<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 September 30, 1999
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. [X] Yes [_] No
As of November 11, 1999, 9,686,457 shares of registrant's $.01 par value
Common Stock were outstanding.
Page 1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
A.S.V., INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................ $ 77,994 $ 308,565
Short-term investments............................... 1,246,452 243,035
Accounts receivable, net............................. 8,699,927 4,563,840
Inventories.......................................... 33,271,646 18,776,758
Prepaid expenses and other........................... 934,270 1,076,446
----------- -----------
Total current assets 44,230,289 24,968,644
PROPERTY AND EQUIPMENT, net .......................... 4,769,652 4,563,996
----------- -----------
Total Assets $48,999,941 $29,532,640
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit....................................... $ 1,620,000 $ 3,535,000
Current portion of long-term liabilities............. 253,708 219,417
Accounts payable .................................... 4,807,498 2,913,526
Accrued liabilities
Compensation........................................ 280,367 281,055
Warranties.......................................... 400,000 400,000
Commission.......................................... 187,000 -
Other............................................... 234,988 204,017
----------- -----------
Total current liabilities........................ 7,783,561 7,553,015
----------- -----------
LONG-TERM LIABILITIES, less current portion........... 2,216,770 2,464,385
----------- -----------
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;
9,686,457 shares issued and outstanding in 1999;
8,601,835 shares issued and outstanding in 1998... 96,865 86,018
Additional paid-in capital........................... 30,816,605 12,701,622
Retained earnings.................................... 8,086,140 6,727,600
----------- -----------
38,999,610 19,515,240
----------- -----------
Total Liabilities and Shareholders' Equity $48,999,941 $29,532,640
=========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
A.S.V., INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1999 1998 1999 1998
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Net sales.............................. $ 8,781,259 $11,397,903 $26,308,077 $30,911,020
Cost of goods sold..................... 7,195,515 8,593,602 20,066,378 23,287,612
----------- ----------- ----------- -----------
Gross profit...................... 1,585,744 2,804,301 6,241,699 7,623,408
Operating expenses:
Selling, general and administrative 1,388,115 832,962 3,753,773 2,583,860
Research and development 149,062 77,412 412,446 280,949
----------- ----------- ----------- -----------
Operating income.................. 48,567 1,893,927 2,075,480 4,758,599
Other income (expense)
Interest expense (62,618) (128,085) (188,750) (383,610)
Other, net 49,949 31,576 196,810 171,346
----------- ----------- ----------- -----------
Income before income taxes........ 35,898 1,797,418 2,083,540 4,546,335
Provision for income taxes............. 15,000 675,000 725,000 1,705,000
----------- ----------- ----------- -----------
NET INCOME........................... $ 20,898 $ 1,122,418 $ 1,358,540 $ 2,841,335
=========== =========== =========== ===========
Net income per common share
Basic................................ $ .00 $ .14 $ .14 $ .37
=========== =========== =========== ===========
Diluted *............................ $ .00 $ .13 $ .14 $ .33
=========== =========== =========== ===========
Weighted average number of common
shares outstanding
Basic................................ 9,681,249 7,781,726 9,552,556 7,616,228
=========== =========== =========== ===========
Diluted *............................ 10,069,097 9,084,640 9,943,549 9,011,689
=========== =========== =========== ===========
</TABLE>
* Includes add back of after-tax effect of interest expense for convertible
debentures for 1998.
See notes to consolidated financial statements.
<PAGE>
A.S.V., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................ $ 1,358,540 $ 2,841,335
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation........................................................ 256,500 250,000
Interest accrued on capital lease obligation........................ 36,215 34,542
Deferred income taxes............................................... (90,000) (140,000)
Effect of warrant earned............................................ 113,400 113,400
Changes in assets and liabilities:
Accounts receivable............................................... (4,136,087) (1,113,675)
Inventories....................................................... (14,494,888) (4,542,214)
Prepaid expenses and other........................................ 232,176 (268,164)
Accounts payable.................................................. 1,893,972 1,950,219
Accrued expenses.................................................. 217,283 351,161
Income taxes payable.............................................. 265,000 458,326
------------ -----------
Net cash used in operating activities.................................. (14,347,889) (65,070)
------------ -----------
Cash flows from investing activities:
Purchase of property and equipment.................................... (462,156) (398,509)
Purchase of short-term investments.................................... (3,104,522) -
Redemption of short-term investments.................................. 2,101,105 763,354
------------ -----------
Net cash provided by (used in) investing activities.................... (1,465,573) 364,845
------------ -----------
Cash flows from financing activities:
Principal payments on line of credit.................................. (1,915,000) -
Principal payments on long-term liabilities........................... (249,539) (45,077)
Proceeds from sale of common stock and warrant, net of
offering costs..................................................... 17,549,173 -
Proceeds from exercise of stock options............................... 802,703 749,301
Retirements of common stock........................................... (604,446) (576,103)
------------ -----------
Net cash provided by financing activities.............................. 15,582,891 128,121
------------ -----------
Net increase (decrease) in cash and cash equivalents................... (230,571) 427,896
Cash and cash equivalents at beginning of period....................... 308,565 316,599
------------ -----------
Cash and cash equivalents at end of period............................. $ 77,994 $ 744,495
============ ===========
Supplemental disclosure of cash flow information:
Cash paid for interest................................................ $ 191,405 $ 369,438
Cash paid for income taxes............................................ 540,714 1,728,750
Supplemental disclosure of non-cash investing and financing activity:
Tax benefit from exercise of stock options............................ $ 265,000 $ 660,000
Assets acquired by incurring long-term liabilities.................... - 647,794
</TABLE>
See notes to consolidated financial statements.
<PAGE>
A.S.V., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(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.
Reclassification
Certain 1998 amounts have been reclassified to conform with the
presentation in the 1999 financial statements.
NOTE 2. CONTINGENCY
The Year 2000 issue relates to limitations in computer systems and
applications that may prevent proper recognition of the Year 2000. The
potential effect of the Year 2000 issue on the Company and its business partners
will not be fully determinable until the year 2000 and thereafter. If Year 2000
modifications are not properly completed either by the Company or entities with
whom the Company conducts business, the Company's financial condition and
results of operations could be adversely impacted.
<PAGE>
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 Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Net sales............................ 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................... 81.9 75.4 76.3 75.3
Gross profit......................... 18.1 24.6 23.7 24.7
Selling, general and administrative.. 15.8 7.3 14.3 8.4
Operating income..................... .6 16.6 7.9 15.4
Interest expense..................... .7 1.1 .7 1.2
Net income........................... .2 9.8 5.2 9.2
</TABLE>
For the three months ended September 30, 1999 and 1998.
Net Sales. For the three months ended September 30, 1999, net sales were
approximately $8,781,000, compared with approximately $11,398,000 for the same
period in 1998. The main factor for the decrease is the overall decrease in
Posi-Track related sales which is the net effect of three primary items. First,
ASV's sales were affected by the continued transition of selling the Company's
Posi-Track products to the Caterpillar dealer network. It is the Company's
belief that Caterpillar dealers, due to their large size and extensive
geographic coverage, follow a more deliberate, structured approach to taking on
new product lines such as the Posi-Track than ASV's independent dealers.
However, the Company believes these larger dealers are capable of placing
greater unit orders than ASV's independent dealers. Second, during the third
quarter of 1999, the Company experienced unexpected production delays as it
began manufacturing its newest model Posi-Track, the 4810. These production
delays prevented a greater number of these units from being manufactured in
third quarter, thereby reducing net sales for this product. Third, the Company
had net sales of approximately $1.7 million on a military contract for the sale
of specially equipped Posi-Tracks during the third quarter of 1999. The Company
had no similar sales during the third quarter of 1998.
Gross Profit. Gross profit for the three months ended September 30, 1999
was approximately $1,586,000, or 18.1% of net sales compared with approximately
$2,804,000, or 24.6% of net sales, in 1998. The decreased gross profit was
attributable to decreased sales volume and a lower gross profit percentage for
third quarter 1999. The decreased gross profit percentage was attributable to
two main factors. First, the Company experienced production inefficiencies
during the start up of the production line for the 4810, which resulted in lower
unit production. Second, gross profit percentage was reduced due to the large
subcontract costs on the military contract completed in the third quarter of
1999. The gross profit percentage on the contract was as expected, approximately
12%.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from approximately $833,000 for the third
quarter of 1998 to approximately $1,388,000 for the same period in 1999. As a
percentage of net sales, selling, general and administrative expenses increased
from 7.3% of net sales in third quarter 1998, to 15.8% of net sales in third
quarter 1999. The increased dollar volume was due to several items. First,
during third quarter 1999, the Company had increased start up, training and
market development costs relating to new dealers. Second, the Company had
increased compensation costs as sales and administrative personnel have been
added to support expanded sales and customer service roles. Third, the Company
had increased costs related to the commission paid to Caterpillar Inc. for sales
of products to Caterpillar dealers, which accounted for one third of the
increase in selling, general administrative expenses. Consequently, the
increased expenses combined with the decreased sales caused an increase in
selling, general and administrative expenses when expressed as a percentage of
net sales.
Research and Development. Research and development expenses increased from
approximately $77,000 in third quarter 1998 to approximately $149,000 in 1999.
The increase was due mainly to the development of the Company's new, smaller
concept vehicle and work on the development of a rubber tracked agricultural
tractor.
<PAGE>
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 decreased from approximately $128,000
for the third quarter of 1998 to approximately $63,000 for the third quarter of
1999. The decrease was due to the elimination of the interest expense in 1999
for the Company's convertible debentures, which were exchanged for common stock
in the fourth quarter of 1998, offset in part by increased interest expense due
to greater line of credit usage.
Net Income. Net income for the third quarter of 1999 was approximately
$21,000, compared with approximately $1,122,000 for the third quarter of 1998.
The decrease in 1999 resulted primarily from decreased sales, decreased gross
profit percentage and increased operating expenses, offset in part by decreased
interest expense.
For the nine months ended September 30, 1999 and 1998.
Net Sales. Net sales for the nine months ended September 30, 1999
decreased 14.9%, to approximately $26,308,000 compared with approximately
$30,911,000 for the same period in 1998. This decrease was due primarily to the
decreased sales of the Company's Posi-Track products, offset in part by
increased sales under military contracts. The decrease is attributable to the
continued transition of selling the Company's Posi-Track products to the
Caterpillar dealer network and production delays related to the model 4810 Posi-
Track as discussed above. The Company had increased net sales of specially
equipped Posi-Tracks of approximately $2,365,000 related to military contracts
during the nine months ended September 30, 1999.
Gross Profit. Gross profit for the nine months ended September 30, 1999
was approximately $6,242,000, or 23.7% of net sales compared with approximately
$7,623,000, or 24.7% of net sales, for the nine months ended September 30, 1998.
The decreased gross profit was due to decreased sales and a lower gross profit
percentage for 1999. The decreased gross profit percentage in 1999 was due
primarily to the production inefficiencies experienced during the start up of
production of the model 4810 Posi-Track and the lower than average gross profit
realized on the military contracts as discussed above.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from approximately $2,584,000, or 8.4% of net
sales for the nine months ended September 30, 1998, to approximately $3,754,000,
or 14.3% of net sales, for the nine months ended September 30, 1999. The
increased dollar volume was due to increased marketing costs, including dealer
start up costs, as well as training and market development costs. In addition,
the Company experienced increased compensation costs as sales and administrative
personnel have been added to support expanded sales and customer service roles.
In particular, the commission paid to Caterpillar Inc. accounted for slightly
over one-half of the increase in selling, general administrative expenses. The
combination of increased expenses and decreased sales resulted in an increase in
the percentage of selling, general and administrative expenses when expressed as
a percent of net sales.
Research and Development. Research and development expenses increased from
approximately $280,000 in 1998 to approximately $412,000 in 1999. The increase
was due mainly to the development of the model 4810 Posi-Track which went into
production in third quarter 1999, a smaller concept vehicle, and a rubber
tracked agricultural tractor as well as continuing improvements to the Company's
existing models.
Interest Expense. Interest expense decreased from approximately $384,000
for the nine months ended September 30, 1998 to approximately $189,000 for the
same period in 1999. The decrease was the net effect of two factors. First,
the Company's convertible debentures were exchanged for common stock in the
fourth quarter of 1998, eliminating future interest expense on the debentures.
Second, the Company increased its line of credit borrowings during 1999 to fund
operations.
Net Income. Net income for the nine months ended September 30, 1999
decreased to approximately $1,359,000 from approximately $2,841,000 for 1998.
The decrease resulted primarily from decreased sales with lower gross profit
percentage and increased operating expenses, offset in part by decreased
interest expense. In addition, the Company also recorded a $50,000 income tax
benefit for amended income tax returns for prior years.
<PAGE>
Liquidity and Capital Resources
At September 30, 1999, the Company had working capital of approximately
$36,447,000 compared with working capital of approximately $17,416,000 at
December 31, 1998, an increase of approximately $19,031,000. This increase was
due to the sale of common stock and a warrant to Caterpillar Inc. in January
1999 for $18 million. The Company used these proceeds primarily to reduce its
line of credit and fund current operations. Inventory levels increased 77%
compared with December 31, 1998 due to several reasons. During the transition
to Caterpillar dealers, the Company chose not to reduce its production levels,
but instead, increased its finished goods, primarily its 2800 and 2810 model
Posi-Tracks. It is the Company's intent to market these finished units to its
current dealers, as well as additional international Caterpillar dealers. Other
reasons for the inventory increase include the delay in the start of production
of the 4810 Posi-Track, the general increase in inventory needed to begin
production of the new model, the long lead times to purchase certain inventory
items, and the repurchase of certain inventory from current and former dealers.
Accounts receivable increased due to increased sales to governmental agencies
and the offering of extended finance terms to certain dealers. Accounts payable
increased due to amounts owing to subcontractors for the Company's governmental
agency sales and the general increase in raw materials.
On October 14, 1998, the Company entered into a Securities Purchase
Agreement (the Agreement) with Caterpillar Inc. (Caterpillar). The Agreement
was approved by the Company's shareholders on January 28, 1999 and closed
January 29, 1999. Under the terms of the Agreement, Caterpillar acquired, for an
aggregate purchase price of $18,000,000, one million newly issued shares of the
Company's common stock and a warrant to purchase an additional 10,267,127 newly-
issued shares of the Company's common stock at a price of $21.00 per share.
Also under the terms of the Agreement, the Company's board of directors was
increased from eight to ten with the additional two members appointed as
designated by Caterpillar.
In connection with entering into the Agreement, the Company and Caterpillar
have entered into several ancillary agreements. These agreements provide the
Company access to Caterpillar's dealer network and also make various management,
financial and engineering resources from Caterpillar available to the Company
following the closing. One of these agreements is a Marketing Agreement which
provides, among other things, that the Company will pay Caterpillar a commission
equal to 5% of the dealer net price for complete machines and 3% for replacement
parts and Company-branded attachments for all sales made to Caterpillar dealers.
Should the Company manufacture products that are sold under the Caterpillar
brand name, the Company will pay Caterpillar a trademark license fee equal to 3%
of the net sales of these products to Caterpillar dealers.
It is the intent of the Company and Caterpillar to introduce the Company's
Posi-Track products to Caterpillar's North American dealers as soon as
practicable. With the signing and announcement of the Agreement with
Caterpillar, certain of the Company's existing, non-Caterpillar dealers have
been hesitant to place orders for the Company's products. Management believes
these dealers are uncertain of their future status as Posi-Track dealers.
Between the time of the announcement of the Caterpillar transaction and
September 1999, approximately 55 dealer locations decided to no longer carry the
Company's products. These 55 locations are comprised of 18 dealers who will no
longer carry the Company's products and two dealers whose Posi-Track trade area
has been reduced. One dealer whose trade area has been reduced was the
Company's largest customer for 1998. This dealer accounted for approximately
21% of the Company's net sales in 1998. This dealer is a Caterpillar dealer and
its Posi-Track trade area was reduced as it was selling into the trade area of
approximately nine other Caterpillar dealers. During that same time period, the
number of Caterpillar dealers selling and servicing the Posi-Track product line
has increased from six to 35, representing dealers in the United States, Canada
and Australia with a total of over 250 locations. The Company is also actively
pursuing distribution through additional Caterpillar dealers in Australia, as
well as Central and South America.
The Company believes that since the signing of the Agreement its sales have
decreased due to the factors discussed above, along with several other factors.
First, the Company believes certain Caterpillar dealers were waiting for the
introduction of the model 4810 Posi-Track before placing orders. The 4810
incorporates more Caterpillar components than any previous Posi-Track and
utilizes a Caterpillar engine. As of October 31, 1999, the Company had an order
backlog of approximately $2.8 million for the 4810. The Company believes this
order rate will increase as more dealers and customers are exposed to the 4810.
Second, certain Caterpillar dealers have chosen to wait until they have received
training on the Posi-Track from factory representatives before placing
significant orders. The Company is continuing the comprehensive training
program it started in the second quarter to educate the Caterpillar dealers on
the Posi-Track's unique undercarriage. In connection with that program, ASV
increased its number of technical field reps in the third quarter. These field
reps will provide training and support to ASV's dealers on an ongoing basis.
Third, the Company believes certain Caterpillar dealers are waiting to place
orders until non-Caterpillar Posi-Track dealers are no longer carrying the
Company's products in that
<PAGE>
Caterpillar dealer's trade area. The Company is working with these dealers to
provide a smooth transition to the Caterpillar dealer network. Finally, the
Company believes certain Caterpillar dealers were waiting to place orders until
they could utilize Caterpillar's computer system to order Posi-Tracks. In the
third quarter, the interface between ASV and Caterpillar's computer system was
completed. This interface will allow Caterpillar dealers to order ASV Posi-
Tracks and parts, as well as process warranty claims, on-line in the same manner
they do for Caterpillar products. The Company believes the slow-down in sales is
temporary and expects the order level to increase as additional Caterpillar
dealers receive training and begin carrying the Posi-Track models.
In connection with the decision of certain of the Company's independent
dealers to no longer carry the Posi-Track product line, the Company has made
arrangements with certain of these dealers to repurchase their existing
inventory of Posi-Track products and transfer it to the new Caterpillar dealers.
In some instances, it has been necessary for the Company to take possession of
the inventory, rather than transferring it directly to the new Caterpillar
dealer. In these situations, the Company will be responsible for re-marketing
this inventory. The Company does not currently anticipate a material loss from
the re-marketing of this inventory.
As a result of the transaction with Caterpillar, the Company's near term
net sales, profitability and other financial results are expected to be lower
than if the transaction were not entered into. The decline is related to a
number of factors, including (i) the commission to be paid to Caterpillar for
sales made to Caterpillar dealers, (ii) start up, training and market
development costs related to new dealers (iii) transition issues affecting
orders from the preexisting non-Caterpillar affiliated dealers, and (iv) certain
other costs of implementing the transaction and the ancillary agreements. Over
the longer term, however, management believes that the Company will be able to
achieve improved financial results due to the transaction, including the
ancillary agreements.
The Company believes its existing cash and marketable securities, together
with cash expected to be provided by operations and available credit lines, will
satisfy the Company's projected working capital needs and other cash
requirements for at least the next twelve months. However, should the Company
find it necessary to offer extended terms on the sale of a large percentage of
its products, the Company may need to finance the related accounts receivable
from these sales. The Company believes it can obtain this financing, although
it cannot be guaranteed.
Impact of the Year 2000 Issue. The Company has established a team to assess
and address the possible exposures related to the Year 2000 ("Y2K") issue. The
areas under investigation include business computer systems, production
equipment, vendor readiness and contingency plans. The Company does not use
internally developed computer software and is therefore not anticipating major
reprogramming efforts. The Company's primary financial and operational system
has been assessed and is certified Y2K compliant. The Company is currently in
the process of upgrading to Y2K compliant versions of several ancillary
applications that are not currently Y2K compliant, the cost of which is not
expected to be material. The majority of the Company's personal computers are
currently Y2K compliant. Those computers that are not currently Y2K compliant
are in the process of being replaced as part of the Company's technology update
strategy. None of these replacements have been accelerated in response to the
Y2K issue and are not anticipated to have a material effect on the Company's
consolidated financial statements. Equipment used for production or quality
control does not use dates to control operations. The costs of this examination
and upgrading to date have been expensed as incurred and have totaled less than
$5,000.
The Company believes its most significant year 2000 risk relates to year
2000 compliance of the Company's suppliers and customers, particularly because
the Company is dependent on third party suppliers for certain components of its
products. The Company has mailed questionnaires to its significant vendors to
determine the extent to which the Company may be vulnerable to those third
parties' failure to remedy their own Y2K issues. The Company has reviewed and
evaluated the responses to the returned questionnaires and believes its major
vendors are Y2K compliant. The Company does not expect it will need to seek new
vendors for its major production components as a result of Y2K noncompliance.
However, there can be no assurance that the year 2000 issue will be properly
addressed by customers, vendors and other third parties. The efforts of third
parties are not within the Company's control, and their failure to remedy year
2000 issues successfully could result in business disruption, loss of net sales
and increased operating costs.
Although the Company does not at this time expect a significant impact on
its consolidated financial position, results of operations and cash flows, there
can be no assurance that the systems of other companies will be converted on a
timely basis and will not have a corresponding adverse effect on the Company.
The statements set forth above under "Liquidity and Capital Resources" in
this Form 10-Q which are not historical facts are forward-looking statements
including the statements regarding ASV's future order rate for its model 4810
Posi-
<PAGE>
Track, the Company's expected net sales, profitability and other financial
results in 1999 and beyond, the Company's capital needs and the impact of and
the Company's plans with respect to the year 2000. These forward-looking
statements 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, the activities of competitors or the failure of
the Company or third parties to adequately address issues relating to the Year
2000. Additional factors include the Company's ability to realize the
anticipated benefits from the relationship with Caterpillar and the factors set
forth in the Risk Factors filed as Exhibit 99 to the Company's Report on Form
10-Q for the three months ended June 30, 1999. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has no history of, and does not anticipate in the future,
investing in derivative financial instruments, derivative commodity instruments
or other such financial instruments. Transactions with international customers
are entered into in US dollars, precluding the need for foreign currency hedges.
Additionally, the Company invests in money market funds and fixed rate U.S.
government and corporate obligations, which experience minimal volatility.
Thus, the exposure to market risk is not material.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
3.1 Second Restated Articles of Incorporation of the Company (a)
3.1a Amendment to Second Restated Articles of Incorporation of the
Company filed January 6, 1997 (e)
3.1b Amendment to Second Restated Articles of Incorporation of the
Company filed May 4, 1998 (h)
3.2 Bylaws of the Company (a)
3.3 Amendment to Bylaws of the Company adopted April 13, 1999
<PAGE>
4.1 Specimen form of the Company's Common Stock Certificate (a)
4.3 * 1994 Long-Term Incentive and Stock Option Plan (a)
4.4 Warrant issued to Leo Partners, Inc. on December 1, 1996 (d)
4.5 * 1996 Incentive and Stock Option Plan (e)
4.6 * 1996 Incentive and Stock Option Plan, as amended (f)
4.7 * 1998 Non-Employee Director Stock Option Plan (f)
4.8 Securities Purchase Agreement dated October 14, 1998 between
Caterpillar Inc. and the Company(h)
4.9 Warrant issued to Caterpillar Inc. on January 29, 1999 (i)
4.10 Option Certificate dated as of October 14, 1998 between
Caterpillar Inc and the Company (h)
4.11 Voting Agreement dated as of October 14, 1998 by certain
shareholders of the Company and Caterpillar Inc. (h)
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 Supplemental Lease Agreement dated April 18, 1997 between the EDA
and the Company (e)
10.5 Supplemental Development Agreement dated April 18, 1997 between
the EDA and the Company (e)
10.6 Line of Credit dated May 22, 1997 between Norwest Bank Minnesota
North, N.A. and the Company (e)
10.7 * Employment Agreement dated October 17, 1994 between the Company
and Thomas R. Karges (c)
10.8 Consulting Agreement between the Company and Leo Partners, Inc.
dated December 1, 1996 (d)
10.9 Extension of Lease Agreement dated May 13, 1998 between the EDA
and the Company (g)
10.10 First Amendment to Credit Agreement dated September 30, 1998
between Norwest Bank Minnesota North, N.A. and the Company (g)
10.11 Commercial Alliance Agreement dated October 14, 1998 between
Caterpillar Inc. and the Company (h)
10.12 Management Services Agreement dated January 29, 1999 between
Caterpillar Inc. and the Company (j)
10.13 Marketing Agreement dated January 29, 1999 between Caterpillar
Inc. and the Company (j)
10.14 Third Amendment to Credit Agreement dated June 9, 1999 between
Norwest Bank Minnesota North, N.A. and the Company (k)
11 Statement re: Computation of Per Share Earnings
22 List of Subsidiaries (a)
27 Financial Data Schedule for the nine months ended September 30,
1999
<PAGE>
99 Risk Factors (k)
- -----------------
(a) Incorporated by reference to the Company's Registration Statement
on Form SB-2 (File No. 33-61284C) filed July 7, 1994.
(b) Incorporated by reference to the Company's Post-Effective
Amendment No. 1 to Registration Statement on Form SB-2 (File No.
33-61284C) filed August 3, 1994.
(c) Incorporated by reference to the Company's Quarterly Report on
Form 10-QSB for the quarter ended September 30, 1994 (File No.
33-61284C) filed November 11, 1994.
(d) Incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1996 (File No. 0-25620)
filed electronically March 28, 1997.
(e) Incorporated by reference to the Company's Quarterly Report on
Form 10-QSB for the quarter ended June 30, 1997 (File No. 0-
25620) filed electronically August 13, 1997.
(f) Incorporated by reference to the Company's Definitive Proxy
Statement for the year ended December 31, 1997 (File No. 0-25620)
filed electronically April 28, 1998.
(g) Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998 (File No. 0-25620)
filed electronically August 12, 1998.
(h) Incorporated by reference to the Company's Current Report on Form
8-K (File No. 0-25620) filed electronically October 27, 1998.
(i) Incorporated by reference to the Company's Current Report on Form
8-K (File No. 0-25620) filed electronically February 11, 1999.
(j) Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1998 (File No. 0-25620)
filed electronically March 26, 1999.
(k) Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999 (File No. 0-25620)
filed electronically August 9, 1999.
* 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 September 30,
1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
A.S.V., Inc.
Dated: November 12, 1999 By /s/ Gary Lemke
-----------------------------------------
Gary Lemke
President
Dated: November 12, 1999 By /s/ Thomas R. Karges
-----------------------------------------
Thomas R. Karges
Chief Financial Officer
(principal financial and accounting
officer)
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Method of Filing
- ------- ----------------
<S> <C>
3.3 Amendment to Bylaws of the Company adopted April 13, 1999..... Filed herewith electronically
11 Statement re: Computation of Per Share Earnings............... Filed herewith electronically
27 Financial Data Schedule....................................... Filed herewith electronically
</TABLE>
<PAGE>
EXHIBIT 3.3
A.S.V., Inc.
Amendment to Bylaws
Adopted by the Board of Directors
April 13, 1999
RESOLVED, that the following Section 2.10 is hereby added to the Company's
Bylaws to read in its entirety as follows:
Section 2.10. Nomination of Directors. Nominations of persons for
-----------------------
election as directors may be made at a regular meeting of shareholders (i)
by or at the direction of the Board of Directors or (ii) by any shareholder
who (A) was a shareholder of record at the time of giving of notice
provided for in these Bylaws, (B) is entitled to vote at the meeting and
(C) gives prior notice of the nomination in the manner herein provided.
For a nomination to be properly made by a shareholder, the shareholder must
give written notice to the Secretary of the corporation so as to be
received at the principal executive offices of the corporation at least 120
days before the date that is one year after the date the corporation's
proxy statement for the prior year's regular meeting was first mailed to
shareholders. Such notice shall set forth (i) as to the shareholder giving
the notice: (A) the name and record address of the shareholder and of the
beneficial owner, if any, on whose behalf the nomination will be made, and
(B) the class and number of shares of the corporation owned by the
shareholder and beneficially owned by the beneficial owner, if any, on
whose behalf the nomination will be made and (ii) as to each person the
shareholder proposes to nominate: (A) the name, age, business address and
residence address of the person, (B) the principal occupation or employment
of the person and (C) the class and number of shares of the corporation's
capital stock beneficially owned by the person. The chairman of the
meeting may refuse to acknowledge the nomination of any person not made in
compliance with the foregoing procedure.
FURTHER RESOLVED, that the following Section 2.11 is hereby added to the
Company's Bylaws to read in its entirety as follows:
Section 2.11 Proposals. To be properly brought before a regular
---------
meeting of shareholders, business must be (i) specified in the notice of
the meeting, (ii) directed to be brought before the meeting by the Board of
Directors or (iii) proposed at the meeting by a shareholder who (A) was a
shareholder of record at the time of giving of notice provided for in these
Bylaws, (B) is entitled to vote at the meeting and (C) gives prior notice
of the matter, which must otherwise be a proper matter for shareholder
action, in the manner herein provided. For business to be properly brought
before a regular meeting by a shareholder, the shareholder must give
written notice to the Secretary of the corporation so as to be received at
the principal executive offices of the corporation at least 120 days before
the date that is one year after the date the corporation's proxy statement
for the prior year's regular meeting was first mailed to shareholders.
Such notice shall set forth (i) the name and record address of the
shareholder and of the beneficial owner, if any, on whose behalf the
proposal will be made, (ii) the class and number of shares of the
corporation owned by the shareholder and beneficially owned by the
beneficial
<PAGE>
owner, if any, on whose behalf the proposal will be made, (iii) a brief
description of the business desired to be brought before the regular
meeting and the reasons for conducting such business and (iv) any material
interest in such business of the shareholder and the beneficial owner, if
any, on whose behalf the proposal is made. The chairman of the meeting may
refuse to acknowledge any proposed business not made in compliance with the
foregoing procedure.
FURTHER RESOLVED, that the following Section 2.12 is hereby added to the
Company's Bylaws to read in its entirety as follows:
Section 2.12 Conduct of Meetings. The presiding officer of the
-------------------
meeting shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of
such presiding officer, are appropriate for conduct of the meeting. To the
extent not prohibited by law, such rules, regulations or procedures may
include, without limitation, establishment of (i) an agenda or order of
business for the meeting and the method by which business may be proposed,
(ii) rules and procedures for maintaining order at the meeting and the
safety of those present, (iii) limitations on attendance at or
participation in the meeting to shareholders of record of the corporation,
their duly authorized proxies or such other persons as the presiding
officer of the meeting shall determine, (iv) restrictions on entry to the
meeting after the time fixed for the commencement thereof and (v)
limitations on the time allotted to questions or comments by participants.
Any proposed business contained in the notice of a regular meeting is
deemed to be on the agenda and no further motions or other actions shall be
required to bring such proposed business up for consideration. Unless and
to the extent otherwise determined by the presiding officer of the meeting,
it shall not be necessary to follow Robert's Rules of Order or any other
rules of parliamentary procedure at the meeting of the shareholders.
Following completion of the business of the meeting as determined by the
presiding officer of the meeting, the presiding officer of the meeting
shall have the exclusive authority to adjourn the meeting.
<PAGE>
EXHIBIT 11
A.S.V., Inc. and Subsidiary
Exhibit 11 - Computation of Earnings per Share
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
1999 1998 1999 1998
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Basic
Earnings
Net income $ 20,898 $1,122,418 $1,358,540 $2,841,335
=========== ========== ========== ==========
Shares
Weighted average number of common
shares outstanding 9,681,249 7,781,726 9,552,556 7,616,228
=========== ========== ========== ==========
Basic earnings per common share $ .00 $ .14 $ .14 $ .37
=========== ========== ========== ==========
Diluted
Earnings
Net income $ 20,898 $1,122,418 $1,358,540 $2,841,335
Add after-tax interest expense applicable
to 6.5% convertible debentures - 50,781 - 152,343
----------- ---------- ---------- ----------
Net income applicable to common stock $ 20,898 $1,173,199 $1,358,540 $2,993,678
=========== ========== ========== ==========
Shares
Weighted average number of common
shares outstanding 9,681,249 7,781,726 9,552,556 7,616,228
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 387,848 621,096 390,993 713,643
Assuming conversion of 6.5% convertible
debentures - 681,818 - 681,818
----------- ---------- ---------- ----------
Weighted average number of common and
common equivalent shares outstanding 10,069,097 9,084,640 9,943,549 9,011,689
=========== ========== ========== ==========
Diluted earnings per common share $ .00 $ .13 $ .14 $ .33
=========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEETS AND STATEMENTS OF EARNINGS FOUND ON PAGES 2 AND 3 OF THE
COMPANY'S FORM 10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 77,994
<SECURITIES> 1,246,452
<RECEIVABLES> 8,739,927
<ALLOWANCES> 40,000
<INVENTORY> 33,271,646
<CURRENT-ASSETS> 44,230,289
<PP&E> 5,899,700
<DEPRECIATION> 1,130,048
<TOTAL-ASSETS> 48,999,941
<CURRENT-LIABILITIES> 7,783,561
<BONDS> 2,216,770
0
0
<COMMON> 96,865
<OTHER-SE> 38,902,745
<TOTAL-LIABILITY-AND-EQUITY> 48,999,941
<SALES> 26,308,077
<TOTAL-REVENUES> 26,308,077
<CGS> 20,066,378
<TOTAL-COSTS> 20,066,378
<OTHER-EXPENSES> 4,166,219
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 188,750
<INCOME-PRETAX> 2,083,540
<INCOME-TAX> 725,000
<INCOME-CONTINUING> 1,358,540
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,358,540
<EPS-BASIC> .14
<EPS-DILUTED> .14
</TABLE>
