UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended: September 30, 1996
Commission file Number: 0-18259
AG-BAG INTERNATIONAL LIMITED
(Exact name of registrant as specified in its charter)
DELAWARE 93-1143627
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2320 SE AG-BAG LANE
WARRENTON, OR 97146
(Address of principal executive offices) (Zip Code)
(503) 861-1644
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [ X ] NO [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Common Stock, $.01 par value per share - 12,053,751 shares
outstanding as of October 25, 1996.
1
<PAGE>
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 3
Consolidated Balance Sheets 3
September 30, 1996 and 1995 and December 31, 1995
Consolidated Statements of Shareholders' Equity 4
Consolidated Statements of Operations 5
Three Months Ended September 30, 1996 and 1995
Nine Months Ended September 30, 1996 and 1995 and
Year Ended December 31, 1995
Consolidated Statements of Cash Flows 7
Nine Months Ended September 30, 1996 and 1995
Notes to Consolidated Financial Information 8
Item 2. Management's Discussion and Analysis of 9
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
AG-BAG INTERNATIONAL LIMITED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30 December 31
(Unaudited) (Audited)
__________________ ___________
1996 1995 1995
____ ____ ____
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 656 $ 656 $ 656
Accounts receivable 7,049,890 5,122,639 2,140,992
Inventories 6,554,307 7,532,968 6,748,272
Other current assets 674,926 747,939 488,875
___________ ___________ ___________
Total current assets 14,279,779 13,404,202 9,378,795
Deferred income tax 12,301 12,301
Intangible assets, less
accumulated amortization 1,768,336 2,028,723 1,960,997
Property, plant and equipment
less accumulated depreciation 4,067,719 3,599,051 3,520,252
Long-term inventories 1,205,834 837,303 1,280,834
Other assets 150,373 146,402 144,272
___________ ___________ ___________
Total assets $21,484,342 $20,015,681 $16,297,451
=========== =========== ===========
CURRENT LIABILITIES:
Notes payable to bank $ 3,899,334 $ 3,636,741 $ 1,478,886
Current portion of long-term
debt and capital lease
obligations 585,918 506,721 421,462
Current portion of notes
payable to shareholders 12,635 110,795 12,635
Accounts payable 1,293,744 1,140,237 474,128
Accrued expenses and other
current liabilities 870,047 596,159 766,711
Income tax payable 578,410 346,098 146,998
___________ ___________ ___________
Total current liabilities 7,240,088 6,336,751 3,300,820
Deferred income taxes 32,699
Long term debt and capital
lease obligation, less
current portion 1,642,784 1,204,016 1,183,114
Notes payable to shareholders
less current portion 44,806 57,459 54,420
___________ ___________ ___________
Total liabilities 8,927,678 7,630,925 4,538,354
___________ ___________ ___________
COMMITMENTS
SHAREHOLDERS' EQUITY:
Preferred stock, $4LV 8 1/2%
nonvoting 696,000 696,000 696,000
Common stock, $.01 par value 120,537 120,537 120,537
Additional paid-in capital 9,201,796 9,201,796 9,201,796
Retained earnings 2,622,324 2,472,265 1,835,441
Foreign currency translation (83,993) (105,842) (94,677)
___________ ___________ ___________
Total shareholders'
equity 12,556,664 12,384,756 11,759,097
___________ ___________ ___________
Total liabilities and
shareholders' equity $21,484,342 $20,015,681 $16,297,451
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Information
3
<PAGE>
AG-BAG INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Foreign
Preferred Stock Common Stock Paid-In Retained Currency
__________________
Shares Amount Shares Amount Capital Earnings Translation Total
_________ ______ ______ ______ _______ ________ ___________ _____
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1995 174,000 $696,000 12,053,751 $120,537 $9,201,796 $1,835,441 $ (94,677) $11,759,097
Foreign currency translation (20,413) (20,413)
Preferred stock dividends (14,790) (14,790)
Net loss (112,488) (112,488)
_______ ________ __________ ________ __________ _________ _________ ___________
Balance March 31, 1996 174,000 $696,000 12,053,751 $120,537 $9,201,796 $1,708,163 $(115,090) $11,611,406
Foreign currency translation 19,328 19,328
Preferred stock dividends (14,790) (14,790)
Net income 495,842 495,842
_______ ________ __________ ________ __________ __________ _________ ___________
Balance June 30, 1996 174,000 $696,000 12,053,751 $120,537 $9,201,796 $2,189,215 $ (95,762) $12,111,786
Foreign currency translation 11,769 11,769
Preferred stock dividends (14,790) (14,790)
Net income 447,899 447,899
_______ ________ __________ ________ __________ __________ _________ ___________
Balance September 30, 1996 174,000 $696,000 12,053,751 $120,537 $9,201,796 $2,622,324 $ (83,993) $12,556,664
======= ======== ========== ======== ========== ========== ========= ===========
</TABLE>
See Notes to Consolidated Financial Information
4
<PAGE>
AG-BAG INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months
Ended September 30
(Unaudited)
__________________
1996 1995
____ ____
<S> <C> <C>
Net sales $ 8,798,431 $ 5,938,178
Cost of sales 6,644,417 4,292,890
___________ ___________
Gross profit from operations 2,150,014 1,645,288
Selling expenses 652,563 632,857
Administrative expenses 701,545 597,739
Research and development expenses 12,513 18,371
___________ ___________
Income from operations 787,393 396,321
Other income (expense):
Interest income 5,689 2,967
Interest expense (143,581) (135,025)
Miscellaneous 134,398 93,231
___________ ___________
Income before provision for income taxes 783,899 357,494
Provision for income taxes (336,000) (121,500)
___________ ___________
Net income $ 447,899 $ 235,994
=========== ===========
Primary earnings per share $ .04 $ .02
=========== ===========
Weighted average number of common
shares outstanding 12,056,807 12,077,260
=========== ===========
</TABLE>
See Notes to Consolidated Financial Information
5
<PAGE>
AG-BAG INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Year Ended
Ended September 30 December 31
(Unaudited) (Audited)
__________________ ___________
1996 1995 1995
____ ____ ____
<S> <C> <C> <C>
Net sales $20,143,357 $17,034,556 $19,297,962
Cost of sales 15,138,267 12,117,717 13,916,032
___________ ___________ ___________
Gross profit from operations 5,005,090 4,916,839 5,381,930
Selling expenses 1,885,968 1,838,548 2,400,387
Administrative expenses 1,920,958 1,731,699 2,280,690
Research and development 44,480 56,089 68,165
___________ ___________ ___________
Income from operations 1,153,684 1,290,503 632,688
Other income (expense):
Interest income 22,082 32,060 44,639
Interest expense (341,038) (312,777) (414,145)
Gain on sale of assets 304,417
Miscellaneous 243,108 87,941 130,411
___________ ___________ ___________
Income before provision for
income taxes 1,382,253 1,097,727 393,593
Provision for income taxes (551,000) (368,500) (286,400)
___________ ___________ ___________
Net income $ 831,253 $ 729,227 $ 107,193
=========== =========== ===========
Primary earnings per share $ .07 $ .06 $ .01
=========== =========== ===========
Weighted average number of
common shares outstanding 12,063,883 12,055,858 12,062,019
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Information
6
<PAGE>
AG-BAG INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months
Ended September 30
(Unaudited)
__________________
1996 1995
____ ____
<S> <C> <C>
Cash flows from operating activities:
Net income $ 831,253 $ 729,227
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 871,911 852,104
Issuance of stock under employee
stock plan 16,286
Gain on sale of assets (304,417) (52,912)
Changes in assets and liabilities:
Accounts receivable (4,908,898) (2,696,604)
Inventories 268,965 (2,658,990)
Other current assets (186,051) (431,412)
Accounts payable 819,616 500,848
Accrued expenses and other current
liabilities 103,336 (84,015)
Income tax payable 431,412 36,098
Other assets (6,101)
___________ ___________
Net cash used in operating activities (2,078,974) (3,789,370)
___________ ___________
Cash flows from investing activities:
Capital expenditures (1,584,952) (452,602)
Proceeds from disposition of assets 669,602 110,000
Intangible assets (6,950) 5,127
___________ ___________
Net cash used in investing activities (922,300) (337,475)
___________ ___________
Cash flows from financing activities:
Proceeds from line of credit 2,420,448 3,505,985
Principal payments on debt (101,210) (100,267)
Proceeds from construction loans 725,336
Payment of shareholders' notes (9,614) (206,746)
Proceeds on long term note receivable (23,253)
Exercise of warrant 151,250
Payment of preferred dividends (44,370) (44,370)
___________ ___________
Net cash provided by financing activities 2,990,590 3,282,599
___________ ___________
Effect of foreign currency translation 10,684 (31,141)
___________ ___________
Net decrease in cash 0 (875,387)
Cash and cash equivalents at beginning
of period 656 876,043
___________ ___________
Cash and cash equivalents at end of period $ 656 $ 656
=========== ===========
</TABLE>
See Notes to Consolidated Financial Information
7
<PAGE>
AG-BAG INTERNATIONAL LIMITED
Notes to Consolidated Financial Information
(Unaudited)
Note 1 - Description of Business and Summary of Significant
Accounting Policies
__________________________________________________________________
The Company's consolidated financial statements includes accounts
of the parent and its subsidiaries and reflects all adjustments
which, in the opinion of management, are necessary for a fair
statement of the results of operations for the periods presented.
Due to the seasonal nature of the business, the operating results
of the Company's quarterly financial information should not be
taken as indicative of the results of its operations for a full
year. The financial statements presented for the nine month
period should be read in conjunction with the consolidated
financial statements and notes thereto for the year ended
December 31, 1995 included in the Company's annual report on Form
10-K, as amended by a Form 10-K/A-1 filed with the Securities and
Exchange Commission on April 11, 1996.
Reclassifications
_________________
Certain reclassifications have been made to the financial
statements for the periods presented from amounts previously
reported to conform with classifications currently adopted. Such
reclassifications had no effect on previously reported
shareholders' equity or results of operations.
8
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The information set forth below includes "forward-looking
statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934 and is subject to the safe harbor created by
that section.
Reference is made to Item 7 of "Management's Discussion and
Analysis of Financial Condition and Results of Operations"
included in the Company's annual report on Form 10-K, as amended
by a Form 10-K/A-1, for the year ended December 31, 1995, on file
with the Securities and Exchange Commission. The following
discussion and analysis pertains to the Company's results of
operations for the three-month period ended September 30, 1996,
compared to the results of operations for the three-month period
ended September 30, 1995, and to results of operations for the
nine-month period ended September 30, 1996 compared to the
results of operations for the nine-month period ended September
30, 1995, and to changes in the Company's financial condition
from December 31, 1995, to September 30, 1996.
Consolidated net sales for the three-month period ended September
30, 1996 were $8,798,431, up 48.17% from $5,938,178 for the same
period in 1995. Consolidated net sales for the nine-month period
ended September 30, 1996 were $20,143,357, up 18.25% from
$17,034,556 for the same period in 1995. Sales for the quarter
were up as a result of increased capital expenditures by U.S.
farmers due to continued improvement in milk and beef prices and
the delayed growing season caused by the cool, wet spring which
resulted in some sales normally occurring during the second
quarter to take place in the third quarter. In addition, the
Company's international sales continued to grow along with sales
of its Pro-Grain Bagger. Sales for the nine-month period were up
as a result of the above reasons, coupled with the sale of 20 new
square bale bagger machines which were introduced in early 1996.
Gross profit from sales for the three-month period ended
September 30, 1996 was $2,150,014, an increase of 30.68% from
$1,645,288 for the same period in 1995. Gross profit from sales
for the nine-month period ended September 30, 1996 was
$5,005,090, an increase of 1.79% from $4,916,839 for the same
period in 1995. The increase for the quarter and nine-month
period is the result of increased sales volumes, being offset by
increased transportation costs and lower margins on used
equipment, coupled with lower bag margins as a result of intense
competition in certain areas of the North American market.
Selling expenses for the three-month period ended September 30,
1996 were $652,563, an increase of 3.11% from $632,857 for the
same period in 1995. Selling expenses for the nine-month period
ended September 30, 1996 were $1,885,968 an increase of 2.58%
from $1,838,548 for the same period in 1995. The increased
selling expenses for the quarter and nine-month period resulted
9
<PAGE>
from increased commissions resulting from increased sales,
coupled with increased sales and marketing activities in the
Company's domestic and international markets as well as its grain
and compost divisions.
Administrative expenses for the three-month period ended
September 30, 1996 were $701,545, an increase of 17.37% from
$597,739 for the same period in 1995. Administrative expenses
for the nine-month period ended September 30, 1996 were
$1,920,958, an increase of 10.93% from $1,731,699 for the same
period in 1995. The increase for the quarter and nine-month
period resulted from higher professional fees coupled with
increased retirement plan expense and general operating overhead
required to support international expansion and the grain and
compost divisions.
Interest expense for the three-month period ended September 30,
1996 was $143,581, an increase of 6.34% from $135,025 for the
same period in 1995. Interest expense for the nine-month period
ended September 30, 1996 was $341,038, an increase of 9.03% from
$312,777 for the same period in 1995. The increase for the
quarter and nine months was the result of the Company using a
larger portion of its credit facility resulting from an inventory
build-up in late 1995, coupled with the fact the Company had to
offer extended terms to some customers to remain competitive.
Net income for the three-month period ended September 30, 1996
was $447,899, an increase of 89.79% from $235,994 for the same
period in 1995. Net income for the nine-month period ended
September 30, 1996 was $831,253, an increase of 13.99% from
$729,227 for the same period in 1995. The increase for the
quarter was the result of increased sales resulting from
continued favorable milk and beef prices, which were offset by
tightening margins, higher transportation costs and increased
selling and administrative expenses. The increase for the nine-
month period was the result of a gain from the sale of property,
including one of the Company's production facilities, coupled
with increased sales which were offset by lower gross margins,
higher transportation costs and increases in selling and
administrative expenses.
Liquidity and Capital Resources
_______________________________
The seasonal nature of the northern hemisphere farming industry,
the production time for equipment and the time required to
prepare bags for use requires the Company to manufacture and
carry high inventories to meet rapid delivery requirements. In
particular, the Company must maintain a significant level of bags
during the spring and early summer to meet sales demands during
the harvest season. The Company uses working capital and trade
credit to increase its inventory so that it has sufficient
inventory available to meet its sales demands through the spring
and summer months.
10
<PAGE>
The Company relies on its suppliers to provide trade credit to
enable the Company to build its inventory. The Company's
suppliers have provided sufficient trade credit to meet the
demand to date and management believes this will continue. No
assurance can be given that suppliers will continue to provide
sufficient trade credit in the future.
Accounts receivable increased 37.62% as of September 30, 1996 to
$7,049,890 from the September 30, 1995 level of $5,122,639. The
increase in accounts receivable was the result of a large portion
of the Company's sales occurring during the last month of the
quarter coupled with the fact the Company had to offer extended
terms to remain competitive.
Inventory at September 30, 1996 was $7,760,141 which was 7.29%
lower than inventory at September 30, 1995 of $8,370,271. The
slight decrease in inventory was the result of increased sales
for the quarter offset by management's decision to carry higher
inventory levels to meet rapid delivery requirements and to avoid
backlog during harvest and its planned plant expansion during
1996.
The Company has a domestic operating line of credit with a limit
of $5,000,000, secured by accounts receivable and inventory. In
addition the Company has a $200,000 equipment acquisition line.
As of September 30, 1996, $3,444,793 had been taken under the
credit line and no borrowings had been taken under the equipment
acquisition line. The Company also has a revolving credit
facility denominated in pounds sterling for its UK operation with
a limit of 400,000 pounds sterling. As of September 30, 1996,
borrowings under the foreign operating line aggregated $454,541
US dollars out of an available $626,000 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.
The Company is currently consolidating its operations at its
Blair, Nebraska facility into one building. At present, the
Company utilizes different buildings for its bag, proprietary
inoculant and machine operations. During the second quarter, the
Company sold one of its existing buildings and plans to sell the
other one, and has started construction on a new facility on land
the Company already owns. 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.
11
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27, Financial Data Schedule
(b) No reports on Form 8-K were filed by the Company
during the quarter ended September 30, 1996.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
AG-BAG INTERNATIONAL LIMITED,
a Delaware corporation
(Registrant)
By: /s/ Michael R. Wallis
Date: October 31, 1996 _______________________________________
Michael R. Wallis
Chief Financial Officer and
Vice President*
* Signing on behalf of the
Registrant and as Chief
Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S REPORT ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 656
<RECEIVABLES> 7,250,738
<ALLOWANCES> 200,848
<INVENTORY> 6,554,307
<CURRENT-ASSETS> 14,279,779
<PP&E> 8,211,961
<DEPRECIATION> 4,144,242
<TOTAL-ASSETS> 21,484,342
<CURRENT-LIABILITIES> 7,240,088
<BONDS> 0
0
696,000
<COMMON> 120,537
<OTHER-SE> 11,740,127
<TOTAL-LIABILITY-AND-EQUITY> 21,484,342
<SALES> 20,143,357
<TOTAL-REVENUES> 20,712,964
<CGS> 15,138,267
<TOTAL-COSTS> 3,851,406
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 341,038
<INCOME-PRETAX> 1,382,253
<INCOME-TAX> 551,000
<INCOME-CONTINUING> 831,253
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 831,253
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
