UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended: March 31, 1997
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 May
10, 1997.
<PAGE>
Part 1 - Financial Information
Item 1. Financial Statements
AG-BAG INTERNATIONAL LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
March 31 December 31
1997 1996 1996
---------- --------- ----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 656 $ 656 $ 656
Accounts receivable 3,939,245 4,129,312 2,962,600
Inventories 6,646,429 7,487,889 5,235,866
Other current assets 826,735 950,431 546,567
---------- ---------- ---------
Total current assets 11,413,065 12,568,288 8,745,689
Deferred income tax 2,000 12,301 2,000
Intangible assets, less
accumulated amortization 1,656,047 1,897,458 1,702,576
Property, plant and equipment
less accumulated depreciation 4,820,801 3,368,724 4,848,076
Long-term inventories 1,419,334 1,280,834 1,401,127
Other assets 210,927 146,186 203,654
----------- ----------- -----------
Total assets $19,522,174 $19,273,791 $16,903,122
=========== =========== ===========
</TABLE>
(Continued)
2
<PAGE>
AG-BAG INTERNATIONAL LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
March 31 December 31
1997 1996 1996
---- ---- ----
<S> <C> <C> <C>
Current liabilities:
Notes payable to bank $ 2,786,678 $ 3,537,469 $ 379,206
Current portion of long term
debt and capital lease
obligations 534,179 468,265 547,222
Current portion of notes
payable to shareholders' 14,344 12,635 14,343
Accounts payable 1,380,882 1,756,727 699,191
Accrued expenses and other
current liabilities 780,927 679,591 1,016,140
Income tax payable 71,998
------------ ------------ ------------
Total current liabilities 5,497,010 6,526,685 2,656,102
Long term debt and capital
lease obligation, less
current portion 2,231,300 1,084,398 2,020,890
Notes payable to shareholders'
less current portion 36,282 51,302 39,733
------------ ------------ ------------
Total liabilities 7,764,592 7,662,385 4,716,725
------------ ------------ ------------
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 1,746,472 1,708,163 2,139,739
Foreign currency translation (7,223) (115,090) 28,325
------------ ------------ ------------
Total shareholders' equity 11,757,582 11,611,406 12,186,397
------------ ------------ ------------
Total liabilities and
shareholders' equity $ 19,522,174 $ 19,273,791 $ 16,903,122
============ ============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Information
3
<PAGE>
AG-BAG INTERNATIONAL LIMITED
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Preferred Stock Foreign
---------------- 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, 1996 174,000 $696,000 12,053,751 $120,537 $9,201,796 $2,139,739 $28,325 $12,186,397
Foreign currency translation (35,548) (35,548)
Preferred stock dividends (14,790) (14,790)
Net loss (378,477) (378,477)
------- ------- ---------- ------- --------- --------- -------- ----------
Balance March 31, 1997 174,000 696,000 12,053,751 120,537 9,201,796 1,746,472 (7,223) 11,757,582
======= ======= ========== ======= ========= ========= ======== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Information
4
<PAGE>
AG-BAG INTERNATIONAL LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31
-----------------
1997 1996
---- ----
<S> <C> <C>
Net sales $ 2,842,594 $ 3,974,245
Cost of sales 2,277,585 3,025,949
--------- ---------
Gross profit from operations 565,009 948,296
Selling expenses 591,272 543,182
Administrative expenses 550,151 552,758
Research and development expenses 28,063 16,683
--------- ---------
Loss from operations (604,477) (164,327)
Other income (expense):
Interest income 7,067 12,818
Interest expense ( 50,820) ( 68,020)
Miscellaneous 61,433 32,041
--------- ---------
Loss before provision for
income taxes (586,797) (187,488)
Provision for income taxes 208,320 75,000
--------- ---------
Net loss $ (378,477) $ (112,488)
========= =========
Primary loss per share $ (.03) $ (.01)
========= =========
Weighted average number of common
shares outstanding 12,053,751 12,086,034
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Information
5
<PAGE>
AG-BAG INTERNATIONAL LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months
ended March 31
------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (378,477) $ (112,488)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 288,114 270,701
Loss on disposition of fixed assets 1,443 801
Changes in assets and liabilities:
Accounts receivable (976,645) (1,988,320)
Inventories (1,428,770) (739,617)
Other current assets (280,168) (461,556)
Accounts payable 681,691 1,282,599
Accrued expenses and other current
liabilities (235,213) (87,120)
Income tax payable (75,000)
Other assets (7,273) 1,914
---------- ----------
Net cash used in operating activities (2,335,298) (1,908,086)
---------- ----------
Cash flows from investing activities:
Capital expenditures (215,753) (56,052)
Proceeds from disposition of fixed assets 2,500
Intangible assets (6,711)
---------- ----------
Net cash used in investing activities (215,753) (60,263)
---------- ----------
Cash flows from financing activities:
Net proceeds from line of credit 2,553,072 2,058,583
Principal payments on debt (49,078) (51,913)
Proceeds from issuance of debt 100,845
Payment of shareholders' notes (3,450) (3,118)
Payment of preferred dividends (14,790) (14,790)
---------- ----------
Net cash provided by financing activities 2,586,599 1,988,762
---------- ----------
Effect of foreign currency translation (35,548) (20,413)
---------- ----------
Net decrease in cash - 0 - - 0 -
Cash and cash equivalents at beginning
of period 656 656
---------- ----------
Cash and cash equivalents at end of period $ 656 $ 656
========= ==========
</TABLE>
See Notes to Condensed Consolidated Financial Information
6
<PAGE>
AG-BAG INTERNATIONAL LIMITED
Notes to Condensed Consolidated Financial Information
(Unaudited)
Note 1 - Description of Business and Summary of Significant Accounting Policies
----------------------------------------------------------------------
The Company's condensed 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 three-month period should be
read in conjunction with the consolidated financial statements and notes thereto
for the year ended December 31, 1996 included in the Company's annual report on
Form 10-K filed with the Securities and Exchange Commission on March 28, 1997.
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.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Reference is made to Item 7 of "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in the Company's annual
report on Form 10-K for the year ended December 31, 1996, 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
March 31, 1997, compared to the results of operations for the three-month period
ended March 31, 1996, and to changes in the Company's financial condition from
December 31, 1996 to March 31, 1997.
Consolidated net sales for the three-month period ended March 31, 1997 were
$2,842,594, down 28.47% from $3,974,245 for the same period in 1996. The
decrease for the quarter was due to a one month production startup delay at the
Company's newly constructed Nebraska bag folding facility as a result of
construction delays. The Company's bag folding facility became fully operational
in late March and as a result, shipments normally made in the first quarter have
been scheduled for shipment during the second quarter, as increased April 1997
sales indicated. The Company's backlog for 1997 continues to remain strong and
ahead of 1996 levels. In addition, the Company was unable to ship some bag
orders due to late winter weather in certain areas of the US.
Gross profit from sales for the three-month period ended March 31, 1997 was
$565,009, a decrease of 40.42% from $948,296 for the same period in 1996. The
decrease for the quarter was the result of lower sales volumes to cover fixed
overheads due to a delayed startup in the Company's bag folding operations from
construction delays.
Selling expenses for the three-month period ended March 31, 1997 were $591,272,
an increase of 8.85% from $543,182 for the same period in 1996. The increase for
the quarter was the result of increases in advertising and sales personnel to
handle the international, composting and grain divisions, which were offset by
reductions in commissions due to lower quarterly sales.
Administrative expenses for the three-month period ended March 31, 1997
were $550,151 a decrease of .47% from $543,182 for the same period in 1996.
Interest expense for the three-month period ended March 31, 1997 was $50,820, a
decrease of 25.29% from $68,020 for the same period in 1996. The decrease for
the quarter was the result of the Company utilizing a smaller portion of its
credit facility as a result of inventory reductions made in late 1996.
8
<PAGE>
Net loss for the three-month period ended March 31, 1997 was $378,477 compared
to $112,488 for the same period in 1996. The net loss for the quarter was the
result of lower sales resulting from construction delays at the Company's newly
constructed bag folding facility which delayed the startup of bag folding
production by one month coupled with increased selling expenses to support the
international, grain and composting divisions, which were offset by lower
interest costs.
Liquidity and Capital Resources
- -------------------------------
The seasonal nature of the northern hemisphere farming industry, the production
time for equipment and the time required to prepare bags for use requires the
Company to manufacture and carry high inventories to meet rapid delivery
requirements. In particular, the Company must maintain a significant level of
bags during the spring and early summer to meet the sales demands during the
harvest season. The Company uses working capital and trade credit to increase
its inventory so that it has sufficient inventory available to meet its sales
demands through the spring and summer months.
The Company relies on its suppliers to provide trade credit to enable the
Company to build its inventory. The Company's suppliers have provided sufficient
trade credit to meet the demand to date and management believes this will
continue. No assurance can be given that suppliers will continue to provide
sufficient trade credit in the future.
Accounts receivable decreased 4.60% as of March 31, 1997 to $3,939,245 compared
to the March 31, 1996 level of $4,129,312. The decrease in accounts receivable
was the result of decreased sales which occurred during the first quarter of
1997 compared to 1996.
Inventory at March 31, 1997 was $8,065,763, which was 8.02% lower than inventory
at March 31, 1996 of $8,768,723. The decrease in inventory resulted from
managements' decision to begin reducing its equipment inventory in late 1996,
coupled with the fact that production in bag folding began one month late which
reduced the level of bags normally in inventory as first quarter bag sales were
generated from stock on hand.
The Company has a domestic operating line of credit with a limit of $4,000,000,
secured by accounts receivable and inventory. In addition, the Company has a
$200,000 equipment acquisition line. As of March 31, 1997, $2,778,725 had been
taken under the credit line and $145,600 had been taken under the equipment
acquisition line. The Company also has a revolving credit facility denominated
9
<PAGE>
in pounds sterling for its UK operation with a limit of 400,000 pounds sterling.
As of March 31, 1997 borrowings under the foreign operating line aggregated
$7,953 US dollars out of an available $655,800 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 1997.
In 1996, the Company began to consolidate the operations at its Blair, Nebraska
facility onto one location. Previously, the Company utilized three buildings at
different locations for its bag, proprietary inoculant, and machine assembly
operations. The Company currently has its remaining production facility
currently for sale. Construction of the new facilities began in 1996 and the
final machine assembly facility is scheduled to be completed in mid-1997. The
sale of the remaining old facility and the completion of construction on the
final machine assembly facility will not have a material effect on the Company's
liquidity.
Financial Accounting Standards Not Yet Adopted
- ----------------------------------------------
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128, earnings per share ("FAS 128"). FAS 128
specifies the computation, presentation and disclosure requirements for earnings
per share. FAS 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods. Earlier application
of FAS 128 is not permitted. The effect of implementing FAS 128 on the Company's
earnings per share computations has not been determined.
10
<PAGE>
Part II - Other Information
Item 2. Changes in Securities
(c) On February 21, 1997, the Company authorized the issuance of 8,240
shares of the Company's common stock to 48 employees of the Company under the
1991 Employee Stock Plan. The common stock was issued in reliance on the SEC "no
registration/no restriction" position for bonus stock.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27, Financial Data Schedule (Edgar Version Only)
(b) No reports on Form 8-K were filed by the Company during the
quarter ended March 31, 1997.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AG-BAG INTERNATIONAL LIMITED,
a Delaware corporation
(Registrant)
Date: May 14, 1997 By: /s/ Michael R. Wallis
---------------------------------
Michael R. Wallis
Chief Financial Officer and
Vice President*
*Signing on behalf of the
Registrant and as
Chief Financial Officer
12
<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 March 31, 1997, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 0
<SECURITIES> 656
<RECEIVABLES> 4,162,565
<ALLOWANCES> 223,320
<INVENTORY> 8,065,763
<CURRENT-ASSETS> 11,413,065
<PP&E> 9,119,376
<DEPRECIATION> 4,298,575
<TOTAL-ASSETS> 19,522,174
<CURRENT-LIABILITIES> 5,497,010
<BONDS> 0
0
696,000
<COMMON> 120,537
<OTHER-SE> 10,941,045
<TOTAL-LIABILITY-AND-EQUITY> 19,522,174
<SALES> 2,842,594
<TOTAL-REVENUES> 2,911,094
<CGS> 2,277,585
<TOTAL-COSTS> 1,169,486
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,820
<INCOME-PRETAX> (586,797)
<INCOME-TAX> (208,320)
<INCOME-CONTINUING> (378,477)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (378,477)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
