===========================================================================
The following items were the subject of a Form 12b-25 and are included
herein:
A PORTION OF ITEM 1 AND ITEMS 6, 7, 8 AND 14(d) AND EXHIBITS 11, 12,
23, AND 27 REQUIRED BY ITEM 14(c)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A-1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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 of (I.R.S. Employer
incorporation or organization) Identification No.)
2320 SE AG-BAG LANE
WARRENTON, OREGON 97146
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (503) 861-1644
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common shares, par value $.01 per share
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. / /
The aggregate quoted market price of voting stock of registrant held
by non-affiliates as of March 11, 1996, was $1 11/32.
The registrant has one class of common stock with 12,053,741 shares
outstanding as of March 19, 1996.
DOCUMENTS INCORPORATED BY REFERENCE:
Proxy statement for the Registrant's Annual Meeting of Stockholders to
be held June 3, 1996, is incorporated into Part III of this report.
===========================================================================
<PAGE>
AG-BAG INTERNATIONAL LIMITED
TABLE OF CONTENTS
PAGE
PART I .................................................. 1
Item 1. Business.......................................... 1
Item 2. Property.......................................... 9
Item 3. Legal Proceedings................................. 9
Item 4. Submission of Matters to a Vote of Security
Holders Executive Officers of the Registrant...... 10
PART II .................................................. 11
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters............................... 11
Item 6. Selected Financial Data........................... 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 14
Item 8. Financial Statements and Supplemental Data........ 20
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............... 20
PART III .................................................. 21
Items 10. and 11. Directors and Executive Officers of
Registrant and Executive Compensation............. 21
Item 12. Security Ownership of Certain Beneficial Owners
and Management.................................... 21
Item 13. Certain Relationships and Related Transactions.... 21
PART IV .................................................. 22
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................... 22
i
<PAGE>
PART I
______
ITEM 1. BUSINESS
_________________
GENERAL
_______
Ag-Bag International Limited (the "Company") was incorporated as a New
York corporation in 1989. The primary operating company, Ag-Bag
Corporation, a Nebraska corporation, was incorporated in 1978. The Company
changed its name in 1990 from AB Holding Group, Inc. to Ag-Bag
International Limited. In 1994, in an effort to streamline and save
administrative expenses, two of the Company's operating subsidiaries, A.B.
Rental, Inc. and Ag-Bag Corporation were merged into the Delaware
subsidiary, ABVIN Merging Corp. On January 1, 1995, the Company was merged
into its Delaware subsidiary resulting in the reincorporation of the
Company in Delaware and changed its name to Ag-Bag International Limited.
The Company has pioneered an alternate method of storing feed for
livestock. Traditional methods of storing feed have included placing it in
bunkers, pits, and silos or baling and stacking it. The Company's method
is to store the feed in huge plastic bags of up to 250 feet in length and
up to 12 feet in diameter by tightly stuffing the feed into the bag. The
Company assembles the machines for stuffing the feed into the bags. It has
the bags manufactured to its specifications and then folds and distributes
the bags through its dealer network. The benefits of bagging the feed
include reduced cost, additional flexibility in harvesting and storing the
feed, enhanced feed quality, and relatively small capital requirements.
The Company also sells ancillary products which complement the Company's
main line of bagging machines and bags.
The Company expects the use of bagging as a means of silage storage to
continue to play a major role in the 1990's because the quality of stored
feed is better than other known competitive methods, allowing the farmers
to be more efficient and produce dairy, beef, sheep and pork products at a
lower price. The Company believes the concept of bagging is one way in
which farmers can be more profitable by reducing, or completely
eliminating, the purchase of feed and grain from outside sources. Bagging
enables the farmer to produce and store the feed on the farm and provides
easier access to the silage thereby allowing the farmer to choose the
quality of silage to feed at any given time. The bagged feed has shown
high quality, allowing for higher production.
The Company expanded its operations into Europe in 1989 where it
offers a custom bagging service on a fee per metric tonne basis in the
United Kingdom. In 1994, the Company shipped its first orders to dealers
in Japan, Latin America and Germany.
The Company is developing other uses for its bagging technology. In
1993, it established a grain bagging division and a composting division.
The Company assembles and sells grain bagging machines which enable farmers
to store whole grains as well as other products in the Company's recyclable
TriDura plastic bags and has adapted its bagging machines to permit bagging
of compostable organic matter. The Company has developed plastic bag
bailers which enable the Company to bail and pick up the recyclable TriDura
plastic bags from its customers.
SEASONAL NATURE OF BUSINESS
___________________________
The core business of the Company is historically seasonal due to the
harvest seasons in North America and Europe. The Company's machinery tends
to be purchased in anticipation of the next harvest
1
<PAGE>
season, so most of the sales of machinery occur in the spring and summer.
This requires the Company to carry significant amounts of inventory to meet
rapid delivery requirements of customers. Bag sales tend to occur as the
harvest season approaches in the summer, and during the harvest season in
the fall. In 1994, the Company began to counteract some of its seasonality
by generating sales in Latin America and expanding into the compost market.
FARM EQUIPMENT AND PRODUCTS
___________________________
INTRODUCTION. Silage is made using the Ag-Bag<Registered Trademark>
system by storing forage crops, such as corn, sorghum, or alfalfa, under
anaerobic (without oxygen) conditions in sealed Ag-Bag<Registered
Trademark> TriDura storage bags. The traditional methods for making silage
involve storing it in bunkers, pits or silos. Using traditional methods,
there is a nutrient loss resulting from a reduction in the moisture content
of the forage before storage. The moisture content must be reduced to
compensate for the high oxygen content of the forage which results from the
inability to pack the forage tightly enough. When the forage is not packed
sufficiently, the silage fermentation process produces too much heat
resulting in an even greater loss of nutrient value that would occur if the
moisture content were not reduced. The loss of nutrient value results in
the need for additional food supplements or an increased volume of feed.
The Ag-Bag<Registered Trademark> system is an alternative to bunkers,
pits and silos. The Ag-Bag<Registered Trademark> bagging machines push the
forage into huge recyclable plastic film TriDura bags with sufficient
compaction to minimize the amount of oxygen in the bag which is then sealed
tightly when filled. As a result, the forage can be stored with
significantly higher moisture content. The ability to store the forage in
this manner also reduces the time required to cut and store the forage thus
reducing the loss of nutrients.
AG-BAG<REGISTERED TRADEMARK> FARM EQUIPMENT. The Company's principal
line of farm equipment is marketed under the trade name "Ag-
Bagger<Registered Trademark>." The Ag-Bagger<Registered Trademark> is
available in three versions with a number of optional features.
The smallest version consists of machines used to load forage into Ag-
Bag<Registered Trademark> TriDura storage bags ranging in size from 8 to 9
feet in diameter and 100 to 200 feet in length. This version was first
introduced by the Company in 1987. It is used primarily in smaller dairy
and cattle feeding operations by dairymen with herds averaging about 50
head and by cattlemen feeding up to about 300 head of feeder cattle. Most
of these machines are powered by the power take-off unit of a farm tractor
and moved by a tractor or other farm vehicle. The retail prices for this
machine range from approximately $20,000 to $45,000.
In 1992, the Company introduced a medium-sized machine which can be
operated by the power take-off unit of a farm tractor or operated
independently with an optional diesel engine made by Caterpillar or Deere &
Company. This machine allows farmers to load forage into Ag-Bag<Registered
Trademark> TriDura storage bags ranging in size from 9 to 10 feet in
diameter and 100 to 250 feet in length. This machine is primarily suitable
for use by dairymen with herds ranging from 150 to 300 head and by
cattlemen feeding between 300 and 800 head of feeder cattle. The retail
price for this machine ranges from approximately $65,000 to $110,000.
The largest version consists of machines that can be used to load Ag-
Bag<Registered Trademark> TriDura storage bags ranging in size from 9 to 12
feet in diameter and 150 to 250 feet in length. These machines are used
primarily by dairymen with herds ranging from 300 to 2,000 head, by
cattlemen with herds ranging from 800 to 15,000 head, and by custom
operators. A super 12-foot Ag-Bagger<Registered Trademark> was developed
in 1989 and enhanced in 1995 for use by very large dairy and custom
operators and by cattle feeding operations with
2
<PAGE>
herds ranging from 15,000 to 25,000 head of cattle. The larger machines
come with optional diesel engines made by Caterpillar or Deere & Company.
The retail price for the larger machines ranges from approximately $178,500
to $230,000.
A wide range of optional features are offered by the Company on its
bagging machines in order to meet the budget needs of the farmer.
The Company assembles and sells a separate line of related equipment
called the Ag-Bag Flex-a-Tuber<Registered Trademark> with a retail price
ranging from $4,000 to $15,000. The Flex-a-Tuber<Registered Trademark>
comes in two versions, one for storing round bales and the other for
storing square bales. The Flex-a-Tuber<Registered Trademark> permits
farmers to store round-baled and square-baled alfalfa, sorghum, and other
forage in Ag-Bag<Registered Trademark> TriDura storage bags. The round
bale and square bale Flex-a-Tubers are made in three sizes to permit the
bagging of four, five and six foot bales. The bales can be stored in Ag-
Bag<Registered Trademark> TriDura storage bags up to 200 feet in length.
The Company developed the Ag-Bag<Registered Trademark> Grain Bagger,
which retails for between $13,000 and $45,000. This machine is similar in
design to the smallest Ag-Bagger<Registered Trademark> machines but has
been adapted to permit the storage of grains, such as corn, rice, wheat and
soybeans, as well as other products, in Ag-Bag<Registered Trademark>
TriDura storage bags. The machine permits the grain to be bagged without
damaging the kernel. After the grain is bagged and sealed, it will retain
the necessary quality for human consumption.
The Company also assembles and sells the Mighty Bite<Registered
Trademark> front-end load bucket. This revolutionary bucket replaces the
conventional bucket. Hydraulically operated, the Mighty Bite<Registered
Trademark> closes tightly around material, thus eliminating spillage and
increasing load capacity due to compaction. The Company manufactures them
in sizes ranging from one-half cubic yard to one cubic yard with a retail
price ranging from $3,000 to $4,500.
The Company has adapted its Ag-Bag<Registered Trademark> bagging
machines for use in large scale "in-vessel" composting of organic matter.
The bagging machine is combined with a shredder that shreds the organic
material which is then fed into the bagging machine which bags the
compostable matter into huge Ag-Bag<Registered Trademark> TriDura storage
bags. An air blower is attached to the bag and circulates air through the
bag during the composting process.
AG-BAG<REGISTERED TRADEMARK> TRIDURA STORAGE BAGS. The Ag-
Bag<Registered Trademark> TriDura disposable storage bags range in size
from 8 to 12 feet in diameter and 100 to 250 feet in length and are made of
extruded plastic. Rolls of plastic are manufactured to the Company's
specifications. The Company then converts the rolls into bags by cutting
the rolls into the various bag lengths and folding the bags for use on the
Company's bagging machines. The plastic contains special stabilizers to
protect the bags from deterioration due to exposure to weather and the
sun's ultraviolet rays. Once a TriDura bag is used, it may be recycled or
disposed of in another manner, but may not be reused.
The Company contracts for the manufacture of, and sells, two grades of
bags: (1) TriDura three-ply bags with a white exterior and black interior
intended for storage of silage up to 24 months and (ii) single-ply white
bags intended for storage not to exceed 18 months. The retail price of the
bags ranges from approximately $225 to $950. The manufactured plastic
rolls are shipped to the Company's plant in Blair, Nebraska, where they are
folded and packed for sale using proprietary folding techniques. The
proprietary bag folding techniques reduce bag folding time and allow the
bags to uniformly unfold when being filled, which thereby reduces
operational delays.
3
<PAGE>
AG-BAG<REGISTERED TRADEMARK> INOCULANT. The Company markets a liquid
inoculant and a dry powder inoculant under the trade name Ag-Bag
Plus<Registered Trademark>. The inoculant is added to the forage or the
round bales during bagging. It enhances the fermentation process for
making silage in bags, bunkers, pits and silos by substantially shortening
the time necessary for the creation of the silage. A liquid inoculant was
developed in 1989 by a Company supplier and introduced into the market in
1990. The Company has experienced an increase in the sales of liquid
inoculant since June 1990. The dry inoculant is produced from a
proprietary formula owned by the Company and developed by Larry R. Inman
and Walter L. Jay. See "Executive Officers of the Registrant." The
Company is currently developing an inoculant designed specifically for
bunkers, pits and storage of high moisture grain. This will enable the
Company to penetrate three new markets for its inoculant products.
Bags and machines each account for more than 30% of the Company's
consolidated revenue and have done so for the last three years.
MARKET SIZE
___________
The market for Ag-Bag<Registered Trademark> machinery and Ag-
Bag<Registered Trademark> TriDura recyclable storage bags is primarily in
the dairy and beef cattle industries. Silage is used most often as dairy
and beef animal feed. It is also used by farmers to a lesser extent to
feed hogs and sheep. In 1994, over 172,000,000 tons of corn, alfalfa, and
sorghum silage were made by United States farmers according to the AG IQ
Handbook X published in 1995 by Agricom, Inc. (the "AG Handbook"). Based
on AG Handbook statistics, the Company estimates that there are
approximately 150,000 dairy, beef, hog, and sheep farms in the United
States which are potential customers for Ag-Bag<Registered Trademark> farm
equipment and TriDura storage bags; and that only about 5-7% of this group
are actually using storage bags made by the Company and its competitors.
It further estimates that about 60% of the customers using silage storage
bags purchase them from the Company. In addition to the U.S., the Company
believes there is a large population of such farms in Canada, Latin
America, Germany and the United Kingdom, where the Company currently
operates, and there is a large potential market in other countries into
which the Company may expand.
The Company also markets the Ag-Bag<Registered Trademark> Grain
Bagger, which is used to bag grain for animal and human consumption as well
as other products. The amount of grains stored for animal and human
consumption in the North American and European markets in which the Company
presently markets its bagging machines and equipment is very large.
However, since the Grain Bagger has only recently been introduced, the
Company is uncertain whether it will continue to gain acceptance in the
marketplace as an alternative to present methods of grain storage. Until
further marketing efforts have been made, the Company cannot estimate with
any certainty the likely size of the market for the Grain Bagger and no
assurance can be given that the grain bagging concept will continue to be
accepted in the marketplace. The Company completed 9 sales in 1995, of its
newly designed grain bagging machines.
The Company has also developed a system for "in-vessel" composting
which is designed to eliminate odors and control leachate which is inherent
with composting. Composting is an alternative for disposing or eliminating
the large number of organics from landfills. The Company's primary market
is with cities, counties, and municipal waste companies. The Company
currently estimates the size of the compost market within North America to
be $1 billion a year. In the composting area, the Company sold 2 bagging
systems, placed 3 sublicense agreements and commenced 7 pilot projects in
1995. Until further marketing efforts are made outside North America, the
Company cannot estimate with any certainty the foreign market size.
However, the Company believes that there is a large potential market in
other countries into which it may expand. No assurance can be given that
the "in-vessel" composting system will be accepted in either the domestic
or foreign marketplace.
4
<PAGE>
MARKETING
_________
The Company markets its Ag-Bag<Registered Trademark> farm equipment,
TriDura storage bags, Ag-Bag Plus<Registered Trademark> and other
inoculants primarily through a network of United States, Canadian, and
international dealers. As of December 31, 1995, there were 140 dealers
serviced by a combined total of 23 regional and territorial Company-
employed managers. Most of the dealers market all of the Ag-Bag<Registered
Trademark> line of farm equipment and products; however, some dealers sell
only the farm equipment and others sell only the Ag-Bag<Registered
Trademark> inoculants. The Company also sells farm equipment, TriDura
storage bags, and inoculant directly to large customers in the states of
California, New Mexico, Washington, and in the New England area.
The Company offers customers the opportunity to finance the purchase
of Ag-Bag<Registered Trademark> farm equipment through unaffiliated third
parties who offer lease-purchase financing.
The Company rents Ag-Bag<Registered Trademark> bagging machines to
farmers located in the state of California. The rental charge is based on
the number of bags purchased and filled with forage. As of December 31,
1995, the Company had 6 machines available for rent. The Company also
sells TriDura storage bags in bulk to several custom farming operations in
the state of California which own Ag-Bag<Registered Trademark> bagging
equipment. These operators place their private labels on the bags and bag
forage for customers on a fee-per-bag basis.
The Company offers a custom bagging service through its subsidiary Ag-
Bag Europe PLC in the United Kingdom. It retains ownership of the bagging
machines, provides bags to the customer, and fills the bags with the
customer's forage on a fee-per-metric tonne basis. In the United Kingdom,
KW Agriculture Ltd. was the exclusive sales and marketing agent for the
Company. Beginning in 1995, the relationship was no longer exclusive and
the Company began utilizing its existing sales and marketing force in
conjunction with KW Agriculture Ltd. to more fully exploit the UK market.
The Company has formed a grain bagging division and is beginning to
market its grain bagging system. The Company markets its grain bagging
equipment through its dealer network and also through grain co-ops and
governmental agencies. In 1993, the Company received the U.S. Department
of Agriculture's approval for commodities stored in the Company's systems
to be used as collateral for Commodity Credit Corp. loans. Commodity
Credit Corp. provides low-interest loans to farmers who store grain in
approved storage structures. The Company has sold the Ag-Bag<Registered
Trademark> Grain Bagger in the United States, Canada and in North Africa.
The Company also formed a composting division to market its "in-
vessel" composting system. The Company intends to establish and market
this system through a composting dealer network. In addition, the Company
expects to develop a regional and territorial sales force which will have
expertise in composting and environmental recovery. The Company markets
its composting system through a sublicense which allows the end user to use
the Ag-Bag<Registered Trademark> compost technology.
The Company is not dependent on any single customer or a few
customers. The loss of any customer would not have a material adverse
effect on the Company.
ASSEMBLY AND MANUFACTURING
__________________________
AG-BAG<REGISTERED TRADEMARK> FARM EQUIPMENT. The Company buys most of
its components for its bagging machines from various other manufacturers,
manufactures the remaining components, and assembles the machines
5
<PAGE>
itself. The medium and large sized machines, composting machines and Flex-
a-Tubers<Registered Trademark> are all assembled at the Company's
headquarters facility in Warrenton, Oregon. The smaller machines are
assembled both at the Warrenton facility and at the Company's Blair,
Nebraska plant and the Grain Baggers are assembled at the Company's Blair,
Nebraska plant.
The Company assembles all of its machines in order to better control
the quality of the farm equipment. This method also permits the Company to
offer customized assembly for the end user of its equipment. The Company
can acquire and install name brand manufactured components specified by the
customer in lieu of those ordinarily installed by the Company.
AG-BAG<REGISTERED TRADEMARK> TRIDURA STORAGE BAGS. All of the three-
ply TriDura bonded storage bags and the single-ply white bags are
manufactured for the Company by a single manufacturer. The bags are
manufactured to the Company's specifications using a stabilizer which
protects the plastic from becoming brittle due to the exposure to weather
and the sun's ultraviolet light rays. The TriDura plastic bags are made in
various diameters based on bag orders received by the Company. The bags
are shipped in uncut rolls to the Company's plant in Blair, Nebraska, where
they are cut to the proper lengths and folded for shipment to the Company's
dealers or directly to large customers, such as feedlots.
AG-BAG<REGISTERED TRADEMARK> INOCULANTS. The liquid inoculant is
purchased by the Company on the open market. The Company believes that the
liquid inoculant will be reasonably available for purchase on the open
market in the foreseeable future. The dry inoculant is produced by the
Company at the Blair, Nebraska plant pursuant to a proprietary formula
owned by the Company and developed by Larry R. Inman and Walter L. Jay.
See "Executive Officers of the Registrant."
PRINCIPAL SUPPLIERS AND MANUFACTURERS
_____________________________________
The Company purchases its TriDura bags from one supplier and the
Company considers its relationship with the supplier as good. The Company
believes there are adequate alternative suppliers available in the event
the supplier is unable to provide bags.
The structural components of the Company's farm equipment are
manufactured in Oregon under agreements with two manufacturing companies.
The Company believes that alternative sources of supply are readily
available at competitive prices if the present sources of supply should
become unavailable. The Company is not aware of any raw materials
shortages or problems with these suppliers which would adversely affect the
operations of the Company's business.
The Company mixes the dry inoculant at its Blair, Nebraska facility.
It purchases the ingredients for the dry inoculant from a variety of
suppliers. The Company purchased the liquid inoculant from a supplier, who
mixes the inoculants to the Company's specifications. The Company believes
there are various other alternative sources of supply.
COMPETITION
___________
The Company believes it is the industry leader in the manufacture and
sale of complete sealed feed farm bagging systems, hence, the Company's new
slogan, the "Complete One." Ag-Bag<Registered Trademark> is the only
Company which manufactures the full line of equipment, bags, and other
accessories for sealed feed farm management. There are two competitors
within the United States which manufacture similar silage bagging machines.
There are also a number of competitors which manufacture bale wrapper
machines,
6
<PAGE>
which compete with the Company's Flex-a-Tuber<Registered Trademark>. The
Company believes that it distinguishes itself in the market place from
other manufactures by providing a top quality product, better warranty
protection, and customer service.
The bag market is highly competitive. The Company competes in the bag
market by providing what the Company believes to be a superior product and
better warranty protection at a competitive price. The Company is also
offering, through central pickup locations in selected geographic areas in
the U.S., a recycling service for used Ag-Bag<Registered Trademark> TriDura
bags.
The Company also competes with companies constructing bunkers and
pits, and to a lesser extent silos. The competitors are mostly smaller
companies that build the bunkers and pits for the farmer, which the farmer
then fills with forage using available or rented farm equipment otherwise
used in the farming operation. While these methods do not require bags or
special equipment to fill the bags, the use of these alternatives involves
a significant loss of flexibility in storing and harvesting the feed and an
overall loss of feed quality. Flexibility is lost since structures must be
permanently placed and significant capital requirements are necessary to
expand them. The feed quality is inferior because of the amount of oxygen
remaining after the forage is placed in the pits or bunkers.
In the compost area, the Company competes primarily with wind row
turner manufacturers. Wind row turners compost by turning and watering
static piles weekly and require containment of odor and leachate. These
turners are comparable in price to the Company's compost machines.
However, the Company's systems offer the advantage of being self-contained
thus reducing odor and requiring no turning or watering. There are
approximately 50 manufacturers of turners. In addition, the Company also
competes with about five companies which manufacture "in-vessel" systems,
such as burners and incinerators for large projects, generally ranging from
$1 to $15 million.
In addition to the current competition, national competitors may
emerge if the bagging equipment and storage bag markets continue to grow.
These potential competitors include large farm equipment manufacturers and
large chemical companies who might decide to manufacture and sell the
storage bags.
The Company competes in its product markets primarily on the basis of
product quality, warranty protection, and customer service. Some of its
competitors are larger and have greater financial, marketing, technical,
and other resources than the Company.
BACKLOG
_______
In 1996, the orders were comparable to 1995. The dollar amount of
backlog orders of the Company that are believed to be firm, as of March 1,
1996, was approximately $3,806,600, as compared to $3,700,000 on March 1,
1995. This backlog is seasonal and is reasonably expected to be filled
within the current fiscal year.
RESEARCH AND DEVELOPMENT
________________________
The amounts spent on research and development are not material.
7
<PAGE>
ENVIRONMENTAL MATTERS
_____________________
Compliance with federal, state and local laws and regulations
regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment, had no material effect upon
capital expenditures, earnings, or competitive positions of the Company
during the year ended December 31, 1995. Except for the possible effect of
regulations in the United Kingdom, as described below, no material effect
is anticipated for the year ending December 31, 1996.
Effective September 1, 1991, separate pollution control regulations
were adopted concerning silage slurry or run off by Scotland, England and
Wales. The Scottish regulations specifically permit the Ag-Bag<Registered
Trademark> system of bagging. The regulations adopted by England and
Wales, although subject to interpretation, may require that farmers using
Ag-Bag<Registered Trademark> TriDura bags for storing high-moisture content
silage build a concrete structure under the bags to control possible run
off. It is estimated that the cost of such structures would be
approximately 16,000 pounds sterling (approximately US$24,800). Currently,
the Company has been permitted to bag low and medium moisture silage in
England and Wales without using concrete structures so long as the bags
were placed on sites that were relatively firm and away from streams and
other water courses.
PATENTS AND TRADEMARKS
______________________
The Company has basic and improvement patents in the U.S. as well as a
number of patents pending that encompass machines, bags and systems for
silage bagging, grain bagging, and hay/straw bale bagging. Corresponding
applications have or will be filed in selected foreign countries. More
recently, the bagging of compost has been added to the Company's product
line and proprietary rights in this new market have been and are being
developed.
The Company's patents on its basic bagging machine have been found to
be valid and have been successfully defended in prior litigation. The
Company believes that it has developed its position in the industry
partially as a result of protection provided by these patents. The Company
also owns the proprietary formula for making the dry inoculant marketed
under the trade name Ag-Bag Plus<Registered Trademark> which was developed
by Larry R. Inman and Walter L. Jay. See "Executive Officers of the
Registrant."
The names Ag-Bag<Registered Trademark>, Ag-Bag Plus<Registered
Trademark>, Bale Bag<Registered Trademark>, Flex-a-Tuber<Registered
Trademark>, Flex-a-Tube<Registered Trademark>, ABCTI System<Registered
Trademark>, Mighty Bite<Registered Trademark>, and the symbol
"AB"<Registered Trademark> are all registered as trademarks with the United
States Patent and trademark Office.
The Company believes that its color scheme and trademarks are well
known in the industry and are an important part of its business, which give
it a competitive advantage.
EMPLOYEES
_________
On December 31, 1995, the Company had 86 full-time employees. The
Company employs approximately 150 people during its busy season. None of
the Company's employees are represented by a union, and the Company
believes that its employee relations are good.
8
<PAGE>
FINANCIAL INFORMATION RELATING TO FOREIGN AND DOMESTIC OPERATIONS AND
EXPORT SALES
_____________________________________________________________________
<TABLE>
<CAPTION>
(In thousands)
Year Ended December 31
______________________
1993 1994 1995
____ ____ ____
<S> <C> <C> <C>
Sales to unaffiliated customers:
United States $ 13,817 $ 14,931 $ 13,352
Canada 1,454 1,156 1,418
United Kingdom 2,027 1,886 1,796
Other foreign countries 1,155 2,637 2,615
________ ________ ________
$ 18,453 $ 20,610 $ 19,181
Sales to affiliated customers:
Officers and Directors 164 97 117
________ ________ ________
Total $ 18,617 $ 20,707 $ 19,298
======== ======== ========
Sales or transfers between United
States and United Kingdom: $ 292 $ 374 $ 329
======== ======== ========
Reference is also made to the Selected Financial Data at Item 6.
</TABLE>
ITEM 2. PROPERTY
_________________
In early 1990, the Company began occupying its 30,000 square foot
facility located in Warrenton, Oregon. This facility serves as a warehouse
and houses the major portion of its silage bagging equipment manufacturing.
The Company's administrative offices are also located there. Management
estimates that the manufacturing at the Warrenton plant is currently at
approximately 60% of capacity. The Company occupies the land pursuant to a
lease which expires in 2015.
The Company owns facilities in Blair, Nebraska, which total
approximately 30,000 square feet. In these facilities, the Company folds
and packages its TriDura feed storage bags; prepares and packages its
proprietary inoculant; and assembles some of its smaller bagging machines.
These facilities are owned by the Company and also serve as a warehouse.
ITEM 3. LEGAL PROCEEDINGS
__________________________
A civil class-action suit was filed in the Federal District Court of
Minnesota, 4th Division, on January 8, 1996 by Michael A. Hunt, on behalf
of bag customers, against the Company, UpNorth Plastics, Inc. and Poly
America, Inc. The civil suit alleges that the Company conspired with
UpNorth Plastics, Inc. and Poly America, Inc. to fix bag prices in
violation of federal law. The suit does not specify an amount of alleged
damages.
9
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
____________________________________________________________
During the fourth quarter of 1995, no matters were submitted to a vote
of security holders.
EXECUTIVE OFFICERS OF THE REGISTRANT
____________________________________
The executive officers of the Company, their respective ages as of
March 19, 1996, business experience, and the period for which they have
served are set forth below. The executive officers are elected annually by
the Board of Directors at its meeting following the annual meeting of
stockholders. Officers serve at the discretion of the Board of Directors.
DATE OF
NAME AGE ELECTION POSITION
____ ___ ________ ________
Larry R. Inman 45 1990 Chairman of the Board and Chief
Executive Officer (since 1990);
President of the Company since
1993; President of Ag-Bag
Corporation (1984-1989) and
Chairman (1989-1994) of Ag-Bag
Corporation (former subsidiary).
Michael R. Wallis 31 1992 Chief Financial Officer (since
1993) and Vice President of Finance
(since 1992); Manager, Yergen &
Meyer (regional accounting firm,
1986-1992).
Lemuel E. Cunningham 74 1990 Vice President (since 1990);
owner/operator of Post Oaks Ranch
and Cunningham Cattle and Feed
Company (since 1958).
Roy I. Anderson 76 1990 Secretary (since 1990); sole
practitioner (legal, 1949 to
present).
Arthur P. Schuette 56 1990 Vice President, Sales (since 1991);
Treasurer of the Company (1990-
1991) and (1983-1991) Ag-Bag
Corporation (former subsidiary).
Lou Ann Tucker 42 1990 Vice President, Administration
(since 1989), and Treasurer (since
1991); Executive Treasurer (1988-
1994) of Ag-Bag Corporation (former
subsidiary); co-owner of LGJ
Livestock, Astoria, Oregon (horse
and cattle ranch, since 1980).
Walter L. Jay 35 1990 Vice President, Manufacturing
(since 1989); Manager of Blair
Nebraska Plant (since 1980); KW
Trucking (1984-1987).
10
<PAGE>
PART II
_______
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
______________________________________________________________________
The Company's Common Stock began trading publicly on January 17, 1990,
and was approved for quotation on NASDAQ on April 24, 1990, under the
symbol "AGBG." On December 31, 1995, there were approximately 370 holders
of record of Common Stock. The closing price for the Common Stock on March
11, 1996, as reported by NASDAQ was $1 11/32 per share.
The following table sets forth the range of high and low bid prices of
the Company's Common Stock for the quarters indicated through the fourth
quarter of 1995:
<TABLE>
<CAPTION>
Calendar Year High Bid Low Bid
<S> <C> <C>
1994:
____
First quarter 1-3/4 1
Second quarter 1-7/16 29/32
Third quarter 1 19/32
Fourth quarter 1-11/32 3/4
1995:
____
First quarter 1-15/16 1-1/4
Second quarter 1-13/16 1-1/4
Third quarter 2 1-1/4
Fourth quarter 1-7/16 1-1/8
_________________________
The quotations reflect inter-dealer prices, without retail markups,
markdowns, or commissions and do not necessarily represent actual
transactions.
</TABLE>
DIVIDENDS
_________
The Company has not paid any dividends on its Common Stock since its
inception, and the Board of Directors does not anticipate declaring any
cash dividends on its Common Stock in the foreseeable future. The Company
currently intends to utilize any earnings in its business. The Company may
not pay dividends on Common Stock pursuant to certain loan agreements, or
while it is in arrears in dividends on its preferred stock.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
________________________________
The following table sets forth financial data derived from the audited
consolidated financial statements of the Company for the years ended
December 31, 1991, 1992, 1993, 1994 and 1995. This selected consolidated
financial data should be read in conjunction with the audited consolidated
financial statements of the Company and the related notes thereto included
elsewhere in this report on Form 10-K and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
(In thousands, except per share data)
Year Ended December 31,
_______________________
1991 1992 1993 1994 1995
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net Sales $ 16,719 $ 17,881 $ 18,617 $ 20,707 $ 19,298
Cost of Sales 11,025 14,286 13,089 14,833 13,916
________ ________ ________ ________ ________
Gross Profit from Operations 5,694 3,595 5,528 5,874 5,382
Selling and Administrative Expenses 4,774 5,509 4,285 4,490 4,681
Research and Development Expenses 210 86 123 60 68
Reorganization 1,696
________ ________ ________ ________ ________
Income from Operations 710 (3,696) 1,120 1,324 633
Other Income (Expense) 880 (784) (243) (362) (240)
________ ________ ________ ________ ________
Income (Loss) before Provision for
Income Taxes and Extraordinary Item 1,590 (4,480) 877 962 393
Provision (Benefit) for Income Taxes 675 (1,156) 181 429 286
________ ________ ________ ________ ________
Income (Loss) before Extraordinary
Items 915 (3,324) 696 533 107
Extraordinary Item-Gain on
Extinguishment of Debt (Less Income
Taxes of $78,200) 152
________ ________ ________ ________ ________
Net Income (Loss) $ 915 $ (3,324) $ 848 $ 533 $ 107
======== ======== ======== ======== ========
Primary Earnings per Share:
Income (Loss) before Extraordinary
Item $ 0.13 $ (0.40) $ 0.06 $ 0.04 $ 0.01
Extraordinary Item $ 0.01
________ ________ ________ ________ ________
$ 0.13 $ (0.40) $ 0.07 $ 0.04 $ 0.01
======== ======== ======== ======== ========
Fully Diluted Earnings per Share:
Income (Loss) before Extraordinary
Item $ 0.11 $ (0.40) $ 0.06 $ 0.04 $ 0.01
Extraordinary Item $ 0.01
________ ________ ________ ________ ________
$ 0.11 $ (0.40) $ 0.07 $ 0.04 $ 0.01
======== ======== ======== ======== ========
Primary Weighted Average Number of
Common Stock and Common Stock
Equivalent Shares Outstanding 6,650 8,427 10,581 11,645 12,062
======== ======== ======== ======== ========
Fully Diluted Weighted Average
Number of Common and Common Stock
Equivalent Shares Outstanding 9,325 8,427 10,581 11,645 12,062
======== ======== ======== ======== ========
12
<PAGE>
Balance Sheet Data:
December 31,
____________
1991 1992 1993 1994 1995
____ ____ ____ ____ ____
Working Capital $ 2,652 $ 5,405 $ 5,566 $ 5,334 $ 6,078
Current Assets 11,046 9,923 8,905 8,445 9,379
Total Assets 19,509 17,561 15,633 15,546 16,297
Current Liabilities (1) 8,394 4,518 3,339 3,111 3,301
Long-term Debt (1) 4,535 4,319 2,263 1,056 1,237
Total Stockholders' Equity (2) 6,580 8,723 10,031 11,379 11,759
_________________________
<FN>
<F1> Includes loans from stockholders and deferred taxes
<F2> Includes $696 of preferred stock.
</FN>
</TABLE>
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
________________________________________________________________________
RESULTS OF OPERATIONS
_____________________
The following table sets forth for the periods indicated certain items
reflected in the Company's statements of operations as a percentage of
revenue:
<TABLE>
<CAPTION>
Year Ended December 31,
_______________________
1991 1992 1993 1994 1995
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Net Sales 100% 100% 100% 100% 100%
Costs and Expenses:
Cost of Sales 66% 80% 70% 72% 72%
Selling and Administration 27% 31% 23% 22% 25%
Research and Development 1% --- 1% --- ---
Reorganization --- 10% --- --- ---
Income (Loss) From Operations 6% (21%) 6% 6% 3%
____ ____ ____ ____ ____
</TABLE>
===========================================================================
YEARS ENDED DECEMBER 31, 1995 AND 1994
______________________________________
CONSOLIDATED OPERATIONS. For the year ended December 31, 1995, net
sales decreased 6.80% to $19,297,962 compared to $20,706,738 for the year
ended December 31, 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
in mid-september 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 and greatly reduced the yield on fall corn silage. In
addition, late spring cold, wet weather in the southern hemisphere delayed
the growing season and also delayed the shipments of equipment into that
region. Additionally, milk and beef prices continued their downward trend
in 1995 which caused U.S. farmers to be cautious on capital expenditures
for new equipment.
Gross profit from sales for the year ended December 31, 1995 decreased
8.38% to $5,381,930 compared to $5,874,125 for the year ended December 31,
1994. The decrease in gross profit resulted from reduced sales volumes,
decreased gross margins and increases in production labor, transportation
and material costs.
Selling expenses for the year ended December 31, 1995 increased 10.73%
to $2,400,387 compared to $2,167,865 for the year ended December 31, 1994.
The increase in selling expenses was the result of increased sales and
marketing activities in the Company's domestic and international market as
well as its grain and compost divisions.
Administrative expenses for the year ended December 31, 1995 decreased
1.78% to $2,280,690 compared to $2,322,085 for the year ended December 31,
1994. The decrease in administrative expenses was the result of reductions
in administrative depreciation and amortization related to the converted
debentures.
14
<PAGE>
Interest expense for the year ended December 31, 1995 decreased 11.08%
to $414,145 compared to $465,743 for the year ended December 31, 1994. The
decrease was the result of 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 year ended December 31, 1995 was $107,193 compared
to $533,427 for the same period in 1994. The decrease was the result of
adverse global weather conditions which eliminated the harvest of certain
crops in addition to the reluctance of U.S. farmers to purchase capital
items in light of depressed milk and beef prices. Additional causes
include decreased sales volumes and gross margins and increased selling
expenses to handle the Company's expansion in the domestic, international,
grain and compost markets. A higher effective tax rate due to
nondeductible items also contributed to the decrease in net income. The
decrease was partially offset by lower interest costs and administrative
expenses.
UNITED STATES OPERATIONS. Net sales for the year ended December 31,
1995 decreased 7.00% to $17,501,687 compared to $18,820,395 for the same
period in 1994. The decrease for the year was the result of an early
winter freeze in mid-september which limited bagging of corn silage in the
midwest. In addition, late spring, cold wet weather in the southern
hemisphere delayed the growing season and delayed shipments into that
region. Additionally, milk and beef prices continued their downward trend
in 1995 which caused farmers to be cautious on capital expenditures for new
equipment.
Gross profit from sales for the year ended December 31, 1995 decreased
5.95% to $4,950,201 compared to $5,263,581 for the same period in 1994.
The decrease in gross profit for the year was the result of reduced sales
volumes with decreased gross margins, coupled with increases in production
labor, transportation and material costs.
Selling expenses for the year ended December 31, 1995 increased 15.62%
to $2,231,408 compared to $1,929,923 for the same period in 1994. The
increase in selling expenses was the result of increased sales and
marketing activities in the Company's domestic and international market as
well as its grain and compost divisions.
Administrative expenses for the year ended December 31, 1995 decreased
3.18% to $1,987,452 compared to $2,052,680 for the same period in 1994.
The decrease was the result of reduced administrative depreciation and
amortization related to the converted debenture, coupled with reduced
deferred compensation expense.
Interest expense for the year ended December 31, 1995 decreased 16.40%
to $359,202 compared to $429,663 for the same period in 1994. The decrease
was the result of conversion of the debentures into common stock.
Additionally, the Company completed early repayment on a 15% interest
bearing note in early 1995.
Net income after tax and before adjustments for intercompany support
and eliminations for the year ended December 31, 1995 was $192,746 compared
to $450,625 for the same period in 1994. The decrease was the result of
the early winter freeze which limited the bagging of corn silage, coupled
with the late spring cold, wet weather in the southern hemisphere, which
delayed the growing season and decreased the demand for equipment in that
region. Additionally, milk and beef prices continued their downward trend
causing farmers to be cautious with respect to capital expenditures. These
factors combined with decreased sales volumes and gross margins and
increased selling expenses and a higher effective tax rate caused a
decrease in net income in 1995 from 1994. The decrease was partially
offset by lower administrative and interest costs.
15
<PAGE>
AG-BAG EUROPE, PLC OPERATIONS. Net sales for the year ended December
31, 1995 decreased 4.77% to $1,796,275 compared to $1,886,343 for the same
period in 1994. The decrease in sales was the result of the hot, dry
summer which eliminated second cuttings of some crops and greatly reduced
the yield on fall corn silage. The value of the british pound against the
US dollar has remained relatively stable compared to 1994.
Gross profit from sales for the year ended December 31, 1995 decreased
29.29% to $431,729 compared to $610,544 for the same period in 1994. The
decrease in gross profit is largely due to increased maintenance costs
associated with the rental bagging machines coupled with higher
contracting/operator costs.
Selling expenses for the year ended December 31, 1995 decreased 28.98%
to $168,979 compared to $237,942 for the same period in 1994. The decrease
in selling expenses for the year was the result of reduced commissions due
to reduced sales. In addition, the Company changed its marketing strategy
in 1995 from using K.W. Agriculture, Ltd. as its exclusive marketing agent,
to using the Company's own existing sales force. This led to further
reductions in commission fees paid.
Administrative expenses for the year ended December 31, 1995 increased
8.85% to $293,238 compared to $269,405 for the same period in 1994. The
increase for the year was the result of an increase in general operating
overhead of the European operation coupled with the addition of office
staff to handle certain administrative operations previously handled by the
exclusive marketing agent.
Interest expense for the year ended December 31, 1995 increased 52.28%
to $54,943 compared to $36,080 for the same period in 1994. The increase
in interest expense for the year was the result of slower accounts
receivable collections and not having bi-weekly collections from the former
exclusive marketing agent.
Net income (loss) after tax and before adjustments for intercompany
support and eliminations for the year ended December 31, 1995 was ($85,553)
compared to $82,802 for the same period in 1994. The decrease for the year
was the result of the hot, dry summer which eliminated the second cuttings
of some crops and reduced the yield of fall corn silage, coupled with
higher maintenance costs, administrative expenses and interest costs. The
decrease in net income was partially offset by reductions in selling
expenses caused by changing the Company's marketing strategy to utilize
more of its existing sales force rather than using an exclusive marketing
agent.
YEARS ENDED DECEMBER 31, 1994 AND 1993
______________________________________
CONSOLIDATED OPERATIONS. For the year ended December 31, 1994, net
sales increased by 11.22% to $20,706,738 compared to $18,617,146 for the
year ended December 31, 1993. The increase for the year was the result of
the Company continuing to gain market share during the year through its
expansion in Europe and Latin America with machine and bag sales to those
regions, coupled with the fact earlier forecasts of lower milk prices for
the United States did not materialize which allowed farmers to be more
aggressive in their capital expenditures for new equipment. Additionally,
in 1994, the Company began selling its new grain bagging machines as well
as complete composting systems. However, the sales in the UK were lower
than expected due to unusually wet fall weather which reduced a portion of
the UK maize harvest.
Gross profit from sales for the year ended December 31, 1994 increased
6.26% to $5,874,125 compared to $5,528,289 for the year ended December 31,
1993. The increase in gross profit for the year
16
<PAGE>
was the result of increased sales volume coupled with continued production
efficiencies experienced in the Company's bag folding operation.
Selling expenses for the year ended December 31, 1994 increased 3.0%
to $2,167,865 compared to $2,104,746 for the same period in 1993. The
increase for the year is the result of increased selling and marketing
activities in the Company's international market as well as its newly
formed compost and grain divisions.
Administrative expenses for the year ended December 31, 1994 increased
6.52% to $2,322,085 compared to $2,180,000 for the same period in 1993.
The increase for the year was the result of increased professional fees and
general operating overhead required to support the international expansion,
compost and grain divisions which was offset by reductions in
administrative depreciation.
Interest expense for the year ended December 31, 1994 decreased 23.27%
to $465,743 compared to $607,012 for the same period in 1993. The decrease
in interest expense for the year is the result of debenture holders
converting their 10% senior subordinated debentures into common stock.
Additionally, the Company began early repayment on a 15% interest bearing
note in 1994.
During the year ended December 31, 1994, the Company recorded an
investment loss from the closure of its joint venture operations in Holland
of $140,741. During the year ended December 31, 1993, the Company recorded
an extraordinary item resulting from a gain on early extinguishment of debt
of $151,800, net of applicable income taxes of $78,200. This resulted from
a discount received from the Company's former primary bank upon early
payoff of a renegotiated term loan. Additionally, during 1993, the Company
recorded a net litigation settlement gain of $79,670 resulting from a
settlement of a patent infringement suit which had been ongoing for the
prior two years.
Net income for the year ended December 31, 1994 was $533,427 compared
to $847,887 for the same period in 1993. The decrease in net income for
the year was the result of increased sales due to the lower milk price
scare which never materialized, continued international expansion,
continued production efficiencies in the Company's bag folding operation,
coupled with lower interest costs, which were offset by increases in
selling and administrative costs to handle the Company's expansion in the
international markets, grain and compost divisions, the reduced UK sales
due to weather and a higher effective tax rate due to the reversal of
timing differences and other nondeductible items. Additionally, in 1994
the Company recorded a loss on the closure of its joint venture and did not
have the extraordinary item from early extinguishment of debt or the
litigation settlement gain as it did in 1993. When factoring these non-
operational items out, net income for the year ended December 31, 1994
decreased 2.67% from the 1993 results.
UNITED STATES OPERATIONS. Net sales for the year ended December 31,
1994 increased 12.59% to $18,820,395 compared to $16,715,842 for the same
period in 1993. The increase for the year was the result of the Company's
continued international expansion within the European continent as well as
Latin America, coupled with the fact the Company began selling its new
grain bagging machines as well as complete compost systems during 1994.
Additionally, the earlier forecasts of lower milk prices for the United
States did not materialize which allowed farmers to be more aggressive with
their farm expenditures. For the year ended December 31, 1994, bags sold
in the United States operations were up 11.70% compared to the same period
in 1993.
Gross profit from sales for the year ended December 31, 1994 increased
10.76% to $5,263,581 compared to $4,752,221 for the same period in 1993.
The increase in gross profit for the year was the result of continued
production efficiencies experienced in the Company's bag folding operation.
17
<PAGE>
Selling expenses for the year ended December 31, 1994 increased 6.33%
to $1,929,923 compared to $1,815,089 for the same period in 1993. The
increase for the year is the result of increased selling and marketing
activities in the Company's international market as well as its newly
formed compost and grain divisions.
Administrative expenses for the year ended December 31, 1994 increased
13.09% to $2,052,680 compared to $1,815,089 for the same period in 1993.
The increase for the year was the result of reduced administrative
depreciation offset by increases in professional fees and general operating
overhead required to support the expansion in the international market,
compost and grain divisions.
Interest expense for the year ended December 31, 1994 decreased 22.47%
to $429,663 compared to $554,180 for the same period in 1993. The decrease
in interest expense for the year was the result of debenture holders
converting their 10% senior subordinated debentures into common stock.
Additionally, the Company began early repayment on a 15% interest bearing
note in 1994.
During the year ended December 31, 1994, the Company recorded an
investment loss from the closure of its joint venture operations in Holland
of $140,741. During the year ended December 31, 1993, the Company recorded
an extraordinary item resulting from a gain on early extinguishment of debt
of $151,800, net of applicable income taxes of $78,200. This resulted from
a discount received from the Company's former primary bank upon early
payoff of a renegotiated term loan. Additionally, during 1993, the Company
recorded a net litigation settlement gain of $79,670 resulting from a
settlement of a patent infringement suit which had been ongoing for the
prior two years.
Net income after tax and before adjustments for intercompany support
and eliminations for the year ended December 31, 1994 was $450,625 compared
to $663,553 for the same period in 1993. The decrease in net income for
the year was the result of increased sales due to the lower milk price
scare which never materialized, continued international expansion,
continued production efficiencies in the Company's bag folding operation,
coupled with lower interest costs, which were offset by increases in
selling and administrative costs to handle the Company's international
expansion, grain and compost divisions and a higher effective tax rate due
to the reversal of timing differences and other nondeductible items.
Additionally, in 1994 the Company recorded a loss on the closure of its
joint venture and did not have the extraordinary item from early
extinguishment of debt or the litigation settlement gain as it did in 1993.
When factoring these non-operational items out, net income for the year
ended December 31, 1994 actually increased 18.37% from the 1993 results.
AG-BAG EUROPE, PLC OPERATIONS. For the year ended December 31, 1994,
net sales decreased 6.94% to $1,886,343 compared to $2,026,955 for the same
period in 1993. The decrease in sales for the year is the result of
unusually cool, wet weather experienced during late summer and early fall
which eliminated a portion of the maize normally harvested and bagged
during this season. The value of the British pound against the US dollar
has remained relatively stable compared to 1993.
Gross profit from operations for the year ended December 31, 1994
decreased 21.32% to $610,544 compared to $776,068 for the same period in
1993. The decrease in gross profit is largely due to increased maintenance
costs associated with the rental bagging machines coupled with slightly
higher operator costs.
Selling expenses for the year ended December 31, 1994 decreased 17.85%
to $237,942 compared to $289,657 for the same period in 1993. The decrease
in selling expenses were largely attributed to reduced commissions as a
result of reduced sales in the later portion of the year.
18
<PAGE>
Administrative expenses for the year ended December 31, 1994 increased
7.99% to $269,405 compared to $249,493 for the same period in 1993. The
increase for the year is the result of an increase in general operating
overhead costs (rent and insurance) of the European operation.
Interest expense for the year ended December 31, 1994 decreased 31.71%
to $36,080 compared to $52,833 for the same period in 1993. The decrease
in interest expense for the year was the result of the expiration of
certain leases during the year, coupled with increased collection efforts
of accounts receivable during the year, thereby reducing the Company's
borrowing needs.
Net income after tax and before adjustments for intercompany support
and eliminations for the year ended December 31, 1994 was $82,802 compared
to $184,335 for the same period in 1993. The decrease for the year was the
result of cool, wet weather experienced during the maize season which
eliminated a portion of the harvest normally bagged, coupled with higher
maintenance costs and slightly higher general operating overheads, which
were offset by reductions in selling and 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 the harvest season. The Company uses working capital
and trade credit to increase its inventory so that it has sufficient
inventory levels available to meet its sales demands through the spring and
early summer.
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 decreased 11.75% at December 31, 1995 to
$2,140,992 compared to $2,426,035 at December 31, 1994. The decrease in
accounts receivable is the result of decreased sales to the Latin American
region which occurred during the fourth quarter of 1995 compared to 1994.
Inventory increased 40.58% at December 31, 1995 to $8,029,106 compared
to $5,711,281 at December 31, 1994. The increase in inventory was the
result of reduced sales and manufacturing in anticipation of increased
Latin American region orders which did not materialize as expected in late
1995. Also, management decided to carry higher inventory levels to meet
rapid delivery requirements and avoid backlog.
The Company has a domestic operating line of credit with a limit of
$4,000,000, secured by accounts receivable and inventory. This line was
increased to $5,000,000 effective March 15, 1996. In addition, the Company
has a $200,000 equipment acquisition line. As of December 31, 1995,
$1,300,498 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 December 31,
1995, borrowings under the foreign operating line aggregated $178,388 US
dollars out of an available $621,200 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 1996.
19
<PAGE>
The Company plans to consolidate the operations at its Blair, Nebraska
facility into one building. At present, the Company utilizes different
buildings for its bag, proprietary inoculant and machine assembly
operations. The Company will sell the existing buildings and will build a
new facility on land the Company already owns which is near the existing
facilities. The new facility will be financed with the sale proceeds of
the existing buildings and a loan secured by the new facility. The sale of
the existing facilities and construction of the new facility will not have
a material effect on the Company's liquidity.
FINANCIAL ACCOUNTING STANDARDS NOT YET ADOPTED
______________________________________________
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Statement No.121 provides specific guidance regarding when impairment
of Long-Lived assets such as plant, equipment and certain intangibles
including goodwill and capitalized technology should be recognized and how
impairment losses of such assets should be measured. Statement No. 121 is
effective for fiscal years beginning after December 15, 1995. The Company
is preparing to adopt Statement No. 121 in 1996 and expects the impact on
its Statements of Operations and Financial Position will not be material.
In October 1995, the Financial Accounting Standards Board issued
Statement No. 123, "Accounting for Stock Based Compensation." Statement
No. 123 permits a company to choose either a new fair value based method of
accounting for its stock-based compensation arrangements or to comply with
the current APB Opinion 25 intrinsic value based method adding pro forma
disclosures of net income and earnings per share computed as if the fair
value based method had been applied in the financial statements. Statement
No. 123 is effective for fiscal years beginning after December 15, 1995.
The Company will not be implementing Statement No. 123, but instead will
elect to continue complying with the current APB Opinion 25 valuation
methodology.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
___________________________________________________
Reference is made to the consolidated financial statements and related
notes and supplemental data under Item 14 filed with this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
________________________________________________________________________
Effective May 6, 1994, the Company engaged KPMG Peat Marwick as its
independent accountants and on May 9, 1994, the Company dismissed Price
Waterhouse as its independent accountants. The reports of Price Waterhouse
on the financial statements for the past two years of the Company did not
contain any adverse opinion or disclaimer of opinion nor were they
qualified or modified as to uncertainty, audit scope, or accounting
principles. The decision to dismiss Price Waterhouse was recommended by
management to the Audit Committee and approved by the Board of Directors of
the Company. During 1993 there were no disagreements with Price Waterhouse
on any matters of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
20
<PAGE>
PART III
________
ITEMS 10 AND 11. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT AND
EXECUTIVE COMPENSATION
________________________________________________________________________
A definitive proxy statement of Ag-Bag International Limited will be
filed not later than 120 days after the end of the fiscal year with the
Securities and Exchange Commission. The information set forth therein
under "Election of Directors," "Executive Compensation," and "Compliance
with Section 16 Filing Requirements" is incorporated herein by reference.
Executive Officers of Ag-Bag International Limited are listed under the
heading "Executive Officers of the Registrant" in this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
________________________________________________________________________
Information required is set forth under the caption "Security
Ownership of Beneficial Owners" in the Proxy Statement for the 1996 Annual
Meeting of Stockholders and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
________________________________________________________
Information required is set forth under the caption "Certain
Relationships and Related Transactions" in the Proxy Statement for the 1996
Annual Meeting of Stockholders and is incorporated herein by reference.
21
<PAGE>
PART IV
_______
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
__________________________________________________________________________
(a) The following documents are filed as part of this report:
Page
1. Index to Consolidated Financial Statements...... 25
Independent Auditors Reports.................... F-1, F-2
Consolidated Balance Sheets at December 31,
1995 and 1994................................... F-3
Consolidated Statement of Operations for the
years ended December 31, 1995, 1994 and 1993.... F-4
Consolidated Statement of Shareholders' Equity
for the years ended December 31, 1995,
1994 and 1993................................... F-5
Consolidated Statement of Cash Flows for the
years ended December 31, 1995, 1994 and 1993.... F-6
Notes to Consolidated Financial Statements...... F-7
Independent Auditors' Reports................... F-18, F-19
2. Financial statement schedules required to be
filed by Item 8 and paragraph (d) of this
Item 14:
Schedule of Valuation and Qualifying Accounts... F-20
All other schedules are omitted because they
are not applicable or the required information
is shown in the consolidated financial
statements or notes thereto.
3. The exhibits are listed in the index of
exhibits........................................ 26
(b) No reports on Form 8-K were required to be filed
during the last quarter of the period covered by
this report.
(c) The index of exhibits and required exhibits.......... 26
22
<PAGE>
SIGNATURES
__________
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
AG-BAG INTERNATIONAL LIMITED,
a Delaware corporation
Date: April 10, 1996 By: /s/ Larry R. Inman
___________________________________
Larry R. Inman, Chairman, Board of
Directors; Chief Executive Officer
and President
23
<PAGE>
AG-BAG INTERNATIONAL LIMITED
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1995 and 1994
(With Independent Auditors' Report Thereon)
24
<PAGE>
AG-BAG INTERNATIONAL LIMITED
AND SUBSIDIARIES
Index to Consolidated Financial Statements
Page
____
Independent Auditors' Reports F-1, F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Shareholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
Independent Auditors' Reports F-18, F-19
Schedule of Valuation and Qualifying Accounts F-20
25
<PAGE>
KPMG PEAT MARWICK LLP
SUITE 2000
1211 SOUTH WEST FIFTH AVENUE
PORTLAND, OR 97204
Independent Auditors' Report
____________________________
The Board of Directors and Shareholders
Ag-Bag International Limited:
We have audited the accompanying consolidated balance sheets of Ag-Bag
International Limited and subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of operations, shareholders'
equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ag-Bag
International Limited and subsidiaries as of December 31, 1995 and 1994,
and the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Portland, Oregon
April 1, 1996
F-1
Member Firm of
Klynveld Peat Marwick Goerdeler
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Ag-Bag International Limited
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Ag-Bag International Limited and its subsidiaries at December 31, 1993, and
the results of their operations and their cash flows for the year then
ended, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements
based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Portland, Oregon
February 16, 1994
F-2
<PAGE>
AG-BAG INTERNATIONAL LIMITED
AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
______ ____ ____
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 656 876,043
Accounts receivable, less allowance for doubtful
accounts of $234,913 and $157,263 at 1995
and 1994, respectively (note 6) 2,140,992 2,426,035
Inventories (notes 3 and 6) 6,748,272 4,825,978
Other current assets 488,875 316,527
___________ ___________
Total current assets 9,378,795 8,444,583
Deferred income tax (note 10) 12,301 ---
Intangible assets, net (notes 4 and 6) 1,960,997 2,230,660
Property, plant and equipment, net (notes 5, 6 and 7) 3,520,252 3,862,100
Long-term inventories (notes 3 and 6) 1,280,834 885,303
Other assets 144,272 123,149
___________ ___________
$16,297,451 15,545,795
=========== ===========
Liabilities and Shareholders' Equity
____________________________________
Current liabilities:
Note payable to bank (note 6) 1,478,886 130,756
Debentures payable (note 8) --- 188,000
Notes payable to shareholders and related parties (note 9) 12,635 375,000
Current portion of debt and capital lease obligations (note 7) 421,462 787,644
Accounts payable 474,128 639,389
Accrued expenses and other current liabilities 766,711 680,174
Income taxes payable 146,998 310,000
___________ ___________
Total current liabilities 3,300,820 3,110,963
Deferred income taxes (note 10) --- 32,699
Long-term debt and capital lease obligations, less current
portion (note 7) 1,183,114 1,023,360
Notes payable to shareholders and related parties, less
current portion (note 9) 54,420 ---
___________ ___________
4,538,354 4,167,022
___________ ___________
Commitments (notes 7 and 11)
Shareholders' equity (note 11):
Preferred stock, $4 liquidation value, 8.5% cumulative
dividend, non-voting, 5,000,000 shares authorized,
174,000 shares issued and outstanding 696,000 696,000
Common stock, $.01 par value, 25,000,000 shares
authorized, 12,053,751 and 11,655,373 shares
issued and outstanding, respectively 120,537 116,553
Additional paid-in capital 9,201,796 8,853,513
Retained earnings 1,835,441 1,787,408
Foreign currency translation adjustments (94,677) (74,701)
___________ ___________
Total shareholders' equity 11,759,097 11,378,773
___________ ___________
$16,297,451 15,545,795
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
AG-BAG INTERNATIONAL LIMITED
AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statements of Operations
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
____ ____ ____
<S> <C> <C> <C>
Net sales (note 2) $19,297,962 20,706,738 18,617,146
Cost of sales 13,916,032 14,832,613 13,088,857
___________ ___________ ___________
Gross profit from operations 5,381,930 5,874,125 5,528,289
Selling expenses 2,400,387 2,167,865 2,104,746
Administrative expenses 2,280,690 2,322,085 2,180,000
Research and development expenses 68,165 60,257 123,374
___________ ___________ ___________
Income from operations 632,688 1,323,918 1,120,169
Other income (expense):
Interest income 44,639 45,826 67,550
Interest expense (414,145) (465,743) (607,012)
Loss on joint venture --- (140,741) ---
Other (note 12) 130,411 199,084 296,275
___________ ___________ ___________
Income before income taxes and extraordinary
item 393,593 962,344 876,982
Income tax expense (note 10) 286,400 428,917 180,895
Income before extraordinary item 107,193 533,427 696,087
Extraordinary item:
Gain on extinguishment of debt, less applicable
income taxes of $78,200 (note 13) --- --- 151,800
___________ ___________ ___________
Net income $ 107,193 533,427 847,887
=========== =========== ===========
Income per common share:
Income before extraordinary item $ .01 .04 .06
Extraordinary item --- --- .01
___________ ___________ ___________
$ .01 .04 .07
=========== =========== ===========
Weighted average number of common
shares outstanding 12,062,019 11,644,785 10,581,092
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
AG-BAG INTERNATIONAL LIMITED
AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1995, 1994 and 1993
Equity
adjustment
Preferred stock Common stock Additional from foreign Total
_______________ ____________ paid-in Retained currency shareholders'
Shares Amount Shares Amount capital earnings translation equity
______ ______ ______ ______ __________ ________ ____________ _____________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 174,000 $696,000 9,803,897 $ 98,040 7,555,384 524,414 (150,713) 8,723,125
Stock issued in connection with
conversion of debentures --- --- 813,334 8,133 531,835 --- --- 539,968
Stock issued in connection with
employee stock plan --- --- 9,997 99 11,147 --- --- 11,246
Foreign currency translation --- --- --- --- --- --- (31,573) (31,573)
Preferred stock dividends --- --- --- --- --- (59,160) --- (59,160)
Net income --- --- --- --- --- 847,887 --- 847,887
_______ ________ __________ ________ _________ _________ ________ __________
Balance, December 31, 1993 174,000 696,000 10,627,228 106,272 8,098,366 1,313,141 (182,286) 10,031,493
Stock issued in connection with
exercise of options --- --- 7,500 75 10,925 --- --- 11,000
Stock issued in connection with
conversion of debentures --- --- 1,010,667 10,106 731,822 --- --- 741,928
Stock issued in connection with
employee stock plan --- --- 9,978 100 12,400 --- --- 12,500
Foreign currency translation --- --- --- --- --- --- 107,585 107,585
Preferred stock dividends --- --- --- --- --- (59,160) --- (59,160)
Net income --- --- --- --- --- 533,427 --- 533,427
_______ ________ __________ ________ _________ _________ _______ __________
Balance, December 31, 1994 174,000 696,000 11,655,373 116,553 8,853,513 1,787,408 (74,701) 11,378,773
Stock issued in connection with
exercise of warrant --- --- 137,500 1,375 149,875 --- --- 151,250
Stock issued in connection with
conversion of debentures --- --- 250,667 2,507 182,224 --- --- 184,731
Stock issued in connection with
employee stock plan --- --- 10,211 102 16,184 --- --- 16,286
Foreign currency translation --- --- --- --- --- --- (19,976) (19,976)
Preferred stock dividends --- --- --- --- --- (59,160) --- (59,160)
Net income --- --- --- --- --- 107,193 --- 107,193
_______ ________ __________ ________ _________ _________ _______ __________
Balance, December 31, 1995 174,000 $696,000 12,053,751 $120,537 9,201,796 1,835,441 (94,677) 11,759,097
======= ======== ========== ======== ========= ========= ======= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
AG-BAG INTERNATIONAL LIMITED
AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
____ ____ ____
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 107,193 533,427 847,887
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,029,874 1,097,314 1,116,409
Litigation settlement --- --- (79,670)
Issuance of stock under employee stock plan 16,286 12,500 11,246
(Gain) loss on disposition of fixed assets (54,919) 6,140 17,783
Loss on investment in joint venture --- 140,741 57,530
Deferred income taxes (45,000) (126,559) (231,649)
Gain on extinguishment of debt --- --- (230,000)
Change in assets and liabilities:
Accounts receivable 285,043 (984,200) 71,039
Refundable income taxes --- --- 1,077,271
Inventories (2,153,915) (365,485) 254,108
Other current assets (172,348) 164,653 (217,235)
Accounts payable (165,261) 201,644 (2,275)
Accrued expenses and other current liabilities 86,537 75,669 (202,960)
Income taxes payable (163,002) 191,707 118,294
Other assets (21,123) (116,252) ---
____________ __________ __________
Net cash provided by (used in) operating activities (1,250,635) 831,299 2,607,778
Cash flows from investing activities:
Capital expenditures (641,846) (992,521) (374,253)
Proceeds from disposition of assets 125,656 11,763 198,640
Intangible assets (14,433) (8,495) (127,088)
Investment in joint venture --- 45,890 ---
____________ __________ __________
Net cash used in investing activities (530,623) (943,363) (302,701)
____________ __________ __________
Cash flows from financing activities:
Proceeds from line of credit 21,425,761 --- ---
Principal payments on line of credit (20,077,631) --- ---
Proceeds on issuance of debt 714,616 812,049 ---
Principal payments on debt (769,794) (1,579,808) (2,328,560)
Proceeds from issuance of shareholders' notes 75,000 --- 400,000
Payment of shareholders' notes (382,945) (251,652) (148,348)
Exercise of employee options --- 11,000 ---
Dividends paid (59,160) (59,160) (59,160)
____________ __________ __________
Net cash provided by (used in) financing activities 925,847 (1,067,571) (2,136,068)
____________ __________ __________
Effect of foreign currency translation (19,976) 107,585 (31,573)
____________ __________ __________
Net increase (decrease) in cash (875,387) (1,072,050) 137,436
Cash and cash equivalents at beginning of year 876,043 1,948,093 1,810,657
____________ __________ __________
Cash and cash equivalents at end of year $ 656 876,043 1,948,093
============ ========== ==========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 415,000 466,000 600,000
Cash paid for income taxes 494,400 320,000 220,000
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
AG-BAG INTERNATIONAL LIMITED
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
(1) Description of Business and Summary of Significant Accounting Policies
______________________________________________________________________
(a) Description of Business
_______________________
Ag-Bag International Limited (the Company) is a Delaware
corporation. The Company's operations include the manufacturing
and sale of machines and related bags used in the agriculture
industry to store feed for livestock, grain and other products.
(b) Principles of Consolidation
___________________________
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, Ag-Bag Europe, plc. All
significant intercompany transactions have been eliminated in
consolidation.
(c) Statement of Cash Flows
_______________________
For purposes of the statement of cash flows, the Company
considers all highly liquid investments with original maturities
of three months or less to be cash equivalents. Cash equivalents
consist of the following:
Date Amount Description
____ ______ ___________
1994 $ 400,000 Municipal Mutual Fund
1993 1,301,351 Municipal Mutual Fund
The Company transferred $163,910 and $312,208 in 1995 and 1994,
respectively, from rental equipment to inventory held for sale.
The Company received cancellation of a note payable in the amount
of $151,250 during 1995 as consideration for the exercise of a
warrant for 137,500 shares at $1.10 per share.
(d) Accounts Receivable
___________________
Accounts receivable are from distributors and customers of the
Company's products. The Company performs periodic credit
evaluations of its customers and maintains allowances for
potential credit losses.
(e) Inventories
___________
Inventories are stated at the lower of cost or market. The
Company determines cost on the first-in, first-out basis.
(Continued)
F-7
<PAGE>
AG-BAG INTERNATIONAL LIMITED
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(f) Property, Plant and Equipment
_____________________________
Property, plant and equipment are stated at cost and are
depreciated on the straight-line method over their estimated
useful lives which range from three to twenty-five years.
Expenditures for additions and major improvements are
capitalized. Expenditures for repairs and maintenance are
charged to income as incurred.
(g) Intangible Assets
_________________
Intangible assets consist primarily of licenses, goodwill,
patents and non-compete agreements. The cost of the licenses,
patents and noncompete agreements are amortized over the lesser
of the terms of the related agreement or the estimated useful
lives of the respective asset, ranging from three to seventeen
years.
Goodwill, which represents the excess of purchase price over fair
value of net assets acquired, is amortized on the straight-line
basis over the expected period to be benefited, fifteen years.
The Company assesses the recoverability of this intangible asset
by determining whether the amortization of the goodwill balance
over its remaining life can be recovered through undiscounted
future operating cash flows of the acquired operation. The
assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved.
(h) Investment in Affiliated Company
________________________________
The Company had a 42% investment in Silage Packing Technology
B.V. (the Joint Venture) until 1994 wherein the Joint Venture was
dissolved. Through 1993, the Company accounted for their
investment in the Joint Venture using the equity method of
accounting. Included in other income (expense) in 1994 is a loss
of $140,741 related to the dissolution of the Joint Venture.
(i) Income Taxes
____________
The Company accounts for income taxes under the asset and
liability method. Deferred assets and liabilities are recognized
for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
(j) Income Per Common Share
_______________________
Income per common share is computed based on the weighted average
number of shares of common stock and common stock equivalents (if
dilutive) outstanding during the year.
(Continued)
F-8
<PAGE>
AG-BAG INTERNATIONAL LIMITED
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(k) Foreign Currency Translation
____________________________
The financial statements of the Company's European subsidiary
have been translated into U.S. dollars from their functional
currency, British pounds sterling, in the accompanying statements
in accordance with Statement of Financial Accounting Standards
No. 52. Balance sheet amounts have been translated at the
exchange rate on the balance sheet date and statement of
operations amounts have been translated at average exchange rates
in effect during the period. The net translation adjustment is
carried as a component of stockholders' equity. Realized and
unrealized gains and losses on foreign currency transactions are
included in other expense (income), net.
(l) Management Estimates
____________________
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(2) Foreign Operations
__________________
<TABLE>
<CAPTION>
Summarized data for the Company's foreign operation (Ag-Bag Europe,
plc) in Europe are as follows:
December 31
___________
1995 1994 1993
____ ____ ____
<S> <C> <C> <C>
Revenues - unaffiliated customers $1,796,275 1,886,343 2,026,955
Operating profit (loss) (85,553) 82,802 184,335
Identifiable assets 1,689,594 1,789,366 1,514,566
<CAPTION>
Export sales from the Company's United States operations are as
follows:
December 31
___________
1995 1994 1993
____ ____ ____
<S> <C> <C> <C>
Canada $1,418,000 1,156,000 1,454,000
Germany 1,680,000 783,000 ---
Other 935,000 1,854,000 1,155,000
__________ _________ _________
$4,033,000 3,793,000 2,609,000
========== ========= =========
</TABLE>
(Continued)
F-9
<PAGE>
AG-BAG INTERNATIONAL LIMITED
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Inventories
___________
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31
___________
1995 1994
____ ____
<S> <C> <C>
Work in process $ 652,930 394,444
Bags and machines 4,643,673 2,830,271
Parts and subassembly - current 1,451,669 1,601,263
__________ _________
6,748,272 4,825,978
Parts and subassembly (long-term) 1,280,834 885,303
__________ _________
$8,029,106 5,711,281
========== =========
</TABLE>
At December 31, 1995, some portion of the $8,029,106 of inventory of
the Company is in excess of current requirements based on the recent
level of production and sales. Management is developing a plan to
reduce this inventory to desired levels through either disposal or
utilization of parts in new machinery models. Management believes no
loss will be incurred on the utilization or disposition of these
inventories.
Management has also classified certain parts which may not be
sold or used in production within the course of one year as long-
term inventories. Management believes the cost of these long-
term inventories is fully recoverable.
(4) Intangible Assets
_________________
Intangible assets consist of the following:
<TABLE>
<CAPTION>
December 31
___________
1995 1994
____ ____
<S> <C> <C>
Licenses $1,886,314 1,886,314
Goodwill 668,612 668,612
Patent costs 658,739 644,508
Covenant not to compete 393,263 393,263
Other --- 51,004
__________ _________
3,606,928 3,643,701
Less accumulated amortization 1,645,931 1,413,041
__________ _________
$1,960,997 2,230,660
========== =========
</TABLE>
(Continued)
F-10
<PAGE>
AG-BAG INTERNATIONAL LIMITED
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Property, Plant and Equipment
_____________________________
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
December 31
___________
1995 1994
____ ____
<S> <C> <C>
Land $ 281,326 338,414
Building 1,238,391 1,161,729
Vehicles 439,328 321,193
Office furniture, fixtures and equipment 1,540,627 1,490,090
Plant equipment 1,580,528 1,453,097
Rental equipment 2,288,050 2,251,495
Leasehold improvements 54,515 54,515
__________ _________
7,422,765 7,070,533
Less accumulated depreciation and
amortization 3,902,513 3,208,433
__________ _________
$3,520,252 3,862,100
========== =========
</TABLE>
Certain property, plant and equipment serve as collateral for short
and long-term debt obligations (notes 6 and 7). The Company leases
certain assets under capital lease agreements. At December 31, 1995
and 1994, the net book value of the equipment under these leases was
approximately $536,222 and $1,198,093, respectively. The related
obligations are included in long-term debt.
(6) Note Payable to Bank
____________________
The Company has a note payable to a bank in the amount of $178,388 and
$130,756 at December 31, 1995 and 1994, respectively, under a line of
credit agreement (LOC Agreement). The LOC Agreement is for a maximum
of 400,000 English pounds ($621,200 and $620,000 at December 31, 1995
and 1994, respectively), bears interest at 8.25% (8.5% at December 31,
1994) which is subject to renewal by the bank in June 1996. The LOC
Agreement is secured by all assets of Ag-Bag Europe plc. and is
subject to certain covenants.
(Continued)
F-11
<PAGE>
AG-BAG INTERNATIONAL LIMITED
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In addition, the Company has a domestic line of credit with a bank for
up to $4,000,000 ($3,000,000 at December 31, 1994). The domestic line
of credit is secured by receivables and inventories, bears interest at
the bank's prime rate plus 1/2% (9.0% and 9.5% at December 31, 1995
and 1994, respectively). The Company also has an equipment line of
credit with the bank for $200,000 ($250,000 at December 31, 1994)
which bears interest at the bank's prime rate plus 1.0% (9.5% at
December 31, 1995 and 1994) and is secured by equipment purchased
subject to the line. Both lines are subject to certain covenants and
are subject to annual renewal by the bank each June 30. The Company
was out of compliance with one covenant at December 31, 1995.
Forbearance was received from the lender for this covenant through
December 31, 1996. As of December 31, 1995, $1,300,498 was
outstanding under the operating line of credit and no amounts were
outstanding under the equipment line. As of December 31, 1994, no
amounts were outstanding under these lines of credit.
(7) Long-term Debt
______________
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
December 31
___________
1995 1994
____ ____
<S> <C> <C>
Note payable in monthly installments of
$2,638, plus interest at prime plus 1.75%
(10.25% at December 31, 1995), through
2000, secured by building $ 141,173 172,823
Note payable in monthly installments of
$2,436, including interest at 8.32%,
through 2005, secured by certain
equipment, office furniture and fixtures
and personal guarantees of certain
shareholders, subordinate to building
loan and certain equipment loans 191,482 205,209
Note payable in monthly installments of
$34,500, including interest at 15%, due
November 1996 (see note 1) --- 221,828
Note payable in monthly installments of
$3,567, including interest at 8% through
1999, secured by real property 263,981 284,463
Note payable in monthly installments of
$4,183, including interest at 9% through
1999, secured by certain equipment 152,020 186,521
Note payable in monthly installments of
$2,360, plus interest at prime plus
1.25% (9.75% at December 31, 1995) 127,421 ---
__________ _________
876,077 1,070,844
Less current portion 133,597 320,989
__________ _________
$ 742,480 749,855
========== =========
</TABLE>
(Continued)
F-12
<PAGE>
AG-BAG INTERNATIONAL LIMITED
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Future maturities of long-term debt and capital lease obligations are
summarized as follows:
<TABLE>
<CAPTION>
Capital lease obligations
Long-term ________________________________
debt excluding Minimum Amount
capital lease lease representing
obligations payments interest Principal
______________ ________ ________ _________
<S> <C> <C> <C> <C>
Year ending December 31:
1996 $133,597 315,401 27,536 287,865
1997 140,271 236,009 17,690 218,319
1998 147,552 126,413 5,320 121,093
1999 296,855 56,801 1,070 55,731
2000 47,844 45,911 420 45,491
Thereafter 109,958 --- --- ---
________ _______ ______ _______
$876,077 780,535 52,036 728,499
======== ======= ====== =======
</TABLE>
(8) Debentures Payable
__________________
The Subordinated Convertible Debentures (the Debentures) bore interest
at 10% payable quarterly. Each Debenture was convertible into shares of
the Company's common stock at a conversion rate of $.75 per share and
had certain anti-dilution privileges in the event of additional equity
issues by the Company. The Debentures were subordinated to other senior
indebtedness of the Company. Conversion of debentures into common stock
were $188,000, $758,000 and $610,000 in 1995, 1994 and 1993,
respectively. Cost related to the conversions amounted to $3,269,
$16,072 and $70,032, respectively.
(9) Notes Payable to Shareholders and Related Parties
_________________________________________________
The Company has notes payable to shareholders and officers of the
Company. The notes bear interest at 10% to 12% and require monthly
principal and interest payments ranging from $1,600 to $33,228 through
April 30, 2000. Interest expense related to these notes amounted to
$29,188, $58,000 and $69,000 in 1995, 1994 and 1993, respectively.
(Continued)
F-13
<PAGE>
AG-BAG INTERNATIONAL LIMITED
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) Income Taxes
____________
<TABLE>
<CAPTION>
The domestic and foreign components of income before income taxes and
extraordinary item are as follows:
Year Ended December 31
______________________
1995 1994 1993
____ ____ ____
<S> <C> <C> <C>
Domestic $479,146 879,542 922,648
Foreign (85,553) 82,802 184,333
________ ________ _________
$393,593 962,344 1,106,981
<CAPTION>
The income tax expense (benefit) consists of the following:
Year Ended December 31
______________________
1995 1994 1993
____ ____ ____
Current:
Federal $290,781 546,193 338,294
State 40,619 9,283 ---
________ ________ _________
331,400 555,476 338,294
________ ________ _________
Deferred:
Federal (49,047) (110,120) (94,019)
State 4,047 (16,439) 14,820
________ ________ _________
(45,000) (126,559) (79,199)
Total income tax expense $286,400 428,917 259,095
======== ======== =========
</TABLE>
(Continued)
F-14
<PAGE>
AG-BAG INTERNATIONAL LIMITED
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Deferred tax assets and liabilities consist of the following:
December 31
___________
1995 1994
____ ____
<S> <C> <C>
Net operating loss carryforwards:
Foreign $ 216,933 187,222
State 5,545 8,950
Expenses not currently deductible 100,702 70,591
_________ ________
Gross deferred tax asset 323,180 266,763
_________ ________
Valuation allowance (216,933) (187,222)
_________ ________
Net deferred tax asset 106,247 79,541
_________ ________
Depreciation 93,946 112,240
_________ ________
Gross deferred tax liability 93,946 112,240
_________ ________
Net deferred tax asset (liability) $ 12,301 (32,699)
========= ========
</TABLE>
During the year ended December 31, 1994, the Company changed its
reporting for income taxes from a fiscal year ending February 28 to a
calendar year-end. Accordingly, the difference of approximately $74,741
in deferred liabilities was realized during 1994.
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax
rate to pre-tax income as a result of the following differences:
<TABLE>
<CAPTION>
1995 1994 1993
____ ____ ____
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0%
Foreign losses providing no current
income tax benefit 7.0 --- ---
Realized benefit from foreign net
operating losses --- (3.0) (6.0)
Nondeductible items 11.0 5.0 (4.0)
Tax settlement 16.0 --- ---
Other 5.0 9.0 (1.0)
____ ____ ____
Effective tax rates 73.0% 45.0% 23.0%
==== ==== ====
</TABLE>
At December 31, 1995, the Company has available foreign operating loss
carryforwards for income tax purposes of $638,037. Such carryforwards
are available to offset foreign taxable income, if any, through their
expiration in the year 2007.
(Continued)
F-15
<PAGE>
AG-BAG INTERNATIONAL LIMITED
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Shareholders' Equity
____________________
Stock Warrants
______________
In connection with offerings of common stock and notes payable, the
Company has issued various warrants for the purchase of the Company's
common stock. As of December 31, 1995, the following warrants with
respective exercise price per share and date of expiration were
outstanding:
<TABLE>
<CAPTION>
Number Price per Expiration
Party of shares share date
_____ _________ _________ __________
<S> <C> <C> <C>
Underwriters 240,000 $4.06 May 1997
Note holder 137,500 $1.10 February 2001
_______
377,500
=======
</TABLE>
All warrants outstanding at December 31, 1995 are exercisable.
Stock Awards
____________
The Company has an Employee Stock Award Plan (the Plan). Under terms of
the Plan, stock is awarded to employees at the sole discretion of the
Board of Directors. Awards under the Plan amounted to 10,211 and 9,978
shares for 1995 and 1994, respectively, with related compensation
expense of $16,286 and $12,500, respectively.
Common Stock Options
____________________
The Company has an Incentive Stock Option Plan (the Plan) and has
reserved 500,000 shares of common stock for issuance under the Plan.
Options under the plan are to be issued to officers and employees of the
Company and all grants of stock will be at the market value of the stock
at the date of grant. Vesting of stock options are determined for each
grant by the Board of Directors.
In addition to the Incentive Stock Option Plan, in February 1992, the
Company issued options to purchase 10,000 shares of common stock at
$3.00 per share to a former employee. The options vested immediately
and are exercisable through February 1996.
(Continued)
F-16
<PAGE>
AG-BAG INTERNATIONAL LIMITED
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Transactions and other information relating to stock options for the
three years ended December 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
Number Option price
of shares per share
_________ ____________
<S> <C> <C>
Options outstanding at December 31, 1992 49,500 $ 1.31-3.00
Options granted 325,000 1.59-3.50
Options expired (225,000) 3.50
Options exercised --- ---
________ ___________
Options outstanding at December 31, 1993 149,500 1.31-3.50
Options granted --- ---
Options expired (32,000) 1.31-1.58
Options exercised (7,500) 1.31-1.58
________ ___________
Options outstanding at December 31, 1994 110,000 1.59-3.50
Options granted 10,000 1.68
Options expired --- ---
Options exercised --- ---
________ ___________
Options outstanding at December 31, 1995 120,000 $ 1.59-3.50
======== ===========
</TABLE>
All options outstanding at December 31, 1995 are exercisable.
(12) Other Income
____________
Other income includes gross profit from rentals of machinery and
equipment of $30,120, $86,531 and $178,570 for 1995, 1994 and 1993,
respectively.
(13) Gain on Extinguishment of Debt
______________________________
During 1993, the Company paid off a note payable. Under the terms of
the debt agreement, the Company was forgiven the final principal payment
of $230,000. The resulting gain on extinguishment of debt has been
classified as an extraordinary item in 1993.
F-17
<PAGE>
KPMG PEAT MARWICK LLP
SUITE 2000
1211 SOUTH WEST FIFTH AVENUE
PORTLAND, OR 97204
Independent Auditors' Report
____________________________
The Board of Directors and Shareholders
Ag-Bag International Limited:
Under date of April 1, 1996, we reported on the consolidated balance sheets
of Ag-Bag International Limited and subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the years in the two-year period ended
December 31, 1995, as contained in the annual report on Form 10-K for the
year 1995. In connection with our audit of the aforementioned consolidated
financial statements, we also audited the related consolidated financial
statement schedule as listed in the accompanying index as related to amounts
as of and for the years ended December 31, 1995 and 1994. This financial
statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statement
schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Portland, Oregon
April 1, 1996
F-18
Member Firm of
Klynveld Peat Marwick Goerdeler
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors and Shareholders of
Ag-Bag International Limited
Our audit of the consolidated financial statements referred to in our report
dated February 16, 1994 appearing on page F-2 of this Report on Form 10-K
also included an audit of the Financial Statement Schedule listed in item 14a
of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Portland, Oregon
February 16, 1994
F-19
<PAGE>
<TABLE>
Schedule II
___________
AG-BAG INTERNATIONAL LIMITED
AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1995, 1994 and 1993
<CAPTION>
Column A Column B Column C Column D Column E
________ ________ ________ ________ ________
Balance at Charged to Charged Write-offs, Balance
beginning costs and to other net of at end
Description of period expenses accounts recoveries of period
___________ __________ __________ ________ ___________ _________
<S> <C> <C> <C> <C> <C>
Year ended December 31:
1995:
Allowance for doubtful accounts $ 157,263 183,813 --- (106,163) 234,913
Warranty reserve 25,061 57,127 --- (32,188) 50,000
1994:
Allowance for doubtful accounts 107,485 66,689 --- (16,911) 157,263
Warranty reserve 23,693 102,975 --- (101,607) 25,061
1993:
Allowance for doubtful accounts 250,646 14,155 --- (157,316) 107,485
Warranty reserve --- 127,662 --- (103,969) 23,693
</TABLE>
F-20
<PAGE>
EXHIBITS INDEX
______________
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
_______ ______________________
3.1 Restated Certificate of Incorporation (3)
3.2 Bylaws of the Company (3)
4.1 Form of Common Stock Certificate (1)
4.2 Form of Underwriter's Warrants dated May 9, 1992 (1)
4.3 Warrant dated February 13, 1995, to Norwood Venture Corp. (3)
4.4 Stock Option dated September 6, 1995, to Doug Hoag (4)*
10.1 Employment Contract of Larry R. Inman (1)*
10.3 Employee Stock Plan (1)*
10.4 Incentive Stock Option Plan (1)*
11 Statement re computation of earnings per share
12 Statement re computation of ratios
16 Letter re change in certifying accountants (2)
21 Subsidiaries of the Registrant (4)
23 Reference is made to the financial reports of KPMG Peat Marwick LLP
and Price Waterhouse LLP containing their opinions with respect to
the financial statements.
27 Financial Data Schedule (Filed with EDGAR version only)
* Management contract or compensatory plan
(1) Filed as exhibit to the Form S-1 Registration No.33-46115.
(2) Filed as exhibit to the Form 8-K filed May 6, 1994.
(3) Filed as exhibit to the Form 10-K for the fiscal year ended
December 31, 1994.
(4) Filed as exhibit to the Form 10-K, filed on April 1, 1996, for the
fiscal year ended December 31, 1995.
26
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Year Ended December 31,
_______________________
1991 1992 1993 1994 1995
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Primary earnings per share:
Net income (loss) $ 914,946 $(3,324,288) $ 847,887 $ 533,427 $ 107,193
Preferred stock dividends (59,160) (59,160) (59,160) (59,160) (59,160)
Debenture interest 42,944
___________ ___________ ___________ ___________ ___________
855,786 (3,383,448) 788,727 517,211 48,033
=========== =========== =========== =========== ===========
Primary weighted average number
of common and common stock
equivalent shares outstanding 6,649,896 (1) 8,426,853 (3) 10,581,092 (3) 11,644,785 (3) 12,062,019 (1)
Primary earnings per share
Income (loss) before
extraordinary item $ .13 $ (.40) $ .06 $ .04 $ .01
Extraordinary item .01
___________ ___________ ___________ ___________ ___________
$ .13 $ (.40) $ .07 $ .04 $ .01
Fully diluted earnings per share:
Net income (loss) $ 914,946 $(3,324,288) $ 847,887 $ 533,427 $ 107,193
Preferred stock dividends (59,160) (59,160) (59,160) (59,160) (59,160)
Debenture interest 200,000 (3) (3) 42,944 ---
___________ ___________ ___________ ___________ ___________
1,055,786 (3,383,448) 788,727 517,211 48,033
=========== =========== =========== =========== ===========
Fully diluted weighted average
number of common and common
stock equivalent shares
outstanding 9,324,750 (2) 8,426,853 (3) 10,581,092 (3) 11,644,785 (3) 12,062,019
=========== =========== =========== =========== ===========
Fully diluted earnings per share
Income (loss) before
extraordinary item $ .11 $ (.40) $ .06 $ .04 $ .01
Extraordinary item .01
___________ ___________ ___________ ___________ ___________
$ .11 $ (.40) $ .07 $ .04 $ .01
=========== =========== =========== =========== ===========
<FN>
<F1> Includes shares of common stock issued under options and warrants outstanding, net of hypothetical repurchases under the
treasury method.
<F2> Includes the effect of $2,000,000 of debentures converted into 2,666,667 shares, using the conversion rate of $.75 per share,
and shares of common stock issued under options and warrants outstanding, net of hypothetical treasury repurchases under the
treasury method.
<F3> See Note 1 to the consolidated financial statements.
</FN>
</TABLE>
EXHIBIT 12
STATEMENT RE COMPUTATION OF RATIOS
<TABLE>
<CAPTION>
Year Ended December 31,
_______________________
1991 1992 1993 1994 1995
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Pretax earnings (losses) $ 1,589,946 $(4,479,733) $ 876,982 (1) $ 962,344 $ 393,593
Interest expense 869,574 985,000 607,012 465,743 414,145
___________ ___________ ___________ ___________ ___________
Subtotal (A) 2,459,520 (3,494,733) 1,483,994 1,428,087 807,738
___________ ___________ ___________ ___________ ___________
Interest expense 869,574 985,000 607,012 465,743 414,145
Preferred stock dividend
requirements 102,000 79,945 76,830 107,564 219,111
___________ ___________ ___________ ___________ ___________
Subtotal (B) $ 971,574 $ 1,064,945 $ 683,842 $ 573,307 $ 633,256
___________ ___________ ___________ ___________ ___________
(A) divided by (B) 2.53 (3.28) (2) 2.17 2.49 1.28
==== ========== ==== ==== ====
<FN>
<F1> Before extraordinary item.
<F2> Due to reorganization
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S REPORT ON FORM 10-K/A FOR THE YEAR ENDED DECEMBER 31, 1995, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 0
<SECURITIES> 656
<RECEIVABLES> 2,375,905
<ALLOWANCES> 234,913
<INVENTORY> 6,748,272
<CURRENT-ASSETS> 9,389,450
<PP&E> 7,422,765
<DEPRECIATION> 3,902,513
<TOTAL-ASSETS> 16,297,451
<CURRENT-LIABILITIES> 3,300,820
<BONDS> 0
0
696,000
<COMMON> 120,537
<OTHER-SE> 10,942,560
<TOTAL-LIABILITY-AND-EQUITY> 16,297,451
<SALES> 19,297,962
<TOTAL-REVENUES> 19,473,012
<CGS> 13,916,032
<TOTAL-COSTS> 4,681,077
<OTHER-EXPENSES> 68,165
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 414,145
<INCOME-PRETAX> 393,593
<INCOME-TAX> 286,400
<INCOME-CONTINUING> 107,193
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 107,193
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
