<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1998
Commission file number: 0-25620
A.S.V., INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1459569
------------------------------ ----------------------------------
State or other jurisdiction of I.R.S. Employer Identification No.
incorporation of organization
840 LILY LANE
P.O. BOX 5160
GRAND RAPIDS, MN 55744 (218) 327-3434
---------------------- --------------
Address of principal executive offices Registrant's telephone number
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [x] No [ ]
As of August 4, 1998, 7,607,229 shares of registrant's $.01 par value
Common Stock were outstanding.
Page 1
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
A.S.V., INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
1998 1997
----------- -----------
ASSETS (Unaudited)
CURRENT ASSETS
Cash and cash equivalents............................ $ 1,482,728 $ 316,599
Short-term investments............................... 490,577 1,255,160
Accounts receivable, net ............................ 2,767,282 1,989,906
Inventories.......................................... 13,750,987 11,674,027
Prepaid expenses and other........................... 416,607 342,896
---------- -----------
Total current assets............................ 18,908,181 15,578,588
PROPERTY AND EQUIPMENT, net............................ 4,433,428 3,636,091
----------- -----------
Total Assets.................................... $23,341,609 $19,214,679
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term liabilities............. $ 218,114 $ --
Accounts payable..................................... 2,760,370 1,474,701
Accrued liabilities
Compensation....................................... 194,497 180,349
Interest........................................... 95,422 81,250
Warranties......................................... 400,000 200,000
Other.............................................. 108,904 98,998
Income taxes payable................................. 217,924 201,674
----------- -----------
Total current liabilities....................... 3,995,231 2,236,972
----------- -----------
LONG-TERM LIABILITIES, less current portion............ 7,447,597 7,020,608
----------- -----------
COMMITMENTS AND CONTINGENCIES.......................... -- --
SHAREHOLDERS' EQUITY
Capital stock, $.01 par value:
Preferred stock, 11,250,000 shares authorized;
no shares outstanding ........................... -- --
Common stock, 33,750,000 shares authorized;
7,540,832 shares issued and outstanding in 1998;
7,518,310 shares issued and outstanding in 1997.. 75,408 75,183
Additional paid-in capital........................... 6,742,911 6,520,371
Retained earnings.................................... 5,080,462 3,361,545
----------- -----------
11,898,781 9,957,099
----------- -----------
Total Liabilities and Shareholders' Equity $23,341,609 $19,214,679
=========== ===========
See notes to consolidated financial statements.
2
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A.S.V., INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Net sales ........................... $ 10,484,279 $ 5,407,815 $ 19,513,117 $ 10,059,000
Cost of goods sold .................. 7,923,015 4,115,440 14,694,010 7,697,483
------------ ------------ ------------ ------------
Gross profit ................. 2,561,264 1,292,375 4,819,107 2,361,517
Operating expenses:
Selling, general and administrative 942,703 531,348 1,750,898 1,019,405
Research and development .......... 105,088 62,717 203,537 107,655
------------ ------------ ------------ ------------
Operating income ............. 1,513,473 698,310 2,864,672 1,234,457
Other income (expense)
Interest expense .................. (126,579) (92,988) (255,525) (185,940)
Other, net ........................ 105,185 145,571 139,770 210,918
------------ ------------ ------------ ------------
Income before income taxes ...... 1,492,079 750,893 2,748,917 1,259,435
Provision for income taxes .......... 565,000 286,000 1,030,000 479,000
------------ ------------ ------------ ------------
NET INCOME ..................... $ 927,079 $ 464,893 $ 1,718,917 $ 780,435
============ ============ ============ ============
Net income per common share
Basic ............................. $ .12 $ .06 $ .23 $ .11
============ ============ ============ ============
Diluted * ......................... $ .11 $ .06 $ .20 $ .10
============ ============ ============ ============
Weighted average number of common
shares outstanding
Basic ............................. 7,538,225 7,247,650 7,533,479 7,243,624
============ ============ ============ ============
Diluted * ......................... 9,031,745 8,764,900 8,975,213 8,782,100
============ ============ ============ ============
</TABLE>
* Includes add back of after-tax effect of interest expense for convertible
debentures.
See notes to consolidated financial statements.
3
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A.S.V., INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income ........................................................ $1,718,917 $ 780,435
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation .................................................. 150,000 78,000
Interest accrued on capital lease obligation .................. 23,028 23,028
Deferred income taxes ......................................... (100,000) (48,000)
Effect of warrant earned ...................................... 75,600 75,600
Changes in assets and liabilities:
Accounts receivable ........................................ (777,376) 118,972
Inventories ................................................ (2,076,960) (2,320,144)
Prepaid expenses and other ................................. 26,289 (16,742)
Accounts payable ........................................... 1,285,669 1,050,678
Accrued expenses ........................................... 238,226 (77,759)
Income taxes payable ....................................... 16,250 (145,500)
---------- ----------
Net cash provided by (used in) operating activities ................. 579,643 (481,432)
---------- ----------
Cash flows from investing activities:
Purchase of property and equipment ................................ (299,543) (728,646)
Purchase of short-term investments ................................ -- (1,497,087)
Redemption of short-term investments .............................. 764,583 --
---------- ----------
Net cash provided by (used in) investing activities ................. 465,040 (2,225,733)
---------- ----------
Cash flows from financing activities:
Principal payments on long-term liabilities ....................... (25,719) (3,158)
Exercise of stock options ......................................... 57,165 57,209
Tax benefit related to exercise of stock options .................. 90,000 241,000
---------- ----------
Net cash provided by financing activities ........................... 121,446 295,051
---------- ----------
Net increase (decrease) in cash and cash equivalents ................ 1,166,129 (2,412,114)
Cash and cash equivalents at beginning of period .................... 316,599 3,042,494
---------- ----------
Cash and cash equivalents at end of period .......................... $1,482,728 $ 630,380
========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest ............................................ $ 241,353 $ 160,447
Cash paid for income taxes ........................................ 1,023,750 431,500
Supplemental disclosure of non-cash investing and financing activity:
Assets acquired by incurring long-term liabilities ................ $ 647,794 $ --
</TABLE>
See notes to consolidated financial statements.
4
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A.S.V., INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL INFORMATION
The accompanying unaudited, consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal,
recurring adjustments) considered necessary for a fair presentation have been
included. Results for the interim periods are not necessarily indicative of the
results for an entire year.
NOTE 2. LINE OF CREDIT
During the second quarter of 1998, the Company amended its line of credit
agreement with its primary bank. The amended line of credit provides for
borrowings up to $5,000,000 at an interest rate of prime minus1/2% (8% at June
30, 1998). All other major terms and conditions remain the same.
NOTE 3. STOCK SPLIT
On May 15, 1998, the Company completed a three-for-two stock split. All
share and per share information has been restated to reflect this stock split.
5
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain Statement of Earnings data as a
percentage of net sales:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales.......................................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................................. 75.6 76.1 75.3 76.5
Gross profit....................................... 24.4 23.9 24.7 23.5
Selling, general and administrative................ 9.0 9.8 9.0 10.1
Operating income................................... 14.4 12.9 14.7 12.3
Interest expense................................... (1.2) (1.7) (1.3) (1.8)
Net income......................................... 8.8 8.6 8.8 7.8
</TABLE>
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997.
NET SALES. Net sales increased 94%, or approximately $5,076,000, to
approximately $10,484,000 for the three months ended June 30, 1998 compared with
the same period in 1997. The increase was due primarily to sales of the
Company's Posi-Track vehicle and related accessories increasing 104% over 1997.
The growth in Posi-Track sales was due to increased demand for the Company's HD
series Posi-Track which was introduced in fourth quarter 1997 and accounted for
nearly all unit volume in second quarter 1998. The HD series Posi-Track features
a maintenance-free suspension which minimizes operator maintenance on the
vehicle, as well as offering a more powerful engine and greater lifting
capabilities than the Company's original model MD-70 Posi-Track. The Company
will offer this same maintenance-free suspension under the MD-70 chassis as a
new series of Posi-Tracks, the MD series. Sales of the new MD series are
expected to start in third quarter 1998. Sales of parts, used equipment and
other items increased 35% for the three month period ended June 30, 1998
compared with the same period in 1997. This increase was primarily due to parts
sales increasing as the number of vehicles in the field continues to increase.
In connection with the expansion of its manufacturing facility and increase
in the models in its product lines, the Company is anticipating continued growth
in its net sales in excess of 50% for the next twelve months.
GROSS PROFIT. Gross profit for the three months ended June 30, 1998
increased to approximately $2,561,000, or 24.4% of net sales, compared with
$1,292,000, or 23.9% of net sales, in 1997. The increased gross profit was
attributable to increased sales volume in 1998. The increased gross profit
percentage was attributable to greater efficiencies in the production process
from the Company's increased production levels and additional margin obtained
from the sale of higher priced products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased from 9.8% of net sales in second quarter 1997,
to 9.0% of net sales in second quarter 1998. The increased dollar volume was due
to increased advertising costs including costs to promote the Company's HD
series Posi-Track as well as increased compensation costs as sales and
administrative personnel have been added to support expanded sales and customer
service roles. The decreased percentage of selling, general and administrative
expenses was due to the Company closely managing its costs.
RESEARCH AND DEVELOPMENT. Research and development expenses increased from
approximately $63,000 in second quarter 1997 to approximately $105,000 in 1998.
The increase was due mainly to the development of the Company's new model
Posi-Track, the MD series, continuing improvements to the Company's existing
models and exploration of future product alternatives.
6
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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.
INTEREST EXPENSE. Interest expense increased from approximately $93,000 for
the second quarter of 1997 to approximately $127,000 for the second quarter of
1998. The increase was due to the additional debt related to the completion of
the Company's facility expansion and the additional debt incurred in January
1998 for the acquisition of land and buildings for storage and to house research
and development activities.
NET INCOME. Net income for the second quarter of 1998 was approximately
$927,000, compared with approximately $465,000 for the second quarter of 1997.
The increase in 1998 resulted primarily from additional gross profit on
increased sales, offset in part by increased operating costs and interest
expense.
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997.
NET SALES. Net sales for the six months ended June 30, 1998 increased 94%,
or approximately $9,454,000, to $19,513,000. The increase was due primarily to
the increased sales of the Company's Posi-Track vehicle, particularly the HD
series Posi-Track, which was introduced in fourth quarter 1997. Posi-Track
related sales increased 106% due to the increased demand, sales of two new
Posi-Track models in 1998 and new dealers added in the past twelve months. Sales
of parts, used equipment and other items increased approximately 37% due
primarily to an increase in the sale of parts as a greater number of machines
are in service in 1998.
GROSS PROFIT. Gross profit increased for the six months ended June 30, 1998
to approximately $4,819,000, or 24.7% of net sales, from $2,362,000, or 23.5% of
net sales, for the six months ended June 30, 1997. The increased gross profit
was due to increased sales while the increased gross profit percentage was due
to the increased efficiencies obtained from the Company's increased production
volume and additional margin obtained from the sale of higher priced products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased from 10.1% of net sales for the six months
ended June 30, 1997 to 9.0% of net sales for the six months ended June 30, 1998.
The increased dollar amount of approximately $731,000 was due to increased sales
and marketing costs and increased costs for administrative personnel hired to
support increased sales volumes. The decreased percentage of selling, general
and administrative expenses was due to the Company closely managing its costs.
RESEARCH AND DEVELOPMENT. Research and development expenses increased from
approximately $108,000 in 1997 to approximately $204,000 in 1998. The increase
was due mainly to the development of the Company's new model Posi-Track, the MD
series, in 1998, continuing improvements to the Company's existing models and
exploration of additional models.
INTEREST EXPENSE. Interest expense increased from approximately $186,000
for the six months ended June 30, 1997 to approximately $256,000 for the same
period in 1998. The increase was due to the additional debt related to the
completion of the Company's facility expansion and the additional debt incurred
in January 1998 for the acquisition of land and buildings for storage and to
house research and development activities.
NET INCOME. Net income for the six months ended June 30, 1998 increased to
approximately $1,719,000 from approximately $780,000 for 1997. The increase is
due to increased sales and gross profit, offset in part by increased operating
expenses and interest expense.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had working capital of approximately
$14,913,000 compared with working capital of approximately $11,033,000 at June
30, 1997, an increase of approximately $3,880,000. The major components of this
increase are as follows: Inventories increased approximately $6,270,000 due to
the introduction of two new Posi-Track models in 1997 and one new Posi-Track
model in 1998 along with increased sales; Accounts receivable increased
approximately $1,625,000 due to increased sales; Cash and short-term investments
decreased approximately $2,424,000 as the Company built inventory levels and
equipped its expanded manufacturing facility; Current liabilities increased
approximately $1,742,000 due to the overall increase in the Company's volume and
profitability.
7
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The Company's working capital position at June 30, 1998 increased
approximately $1,571,000 when compared with December 31, 1997. Major components
of this increase are as follows. Inventories increased approximately $2,077,000
and accounts payable increased approximately $1,286,000 due to the increase in
the Company's production levels and additional parts required to manufacture new
models. Accounts receivables increased approximately $777,000 due to increased
sales volume. Cash and short-term investments increased approximately $402,000
due to increased profitability. In addition, the current portion of long-term
liabilities increased approximately $218,000 due to the additional debt incurred
for the Company's facility expansion and the acquisition of land and buildings
for storage and to house the Company's research and development activities.
During the second quarter of 1998, the Company amended its line of credit
agreement with its primary bank. The amended line of credit provides for
borrowings up to $5,000,000 at an interest rate of prime minus 1/2% (8% at June
30, 1998). All other major terms and conditions remain the same. The Company
believes its existing cash and investments, 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 at least
through the end of June 1999.
The Company has increased its number of employees by approximately 50% in
the last 12 months. In order to meet its anticipated sales levels for the next
twelve months, the Company expects it will increase its number of employees by
approximately 20% over the next twelve months. It is anticipated that nearly all
the additional employees will be in the production area. The Company believes
the local work force is sufficient to hire the additional employees.
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.
IMPACT OF THE YEAR 2000 ISSUE. The Year 2000 issue is the result of
computer programs being written using two digits rather than four to define the
applicable year. Some of the Company's computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process critical business transactions including recording of
sales, manufacture of products, inventory management and distribution,
preparation of invoices and collection of accounts receivables and many other
normal business activities.
The Company has begun to identify all relevant software that may affect the
Company's operations through surveys and examinations. Based on risk assessments
that have been completed for the majority of the Company's operations, the
Company must upgrade some of its existing software to ensure that the computer
systems will properly utilize dates beyond December 31, 1999. The Company
expects to convert its business operations to new Year 2000 compatible software
by the end of 1998. The cost of these conversions is not expected to have a
material impact on the Company. However, there can be no guarantee the software
of other companies on which the Company's systems rely will be timely converted,
or that a failure to convert by another company, or a conversion that is
incompatible with the Company's systems, would not have a material adverse
effect on the Company.
The statements set forth above under "Liquidity and Capital Resources" and
elsewhere in this Form 10-Q 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 new or existing products, inability to attract new
dealers for the Company's products, unexpected delays in obtaining raw
materials, unexpected delays in the manufacturing process, unexpected additional
expenses or operating losses or the activities of competitors. Any
forward-looking statements provided from time-to-time by the Company represent
only management's then-best current estimate of future results or trends.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
8
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ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of A.S.V., Inc. was held on June 19,
1998. Matters submitted at the meeting for vote by the shareholders were
as follows:
(a) Election of Directors.
The following directors were elected at the Annual Meeting, each
with the following votes:
For Against
--- -------
Philip C. Smaby 7,160,723 114,285
Gary D. Lemke 7,160,769 114,239
Edgar E. Hetteen 7,163,145 111,862
Jerome T. Miner 7,160,146 114,861
Karlin S. Symons 7,162,693 112,314
Leland T. Lynch 7,163,143 111,864
James H. Dahl 7,160,145 114,862
R. E. "Teddy" Turner, IV 7,158,519 116,488
(b) Amendment of the 1996 Incentive and Stock Option Plan to
increase the number of shares of Common Stock authorized for
issuance thereunder.
Shareholders approved the amendment to the 1996 Incentive and
Stock Option Plan with a vote of 4,642,809 votes for, 231,733
votes against, 100,795 shares abstaining and 2,299,669 broker
non-votes.
(c) Adoption of the 1998 Non-Employee Director Stock Option Plan
Shareholders adopted the 1998 Non-Employee Director Stock Option
Plan with a vote of 4,642,561 votes for, 296,272 votes against,
54,504 shares abstaining and 2,299,669 broker non-votes.
(d) Ratification of Appointment of Independent Public Accountants.
Shareholders ratified the appointment of Grant Thornton LLP as
the Company's independent public accountants for the fiscal year
ending December 31, 1998, with a vote of 7,249,582 votes for,
1,348 votes against and 24,076 shares abstaining.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit
Number Description
------ -----------
3.1 Second Restated Articles of Incorporation of the Company (a)
9
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3.1a Amendment to Second Restated Articles of Incorporation of the
Company filed January 6, 1997 (e)
3.1b Amendment to Second Restated Articles of Incorporation of the
Company filed May 4, 1998
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)
4.5 Form of Debenture issued October 1996 (d)
4.6 Warrant issued to Leo Partners, Inc. on December 1, 1996 (e)
4.7* 1996 Incentive and Stock Option Plan (f)
4.8* 1996 Incentive and Stock Option Plan, as amended (g)
4.9* 1998 Non-Employee Director Stock Option Plan (g)
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 EDA
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)
10.6 Supplemental Lease Agreement dated April 18, 1997 between
the EDA and the Company (f)
10.7 Supplemental Development Agreement dated April 18, 1997
between the EDA and the Company (f)
10.8 Line of Credit dated May 22, 1997 between Norwest Bank
Minnesota North, N.A. and the Company (f)
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 (e)
10.11 Extension of Lease Agreement dated May 13, 1998 between
the EDA and the Company
10.12 First Amendment to Credit Agreement dated June 30, 1998
between Norwest Bank Minnesota North, N.A. and the Company
11 Statement re: Computation of Per Share Earnings
22 List of Subsidiaries (a)
27 Financial Data Schedule for the six months ended June 30, 1998
10
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(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.
(e) Incorporated by reference to the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1996
(File No. 0-25620) filed electronically March 28, 1997.
(f) Incorporated by reference to the Company's Quarterly
Report on Form 10-QSB for the quarter ended June 30, 1997
(File No. 0-25620) filed electronically August 13, 1997.
(g) Incorporated by reference to the Company's Definitive
Proxy Statement for the year ended December 31, 1997
(File No. 0-25620) filed electronically April 28, 1998.
* 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 June 30, 1998.
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
A.S.V., INC.
Dated: August 13, 1998 By /s/ Gary Lemke
----------------------------
Gary Lemke
President
Dated: August 13, 1998 By /s/ Thomas R. Karges
----------------------------
Thomas R. Karges
Chief Financial Officer
(principal financial and accounting officer)
11
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT METHOD OF FILING
------- ----------------
<S> <C> <C>
3.1b Amendment to Second Restated Articles of Incorporation ....... Filed herewith electronically
10.11 Extension of Lease Agreement.................................. Filed herewith electronically
10.12 First Amendment to Credit Agreement .......................... Filed herewith electronically
11 Statement re: Computation of Per Share Earnings............... Filed herewith electronically
27 Financial Data Schedule....................................... Filed herewith electronically
</TABLE>
12
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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 April 14, 1998, pursuant to Section 302A.402,
Subdivision 3 of the Minnesota Business Corporation Act.
RESOLVED, that Article 3, Section 1 of the 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 45,000,000 shares,
consisting of 33,750,000 shares of common stock, par value
$.01 per share ("Common Stock"), and 11,250,000 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 April 14, 1998, which resolutions state the manner in which
the Company's share division will be effected.
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 4th day of May, 1998.
/s/ Edgar Hetteen
-------------------------
Edgar Hetteen, Secretary
<PAGE>
Exhibit 10.11
EXTENSION OF LEASE
THIS EXTENSION OF LEASE AGREEMENT, made as of May 13, 1998, by and
between the GRAND RAPIDS ECONOMIC DEVELOPMENT AUTHORITY, a public body politic
and corporate and a political subdivision under the laws of the State of
Minnesota, hereinafter referred to as "Landlord", and ASV, INC., a Minnesota
corporation, hereinafter referred to as "Tenant".
RECITALS
A. Landlord and Tenant have made and entered into a certain Lease and
Option Agreement, dated July 14, 1994, (the "Lease"), whereby Landlord demised
and leased to Tenant, and Tenant rented and hired from Landlord, the land (the
"Land"), situated in the City of Grand Rapids, County of Itasca and State of
Minnesota, described in Exhibit "A" and made a part hereof, together with
certain buildings, structures and improvements, fixtures, equipment and other
items now located or to be constructed or located on the Land.
B. Landlord has made and entered into the following documents ("IRRRB
Documents"):
i. Note, dated August 14, 1994, payable to the Office of the
Commissioner of Iron Range Resources and Rehabilitation, in the
principal sum of $1,000,000.00;
ii. Mortgage, dated August 14, 1994, to the Office of the
Commissioner of Iron Range Resources and Rehabilitation, to secure an
indebtedness of $1,000,000.00;
iii. Financial Assistance Agreement, State Contract No.
43000-80530, dated July 15, 1994, with the State of Minnesota, as
amended.
-1-
<PAGE>
C. Landlord and Tenant have made and entered into a certain Supplemental
Lease, dated April 18, 1997, (the "Supplemental Lease"), whereby Landlord
demised and leased to Tenant, and Tenant rented and hired from Landlord, the
additional land (the "Additional Land"), situated in the City of Grand Rapids,
County of Itasca and State of Minnesota, described in Exhibit "B" and made a
part hereof, together with all buildings, structures and improvements (the
"Phase II Development") now located or to be constructed on the Land and all
easements and appurtenances to the Additional Land owned by Landlord now or
hereafter located on the Land or used or procured for use in connection with the
Phase II Development.
D. Landlord and Tenant have made and entered into a certain Memorandum
of Supplemental Lease, dated April 18, 1997.
AGREEMENT
In consideration of the foregoing and the mutual obligations of the
parties hereto, each of them does hereby covenant and agree with the others to
extend the term of the Lease, as supplemented and amended, to January 1, 2018,
with monthly rent to continue in the amount then payable under the Lease and the
Supplemental Lease. Provided, that the lease shall not be so extended unless and
until tenant shall have performed all of its obligations necessary to satisfy
all requirements of the IRRRB Documents. All other terms, conditions provisions
and covenants of the Lease and Supplemental Lease shall continue in full force
and effect.
The parties have executed this Extension of Lease as of the date first
above written.
LANDLORD: TENANT:
GRAND RAPIDS ECONOMIC ASV, INC.
DEVELOPMENT AUTHORITY
BY: /s/ Thomas W. Saxhaug BY: /s/ Gary Lemke
-------------------------- ------------------------
GARY LEMKE
Its President Its President
AND: /s/ Edward M. Zabinski
---------------------------
Its Vice President
-2-
<PAGE>
STATE OF MINNESOTA )
) ss.
COUNTY OF ITASCA )
The foregoing instrument was acknowledged before me this 13 day of May,
1998, by Tom Saxhaug the President of the Grand Rapids Economic Development
Authority, a public body politic and corporate and a political subdivision under
the laws of the State of Minnesota, on behalf of the body.
/s/ Karen Alto
----------------------------
Notary Public
STATE OF MINNESOTA )
) ss.
COUNTY OF ITASCA )
The foregoing instrument was acknowledged before me this 13 day of May,
1998, by Edward Zabinski the Vice President of the Grand Rapids Economic
Development Authority, a public body politic and corporate and a political
subdivision under the laws of the State of Minnesota, on behalf of the body.
/s/ Karen Alto
---------------------------
Notary Public
STATE OF MINNESOTA )
) ss.
COUNTY OF ITASCA )
The foregoing instrument was acknowledged before me this 9 day of June,
1998, by Gary Lemke, the President, of ASV, Inc. a corporation under the laws of
the State of Minnesota, on behalf of the corporation.
/s/ Donna J. Hansen
-----------------------------
Notary Public
-3-
<PAGE>
Exhibit "A"
LEGAL DESCRIPTION
Lots three (3), Four (4) and Five (5), Block Three (3), INDUSTRIAL PARK TWO,
according to the plat thereof on file and of record in the Office of the County
Recorder in and for Itasca County, Minnesota.
-4-
<PAGE>
Exhibit "B"
Additional Land
The West three hundred eighty and no hundredths (380.00) feet of the North five
hundred seventy-four and thirty-nine hundredths (574.39) feet of Government Lot
Five (5), Section Twenty-seven (27), Township Fifty-five (55) North, Range
Twenty-five (25) West of the Fourth Principal Meridian, Itasca County,
Minnesota.
-5-
<PAGE>
EXHIBIT 10.12
NORWEST BANK MINNESOTA NORTH, NATIONAL ASSOCIATION
FIRST AMENDMENT TO CREDIT AGREEMENT
- --------------------------------------------------------------------------------
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (the "First Amendment") is dated as of
the 30th day of June, 1998, and is by and between A.S.V., Inc. (the "Borrower")
and Norwest Bank Minnesota North, National Association, a national banking
association (the "Bank").
REFERENCE IS HEREBY MADE to that certain Credit Agreement dated May 22, 1997
(the "Agreement") whereby Bank agreed to provide a Two Million and 00/100
Dollars ($2,000,000.00) line of credit to be used for working capital with a
Line Expiration Date of June 1, 1998.
WHEREAS, the Borrower has requested the Bank to extend the maturity date of its
credit line and increase said credit line to $5,000,000.00; and,
WHEREAS, the Bank is willing to grant the Borrower's requests, subject to the
provisions of this Amendment;
NOW, THEREFORE, the Bank and the Borrower agree as follows:
1. All references in the Agreement to the Two Million Dollars
($2,000,000.00) are hereby amended to FIVE MILLION DOLLARS
($5,000,000.00).
2. All references in the Agreement to the Line Expiration Date of June 1,
1998 are hereby amended to ON THE EARLIER OF DEMAND OR JUNE 1, 1999.
3. The Commitment Fee shall be paid quarterly beginning SEPTEMBER 30, 1998.
4. Page 4, Covenants, 1. Financial Information and Reporting, the sections
labeled INTERIM FINANCIAL STATEMENTS, BORROWING BASE CERTIFICATE,
ACCOUNTS RECEIVABLE AGING, ACCOUNTS PAYABLE AGING, and INVENTORY LIST of
the Agreement are hereby amended by adding the following after the
sentence "Provide the Bank within 20 days of each month end,":ONLY IF
THE BORROWER HAS AN OUTSTANDING BALANCE ON THE LINE OF CREDIT,
5. Page 6, Tangible Net Worth, of the Agreement is amended in its entirety
as follows: MAINTAIN A MINIMUM TANGIBLE NET WORTH OF AT LEAST
$9,000,000.00 AS OF THE END OF EACH FISCAL YEAR.
THE BORROWER hereby represents and warrants to the Bank as follows:
A. The Agreement constitutes a valid, legal and binding obligation owed
by the Borrower to the Bank, subject to no counterclaim, defense,
offset, abatements or recoupment.
B. As of the date of the Amendment, (i) all of the representations and
warranties contained in the Agreement are true and (ii) there exists no
Event of Default and no event which, with the giving of notice or the
passage of time, or both, could become an Event of Default.
<PAGE>
C. The execution, delivery and performance of this Amendment by the
Borrower are within its corporate powers, have been duly authorized, and
are not in contravention of law or the terms of the Borrower's Articles
of Incorporation or by-laws, or of any undertaking to which the Borrower
is a party or by which it is bound.
D. Except as modified by the Amendment, the Agreement remains unchanged
and in full force and effect.
IN WITNESS WHEREOF, the Borrower and the Bank have executed this Amendment as of
the date first written above.
A.S.V., Inc. NORWEST BANK MINNESOTA NORTH,
NATIONAL ASSOCIATION
By: /s/ Thomas R. Karges By: /s/ Gerald K. Johnson
--------------------------------- ----------------------------
Its CFO Its Vice President
<PAGE>
A.S.V., INC. AND SUBSIDIARY
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
BASIC 1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Earnings
Net income $ 927,079 $ 464,893 $1,718,917 $ 780,435
========== ========== ========== ==========
Shares
Weighted average number of common
shares outstanding 7,538,225 7,247,650 7,533,479 7,243,624
========== ========== ========== ==========
Basic earnings per common share $ .12 $ .06 $ .23 $ .11
========== ========== ========== ==========
DILUTED
Earnings
Net income $ 927,079 $ 464,893 $1,718,917 $ 780,435
Add after-tax interest expense applicable
to 6.5% convertible debentures 50,781 50,375 101,562 100,750
---------- ---------- ---------- ----------
Net income applicable to common stock $ 977,860 $ 515,268 $1,820,479 $ 881,185
========== ========== ========== ==========
Shares
Weighted average number of common
shares outstanding 7,538,225 7,247,650 7,533,479 7,243,624
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 811,702 835,432 759,916 856,658
Assuming conversion of 6.5% convertible
debentures 681,818 681,818 681,818 681,818
---------- ---------- ---------- ----------
Weighted average number of common and
common equivalent shares outstanding 9,031,745 8,764,900 8,975,213 8,782,100
========== ========== ========== ==========
Diluted earnings per common share $ .11 $ .06 $ .20 $ .10
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF EARNINGS FOUND PAGES 2 AND 3 OF
THE COMPANY'S FORM 10-Q FOR THE YEAR TO DATE, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,482,728
<SECURITIES> 490,577
<RECEIVABLES> 2,807,282
<ALLOWANCES> 40,000
<INVENTORY> 13,750,987
<CURRENT-ASSETS> 18,908,181
<PP&E> 5,311,795
<DEPRECIATION> 878,367
<TOTAL-ASSETS> 23,341,609
<CURRENT-LIABILITIES> 3,995,231
<BONDS> 7,447,597
0
0
<COMMON> 75,408
<OTHER-SE> 11,823,373
<TOTAL-LIABILITY-AND-EQUITY> 23,341,609
<SALES> 19,513,117
<TOTAL-REVENUES> 19,513,117
<CGS> 14,694,010
<TOTAL-COSTS> 14,694,010
<OTHER-EXPENSES> 1,954,435
<LOSS-PROVISION> 10,000
<INTEREST-EXPENSE> 255,525
<INCOME-PRETAX> 2,748,917
<INCOME-TAX> 1,030,000
<INCOME-CONTINUING> 1,718,917
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,718,917
<EPS-PRIMARY> .23
<EPS-DILUTED> .20<F1>
<FN>
<F1>Includes addback of after-tax interest expense for convertible debentures.
</FN>
</TABLE>
