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, 1998
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 - 12,061,991 shares outstanding as of
April 30, 1998
1
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AG-BAG INTERNATIONAL LIMITED
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31 December 31
(Unaudited)
1998 1997 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 656 $ 656 $ 656
Accounts receivable 4,357,279 3,939,245 2,191,682
Inventories 6,043,490 6,646,429 5,528,239
Other current assets 1,346,755 826,735 2,168,123
---------- ---------- ----------
Total current assets 11,748,180 11,413,065 9,888,700
Deferred income tax 638,666 2,000 638,666
Intangible assets, less
accumulated amortization 98,715 1,656,047 104,547
Property, plant and equipment
less accumulated depreciation 4,327,638 4,820,801 4,378,444
Long-term inventories - 1,419,334 -
Other assets 119,839 210,927 179,973
---------- ---------- ----------
Total assets $16,933,038 $19,522,174 $15,190,330
========== ========== ==========
(Continued)
2
<PAGE>
AG-BAG INTERNATIONAL LIMITED
CONDENSED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31 December 31
(Unaudited)
1998 1997 1997
---------- ---------- ----------
Current liabilities:
Notes payable to bank $ 2,880,521 $ 2,786,678 $ 1,717,263
Current portion of long term
debt and capital lease
obligations 428,531 534,179 444,985
Current portion of notes
payable to shareholders' 15,876 14,344 15,876
Accounts payable 1,666,757 1,380,882 949,373
Accrued expenses and other
current liabilities 1,013,245 780,927 1,040,471
Income tax payable 39,636 - 39,636
---------- ---------- ----------
Total current liabilities 6,044,566 5,497,010 4,207,604
Long term debt and capital
lease obligation, less
current portion 2,565,709 2,231,300 2,666,552
Notes payable to shareholders'
less current portion 20,264 36,282 23,884
---------- ---------- ----------
Total liabilities 8,630,539 7,764,592 6,898,040
---------- ---------- ----------
Commitments
Shareholders' equity:
Preferred stock, $4LV 8 1/2%
nonvoting 696,000 696,000 696,000
Common stock, $.01 par value 120,619 120,537 120,619
Additional paid-in capital 9,210,211 9,201,796 9,210,211
Retained earnings (deficit) (1,724,331) 1,746,472 (1,734,540)
Foreign currency translation - (7,223) -
---------- ---------- ----------
Total shareholders' equity 8,302,499 11,757,582 8,292,290
---------- ---------- ----------
Total liabilities and
shareholders' equity $16,933,038 $19,522,174 $15,190,330
========== ========== ==========
</TABLE>
See Notes to Condensed Financial Information
3
<PAGE>
AG-BAG INTERNATIONAL LIMITED
CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Paid-In Retained
Shares Amount Shares Amount Capital Earnings Total
------ ------ ------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1997 174,000 $696,000 12,061,991 $120,619 $9,210,211 $(1,734,540) $8,292,290
Preferred stock dividends (14,790) (14,790)
Net income 25,003 25,003
------- ------- ---------- ------- --------- --------- ----------
Balance March 31, 1998 174,000 696,000 12,061,991 120,619 9,210,211 (1,724,331) 8,302,499
======= ======= ========== ======= ========= ========= ==========
</TABLE>
See Notes to Condensed Financial Information
4
<PAGE>
AG-BAG INTERNATIONAL LIMITED
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months
Ended March 31
(Unaudited)
----------------------
1998 1997
---- ----
<S> <C> <C>
Net sales $ 4,717,661 $ 2,757,187
Cost of sales 3,584,209 2,193,850
--------- ---------
Gross profit from operations 1,133,452 563,337
Selling expenses 657,716 554,834
Administrative expenses 417,902 502,696
Research and development expenses 26,993 28,063
--------- ---------
Income (loss) from operations 30,841 (522,256)
Other income (expense):
Interest income 22,462 7,130
Interest expense (99,245) (48,591)
Miscellaneous 82,945 59,533
--------- ---------
Income (loss) from continuing
operations before provision for
income taxes 37,003 (504,184)
Provision (benefit) for income taxes (12,000) 208,320
--------- ---------
Income (loss) from continuing
operations 25,003 (295,864)
Discontinued operations
Loss from operations of discontinued
Ag-Bag Europe PLC (82,613)
--------- ---------
Net income (loss) $ 25,003 $ (378,477)
========= =========
Basic and diluted net income (loss)
per common share
Continuing operations $ .00 $ (.02)
Discontinued operations $ .00 $ (.01)
--------- ---------
$ .00 $ (.03)
========= =========
Basic and diluted weighted average
number of common shares outstanding 12,061,991 12,053,751
========== ==========
</TABLE>
See Notes to Condensed Financial Information
5
<PAGE>
AG-BAG INTERNATIONAL LIMITED
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended March 31
(Unaudited)
---------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 25,003 $ (378,477)
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 131,675 288,114
(Gain) loss on disposition of fixed assets 10,768 1,443
Changes in assets and liabilities:
Accounts receivable (2,165,597) (976,645)
Inventories (515,251) (1,428,770)
Other current assets 821,368 (280,168)
Accounts payable 717,384 681,691
Accrued expenses and other current
liabilities (27,226) (235,213)
Other assets 60,134 (7,273)
---------- ----------
Net cash used in operating activities (941,742) (2,335,298)
---------- ----------
Cash flows from investing activities:
Capital expenditures (168,812) (215,753)
Proceeds from disposition of fixed assets 83,004 -
---------- ----------
Net cash used in investing activities (85,808) (215,753)
---------- ----------
Cash flows from financing activities:
Net Proceeds from line of credit 1,163,258 2,553,072
Principal payments on debt (117,298) (49,078)
Proceeds from issuance of debt - 100,845
Payment of shareholders' notes (3,620) (3,450)
Payment of preferred dividends (14,790) (14,790)
---------- ----------
Net cash provided by financing activities 1,027,550 2,586,599
---------- ----------
Effect of foreign currency translation - (35,548)
---------- ----------
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 Financial Information
6
<PAGE>
AG-BAG INTERNATIONAL LIMITED
Notes to Condensed Financial Information
(Unaudited)
Note 1 - Description of Business and Summary of Significant Accounting Policies
- -------------------------------------------------------------------------------
The Company's financial statements 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 financial statements and notes thereto for the year
ended December 31, 1997 included in the Company's annual report on Form 10-K
filed with the Securities and Exchange Commission on March 31, 1998.
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.
The information set forth below relating to matters that are not
historical facts are "forward-looking statements" within the meaning of Section
21E of the Securities Exchange Act of 1934 and involve risks and uncertainties
which could cause actual results to differ materially from those set forth
below.
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, 1997, 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, 1998, compared to the results of operations for the three-month period
ended March 31, 1997, and to changes in the Company's financial condition from
December 31, 1997 to March 31, 1998.
On December 5, 1997, the Board of Directors approved the sale of the
Company's U.K. subsidiary which had not been performing at a profitable level
due to the BSE (Mad Cow) problem within the British farming industry. The U.K.
subsidiary sold several of its bagging machines in its rental fleet early in
1997 with the anticipation of improving the ongoing operations through increased
concentration on more profitable custom work. This proved unsuccessful due in
large part to the poor weather conditions experienced throughout the
traditionally busy spring and summer months in England and the continued
escalation during the year of the BSE problem within the British farming
industry depressing the custom work. The results of Ag-Bag Europe, PLC are shown
as discontinued operations for the quarter ended March 31, 1997.
Sales for the quarter ended March 31, 1998 increased 71.10% to
$4,717,661 compared to $2,757,187 for the quarter ended March 31, 1997. Sales
for the quarter were up as a result of the stabilizing milk prices and lower
feed costs (grain) which spurred capital expenditures for machinery and
equipment. Recent research articles published on the benefits of bagging over
the use of bunkers has also helped to increase sales for the quarter, as farmers
are realizing the benefits of bagging their feed instead of storing it in
bunkers or silos. Machine sales for the first quarter of 1998 were up over 80%
compared to the first quarter of 1997. The Company also introduced its next
generation (hydraulic finger controlled) silage bagger during the first quarter.
Bag sales for the quarter were up compared to the first quarter of 1997. The
comparative increase is due largely to reduced bag sales which occurred in the
first quarter of 1997 caused by startup delays from the construction of the
Company's new bag folding production facility.
8
<PAGE>
Gross profit from sales for the quarter ended March 31, 1998 increased
101.20% to $1,133,452 compared to $563,337 for the quarter ended March 31, 1997.
The increase for the quarter was the result of increased sales volumes and
improved margins.
Selling expenses for the quarter ended March 31, 1998 increased 18.54%
to $657,716 compared to $554,834 for the quarter ended March 31, 1997. The
increase for the quarter was the result of increased meeting and travel
expenses, coupled with increased advertising expenses from the Company's new
image and product advertising campaign.
Administrative expenses for the quarter ended March 31, 1998 decreased
16.87% to $417,902 compared to $502,696 for the period ended March 31, 1997. The
decrease for the quarter was the result of lower amortization expense as a
result of the fourth quarter 1997 strategic realignment, coupled with lower
professional fees and general operating overhead.
Interest expense for the quarter ended March 31, 1998 increased 104.24%
to $99,245 compared to $48,591 for the period ended March 31, 1997. The increase
for the quarter was the result of increased sales volume coupled with the
Company utilizing a larger portion of its credit facilities as a result of
extended term sales offered during the fourth quarter of 1997. The Company also
added a long-term construction and equipment loan in July, 1997 to finance its
new Blair, Nebraska facilities.
Net income for the quarter ended March 31, 1998 was $25,003 compared to
a loss of $378,477 for the period ended March 31, 1997. The increase for the
quarter was the result of increased sales and lower administrative expenses,
which were offset by higher selling and interest costs. The Company recorded a
loss from discontinued operations of its U.K. subsidiary, Ag-Bag Europe, PLC in
the amount of $82,613 during the first quarter of 1997. As part of the strategic
realignment in December, 1997, the Company's U.K. subsidiary was sold.
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.
9
<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 10.61% as of March 31, 1998 to $4,357,279
from the March 31, 1997 level of $3,939,245 The increase in accounts receivable
was the result of higher sales for the quarter, of which a large portion
occurred in the last month of the quarter.
Inventory at March 31, 1998 was $6,043,490, which was 25.07% lower than
inventory at March 31, 1997 of $8,065,763. The decrease in inventory resulted
from increased sales volumes. In addition, certain noncore, long-term inventory
was written down to fair market value or abandoned as part of the strategic
realignment of the Company in December of 1997.
The Company entered into a new $5,000,000 operating line of credit on
April 20, 1998. The new line of credit, which is with a new lender, replaced the
old line of credit and is secured by accounts receivable, inventory and other
assets of the Company. As of March 31, 1998, the outstanding balance under the
line of credit was $2,880,521. Management believes that, along with funds
generated from operations and its credit facility, it will be able to meet the
Company's cash requirements through 1998.
In 1997, the Nasdaq listing requirements were substantially expanded. The
Company does not currently qualify under the more stringent requirements because
the price at which its Common Stock is trading is below the $1 per share
minimum. The Company was formally notified on February 27, 1998 that its Common
Stock will be removed from quotation on the Nasdaq inter-dealer quotation system
on May 28, 1998 if the Company continues to not qualify under the new Nasdaq
listing requirements.
In the event the Company's common Stock is removed from quotation on the
Nasdaq, the Company anticipates the Common Stock would be traded in the
over-the-counter market (bulletin board system). The removal from quotation on
Nasdaq could have a material adverse effect on the Company's ability to raise
additional equity capital in a public stock offering should that become
necessary.
10
<PAGE>
Financial Accounting Standards Not Yet Adopted
- ----------------------------------------------
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income", which establishes standards for reporting and display of
comprehensive income and its components (revenue, expenses, gains and losses) in
a full set of general-purpose financial statements. The Company has adopted SFAS
No. 130 for its current fiscal year.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information", which changes the way public companies
report information about operating segments. SFAS No. 131, which is based on the
management approach to segment reporting, establishes requirements to report
selected segment information quarterly and to report entity-wide disclosures
about products and services, major customers and the material countries in which
the entity holds assets and reports revenue. Management has not yet evaluated
the effects of this change on its reporting of segment information. The Company
has adopted SFAS No. 131 for its current fiscal year.
Year 2000
- ---------
The Company has made an assessment of the effect of the Year 2000 issue on
its systems, equipment and software. Based on this assessment and consultation
with outside consultants, the Company believes its systems, equipment and
software will properly recognize calendar dates beginning in the year 2000,
without any significant changes. The Company intends to evaluate the information
systems and software of its outside vendors in connection with the Year 2000
issue, but anticipates any potential modification to its systems and software
will not materially effect the Company's future financial results. Accordingly,
the Company expects the Year 2000 issue will not have a material adverse
financial impact on the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit 27, Financial Data Schedule (Edgar Only)
(b) No reports on Form 8-K were filed by the Company during the quarter
ended March 31, 1998.
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)
Date: May 1, 1998 By: /s/ Michael R. Wallis
-----------------------------------
Michael R. Wallis
Chief Financial Officer and
Vice President
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule Contains Summary Financial Information Extracted From The
Company's report on Form 10-Q for the period ended March 31, 1998, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000842289
<NAME> Ag-Bag International Limited
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 656
<RECEIVABLES> 4,563,427
<ALLOWANCES> 206,148
<INVENTORY> 6,043,490
<CURRENT-ASSETS> 11,748,180
<PP&E> 8,041,295
<DEPRECIATION> 3,713,657
<TOTAL-ASSETS> 16,933,038
<CURRENT-LIABILITIES> 6,044,566
<BONDS> 0
0
696,000
<COMMON> 120,619
<OTHER-SE> 7,485,880
<TOTAL-LIABILITY-AND-EQUITY> 16,933,038
<SALES> 4,717,661
<TOTAL-REVENUES> 4,823,068
<CGS> 3,584,209
<TOTAL-COSTS> 4,686,820
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 99,245
<INCOME-PRETAX> 37,003
<INCOME-TAX> 12,000
<INCOME-CONTINUING> 25,003
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,003
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<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, 1998, and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000842289
<NAME> Ag-Bag International Limited
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<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>
