<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 MARCH 31, 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. :                                                [X] Yes  [ ] No

          As of May 4, 1998 5,026,043 shares of the registrant's Common Stock
were issued and outstanding.

                                       1
<PAGE>
 
                         PART I - FINANCIAL INFORMATION

                          ITEM 1 - FINANCIAL STATEMENTS

                           A.S.V., INC. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                            MARCH 31,    December 31,
                                                              1998           1997
                                                           -----------   -----------
    ASSETS                                                 (Unaudited)
<S>                                                        <C>           <C>        
CURRENT ASSETS
   Cash and cash equivalents ...........................   $   923,170   $   316,599
   Short-term investments ..............................     1,005,018     1,255,160
   Accounts receivable, net ............................     2,685,560     1,989,906
   Inventories .........................................    12,658,598    11,674,027
   Prepaid expenses and other ..........................       355,060       342,896
                                                           -----------   -----------
              Total current assets .....................    17,627,406    15,578,588

Property and equipment, net ............................     4,374,498     3,636,091
                                                           -----------   -----------

              Total Assets                                 $22,001,904   $19,214,679
                                                           ===========   ===========


     LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
   Current portion of long-term liabilities ............   $   217,515   $      --
   Accounts payable ....................................     2,334,734     1,474,701
   Accrued liabilities
     Compensation ......................................       134,526       180,349
     Interest ..........................................        92,351        81,250
     Warranties ........................................       250,000       200,000
     Other .............................................       168,024        98,998
   Income taxes payable ................................       447,924       201,674
                                                           -----------   -----------
              Total current liabilities                      3,645,074     2,236,972
                                                           -----------   -----------

LONG-TERM LIABILITIES, less current portion ............     7,452,926     7,020,608
                                                           -----------   -----------

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;
       5,022,582 shares issued and outstanding in 1998;
       5,012,207 shares issued and outstanding in 1997 .        50,226        50,122
   Additional paid-in capital ..........................     6,700,295     6,545,432
   Retained earnings ...................................     4,153,383     3,361,545
                                                           -----------   -----------
                                                            10,903,904     9,957,099
                                                           -----------   -----------

              Total Liabilities and Shareholders' Equity   $22,001,904   $19,214,679
                                                           ===========   ===========
</TABLE>

See notes to consolidated financial statements.

                                       2
<PAGE>
 
                           A.S.V., INC. AND SUBSIDIARY

                       CONSOLIDATED STATEMENTS OF EARNINGS

                   THREE MONTHS ENDED MARCH 31, 1998 AND 1997

<TABLE>
<CAPTION>
                                                           1998            1997
                                                        -----------    -----------
<S>                                                     <C>            <C>        
Net sales ...........................................   $ 9,028,838    $ 4,651,185

Cost of goods sold ..................................     6,770,995      3,582,043
                                                        -----------    -----------

         Gross profit ...............................     2,257,843      1,069,142
                                                        -----------    -----------

Operating expenses:
   Selling, general and administrative ..............       808,195        488,057
   Research and development .........................        98,449         44,938
                                                        -----------    -----------
                                                            906,644        532,995
                                                        -----------    -----------

         Operating income ...........................     1,351,199        536,147
                                                        -----------    -----------

Other income (expense)
   Interest expense .................................      (128,946)       (92,952)
   Other, net .......................................        34,585         65,347
                                                        -----------    -----------
                                                            (94,361)       (27,605)
                                                        -----------    -----------

         Income before income taxes .................     1,256,838        508,542

Provision for income taxes ..........................       465,000        193,000
                                                        -----------    -----------

         NET INCOME .................................   $   791,838    $   315,542
                                                        ===========    ===========

Net income per common share:

     Basic ..........................................   $       .16    $       .07
                                                        ===========    ===========

     Diluted * ......................................   $       .14    $       .06
                                                        ===========    ===========

Weighted average number of common shares outstanding:

     Basic ..........................................     5,019,156      4,826,398
                                                        ===========    ===========

     Diluted * ......................................     5,945,788      5,866,200
                                                        ===========    ===========
</TABLE>

* Includes add back of after-tax effect of interest expense for convertible
debentures.

See notes to consolidated financial statements.

                                       3
<PAGE>
 
                           A.S.V., INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                   THREE MONTHS ENDED MARCH 31, 1998 AND 1997

<TABLE>
<CAPTION>
                                                                              1998           1997
                                                                          -----------    -----------
<S>                                                                       <C>            <C>        
Cash flows from operating activities:
   Net income .........................................................   $   791,838    $   315,542
   Adjustments to reconcile net income to net
     cash provided by operating activities:
       Depreciation ...................................................        75,000         39,000
       Interest accrued on capital lease obligation ...................         2,039         11,514
       Deferred income taxes ..........................................       (35,000)       (26,000)
       Effect of warrant earned .......................................        37,800         37,800
       Changes in assets and liabilities:
         Accounts receivable ..........................................      (695,654)        83,579
         Inventories ..................................................      (984,571)    (1,010,812)
         Prepaid expenses and other ...................................        22,836        (31,583)
         Accounts payable .............................................       860,033      1,148,948
         Accrued expenses .............................................        84,304        (72,905)
         Income taxes payable .........................................       246,250       (111,000)
                                                                          -----------    -----------

Net cash provided by operating activities .............................       404,875        384,083
                                                                          -----------    -----------

Cash flows from investing activities:
   Purchase of property and equipment .................................      (165,613)      (329,489)
   Purchase of short-term investments .................................          --       (1,001,240)
   Redemption of short-term investment ................................       250,142           --
                                                                          -----------    -----------

Net cash provided by (used in) investing activities ...................        84,529     (1,330,729)
                                                                          -----------    -----------

Cash flows provided by financing activities:
   Proceeds from exercise of stock options ............................        57,167         31,459
   Tax benefit related to exercise of stock options ...................        60,000        133,000
                                                                          -----------    -----------

Net cash provided by financing activities .............................       117,167        164,459
                                                                          -----------    -----------

Net increase (decrease) in cash and cash equivalents ..................       606,571       (782,187)

Cash and cash equivalents at beginning of period ......................       316,599      3,042,494
                                                                          -----------    -----------

Cash and cash equivalents at end of period ............................   $   923,170    $ 2,260,307
                                                                          ===========    ===========

Supplemental disclosure of cash flow information:
   Cash paid for interest .............................................   $   117,845    $    78,973
   Cash paid for income taxes .........................................       193,750        197,000

Supplemental disclosure of non-cash investing and financing activities:
   Assets acquired by incurring long-term liabilities .................   $   647,794    $      --
</TABLE>

See notes to consolidated financial statements.

                                       4
<PAGE>
 
                           A.S.V., INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                 MARCH 31, 1998

                                   (UNAUDITED)

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INTERIM FINANCIAL INFORMATION

         The accompanying unaudited 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.  SUBSEQUENT EVENT

         On April 21, 1998, the Company announced that its Board of Directors
declared a 3-for-2 stock split in the form of a stock dividend. The stock split
will be issued May 14, 1998 to shareholders of record as of May 4, 1998.

         All share and per share data in this report on Form 10-Q are presented
prior to the split.

NOTE 3.  NEW ACCOUNTING PRONOUNCEMENT

         On January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." Comprehensive
income includes certain changes in equity that are currently excluded from net
income. The adoption of this statement did not impact the Company's consolidated
financial statements; historically there have been no differences between net
income and comprehensive income.

                                       5
<PAGE>
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

RESULTS OF OPERATIONS

         The following table sets forth certain Statements of Earnings data as a
percentage of net sales:

                                                    Three Months Ended March 31,
                                                       1998             1997
                                                       ----             ----
     Net sales......................................  100.0%           100.0%
     Cost of goods sold.............................   75.0%            77.0
     Gross profit...................................   25.0%            23.0
     Selling, general and administrative expenses...    9.0%            10.5
     Operating income...............................   15.0%            11.5
     Interest expense...............................    1.4%             2.0
     Net income.....................................    8.8%             6.8

         NET SALES. For the three months ended March 31, 1998, net sales
increased 94% to approximately $9,029,000 compared with $4,651,000 for the three
months ended March 31, 1997. The increase was due to the increased sales of
Posi-Track vehicles and related accessories. The majority of Posi-Track sales
for the first quarter of 1998 were the HD series Posi-Track, which was put into
production in fourth quarter 1997. The HD series Posi-Tracks feature 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 model MD-70 Posi-Track. The Company recently announced it will
offer this same maintenance-free suspension under the MD-70 chassis as a new
series of Posi-Tracks, the MD series. The MD series will be offered in 2 models,
the 2800 and the 2810 (turbo), and is expected to be put into production in the
second quarter of 1998. Sales of parts, used equipment and other items increased
39% for the three month period ended March 31, 1998 as compared with 1997. This
increase was due in part to a 50% increase in the sale of parts as the number of
vehicles in the field has increased and a 72% increase in the sale of used
equipment due to more focused marketing efforts.

         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 March 31, 1998
increased to approximately $2,258,000, or 25.0% of net sales, compared with
$1,069,000, or 23.0% of net sales, in 1997. The increased gross profit can be
attributed to increased sales volume in 1998 while the increased gross profit
percentage can be attributed to the shift in units sold from the model MD-70
Posi-Track to the HD series Posi-Track, which carries a higher gross profit.

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased from approximately $488,000, or 10.5% of net
sales in 1997, to approximately $808,000, or 9.0% of net sales in 1998. The
increase is due primarily to increased marketing costs as well as higher
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 is due to the increased sales
volume in 1998.

         RESEARCH AND DEVELOPMENT. Research and development expenses increased
from approximately $45,000 in 1997 to approximately $98,000 in 1998. The
increase is due to the Company devoting more resources to future product
alternatives and one new product, the MD series Posi-Track, which will be placed
into production in the second quarter of 1998.

         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 first quarter of 1997 to approximately $129,000 for the first quarter of
1998. The increase is due to the additional debt related to the

                                       6
<PAGE>
 
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.

                                       7
<PAGE>
 
         NET INCOME. Net income for the first quarter of 1998 was approximately
$792,000, as compared with approximately $316,000 for the first quarter of 1997.
The increase in 1998 resulted primarily from added gross profit on increased
sales offset in part by increased operating costs and interest expense.

LIQUIDITY AND CAPITAL RESOURCES

          At March 31, 1998, the Company had working capital of approximately
$13,982,000 compared with working capital of approximately $10,748,000 at March
31, 1997, an increase of approximately $3,234,000. The major components of this
increase are as follows: Inventories increased approximately $6,487,000 due to
the introduction of two new Posi-Track models in 1997 and also increased sales;
Accounts receivable increased approximately $1,508,000 due to increased sales;
Cash and short-term investments decreased approximately $3,603,000 as the
Company built inventory levels and equipped its expanded manufacturing facility;
Current liabilities increased approximately $1,254,000 due to the overall
increase in the Company's volume and profitability.

         The Company's working capital position at March 31, 1998 remained
relatively constant when compared with December 31, 1997, increasing
approximately $641,000. However, the Company's inventories increased
approximately $985,000 and accounts payable increased approximately $860,000 due
to the timing of certain inventory purchases and their related payment. Also,
cash and short-term investments increased approximately $356,000 and accounts
receivable increased approximately $696,000 due to increased sales. Other
current liabilities, such as income taxes payable and accrued liabilities,
increased approximately $331,00 due to increased sales volume and 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.

         In connection with the expansion of its manufacturing facility, the
Company's lease for this facility has been amended. On April 1, 1998, the
Company began paying $12,300 per month for the expanded facility, in addition to
the amount it was currently paying. The additional payment will continue through
January 1, 2018, with payments subject to revision every five years based upon
interest rate negotiation between the lessor and the involved bank related to
the lessor's underlying debt. The Company has recorded the lease, as amended, as
a capital lease.

         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 the next twelve months. Beyond that period, it may
be necessary to obtain additional capital resources. The Company has not
determined whether the composition of these additional resources would be in the
form of additional debt, convertible securities, equity securities or a
combination.

         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
remainder of 1998, the Company expects it will increase its number of employees
by approximately 10-30% over the next twelve months. It is anticipated the
majority of the additional employees will be in the production area. The Company
believes the local work force is sufficient to hire the additional employees.

         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 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 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         None

                                       8
<PAGE>
 
                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         None

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

         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 (e)

      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)

     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)

                                       9
<PAGE>
 
     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)

     11           Statement re: Computation of Per Share Earnings

     22           List of Subsidiaries (a)

     27           Financial Data Schedule for the three months ended March 31,
                  1998

           (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.

            *     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 March 31, 1998.

                                       10
<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:  May 13, 1998                      By /s/ Gary Lemke
                                          -----------------
                                             Gary Lemke
                                             President


Dated:  May 13, 1998                      By /s/ Thomas R. Karges
                                          -----------------------
                                             Thomas R. Karges
                                             Chief Financial Officer
                                             (principal financial and accounting
                                              officer)

                                       11
<PAGE>
 
                                  EXHIBIT INDEX

<TABLE>
<CAPTION>

EXHIBIT                                                        METHOD OF FILING
-------                                                        ----------------
<S>      <C>                                               <C>
 11      Statement re: Computation of Per Share Earnings   Filed herewith electronically

 27      Financial Data Schedule                           Filed herewith electronically

</TABLE>

                                       12