the record date mentioned below.
F = the amount of such cash dividend and/or the fair market
value on the record date of the assets, securities, rights
or warrants to be distributed divided by the number of
shares of Common Stock outstanding on the record date. The
Board of Directors of the Company shall determine the fair
market value.
The adjustment shall become effective immediately after the record date for
the determination of stockholders entitled to receive the dividend or other
distribution.
(c) Upon each adjustment of the Warrant Exercise Price pursuant to Section
5(a) or (b) above, the Holder of each Warrant shall thereafter (until another
such adjustment) be entitled to purchase at the adjusted Warrant Exercise Price
the number of shares, calculated to the nearest full share, obtained by
multiplying the number of shares specified in such Warrant (as adjusted as a
result of all adjustments in the Warrant Exercise Price in effect prior to such
adjustment) by the Warrant Exercise Price in effect prior to such adjustment and
dividing the product so obtained by the adjusted Warrant Exercise Price.
(d) In case of any consolidation or merger to which the Company is a party
other than a merger or consolidation in which the Company is the continuing
corporation, or in case of any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety, or in
the case of any statutory exchange of securities with another corporation
(including any exchange effected in connection with a merger of a third
corporation into the Company), there shall be no adjustment under subsection (a)
or (b) of this Section above but the Holder of each Warrant then outstanding
shall have the right thereafter to convert such Warrant into the kind and amount
of shares of stock and other securities and property which such Holder would
have owned or have been entitled to receive immediately after such
consolidation, merger, statutory exchange, sale, or conveyance had such Warrant
been converted immediately prior to the effective date of such consolidation,
merger, statutory exchange, sale, or conveyance and in any such case, if
necessary, appropriate adjustment shall be made in the application of the
provisions set forth in this Section with respect to the rights and interests
thereafter of any Holders of the Warrant, to the end that the provisions set
forth in this Section shall thereafter correspondingly be made applicable, as
nearly as may reasonably be, in relation to any shares of stock and other
securities and property thereafter deliverable on the exercise of the Warrant.
The provisions of this subsection shall similarly apply to successive
consolidations, mergers, statutory exchanges, sales or conveyances.
(e) Upon any adjustment of the Warrant Exercise Price, then and in each
such case, the Company shall give written notice thereof, by first-class mail,
postage prepaid, addressed to the Holder as shown on the books of the Company,
which notice shall state the Warrant Exercise Price
4
<PAGE>
resulting from such adjustment and the increase or decrease, if any, in the
number of shares of Common Stock purchasable at such price upon the exercise of
this Warrant, setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based.
6. No Voting Rights. This Warrant shall not entitle the Holder to any
----------------
voting rights or other rights as a shareholder of the Company.
7. Notice of Transfer of Warrant or Resale of the Warrant Shares.
-------------------------------------------------------------
(a) The Holder, by acceptance hereof, agrees to give written notice to the
Company before transferring this Warrant or transferring any Warrant Shares of
such Holder's intention to do so (in addition to the consent required by
Section 1(b) in connection with the transfer of this Warrant), describing
briefly the manner of any proposed transfer. Promptly upon receiving such
written notice, the Company shall present copies thereof to the Company's
counsel. If in the opinion of such counsel the proposed transfer may be
effected without registration or qualification (under any federal or state
securities laws), the Company, as promptly as practicable, shall notify the
Holder of such opinion, whereupon the Holder shall be entitled to transfer this
Warrant or to dispose of Warrant Shares received upon the previous exercise of
this Warrant, all in accordance with the terms of the notice delivered by the
Holder to the Company; provided that an appropriate legend may be endorsed on
this Warrant or the certificates for such Warrant Shares respecting restrictions
upon transfer thereof necessary or advisable in the opinion of counsel and
satisfactory to the Company to prevent further transfers which would be in
violation of Section 5 of the Securities Act of 1933, as amended (the "1933
Act") and applicable state securities laws; and provided further that the Holder
and prospective transferee or purchaser shall execute such documents and make
such representations, warranties, and agreements as may be required solely to
comply with the exemptions relied upon by the Company for the transfer or
disposition of the Warrant or Warrant Shares.
(b) If in the opinion of counsel referred to in this Section 7, the
proposed transfer or disposition of this Warrant or such Warrant Shares
described in the written notice given pursuant to this Section 7 may not be
effected without registration or qualification of this Warrant or such Warrant
Shares, the Company shall promptly give written notice thereof to the Holder,
and the Holder will limit its activities in respect to such as, in the opinion
of both such counsel, are permitted by law.
8. Fractional Shares. Fractional shares shall not be issued upon the
-----------------
exercise of this Warrant, but in any case where the holder would, except for the
provisions of this Section, be entitled under the terms hereof to receive a
fractional share, the Company shall, upon the exercise of this Warrant for the
largest number of whole shares then called for, pay a sum in cash equal to the
sum of (a) the excess, if any, of the Market Price of such fractional share over
the proportional part of the Warrant Exercise Price represented by such
fractional share, plus (b) the proportional part of the Warrant Exercise Price
represented by such fractional share. For purposes of this Warrant, the term
"Market Price" with respect to shares of Common Stock of any class or series
means the last reported sale price or, if none, the average of the last reported
closing bid and asked prices on any national securities exchange or quoted in
the National Association of Securities Dealers, Inc's Automated Quotations
System (NASDAQ), or if not listed on a national securities exchange or quoted in
NASDAQ, the average of the last reported closing bid and asked prices as
reported by Metro Data Company, Inc. from quotations by market makers in such
Common Stock on the Minneapolis-St.Paul local over-the-counter market.
5
<PAGE>
9. Registration Rights.
-------------------
(a) If at any time after December 1, 1997 and prior to the end of the two-
year period following complete exercise of this Warrant or December 1, 2008,
whichever occurs earlier, the Company proposes to register under the 1933 Act
(except by a Form S-4 or Form S-8 Registration Statement or any successor forms
thereto) or qualify for a public distribution under Section 3(b) of the 1933
Act, any of its equity securities or debt with equity features, it will give
written notice to all Holders of this Warrant, any Warrants issued pursuant to
Section 2 and/or Section 3(a) hereof, and any Warrant Shares of its intention to
do so and, on the written request of any such Holder given within twenty (20)
days after receipt of any such notice (which request shall specify the Warrant
Shares (then issued or issuable upon exercise of this Warrant) intended to be
sold or disposed of by such Holder and describe the nature of any proposed sale
or other disposition thereof), the Company will use its best efforts to cause
all such Warrant Shares, the Holders of which shall have requested the
registration or qualification thereof, to be included in such registration
statement proposed to be filed by the Company; provided, however, that if a
greater number of Warrant Shares is offered for participation in the proposed
offering than in the reasonable opinion of the managing underwriter of the
proposed offering can be accommodated without adversely affecting the proposed
offering, then the amount of Warrant Shares proposed to be offered by such
Holders for registration, as well as the number of securities of any other
selling shareholders participating in the registration, shall be proportionately
reduced to a number deemed satisfactory by the managing underwriter.
(b) Further, on a one-time basis only commencing December 1, 1997, upon
request by a majority in interest of Warrants, or by the holders of a majority
of the shares of the Common Stock issued upon exercise thereof, the Company
will, at its expense, promptly take all necessary steps to register or qualify
the Warrant Shares under a Registration Statement on Form S-3 or successor
thereof (provided that the Company's Common Stock is then eligible for
registration on a Form S-3 or successor thereof) under Section 3(b) or Section 5
of the Securities Act of 1933 and such state laws as such holders may reasonably
request; provided that such request must be made before the earlier of the end
of the two-year period following complete exercise of this Warrant or December
1, 2008. The Company shall keep effective and maintain any registration,
qualification, notification or approval specified in this paragraph for such
period as may be necessary for the holders of the Warrants and such common stock
to dispose thereof and from time to time shall amend or supplement, at the
Company's expense, the prospectus or offering circular used in connection
therewith to the extent necessary in order to comply with applicable law,
provided that the Company shall not be obligated to maintain any registration
for a period of more than six (6) months after effectiveness except that a Form
S-3 Registration Statement or successor thereof shall be maintained for up to
twelve (12) months after effectiveness. If Form S-3 is not available, the
Company will have no obligation to effect the registration provided by this
Section 9(b) until such Form S-3 is available.
(c) With respect to each inclusion of securities in a registration
statement pursuant to Section 9(a), the Company shall bear the following fees,
costs, and expenses: all registration, filing and NASD fees, NASDAQ fees,
printing expenses, fees and disbursements of counsel and accountants for the
Company, fees and disbursements of counsel for the underwriter or underwriters
of such securities (if the offering is underwritten and the Company is required
to bear such fees and disbursements), all internal expenses, the premiums and
other costs of policies of insurance against liability arising out of the public
offering, and legal fees and disbursements and other expenses of complying with
state securities laws of any jurisdictions in which the securities to be offered
are to be registered or qualified. Fees and disbursements of special counsel
and accountants for the selling Holders, underwriting discounts and commissions,
and transfer taxes for selling Holders and any other expenses relating to the
sale of securities by the selling Holders not expressly included above shall be
borne by the selling Holders.
6
<PAGE>
(d) The Company hereby indemnifies each of the Holders of this Warrant and
of any Warrant Shares, and the officers and directors, if any, who control such
Holders, within the meaning of Section 15 of the 1933 Act, against all losses,
claims, damages, and liabilities caused by (1) any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement or
Prospectus (and as amended or supplemented if the Company shall have furnished
any amendments thereof or supplements thereto), any Preliminary Prospectus or
any state securities law filings; (2) any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, or liabilities are caused by any untrue statement or omission contained
in information furnished in writing to the Company by such Holder expressly for
use therein; and each such Holder by its acceptance hereof severally agrees that
it will indemnify and hold harmless the Company, each of its officers who signs
such Registration Statement, and each person, if any, who controls the Company,
within the meaning of Section 15 of the 1933 Act, with respect to losses,
claims, damages, or liabilities which are caused by any untrue statement or
omission contained in information furnished in writing to the Company by such
Holder expressly for use therein.
IN WITNESS WHEREOF, A.S.V., Inc. has caused this Warrant to be signed by
its duly authorized officer and this Warrant this 1st day of December, 1996.
A.S.V., Inc.
By ______________________________________
Its___________________________________
7
<PAGE>
A.S.V., INC.
WARRANT EXERCISE
----------------
(TO BE SIGNED ONLY UPON EXERCISE OF WARRANT)
The undersigned, the holder of the foregoing Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, __________ shares of the Common Stock of A.S.V., Inc. to
which such Warrant relates and herewith makes payment of $ ______________
therefor in cash or by certified or cashier's check and requests that the
certificates for such shares be issued in the name of, and be delivered to
______________________________________, whose address is set forth below the
signature of the undersigned. If said number of shares shall not be all the
shares purchasable under the Warrant, a new Warrant is to be issued in the name
of the undersigned for the balance remaining of the shares purchasable
thereunder.
Name of Warrant Holder:
_________________________________________
(Please print)
Address of Warrant Holder:
_________________________________________
_________________________________________
Tax Identification No. or
Social Security No. of Warrant Holder:
_________________________________________
Signature_________________________________
Note: The above signature should correspond
exactly with the name of the Warrant Holder
as it appears on the first page of the
Warrant or on a duly executed Warrant
Assignment.
Dated: _____________________
8
<PAGE>
A.S.V., INC.
WARRANT ASSIGNMENT
------------------
(TO BE SIGNED ONLY UPON TRANSFER OF WARRANT)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _________________________________________________, the assignee, whose
address is ____________________________________ and whose tax identification or
social security number is ____________, the right represented by the foregoing
Warrant to purchase _______________ shares of the Common Stock of A.S.V., Inc.
to which the foregoing Warrant relates and appoints ____________________________
attorney to transfer said right on the books of A.S.V., Inc., with full power of
substitution in the premises. If said number of shares shall not be all the
shares purchasable under the Warrant, a new Warrant is to be issued in the name
of the undersigned for the balance remaining of the shares purchasable
thereunder.
Name of Warrant Holder/Assignor:
_________________________________________
(Please print)
Address of Warrant Holder/Assignor:
_________________________________________
_________________________________________
Tax Identification No. or
Social Security No. of Warrant
Holder/Assignor:
_________________________________________
Signature _________________________________
NOTE: The above signature should correspond
exactly with the name on the first page of
the Warrant or with the name of the assignee
appearing on a duly executed assignment form.
Dated: ___________________________________
9
<PAGE>
EXHIBIT 10.10
CONSULTING AGREEMENT
--------------------
THIS AGREEMENT is entered into as of December 1, 1996, by and between
A.S.V., Inc., a Minnesota corporation, 840 Lily Lane, P. O. Box 5160, Grand
Rapids, Minnesota 55744 (the "Company"), and Leo Partners, Inc., a Florida
corporation, 2227 Cheryl Drive, Jacksonville, Florida 32217 (the "Consultant").
WHEREAS, the Company seeks consulting and advisory services related
generally to strategic and financial analysis, and receiving other advice
concerning its business.
WHEREAS, as of October 1, 1996, the Company and Consultant orally agreed
that Consultant would provide the services herein contemplated in exchange for a
warrant to purchase 150,000 shares of the Company's common stock.
WHEREAS, this agreement sets forth in writing the understanding of the
parties with respect to the consulting services Consultant is to provide to the
Company.
NOW, THEREFORE, in consideration of good and adequate consideration and in
light of the above recitals, the parties do agree as follows:
1. Services Provided.
-----------------
1.01. Basic Services Provided. The Consultant agrees, from time to time
-----------------------
at the request of and subject to direction by the Company, to provide consulting
and advisory services relating to strategic and financial analysis relating to
the Company and its business.
Consultant agrees to provide the foregoing services in a good and
faithful manner, using its reasonable best efforts to increase Company
shareholder value and otherwise promote the best interests of the Company, as
the Company may from time to time articulate.
1.02. Amount of Services Provided. The Company and the Consultant agree
---------------------------
that, while the amount of advisory services provided will vary from time to
time, the Company shall be entitled under this Agreement to an average of 20
hours of consulting services per month.
2. Effective Date; Termination.
---------------------------
2.01. Effective Date; Termination. This Agreement shall be effective as
---------------------------
of the date set forth in the first paragraph (the "Effective Date") and shall
continue in
<PAGE>
effect for a period of five years or until terminated by either party upon 30
days prior written notice to the other party.
2.02. Obligations Following Termination. The Consultant shall return all
---------------------------------
copies of the Company's Confidential Information (as defined in Section 5 below)
to the Company.
3. Compensation. Concurrent with the execution of this Agreement, the Company
------------
shall issue to Consultant a warrant, substantially in the form of Exhibit A
hereto, to purchase a total of 150,000 shares of the Company's Common Stock,
$.01 par value per share. The exercise price for the warrant granted pursuant
to this Section 3.02 shall be $16.50 per share. The warrant shall be
exercisable for a period of ten (10) years from the date of this Agreement.
4. Compliance with Law; No Conflicts. The Consultant hereby represents and
---------------------------------
warrants to and covenants with the Company as follows:
(a) the Consultant shall comply with all applicable laws in the
performance of this Agreement including, without limitation, the federal
securities laws;
(b) the Consultant acknowledges receipt of the Company's policies
applicable to its officers and directors regarding trading in Company
securities and agrees to be bound by such policies;
(c) the Consultant is currently, and will at all times during the
term of this Agreement remain, under no conflict of interest in the
performance of this Agreement due to personal, financial or professional
relationships with or payments from any competitors of the Company or from
any enterprise. The Consultant shall promptly disclose in writing to the
Company any relationship or payment during the term of this Agreement which
comes within the foregoing sentence. If requested by the Company, the
Consultant shall withdraw from involvement on behalf of the Company or the
other party.
5. Confidential Information. The Consultant hereby acknowledges that the
------------------------
Company may disclose to the Consultant certain sensitive and confidential
information ("Confidential Information") relating to the Company's products and
the Company's business strategy, marketing plans, cost and price structures, and
other similar information related thereto. The Consultant shall not disclose
such Confidential Information to any third party or use for his own benefit or
of the benefit of any other person, except as is strictly necessary in the
performance of this Agreement. The foregoing duty shall terminate three years
after the termination of this Agreement. The foregoing duty in this Section 5
shall not apply to any
2
<PAGE>
information which is: (a) already known to the Consultant prior to its
disclosure by the Company; (b) provided to the Consultant by another party not
under any duty of confidentiality to the Company; or (c) already in the public
domain through no act or fault of the Consultant.
6. Miscellaneous.
-------------
6.01. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Minnesota, excluding its choice of law
rules.
6.02. Entire Agreement. This Agreement shall constitute the only
----------------
agreement between the Company and the Consultant relating to the subject matter
hereof, and no representations, promises, understandings, or agreement, oral or
otherwise, not herein contained shall be of any force or effect. This Agreement
supersedes all other written or oral communications between the parties relating
to the subject matter hereof.
6.03. Modification; Waiver; Special Arrangements. No modification,
------------------------------------------
amendment or waiver of any provision of this Agreement shall be valid unless it
is in writing and signed by the party against whom it is sought to be enforced.
No waiver at any time of any provision of this agreement shall be deemed a
waiver of any other provision of this Agreement at that time or a waiver of that
or any other provision at any other time.
6.04. Severability. If any provision of this Agreement shall be held
------------
invalid or unenforceable, the remainder of this Agreement shall nevertheless
remain in full force and effect. If any provision is held invalid or
unenforceable only with respect to particular circumstances, it shall
nevertheless remain in full force and effect in all other circumstances.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the date first above written.
A.S.V., INC.
By _____________________________________
Its ____________________________________
LEO PARTNERS, INC.
By _____________________________________
Its ____________________________________
4
<PAGE>
A.S.V., INC. AND SUBSIDIARY
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
PRIMARY
Earnings
Net income $ 921,509 $ 439,852 $ 147,694
Add after tax interest expense applicable
to 6.5% convertible debentures 49,635 - -
---------- ---------- ----------
Net income applicable to common stock $ 971,144 $ 439,852 $ 147,694
========== ========== ==========
Shares **
Weighted average number of common
shares outstanding 4,787,692 4,741,502 3,586,717
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 432,346 259,012 100,102
Assuming conversion of 6.5% convertible
debentures 109,029 - -
---------- ---------- ----------
Weighted average number of common and
common equivalent shares outstanding 5,329,067 5,000,514 3,686,819
========== ========== ==========
Earnings per common share $ .18 $ .09 $ .04
========== ========== ==========
FULLY DILUTED
Earnings
Net income $ 921,509 $ 439,852 $ 147,694
Add after tax interest expense applicable
to 6.5% convertible debentures 49,635 - -
---------- ---------- ----------
Net income applicable to common stock $ 971,144 $ 439,852 $ 147,694
========== ========== ==========
Shares **
Weighted average number of common
shares outstanding 4,787,692 4,741,502 3,586,717
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 452,897 283,142 100,102
Assuming conversion of 6.5% convertible
debentures 109,029 - -
---------- ---------- ----------
Weighted average number of common and
common equivalent shares outstanding 5,349,618 5,024,644 3,686,819
========== ========== ==========
Earnings per common share $ .18 $ .09 $ .04
========== ========== ==========
</TABLE>
** Restated to give effect to the three-for-two stock split effective January
1997
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 14, 1997, accompanying the consolidated
financial statements included in the Annual Report of A.S.V., Inc. on Form 10-
KSB for the year ended December 31, 1996. We hereby consent to the
incorporation by reference of said report in the Registration Statements of
A.S.V., Inc. on Forms S-8 (File No. 33-94248, effective June 30, 1995 and File
No. 33-94250, effective July 3, 1995).
/s/ GRANT THORNTON LLP
Minneapolis, Minnesota
March 24, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF EARNINGS FOUND ON PAGES F-1 AND
F-2 OF THE COMPANY'S FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,042,494
<SECURITIES> 2,269,753
<RECEIVABLES> 1,281,228
<ALLOWANCES> 20,000
<INVENTORY> 5,160,353
<CURRENT-ASSETS> 11,935,771
<PP&E> 2,022,929
<DEPRECIATION> 548,288
<TOTAL-ASSETS> 13,410,412
<CURRENT-LIABILITIES> 1,426,211
<BONDS> 5,697,068
0
0
<COMMON> 48,107
<OTHER-SE> 6,239,026
<TOTAL-LIABILITY-AND-EQUITY> 13,410,412
<SALES> 12,266,499
<TOTAL-REVENUES> 12,266,499
<CGS> 9,341,860
<TOTAL-COSTS> 9,341,860
<OTHER-EXPENSES> 1,501,045
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 127,069
<INCOME-PRETAX> 1,459,509
<INCOME-TAX> 538,000
<INCOME-CONTINUING> 921,509
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 921,509
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
