UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended: June 30, 1996
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
July 30, 1996.
<PAGE>
INDEX
Page No.
________
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements 3
Consolidated Balance Sheets 3
June 30, 1996 and 1995 and December 31, 1995
Consolidated Statements of Stockholders' Equity 5
Consolidated Statements of Operations 6
Three Months Ended June 30, 1996 and 1995
Six Months Ended June 30, 1996 and 1995 and
Year Ended December 31, 1995
Consolidated Statements of Cash Flows 8
Six Months Ended June 30, 1996 and 1995
Notes to Consolidated Financial Information 9
Item 2. Management's Discussion and Analysis of 10
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
AG BAG INTERNATIONAL LIMITED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
June 30 December 31
1996 1995 1995
(Unaudited) (Audited)
__________________ ___________
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 656 $ 656 $ 656
Accounts receivable 6,140,477 5,615,194 2,140,992
Inventories 7,560,764 7,551,882 6,748,272
Other current assets 645,239 679,455 488,875
__________ __________ __________
Total current assets 14,347,136 13,847,187 9,378,795
Deferred income tax 12,301 12,301
Intangible assets, less
accumulated amortization 1,832,966 2,086,651 1,960,997
Property, plant and equipment
less accumulated depreciation 3,721,315 3,840,914 3,520,252
Long-term inventories 1,243,334 861,303 1,280,834
Other assets 159,976 117,900 144,272
__________ __________ __________
Total assets $21,317,028 $20,753,955 $16,297,451
========== ========== ==========
(Continued)
3
<PAGE>
AG-BAG INTERNATIONAL LIMITED
CONSOLIDATED BALANCE SHEETS
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30 December 31
1996 1995 1995
(Unaudited) (Audited)
__________________ ___________
<S> <C> <C> <C>
Current liabilities:
Notes payable to bank $ 4,855,025 $ 4,116,218 $ 1,478,886
Current portion of long
term debt and capital
lease obligations 612,462 464,505 421,462
Current portion of notes
payable to stockholders' 12,635 192,906 12,635
Accounts payable 1,892,940 1,612,351 474,128
Accrued expenses and other
current liabilities 777,936 552,342 766,711
Income tax payable 114,355 340,700 146,998
___________ ___________ ___________
Total current liabilities 8,265,353 7,279,022 3,300,820
Deferred income taxes 32,699
Long term debt and capital
lease obligation, less
current portion 891,784 1,195,589 1,183,114
Notes payable to
stockholders' less
current portion 48,105 73,066 54,420
___________ ___________ ___________
Total liabilities 9,205,242 8,580,376 4,538,354
___________ ___________ ___________
Commitments
Stockholders' equity:
Preferred stock, $4LV 8 1/2%
nonvoting 696,000 696,000 696,000
Common stock, $.01 par value 120,537 120,535 120,537
Additional paid-in capital 9,201,796 9,201,447 9,201,796
Retained earnings 2,189,215 2,251,061 1,835,441
Foreign currency translation (95,762) (95,464) (94,677)
___________ ___________ ___________
Total stockholders' equity 12,111,786 12,173,579 11,759,097
___________ ___________ ___________
Total liabilities and
stockholders' equity $21,317,028 $20,753,955 $16,297,451
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Information
4
<PAGE>
AG BAG INTERNATIONAL LIMITED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<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, 1995 174,000 $696,000 12,053,751 $120,537 $9,201,796 $1,835,441 ($94,677) $11,759,097
Foreign currency translation (20,413) (20,413)
Preferred stock dividends (14,790) (14,790)
Net loss (112,488) (112,488)
_______ ________ __________ ________ __________ __________ ________ ___________
Balance March 31, 1996 174,000 696,000 12,053,751 120,537 9,201,796 1,708,163 (115,090) 11,611,406
Foreign currency translation 19,328 19,328
Preferred stock dividends (14,790) (14,790)
Net income 495,842 495,842
_______ ________ __________ ________ __________ __________ ________ ___________
Balance June 30, 1996 174,000 $696,000 12,053,751 $120,537 $9,201,796 $2,189,215 ($95,762) $12,111,786
======= ======== ========== ======== ========== ========== ======== ===========
</TABLE>
See Notes to Consolidated Financial Information
5
<PAGE>
<TABLE> AG-BAG INTERNATIONAL LIMITED
<CAPTION> CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months
Ended June 30
(Unaudited)
1996 1995
____ ____
<S> <C> <C>
Net sales $ 7,370,681 $ 6,569,285
Cost of sales 5,467,901 4,629,539
___________ ___________
Gross profit from operations 1,902,780 1,939,746
Selling expenses 690,223 579,332
Administrative expenses 666,655 616,910
Research and development expenses 15,284 12,156
___________ ___________
Income from operations 530,618 731,348
Other income (expense):
Interest income 3,575 15,763
Interest expense (129,437) (131,560)
Gain on sale of assets 309,726
Miscellaneous 71,360 3,041
___________ ___________
Income before provision for income taxes 785,842 618,592
Provision for income taxes (290,000) (205,000)
___________ ___________
Net income $ 495,842 $ 413,592
=========== ===========
Primary earnings per share $ .04 $ .03
=========== ===========
Weighted average number of common
shares outstanding 12,081,251 12,069,489
=========== ===========
</TABLE>
See Notes to Consolidated Financial Information
6
<PAGE>
AG BAG INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Year Ended
Ended June 30 December 31
(Unaudited) (Audited)
1996 1995 1995
__________________ ___________
<S> <C> <C> <C>
Net sales $11,344,926 $11,096,378 $19,297,962
Cost of sales 8,493,850 7,824,827 13,916,032
___________ ___________ ___________
Gross profit from operations 2,851,076 3,271,551 5,381,930
Selling expenses 1,233,405 1,205,691 2,400,387
Administrative expenses 1,219,413 1,133,960 2,280,690
Research and development 31,967 37,718 68,165
___________ ___________ ___________
Income from operations 366,291 894,182 632,688
Other income (expense):
Interest income 16,393 29,093 44,639
Interest expense (197,457) (177,752) (414,145)
Gain on sale of assets 308,925
Miscellaneous 104,202 (5,290) 130,411
___________ ___________ ___________
Income before provision for
income taxes 598,354 740,233 393,593
Provision for income taxes (215,000) (247,000) (286,400)
___________ ___________ ___________
Net income $ 383,354 $ 493,233 $ 107,193
=========== =========== ===========
Primary earnings per share $ .03 $ .04 $ .01
=========== =========== ===========
Weighted average number of
common shares outstanding 12,081,251 12,033,913 12,062,019
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Information
7
<PAGE>
AG BAG INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended June 30
(Unaudited)
__________________________
1996 1995
____ ____
<S> <C> <C>
Cash flows from operating activities:
Net income $ 383,354 $ 493,233
Adjustments to reconcile net income
to net cash used in operating
activities:
Depreciation and amortization 603,939 565,013
Issuance of stock under employee
stock plan 15,935
Gain on sale of assets (308,925)
Changes in assets and
liabilities:
Accounts receivable (3,999,485) (3,189,159)
Inventories (774,992) (2,701,904)
Other current assets (156,364) (362,928)
Accounts payable 1,418,812 972,962
Accrued expenses and other
current liabilities 11,225 (127,832)
Income tax payable (32,643) 30,700
Other assets (15,704)
___________ ___________
Net cash used in operating activities (2,870,783) (4,303,980)
___________ ___________
Cash flows from investing activities:
Capital expenditures (920,902) (403,087)
Proceeds from disposition of assets 559,908
Intangible assets (7,052)
___________ ___________
Net cash used in investing activities (368,046) (403,087)
___________ ___________
Cash flows from financing activities:
Proceeds from line of credit 3,376,139 3,985,462
Principal payments on debt (100,330) (150,910)
Payment of shareholders' notes (6,315) (109,028)
Proceeds on long term note receivable 5,249
Exercise of warrant 151,250
Payment of preferred dividends (29,580) (29,580)
___________ ___________
Net cash provided by financing
activities 3,239,914 3,852,443
___________ ___________
Effect of foreign currency translation (1,085) (20,763)
___________ ___________
Net decrease in cash - 0 - (875,387)
Cash and cash equivalents at
beginning of period 656 876,043
___________ ___________
Cash and cash equivalents at end
of period $ 656 $ 656
=========== ===========
</TABLE>
See Notes to Consolidated Financial Information
8
<PAGE>
AG-BAG INTERNATIONAL LIMITED
Notes to Consolidated Financial Information
(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 six
month period should be read in conjunction with the consolidated financial
statements and notes thereto for the year ended December 31, 1995 included in
the Company's annual report on Form 10-K, as amended by a Form 10-K/A-1 filed
with the Securities and Exchange Commission on April 11, 1996.
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 stockholders' equity or results of operations.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
_____________________________________________________________________________
The information set forth below includes "forward-looking statements" within
the meaning of Section 21E of the Securities Exchange Act of 1934 and is
subject to the safe harbor created by that section.
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, as amended by a Form 10-K/A-1, for the year ended
December 31, 1995, 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 June 30, 1996, compared to the
results of operations for the three-month period ended June 30, 1995, and to
results of operations for the six-month period ended June 30, 1996 compared
to the results of operations for the six-month period ended June 30, 1995,
and to changes in the Company's financial condition from December 31, 1995,
to June 30, 1996.
Consolidated net sales for the three-month period ended June 30, 1996 were
$7,370,681, up 12.20% from $6,569,285 for the same period in 1995.
Consolidated net sales for the first half of 1996 were $11,344,926, up 2.24%
from $11,096,378 for the same period in 1995. The increase for the quarter
was the result of the cool, wet spring which delayed shipments from the first
quarter to the second quarter. Also contributing to the increase for the
quarter was the sale of 15 new square bale bagger machines. For the first
half of 1996, the above reasons coupled with the fact that dairy farmers
increased capital expenditures due to rising U.S. milk prices led to the
increase in sales compared to 1995.
Gross profit from sales for the three-month period ended June 30, 1996 was
$1,902,780, a decrease of 1.90% from $1,939,746 for the same period in 1995.
Gross profit from sales for the first half of 1996 was $2,851,076, a decrease
of 12.85% from $3,271,551 for the same period in 1995. The decrease for the
quarter and first half was the result of increased transportation costs and
lower margins on used equipment. Bag margins were also lower as a result of
intense competition in certain areas of the North American market.
Selling expenses for the three-month period ended June 30, 1996 were
$690,223, an increase of 19.14% from $579,332 for the same period in 1995.
Selling expenses for the first half of 1996 were $1,233,405, an increase of
2.30% from $1,205,691 for the same period in 1995. The increase in selling
expenses resulted from increased sales commissions coupled with increased
sales and marketing activities in the Company's international markets and
grain and compost divisions.
10
<PAGE>
Administrative expenses for the three-month period ended June 30, 1996 were
$666,655, an increase of 8.06% from $616,910 for the same period in 1995.
Administrative expenses for the first half of 1996 were $1,219,413, an
increase of 7.54% from $1,133,960 for the same period in 1995. The increase
for the quarter and first half of 1996 was the result of increased
professional fees coupled with increases in retirement plan expense and
general operating overhead required to support international activity and
grain and compost divisions.
Interest expense for the three-month period ended June 30, 1996 was $129,437,
a decrease of 1.61% from $131,560 for the same period in 1995. Interest
expense for the first half of 1996 was $197,457, an increase of $11.08% from
$177,752 for the same period in 1995. The increase for the first half of
1996 was the result of larger borrowings under the Company's credit facility
caused by an inventory build-up in late 1995.
Net income for the three-month period ended June 30, 1996 was $495,842, an
increase of 19.89% from $413,592 for the same period in 1995. Net income for
the first half of 1996 was $383,354, a decrease of 22.28% from $493,233 for
the same period in 1995. The increase for the quarter was the result of a
gain from the sale of property, including the bag folding building at the
Company's Blair, Nebraska facility, coupled with increased sales which were
offset by lower gross margins, higher transportation costs and increased
selling and administrative expenses. The decrease for the first half of 1996
was the result of lower gross margins, higher transportation costs coupled
with increases in selling, administrative and interest costs, which were
offset by the gain from the sale of property.
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 sales
demands during 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.
11
<PAGE>
Accounts receivable increased 9.35% as of June 30, 1996 to $6,140,477 from
the June 30, 1995 level of $5,615,194. The increase in accounts receivable
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 had to offer
extended terms to some customers in order to remain competitive.
Inventory at June 30, 1996 was $8,804,098 which was 4.65% higher than
inventory at June 30, 1995 which was $8,413,185. The increase in inventory
was the result of management's decision to carry higher inventory to meet
rapid delivery requirements and avoid backlog during the harvest season and
its planned plant consolidation during 1996.
The Company has a domestic operating line of credit with a limit of
$5,000,000, secured by accounts receivable and inventory. In addition the
Company has a $200,000 equipment acquisition line. As of June 30, 1996,
$4,124,569 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 June 30, 1996, borrowings under the
foreign operating line aggregated $520,324 US dollars out of an available
$620,800 US dollars. Management believes that, along with funds generated
from operations and its credit facilities, the Company will be able to meet
its cash requirements through 1996.
The Company is currently consolidating its operations at its Blair, Nebraska
facility onto one site. At present, the Company utilizes separate buildings
on different sites for its bag, proprietary inoculant and machine operations.
During the quarter, the Company sold its bag folding building and has started
construction of a new bag folding facility on land the Company already owns.
The Company does not expect the transition to the new facility to have a
materially adverse effect on operations. However, there can be no assurance
that the new facility will be completed on schedule or that delays or
difficulties will not occur. If such delays or difficulties occurred they
may have a material adverse effect on the Company, its financial condition or
its prospects. The Company has a $1,500,000 construction loan in place to
finance the new facility and believes such financing will be sufficient. The
sale of the existing facilities and construction of the new facility will not
have a material effect on the Company's liquidity.
12
<PAGE>
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
(a) An Annual Meeting of Stockholders was held on June 3,
1996.
(b) Roy I. Anderson and Michael W. Foster were elected as
directors of the Company. Larry R. Inman, Lemuel E.
Cunningham, Arthur P. Schuette and Michael B. Leahy
continued as directors of the Company after the
Annual Meeting of Stockholders.
(c) The only matter voted upon at the Annual Meeting of
Stockholders was the election of Roy I. Anderson and
Michael W. Foster. The results of the election were as
follows:
Votes Against Broker
Nominee Votes For or Withheld Abstentions Nonvotes
_______ _________ _____________ ___________ ________
Roy I. Anderson 9,909,897 0 448,152 0
Michael W. Foster 9,909,897 0 448,152 0
(d) None.
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 June 30, 1996.
13
<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.
AG-BAG INTERNATIONAL LIMITED,
a Delaware corporation
(Registrant)
Date: August 5, 1996 By: /s/ Michael R. Wallis
___________ __________________________
Michael R. Wallis
Chief Financial Officer
and Vice President*
* Signing on behalf of the
Registrant and as Chief
Financial Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's report on Form 10-Q for the period ended June 30, 1996, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 656
<SECURITIES> 0
<RECEIVABLES> 6,326,452
<ALLOWANCES> 185,975
<INVENTORY> 7,560,764
<CURRENT-ASSETS> 14,347,136
<PP&E> 7,687,186
<DEPRECIATION> 3,965,871
<TOTAL-ASSETS> 21,317,028
<CURRENT-LIABILITIES> 8,265,353
<BONDS> 0
0
696,000
<COMMON> 120,537
<OTHER-SE> 11,295,249
<TOTAL-LIABILITY-AND-EQUITY> 21,317,028
<SALES> 11,344,926
<TOTAL-REVENUES> 11,774,446
<CGS> 8,493,850
<TOTAL-COSTS> 2,484,785
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 197,457
<INCOME-PRETAX> 598,354
<INCOME-TAX> 215,000
<INCOME-CONTINUING> 383,354
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 383,354
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
