UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
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
<TABLE>
<CAPTION>
ASSETS
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
<CAPTION>
March 31 December 31
(Unaudited)
1998 1997 1997
---------- ---------- ----------
<S> <C> <C> <C>
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 1,666,753 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 6,044,562 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 8,630,535 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) (1,724,327) 1,746,472 (1,734,540)
Accumulated other
comprehensive income:
Foreign currency
translation adjustments - (7,223) -
---------- ---------- ----------
Total shareholders' equity 8,302,503 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>
Accumulated
Other
Preferred Stock Common Stock Paid-In Retained Comprehensive
Shares Amount Shares Amount Capital Earnings Income Total
------ ------ ------ ------ ------- -------- ------- ------
<S> <C> <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
Other comprehensive income,
Net of tax - -
------- ------- ---------- ------- --------- --------- ---------- ----------
Balance March 31, 1998 174,000 $696,000 12,061,991 $120,619 $9,210,211 $(1,724,327) $ - $8,302,503
======= ======= ========== ======= ========= ========= ========= =========
</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 $ 4,770,296 $ 2,775,627
Cost of sales 3,599,672 2,199,193
---------- ----------
Gross profit from operations 1,170,624 576,434
Selling expenses 657,716 554,834
Administrative expenses 417,902 502,696
Research and development expenses 26,993 28,063
---------- ----------
Income(loss) from operations 68,013 (509,159)
Other income (expense):
Interest income 22,462 7,130
Interest expense (99,245) (48,591)
Miscellaneous 45,773 46,436
---------- ----------
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)
Other comprehensive income, net of tax:
Foreign currency translation adjustments - (35,548)
---------- ----------
Other comprehensive income - (35,548)
---------- ----------
Total comprehensive income $ 25,003 $ (414,025)
========== ==========
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.
Recent Accounting Pronouncements
- --------------------------------
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, and has restated 1997 amounts (net of tax) to comply
with SFAS No. 130 on a comparative basis.
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. The Company has adopted SFAS No.
131 for its current fiscal year. The Company has analyzed its operations and
determined that it has no reportable segments.
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 Company's Board of Directors approved a strategic
realignment of the Company.
The realignment involved 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.
The Board of Directors decided to implement additional realignment of the
Company by re-focusing the Company's sales efforts back to its core business
products. As a result, certain non-core, long-term inventory was written down to
fair market value or abandoned. The non-core products that were discontinued and
abandoned as a result of the strategic realignment were both new and used older
style tuber, feed table and grain bagging machines along with general accessory
machinery products such as mixer wagons, bale feeders, airvents, unloaders and
parts. During 1995, 1996 and 1997, sales of inventory which was later determined
to be non-core products as a result of the strategic realignment were $719,408,
$760,497 and $514,556, respectively. In addition, in 1997, the Company refined
its policy for establishing inventory valuation reserves. In 1997, in connection
with the strategic realignment and resultant refocusing of the Company's sales
efforts and in accordance with the refined policy for valuation reserves, the
Company reassessed and revised its estimates of fair market value resulting in
an inventory write-down charge totaling $2,418,778, of which $2,088,223 relates
to non-core products and $330,555 relates to core products.
8
<PAGE>
In addition to the strategic realignment, certain patent rights were
determined during the year to be obsolete, due to recent technological
improvements in the Company's and industry's bagging machinery. As a result,
certain patent rights were written-off during the year resulting in a charge to
earnings. This action resulted in an unusual charge of $979,762 during the
fourth quarter of 1997. Beginning in 1996, the Company and its competitors
instituted minor machine design changes involving the processes covered by the
patent. In the Company's view, these design changes were minor and did not
significantly diminish the prospects for sales of machines which incorporate the
processes covered by the patent.
In response to a competitor's introduction of a cable-less machine in early
1995, the Company began research and development on its own cable-less machine
in early 1996. The Company began production of its own cable-less machine in
1997. The cable-less machines do not use the processes covered by the patent,
accordingly, in 1997, the Company reevaluated the value of the patent. In its
evaluation, the Company determined that the new cable-less machines demonstrated
a change in direction for the industry which impaired the future value of the
rights covered by the patent. Accordingly, the value of the patent, $979,762 was
written off during 1997.
The core business of the Company is historically seasonal due to the
harvest seasons in the northern hemisphere. Approximately 95% of the Company's
business is concentrated in the Northern Hemisphere resulting in between 60 to
75% of the Company's revenue occurring during the spring and summer (2nd and 3rd
Quarters). The following table outlines the percentage of revenue over the past
3 years by quarter:
-----------------------------------------------------------------
Quarter 1995 1996 1997*
-----------------------------------------------------------------
1st 26% 17% 14%
---------------- --------------- ---------------- ---------------
2nd 33% 30% 40%
---------------- --------------- ---------------- ---------------
3rd 30% 36% 35%
---------------- --------------- ---------------- ---------------
4th 11% 17% 11%
---------------- --------------- ---------------- ---------------
* In addition to seasonal factors, revenues which normally would have occurred
in the first quarter of 1997 were not earned until the second quarter due to the
delay in the start up of the Company's new production facility in Blair,
Nebraska.
9
<PAGE>
Sales for the quarter ended March 31, 1998 increased 71.86% to $4,770,296
compared to $2,775,627 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 start-up delays from the construction of the Company's new bag
folding production facility.
The Company sells its product primarily through a worldwide dealer network,
however, some sales are made directly to large volume customers because a dealer
is not present in the customer's geographic market. For each of the last 2
years, the Company estimates direct sales at between 30-33% of total sales and
the Company expects this historical sales mix to continue in the future. The
gross margin realized on the Company's direct sales are typically within 200 to
300 basis points of those sales realized through the Company's dealer network.
However, various economic, volume and market factors in the geographic area
impact the ultimate margin.
Gross profit from sales for the quarter ended March 31, 1998 increased
103.08% to $1,170,624 compared to $576,434 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.
10
<PAGE>
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.
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 in accordance with the Company's refined
policy for valuation reserves or abandoned as part of the strategic realignment
of the Company in December of 1997.
11
<PAGE>
Oher current assets increased at March 31, 1998 to $1,346,755 compared to
$826,735 at March 31, 1997. The increase was the result a tax receivable and a
receivable for the sale of a parcel of land the Company sold.
Intangible assets at March 31, 1998 decreased to $98,715 compared to
$1,656,047 at March 31, 1997. The decrease was the result of the sale of the
Company's U.K. subsidiary and the goodwill and intangibles associated with that
investment equaling $431,420, coupled with certain patent rights that were
written off at December 31, 1997 equaling $979,762 and related accumulated
amortization.
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.
12
<PAGE>
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
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.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amended report to be signed on its behalf by the
undersigned thereunto duly authorized.
AG-BAG INTERNATIONAL LIMITED,
a Delaware corporation
(Registrant)
Date: February 16, 1998 By: /s/ Michael R. Wallis
----------------------------------------
Michael R. Wallis
Chief Financial Officer and
Vice President
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule Contains Summary Financial Information extracted from the
Company's report on the Form 10-Q for the period ended March 31, 1998, and Form
10-Q for the period ended March 31, 1997, 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> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<EXCHANGE-RATE> 1 1
<CASH> 0 0
<SECURITIES> 656 656
<RECEIVABLES> 4,563,427 4,162,656
<ALLOWANCES> 206,148 223,320
<INVENTORY> 6,043,490 8,065,763
<CURRENT-ASSETS> 11,748,180 11,413,065
<PP&E> 8,041,295 9,119,376
<DEPRECIATION> 3,713,657 4,298,575
<TOTAL-ASSETS> 16,933,038 19,522,174
<CURRENT-LIABILITIES> 6,044,562 5,497,010
<BONDS> 0 0
0 0
696,000 696,000
<COMMON> 120,619 120,537
<OTHER-SE> 7,485,884 10,941,045
<TOTAL-LIABILITY-AND-EQUITY> 16,933,038 19,522,174
<SALES> 4,770,296 2,775,627
<TOTAL-REVENUES> 4,838,531 2,829,193
<CGS> 3,599,672 2,199,193
<TOTAL-COSTS> 4,702,283 3,284,786
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 99,245 48,591
<INCOME-PRETAX> 37,003 (504,184)
<INCOME-TAX> (12,000) 208,320
<INCOME-CONTINUING> 25,003 (295,864)
<DISCONTINUED> 0 (82,613)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 25,003 (378,477)
<EPS-PRIMARY> 0 (.03)
<EPS-DILUTED> 0 (.03)
</TABLE>
