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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, 1995
Commission file Number: 0-18259
AG-BAG INTERNATIONAL LIMITED
(Exact name of registrant as specified in its charter.)
Delaware 93-1143627
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2320 SE Ag-Bag Lane, Warrenton OR 97146
(Address of principal executive offices) (Zip Code)
(503)861-1644
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES [ X ] NO [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Common Stock, $.01 par value per share - 12,053,751 shares
outstanding as of September 30, 1995.
1
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Part 1 - Financial Information
Item 1 - Financial Statements
<TABLE>
AG BAG INTERNATIONAL LIMITED
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
September 30 December 31
1995 1994 1994
---------- ---------- ----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 656 $ 656 $ 876,043
Accounts receivable 5,122,639 4,780,025 2,426,035
Inventories 7,532,968 6,096,809 4,825,978
Other current assets 747,939 649,537 316,527
---------- ---------- ----------
Total current assets 13,404,202 11,527,027 8,444,583
Intangible assets, less
accumulated amortization 2,028,723 2,371,397 2,230,660
Property, plant and equipment
less accumulated depreciation 3,599,051 4,223,229 3,862,100
Long-term inventories 837,303 885,303
Other assets 146,402 155,492 123,149
--------- --------- ---------
Total assets $20,015,681 $18,277,145 $15,545,795
========== ========== ==========
(Continued)
2
</TABLE>
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<TABLE>
AG-BAG INTERNATIONAL LIMITED
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
(Unaudited)
September 30 December 31
1995 1994 1994
---------- ---------- ----------
<S> <C> <C> <C>
Current liabilities:
Notes payable to bank $ 3,636,741 $ 1,818,500 $ 130,756
Current portion of long term
debt and capital lease
obligations 506,721 881,744 787,644
Current portion of notes
payable to shareholders' 110,795 47,579 375,000
Accounts payable 1,140,237 809,799 639,389
Accrued expenses and other
current liabilities 596,159 551,186 680,174
Debentures payable 918,000 188,000
Income tax payable 346,098 416,200 310,000
---------- ---------- ----------
Total current liabilities 6,336,751 5,443,008 3,110,963
Deferred income taxes 32,699 130,302 32,699
Long term debt and capital
lease obligation, less
current portion 1,204,016 1,357,187 1,023,360
Notes payable to shareholders'
less current portion 57,459 375,000
--------- --------- ---------
Total liabilities 7,630,925 7,305,497 4,167,022
--------- --------- ---------
Commitments
Shareholders' equity:
Preferred stock, $4LV 8 1/2%
nonvoting 696,000 696,000 696,000
Common stock, $.01 par value 120,537 106,720 116,553
Additional paid-in capital 9,201,796 8,135,683 8,853,513
Retained earnings 2,472,265 2,143,107 1,787,408
Foreign currency translation (105,842) (109,862) (74,701)
--------- --------- ---------
Total shareholders' equity 12,384,756 10,971,648 11,378,773
--------- --------- ---------
Total liabilities and
shareholders' equity $20,015,681 $18,277,145 $15,545,795
========== ========== ==========
See Notes to Consolidated Financial Information
3
</TABLE>
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<TABLE>
AG BAG INTERNATIONAL LIMITED
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<CAPTION>
Foreign
Preferred Stock Common Stock Paid-In Retained Currency
Shares Amount Shares Amount Capital Earnings Translation Total
------ ------ ------ ------ ------- -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1994 174,000 $696,000 11,655,373 $116,553 $8,853,513 $1,787,408 ($74,701) $11,378,773
Exercise of warrant 137,500 1,375 149,875 151,250
Conversion of debentures 250,667 2,507 182,224 184,731
Foreign currency translation ( 18,124) (18,124)
Preferred stock dividends (14,790) (14,790)
Net income 79,641 79,641
------- ------- ---------- ------- --------- --------- -------- ----------
Balance March 31, 1995 174,000 696,000 12,043,540 120,435 9,185,612 1,852,259 ( 92,825) 11,761,481
Stock issued in connection with
employee stock plan 9,998 100 15,835 15,935
Foreign currency translation ( 2,639) (2,639)
Preferred stock dividends (14,790) (14,790)
Net income 413,592 413,592
------- ------- ---------- ------- --------- --------- ------- ----------
Balance June 30, 1995 174,000 $696,000 12,053,538 $120,535 $9,201,447 $2,251,061 ($95,464) $12,173,579
Stock issued in connection with
employee stock plan 213 2 349 351
Foreign currency translation ( 10,378) (10,378)
Preferred stock dividends (14,790) (14,790)
Net income 235,994 235,994
------- ------- ---------- ------- --------- --------- ------- ----------
Balance September 30, 1995
174,000 $696,000 12,053,751 $120,537 $9,201,796 $2,472,265 ($105,842) $12,384,756
======= ======= ========== ======= ========= ========= ======= ==========
See Notes to Consolidated Financial Information
</TABLE>
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<TABLE>
AG-BAG INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months
Ended September 30
(Unaudited)
----------------------
1995 1994
---- ----
<S> <C> <C>
Net sales $ 5,938,178 $ 7,149,271
Cost of sales 4,292,890 5,051,258
--------- ---------
Gross profit from operations 1,645,288 2,098,013
Selling expenses 632,857 616,566
Administrative expenses 597,739 600,150
Research and development expenses 18,371 12,515
--------- ---------
Income from operations 396,321 868,782
Other income (expense):
Interest income 2,967 12,960
Interest expense (135,025) (146,294)
Loss on joint venture (125,741)
Miscellaneous 93,231 74,264
--------- ---------
Income before provision for income taxes 357,494 683,971
Provision for income taxes (121,500) (210,000)
--------- ---------
Net income $ 235,994 $ 473,971
========= =========
Primary earnings per share $ .02 $ .04
========= =========
Weighted average number of common
shares outstanding 12,077,260 10,692,859
========= =========
See Notes to Consolidated Financial Information
</TABLE> 5
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<TABLE>
AG BAG INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months
Ended September 30 Year
(Unaudited) Ended 12/31
-------------------- ----------
1995 1994 1994
---- ---- ----
<S> <C> <C> <C>
Net sales $17,034,556 $16,882,778 $20,706,738
Cost of sales 12,117,717 11,856,846 14,832,613
---------- ---------- ----------
Gross profit from operations 4,916,839 5,025,932 5,874,125
Selling expenses 1,838,548 1,651,212 2,167,865
Administrative expenses 1,731,699 1,694,903 2,322,085
Research and development 56,089 47,204 60,257
---------- ---------- ----------
Income from operations 1,290,503 1,632,613 1,323,918
Other income (expense):
Interest income 32,060 35,532 45,826
Interest expense (312,777) (381,003) (465,743)
Loss on joint venture (125,741) (140,741)
Miscellaneous 87,941 129,135 199,084
---------- ---------- -----------
Income before provision for
income taxes 1,097,727 1,290,536 962,344
Provision for income taxes (368,500) (416,200) (428,917)
---------- ---------- ----------
Net income $ 729,227 $ 874,336 $ 533,427
========== ========== ==========
Primary earnings per share $ .06 $ .08 $ .04
========== ========== ==========
Weighted average number of
common shares outstanding 12,055,858 10,690,727 11,644,785
========== ========== ==========
See Notes to Consolidated Financial Information
</TABLE> 6
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<TABLE>
AG BAG INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30
(Unaudited)
--------------------------
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 729,227 $ 874,336
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 852,104 728,229
Deferred income taxes (28,956)
Issuance of stock under employee
stock plan 16,286
Gain on sale of assets (52,912)
Loss on investment in joint venture 116,250
Changes in assets and liabilities:
Accounts receivable (2,696,604) (3,338,190)
Inventories (2,658,990) (1,063,221)
Other current assets (431,412) (322,100)
Accounts payable 500,848 372,054
Accrued expenses and other current
liabilities ( 84,015) ( 53,319)
Income tax payable 36,098 297,907
Investments 153,743
---------- ----------
Net cash used in operating activities (3,789,370) (2,263,267)
---------- ----------
Cash flows from investing activities:
Capital expenditures (452,602) (742,926)
Proceeds from disposition of assets 110,000
Intangible assets 5,127 (45,923)
Investment in Joint venture 45,890
Effect of foreign currency translation (31,141) 72,424
---------- ----------
Net cash used in investing activities (368,616) (670,535)
---------- ----------
Cash flows from financing activities:
Proceeds from line of credit 3,505,985 1,673,250
Principal payments on debt (100,267) (325,338)
Payment of shareholders' notes (206,746) (204,073)
Proceeds on long term note receivable (23,253) (124,104)
Exercise of employee options 11,000
Exercise of warrant 151,250
Payment of preferred dividends (44,370) (44,370)
---------- ----------
Net cash provided by financing activities 3,282,599 986,365
---------- ----------
Net decrease in cash (875,387) (1,947,437)
Cash and cash equivalents at beginning
of period 876,043 1,948,093
---------- ----------
Cash and cash equivalents at end of period $ 656 $ 656
========= ==========
See Notes to Consolidated Financial Information
</TABLE> 7
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AG-BAG INTERNATIONAL LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 - Description of Business and Summary of Significant
Accounting Policies
- ------------------------------------------------------------
The Company's consolidated financial statements includes accounts
of the parent and its subsidiaries and reflects all adjustments
which, in the opinion of management, are necessary for a fair
statement of the results of operations for the periods presented.
Due to the seasonal nature of the business, the operating results
of the Company's quarterly financial information should not be
taken as indicative of the results of its operations for a full
year. The financial statements presented for the nine month period
should be read in conjunction with the consolidated financial
statements and notes thereto for the year ended December 31, 1994
included in the Company's annual report on Form 10-K filed with the
Securities and Exchange Commission on March 31, 1995.
Statement of Cash Flows
- -----------------------
During the first quarter of 1995 certain debenture holders
converted $188,000 of ten percent senior subordinated debentures to
common stock. Net debenture issue costs of $3,269 were recorded
against additional paid-in capital.
As these transactions did not provide or use cash resources, they
have been excluded from the accompanying consolidated statement of
cash flows for the period ended September 30, 1995.
Reclassifications
- -----------------
Certain reclassifications have been made to the financial
statements for the periods presented from amounts previously
reported to conform with classifications currently adopted. Such
reclassifications had no effect on previously reported
shareholders' equity or results of operations.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Reference is made to Item 7 of "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included
in the Company's annual report on Form 10-K for the year ended
December 31, 1994, on file with the Securities and Exchange
Commission. The following discussion and analysis pertains to the
Company's results of operations for the three-month period ended
September 30, 1995, compared to the results of operations for the
three-month period ended September 30, 1994, and to results of
operations for the nine-month period ended September 30, 1995
compared to the results of operations for the nine-month period
ended September 30, 1994, and to changes in the Company's financial
condition from December 31, 1994 to September 30, 1995.
Consolidated net sales for the three-month period ended September
30, 1995 were $5,938,178 down 16.94% from $7,149,271 for the same
period in 1994. Net sales for the nine-month period ended
September 30, 1995 were $17,034,556 up .90% from $16,882,778 for
the same period in 1994. The decrease in sales primarily resulted from
adverse global weather conditions in geographical areas where the Company
markets its products. U.S. sales were lower due to an early winter freeze
which limited bagging of corn silage in the midwest. U.K. sales were
reduced due to the hot summer which eliminated second cuttings of
some crops. In addition, late spring cold, wet weather in the
southern hemisphere caused a delay in the growing season and
lessened the need for early shipment of equipment during the
quarter. Additionally, milk and beef prices continued their
downward trend which caused U.S. farmers to be very cautious on
capital expenditures for new equipment. The slight increase in
sales for the year was the result of the above factors, coupled
with a large machine and bag order to the European market and the
sale of a mid-sized composting system earlier in the year. For the
first nine-months of 1995, sales in the Company's United Kingdom
operation increased 4.80% despite unfavorable weather due to a
change in the Company's marketing strategy.
Gross profit from sales for the three-month period ended September
30, 1995 was $1,645,288 a decrease of 21.58% from $2,098,013 for
the same period in 1994. Gross profit from sales for the nine-
month period ended September 30, 1995 was $4,916,839 a decrease of
2.17% from $5,025,932 from the same period in 1994. The decrease
in gross profit for the quarter and nine-months was the result of
reduced sales volumes with decreased gross margins coupled with
increases in production labor, transportation and material costs.
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Selling expenses for the three-month period ended September 30,
1995 were $632,857 an increase of 2.64% from $616,566 for the same
period in 1994. Selling expenses for the nine-month period ended
September 30, 1995 were $1,838,548 an increase of 11.35% from
$1,651,212 for the same period in 1994. The increase in selling
expenses for the quarter and nine-month period was the result of
increased sales and marketing activities in the Company's
international market as well as its grain and compost divisions.
Administrative expenses for the three-month period ended September
30, 1995 were $597,739 a decrease of less than 1% from $600,150 for
the same period in 1994. Administrative expenses for the nine-
month period ended September 30, 1995 were $1,731,699 an increase
of 2.17% from $1,694,903 for the same period in 1994. The increase
for the nine-month period was the result of higher professional
fees incurred earlier in the year coupled with higher general
operating overheads to support the international expansion, grain
and compost divisions.
Interest expense for the three-month period ended September 30,
1995 was $135,025 a decrease of 7.70% from $146,294 for the same
period in 1994. Interest expense for the nine-month period ended
September 30, 1995 was $312,777 a decrease of 17.91% from $381,003
for the same period in 1994. The decrease for the quarter and
nine-month period was the result of the conversion of the
debentures into common stock. Additionally, the Company completed
early repayment on a 15% interest bearing note in early 1995.
Net income for the three-month period ended September 30, 1995
decreased to $235,994 from $473,971 for the same period in 1994.
Net income for the nine-month period ended September 30, 1995
decreased to $729,227 from $874,336 for the same period in 1994.
The decrease for the quarter and nine-month period was the result
of adverse weather conditions which eliminated the harvest of some
crops in addition to the reluctance of U.S. farmers to purchase
capital items in light of depressed milk and beef prices, coupled
with decreased volume and margins and increased selling and
administrative costs to handle the Company's expansion in the
international market, grain and compost markets which were offset
by lower interest costs.
Liquidity and Capital Resources
- -------------------------------
The seasonal nature of the northern hemisphere farming
industry, the production time for equipment and the time required
to prepare bags for use requires the Company to manufacture and
carry high inventories to meet rapid delivery requirements. In
particular, the Company must maintain a significant level of bags
during the spring and early summer to meet the sales demands during
10
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the harvest season. The Company uses working capital and trade
credit to increase its inventory so that it has sufficient
inventory available to meet its sales demands through the spring
and summer months.
The Company relies on its suppliers to provide trade credit to
enable the Company to build its inventory. The Company's suppliers
have provided sufficient trade credit to meet the demand to date
and management believes this will continue. No assurance can be
given that suppliers will continue to provide sufficient trade
credit in the future.
Accounts receivable increased 7.17% as of September 30, 1995 to
$5,122,639 from the September 30, 1995 level of $4,780,025. The
increase was the result of a large portion of the Company's sales
occurring during the last month of the quarter coupled with the
fact the Company offered extended terms to key dealers.
Inventory at September 30, 1995 was $8,370,271 which was 37.29%
higher than inventory at September 30, 1994 of $6,096,809. The
increase in inventory was the result of reduced sales for the
quarter and management's earlier decision to carry higher inventory
levels to meed rapid delivery requirements and avoid backlog during
harvest.
The Company has a domestic operating line of credit with a limit of
$4,000,000, secured by accounts receivable and inventory. In
addition, the Company has a $200,000 equipment acquisition line.
As of September 30, 1995, $3,220,709 had been taken under the
credit line and no borrowings had been taken under the equipment
acquisition line. The Company also has a revolving credit facility
denominated in pounds sterling for its UK operation with a limit of
400,000 pounds sterling. As of September 30, 1995 borrowings under
the foreign operation line aggregated $416,032 US dollars out of an
available $633,200 US dollars. Management believes that, along
with funds generated from operations and its credit facilities, it
will be able to meet the Company's cash requirements through 1995.
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Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27, Financial Data Schedule
(b) No reports on Form 8-K were filed by the Company
during the quarter ended September 30, 1995.
12
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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.
AG-BAG INTERNATIONAL LIMITED,
a Delaware corporation
(Registrant)
By: /s/Michael R. Wallis
Date: November 14, 1995 Michael R. Wallis
Chief Financial Officer and
Vice President
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at September 30, 1995 (Unaudited) and the
Consolidated Income Statement for the Nine Months Ended September 30, 1995
(Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 0
<SECURITIES> 656
<RECEIVABLES> 5,329,211
<ALLOWANCES> 206,572
<INVENTORY> 7,532,968
<CURRENT-ASSETS> 13,404,202
<PP&E> 7,368,831
<DEPRECIATION> 3,769,780
<TOTAL-ASSETS> 20,015,681
<CURRENT-LIABILITIES> 6,336,751
<BONDS> 0
<COMMON> 120,537
0
696,000
<OTHER-SE> 11,568,219
<TOTAL-LIABILITY-AND-EQUITY> 20,015,681
<SALES> 17,034,556
<TOTAL-REVENUES> 17,154,557
<CGS> 12,117,717
<TOTAL-COSTS> 12,117,717
<OTHER-EXPENSES> 3,626,336
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 312,777
<INCOME-PRETAX> 1,097,727
<INCOME-TAX> 368,500
<INCOME-CONTINUING> 729,227
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 729,227
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
