This report contains statements regarding matters that are not historical facts
(including statements as to the beliefs or expectations of the Company) which
are forward-looking statements. Because such forward-looking statements
include risks and uncertainties the Company's actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed in the
sections entitled Description of Business, Management's Discussion and Analysis
of Financial Condition and those factors discussed in Exhibit 99.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
_X_ Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 (Fee required).
For the fiscal year ended May 31, 1996.
__ Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No fee).
For the transition period from _____________ to ______________.
Commission file number 0-10571
TOP AIR MANUFACTURING, INC.
(Name of Small Business Registrant as Specified in its Charter)
Iowa 43-1155462
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
406 Highway 20
Parkersburg, Iowa 50665
(Address of Principal Executive Offices) (Zip Code)
(319) 346-1788
(Registrant's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Act: Common Stock, no par
value
Check if the Registrant: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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. _X_
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB. _X_
The Registrant's revenues for its most recent fiscal year are $11,628,930.
The aggregate market value of the voting stock held by non-affiliates was
approximately $2,621,410 as of August 19, 1996. (The exclusion from such amount
of the market value of the shares owned by any person shall not be deemed an
admission by the registrant that such person is an affiliate of the
registrant.) The Registrant had 4,013,765 shares of common stock outstanding
as of August 19, 1996.
Portions of the definitive proxy statement of the Registrant for the
Registrant's 1996 annual meeting of shareholders, which definitive proxy
statement will be filed with the Securities and Exchange Commission not later
than September 28, 1996 (120 days after the end of the Company's most recently
completed fiscal year), are hereby incorporated by reference into Items 9, 10,
11 and 12 of Part III hereof.
TABLE OF CONTENTS
PART I
Page
ITEM 1. Description of Business 3
ITEM 2. Description of Property 6
ITEM 3. Legal Proceedings 7
ITEM 4. Submission of Matters to a Vote of Security Holders 7
ITEM 4A. Executive Officers of the Registrant 7
PART II
ITEM 5. Market for Common Equity and Related Stockholder
Matters 8
ITEM 6. Management's Discussion and Analysis of Financial
Condition 9
ITEM 7. Financial Statements 12
ITEM 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosures 12
PART III
ITEM 13. Exhibits and Reports on Form 8-K 12
PART I
Item 1 - Description of Business
General
Top Air Manufacturing, Inc. (hereinafter referred to as "Top Air" or the
"Company") was incorporated under the laws of the State of Iowa in 1981. Top
Air is engaged in the business of manufacturing several products used primarily
in agricultural operations, including several types of agricultural sprayers,
liquid manure handling equipment, milking parlors, seed conveyors, feeding and
forage equipment and a line of replacement parts for all of the products that
the company manufactures. The Company currently manufactures its products in
two facilities, one in Parkersburg, Iowa and the other in Cedar Falls, Iowa.
The Company has begun the relocation of its manufacturing operations from these
two facilities into a new facility located in Cedar Falls, Iowa. See "Item
2-Description of Property."
Acquisition
On June 26, 1995, the Company acquired substantially all of the assets
of Clay Equipment Corporation ("Clay Equipment") in exchange for 837,666 shares
of the Company's no par value common stock and the assumption by the Company
of certain liabilities of Clay Equipment.
Clay Equipment, which was incorporated under the laws of the State of
Iowa in 1900, had been engaged in the business of the design, manufacture and
sale of agricultural products, including a line of agricultural spreaders sold
under the name of "Better Built" at a facility located in Cedar Falls, Iowa.
See "Item 2 - Description of Property".
Business of Issuer
Principal Products and Markets
Sprayers. The Company currently manufactures several types of
agricultural sprayers including skid mount, two-wheel models, three-wheel
models, saddle tank models, home lawn models, trailer sprayers, tandem wheel
sprayers, T-Tank Sprayers, Master Link sprayers, Terrain Master sprayers and
models which can be mounted in the bed of a pickup truck. The sprayers are
sold in sizes ranging from a 14 to 1,100 gallon capacity. The Company also
offers various accessories for the sprayers including several models of folding
and self-leveling booms in various lengths and designs.
The sprayers are used primarily for farming activities. They can be
pulled directly by a tractor or they can be hooked to a disc so that their
combined functions allow the farmer to eliminate one trip over the ground. The
sprayers are used for spraying jobs of all types, including the spraying of
chemicals, fertilizers, insecticides and weed killers. They are used by
farmers and commercial sprayers primarily for row crops, but can also be used
on other crops, golf courses, cemeteries, etc. The wheels may be adjusted to
compensate for difficult row crop widths. Trees and shrubs may be sprayed by
a hand gun attachment to the sprayers.
Manure Handling Equipment. This product group consists of a line of
tanks ranging in size from 2,600 gallons to 6,000 gallons, either trailer
mounted or truck mounted to transport animal manure from a storage pit or a
storage lagoon to a farm field. The manure is then spread on top of the ground
or injected several inches under the surface as a fertilizer which is very cost
effective as opposed to the purchase of a commercial substitute. In addition
to the tanks, this product group includes several types of pumps to agitate the
storage pit or storage lagoon and subsequently load the tank.
Seed Conveyor. The trend in agriculture is away from handling seed in
bags and toward bulk handling. Since seed is very sensitive to cracking and
breaking which reduces germination, the traditional auger elevator or chain
type conveyor is less desirable in seed handling. The seed conveyor utilizes
a poly vinyl type of belt with rubber cleats vulcanized to the belt which
substantially reduces damage to the seed. The seed conveyor is available in
either a six-inch or twelve-inch width. The six-inch wide conveyor is normally
mounted on a gravity box or a grain drill while the twelve-inch wide unit is
mounted on a trailer for mobility.
Milking Parlors. Dairy farmers who remodel or build new facilities
normally install a milking parlor or expand the existing milking parlor. The
milking parlor substantially reduces the time required to complete the milking
process since more cows can be milked with fewer man hours. Although the
Company manufactures several types of milking parlors, the most popular type
is the rapid exit 90 degree parlor.
Feeding and Forage. Feeding and forage equipment consists of belt
feeders, belt conveyors and silo unloaders. These products are normally used
in a configuration to convey and feed chopped hay or corn silage along with
other ingredients to dairy cows or beef cattle. These products are normally
found in a small to medium size farm operation.
Replacement Parts. The Company stocks a full line of repair and
replacement parts to fit all of the products that it manufactures. The Company
distributes these parts to retailers and utilizes them in its own manufacturing
processes. The Company has actively promoted these parts and has established
itself as a major supplier in the replacement parts market.
Other Products. The Company also custom manufactures products for other
firms on a contract basis. Traditionally, these have been limited production
runs of new designs.
Method of Distribution
The Company has thirteen salesmen and five manufacturers' representatives
calling upon dealers and distributors in fifteen states and Canada. The
Company's efforts are ongoing to continue expanding its sales territory into
additional states and to further enhance market penetration in the current
marketing areas. The Company is selling its products primarily to implement
dealers, farm supply stores and feed stores located primarily in lesser
populated agricultural areas for resale to farmers, tradesmen and to the
general public for commercial and individual use.
Seasonal Factors
Prior to its acquisition of Clay Equipment, the Company's sales were very
seasonal with approximately 80% of sales occurring during the last six months
of the Company's fiscal year. The addition of Clay's product lines has reduced
this seasonal effect, although approximately 60% of the Company's sales
occurred during the last five months of fiscal 1996.
Competitive Conditions
The Company competes with a large number of other agricultural equipment
manufacturers and suppliers. The Company's products, however, are considered
sufficiently different so that the Company can establish and maintain a market
for its products. In addition, the Company offers a full line of sprayer
products, liquid manure handling equipment, milking parlors and feeding and
forage equipment that add to the Company's ability to penetrate the market.
The Company offers various dating and billing programs that allow the Company's
dealers incentive to stock larger quantities of products without the necessity
to commit financial resources several months in advance. This also allows the
Company to plan its production on a more convenient basis.
Major Customers
The Customer base is sufficiently broad that no customer accounts for 10%
or more of the Company's sales.
Backlog Orders
The Company had no material sales backlog as of May 31, 1996 or May 31,
1995. Because of the seasonality of the business of the Company, the Company
would normally have little or no sales backlog at the end of its fiscal year.
See "Seasonal Factors."
Source and Availability of Raw Materials
The Company purchases its raw materials from a number of suppliers. The
Company has had no difficulty in obtaining component parts in the past and does
not anticipate any difficulty in obtaining sufficient component parts and raw
materials as production increases.
Patents and Trademarks
The Company has received a design patent on the three-wheel sprayer, the
master-link sprayer and the self-leveling boom, and has trademark registrations
for Top-Air (registered trademark) and E-Z Boy (registered trademark). With
its acquisition of Clay Equipment, the company now sells a line of agricultural
spreaders under the registered trade name of "Better Built." While the Company
believes that its patents and trademarks have significant value, the Company
is not dependent upon patents, trademarks, service marks or copyrights.
Environmental Compliance
The Company believes that it is presently in substantial compliance with
all existing applicable environmental laws and does not anticipate that such
compliance will have a material effect on its future capital expenditures,
earnings or competitive position.
Employees
On May 31, 1996, the Company's plant and executive offices employed 105
people on a full-time basis. Of this number, five are executive officers and
the remainder are sales representatives, production workers, secretaries and
truckers. Fifty-three full-time production workers are currently covered under
a collective bargaining agreement with Local 1728 of the IAMAW (the "Union")
which runs through June 30, 1998.
Research and Development
Research and development costs incurred for the years ended May 31, 1996,
1995 and 1994 were $400,916, $173,791 and $150,242, respectively. Research and
development activities consist primarily of wages paid for the design and
testing of new equipment and improvements to existing equipment.
Item 2 - Description of Property
The Company owns eight acres of land in Parkersburg, Iowa. The facilities
located on this land consist of a building containing the executive offices
(approximately 1,600 square feet), assembling area (approximately 2,400 square
feet) and manufacturing area (approximately 10,000 square feet). The Company
operates out of another manufacturing facility located in Cedar Falls, Iowa
(the "City"). This facility, which was formerly utilized by Clay Equipment,
contains offices, assembling and manufacturing areas totalling approximately
120,000 square feet. The facility is owned by the City and is being leased
back to the Company pending relocation of both of the Company's current
manufacturing facilities discussed below. The Company currently intends to
sell its Parkersburg property facility following such relocation. It is
expected that any gain or loss on such sale will not be material.
Under a program to aid flood distressed businesses, the City agreed to
construct a new 85,000 square foot facility (the "New Facility") on nine acres
of land located in an industrial park in the City, and lease the New Facility
to the Company (as assignee of Clay Equipment) pursuant to a lease for an
initial term of 10 years with a 5-year renewal option on the part of the City,
as lessor. The Company will have an option to buy the New Facility for $1.3
million at the end of the lease term. Construction of the New Facility was
financed jointly by the Federal Economic Development Administration and the
City. Substantially all of the New Facility has been constructed and the
Company has begun its relocation process into the New Facility. The Company
expects to complete this process and begin operating on a consolidated basis
from the New Facility on or about October 1, 1996. The Company believes that
the total cost to be borne by the Company in connection with relocation to the
New Facility will not be material. See "Management's Discussion and Analysis
of Financial Condition - Capital Resources."
The Company also owns a warehouse in Parkersburg (containing approximately
8,700 square feet) which was purchased from a former officer for $80,000 on
December 20, 1988. The Company believes its facilities, including the New
Facility, are adequately insured.
Item 3 - Legal Proceedings
There are no material legal proceedings pending to which the Company is a party
or of which any of its property is the subject. No proceedings were terminated
during the fourth quarter of the fiscal year covered by this Report.
Item 4 - Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Report.
Item 4A - Executive Officers of the Registrant
Name Age Title
Steven R. Lind 34 President and Chief Executive Officer
James R. Harken 41 Vice President - Operations
Scott L. Wildeboer 36 Vice President - Manufacturing
Kenneth R. Wagahoff 63 Vice President - Marketing
Steven F. Bahlmann 38 Secretary and Treasurer
Set forth below are descriptions of the backgrounds of the executive officers
of the Company and their principal occupations for at least the past five
years:
Mr. Lind has served as President of the Company since November 1992 and was
appointed Chief Executive Officer in July 1993. He also has served as a
Director of the Company since 1993. Mr. Lind served as Chief Financial Officer
of the Company from May 1990 to November 1992.
Mr. Harken has served as Vice President - Operations since September 1982.
Mr. Wildeboer has served as Vice President - Manufacturing since January 1990.
Mr. Wagahoff has served as Vice President - Marketing since November 1992.
From 1986 to 1992 Mr. Wagahoff served as sales manager of the Company.
Mr. Bahlmann has served as Secretary and Treasurer since October 1993 and as
Controller since January 1993. He had served as a Staff Accountant with
McGladrey & Pullen, LLP, certified public accountants, from 1987 to 1993.
PART II
Item 5 - Market for Common Equity and Related Stockholder Matters
Market Information
The Company's common stock is currently quoted on the National
Association of Securities Dealers Automated Quotations (the "NASDAQ") Small-Cap
Market under the symbol TOPM. The Top Air Common Stock was delisted from
quotation on the NASDAQ Small-Cap Market on April 13, 1995 for failure to
maintain a certain minimum bid price of the stock. The Company's common stock
was approved for relisting on the NASDAQ Small Cap Market effective August 14,
1995.
The table below lists the high and low bid prices for each quarterly
period during the two- year period ended May 31, 1996. The high and low bid
prices from June 1, 1993 through April 12, 1995 and August 14, 1995 through May
31, 1996, during which time the Company's common stock was quoted on by the
NASDAQ Small Cap Market, were provided by the NASDAQ Small Cap Market, and the
high and low bid prices from April 13, 1995 through August 13, 1995, were
provided by the Company's market makers.
Bid Price Range
__________________________________________________________
Fiscal 1996 Fiscal 1995
High Low High Low
1st Quarter $1.0000 $0.8750 $1.0000 $0.6875
2nd Quarter 1.2500 0.8750 1.3750 0.7500
3rd Quarter 1.3125 1.1875 0.8125 0.5625
4th Quarter 1.4375 1.1250 1.0000 0.6250
These quotations reflect interdealer prices, without retail markup,
markdown or commission and may not necessarily represent actual transactions.
Stockholders
As of May 31, 1996 the Company had approximately 500 holders of record
of the Company's common stock, of which approximately 100 became shareholders
in connection with the Company's acquisition of Clay Equipment.
Dividends
The holders of common shares are entitled to receive dividends when and
as declared by the Board of Directors. There are no agreements that restrict
dividend payments. The Company has never paid a cash dividend. Because the
Company currently intends to retain any earnings to finance the development of
its business, it does not anticipate payment of any cash dividends in the
foreseeable future.
Item 6 - Management's Discussion and Analysis of Financial Condition
Overview
The acquisition of Clay Equipment Corporation ("Clay Equipment") was
completed on June 26, 1995. The acquisition was accounted for under the
purchase method of accounting, and accordingly, the results of operations from
Clay Equipment have been included in the Company's financial statements
commencing with the date of the acquisition. The acquisition of Clay Equipment
has reduced the seasonality of the Company's sales by providing strong sales
of livestock farming products during the first half of the Company's fiscal
year which has been a historically weak sales period.
This report contains statements regarding matters that are not historical
facts (including statements as to the beliefs or expectations of the Company)
which are forward-looking statements. Because such forward-looking statements
include risks and uncertainties the Company's actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed in the
sections entitled Description of Business, Management's Discussion and Analysis
of Financial Condition and those factors discussed in Exhibit 99.
Results Of Operations
Fiscal 1996 Compared to Fiscal 1995
Net sales increased $5,413,064, or 87%, to $11,628,930 in fiscal 1996
from $6,215,866 in fiscal 1995. The majority of this increase is attributed
to the sales of products formerly produced by Clay Equipment combined with an
increase in sales of spraying equipment and parts of approximately $122,000.
Cost of goods sold increased 91% to $7,724,645 in fiscal 1996 from
$4,042,058 in fiscal 1995. Cost of goods sold as a percentage of net sales
increased to 66.4% in fiscal 1996 from 65.0% in fiscal 1995. The increase was
primarily a result the inefficiency associated with the operation of two
facilities and the outmoded former Clay Equipment facility. The Company
expects that significant efficiencies will be realized by consolidating its
operations into the modern New Facility. See "Part I - Description of
Property" Such efficiencies should have a positive effect on profit margins.
Operating expenses increased $1,231,782 or 83.6% to $2,705,710 (or 23.3%
of net sales) in fiscal 1996 from $1,473,928 (or 23.7% of net sales) in fiscal
1995. The increase is primarily a result of additional expenses incurred from
the acquisition of Clay Equipment.
Interest expense increased $97,250 or 96.7% to $197,834 (or 1.7% of
sales) in fiscal 1996 from $100,584 (or 1.6% of net sales) in fiscal 1995. The
increase was a result of additional debt assumed by the Company in connection
with its acquisition of Clay Equipment, offset somewhat by a decrease in the
average balance outstanding under the Company's line of credit.
The Company's effective income tax rate decreased to 35.5% of income
before taxes in fiscal 1996 from 38.9% in fiscal 1995. The decrease in the tax
rate is a result of deferred tax items incurred in the Clay Equipment
acquisition.
Net income for fiscal 1996 was $677,388 or 5.8% of net sales, an increase
of $306,376 (or 82.6%) from fiscal 1995 net income of $371,012, or 6.0% of
fiscal 1995 net sales.
Fiscal 1995 Compared to Fiscal 1994
Net sales increased $661,684, or 11.9%, to $6,215,866 in fiscal 1995 from
$5,554,182 in fiscal 1994. Approximately $77,000, or 11.6%, of this increase
was the result of increases in the sale prices charged by the Company. The
remaining increase was primarily a result of a combination of increased
marketing efforts, acceptance of the new T-Tank sprayers and an overall
favorable agricultural economy. Sales of sprayers increased $650,346, or
18.4%, and replacement parts increased $11,338, or 0.6%. With continued
development of new products and the acquisition of Clay Equipment, the Company
will be able to expand its product line and enter new markets.
Cost of goods sold increased 8.5% to $4,042,058 in fiscal 1995 from
$3,725,139 in fiscal 1994. However, cost of goods sold as a percentage of net
sales decreased to 65.0% in fiscal 1995 from 67.1% in fiscal 1994. The
decreased percentage was primarily a result of three factors. First, the
Company was able to raise selling prices, which more than offset increased
input prices. Secondly, as mentioned above, a greater percentage of sprayers
were sold, as opposed to replacement parts during the past year. Sprayers
normally carry a higher profit margin than replacement parts. Finally, the
fixed costs included in cost of goods sold were spread over a substantially
higher volume of sales.
Operating expenses increased $102,501 or 7.5% to $1,473,928 (or 23.7% of
net sales) in fiscal 1995 from $1,371,427 (or 24.7% of net sales) in fiscal
1994. The increase resulted from expected increases in variable expenses
coupled with planned increases in selling expenses and research and development
expenses which enabled the Company to expand the product line and sales.
Interest expense increased $39,152 or 63.7% to $100,584 (or 1.6% of net
sales) in fiscal 1995 from $61,432 (or 1.1% of net sales) in fiscal 1994. The
increase was a result of higher interest rates coupled with an increase in the
average balance outstanding under the Company's line of credit.
The Company's effective income tax rate decreased to 38.9% of income
before taxes in fiscal 1995 from 39.5% in fiscal 1994.
Net income for fiscal 1995 was $271.012 or 6.0% of net sales, an increase
of $127,502 (or 52.4%) from fiscal 1994 net income of $243,510, or 4.4% of
fiscal 1994 net sales.
Liquidity
The Company's working capital increased to $3,728,790 in fiscal 1996 from
$2,316,516 in fiscal 1995 and $1,965,918 in fiscal 1994. The current ratio
increased to 3.43:1 in fiscal 1996 from 3.26:1 in fiscal 1995 and 3.29:1 in
fiscal 1994. The overall working capital increase is primarily due to trade
receivables, inventories and accounts payable increasing without a proportional
increase in short-term borrowing necessary to finance them.
During fiscal 1996, 1995 and 1994 cash provided by operating activities
was $740,990, $129,628 and $504,670, respectively. Cash generated from
operations increased in fiscal 1996 primarily due to a decrease in inventory
and an increase in net income offset by decreases in accounts payable and
accrued expenses.
Net cash provided by investing activities in fiscal 1996 was $119,898,
an increase of $424,452 from the cash used in investing activities of $304,554
in fiscal 1995. The increase was primarily a result of payments received on
other receivables offset by additional fixed asset purchases.
Net cash used in financing activities in fiscal 1996 was $1,275,119, a
decrease of $1,125,686 from the cash generated in fiscal 1995 of $149,433. The
decrease was primarily a result of paying down long-term debt. The Company
paid off one long-term note and converted another fixed term loan to a
revolving note. Excess cash was used to pay the revolving term loan down. It
is anticipated that a portion of this debt will be reissued during fiscal 1997.
The Company intends to use cash generated from operations and short-term
bank loans to fund fiscal 1997 cash requirements. As of May 31, 1996, the
Company had a $3,000,000 line of credit, from a bank pursuant to a credit and
security agreement originally dated November 1, 1995 which expires October 31,
1996, and bears interest at the prime rate (8.25%, as of May 31, 1996). The
Company had outstanding letters of credit of $250,000 under terms of this
agreement. As of May 31, 1996, there was no indebtedness outstanding under the
Company's line or letters of credit.
The Company has working capital requirements due primarily to the need
to maintain inventories and to finance accounts receivable. The Company
believes it has access to sufficient working capital for its present and
immediately foreseeable working capital requirements. The Company anticipates
that it will be borrowing funds seasonally, as the need arises.
Capital Resources
On or about October 1, 1996 the Company will move to a new building being
constructed by the City of Cedar Falls, Iowa. The Company will lease the
Facility for an initial term of 10 years (with a renewable five year option on
the part of the City) at an annual rental of $200,664 (which includes real
estate taxes), and the Company will be responsible for the payment of all
utilities, insurance and maintenance. The relocation costs of the former Clay
Equipment Facility will be borne by the City and the Federal Economic
Development Authority. The cost of relocating the Company's Parkersburg
facility, which is not expected to be material, will be provided from
internally generated funds. The Company will have an option to buy the New
Facility for $1.3 million at the end of the lease term.
Item 7 - Financial Statements
The financial statements of the Company are included herein as a separate
section of this Report which begins on page F-1.
Item 8 - Changes In and Disagreements with Accountants
On Accounting and Financial Disclosure
During the Company's two most recent fiscal years, the Company's principal
independent accountant has not resigned, declined to stand for re-election or
been dismissed. Since the beginning of such period to the date hereof, there
have been no disagreements on accounting and financial disclosure with the
Company's independent public accountants.
PART III
Items 9, 10, 11 and 12
The information called for by Items 9, 10, 11 and 12 is incorporated by
reference to the definitive proxy statement for the 1996 Annual Meeting of
Shareholders of the Company (which involves the election of Directors), which
will be filed with the Commission not later than September 28, 1996 (120 days
after the end of the Company's most recently completed fiscal year).
Item 13 - Exhibits and Reports on Form 8-K
(a) Exhibits
See Index to Exhibits of this Report.
(b) Reports on Form 8-K
A report on Form 8-K was filed with the Commission dated March 28, 1996
providing amended unaudited proforma financial information related to the
acquisition of Clay Equipment.
TOP AIR MANUFACTURING, INC.
FINANCIAL REPORT
MAY 31, 1996
INDEX TO FINANCIAL REPORT
Page
INDEPENDENT AUDITOR'S REPORT F-1
FINANCIAL STATEMENTS
Balance sheets F-3
Statements of income F-4
Statements of stockholders' equity F-5
Statements of cash flows F-7
Notes to financial statements F-8
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Top Air Manufacturing, Inc.
Parkersburg, Iowa
We have audited the accompanying balance sheets of Top Air Manufacturing, Inc.
as of May 31, 1996 and 1995, and the related statements of income,
stockholders' equity, and cash flows for the years ended May 31, 1996, 1995 and
1994. 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 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 financial statements referred to above present fairly, in
all material respects, the financial position of Top Air Manufacturing, Inc.
as of May 31, 1996 and 1995, and the results of its operations and its cash
flows for the years ended May 31, 1996, 1995 and 1994 in conformity with
generally accepted accounting principles.
Waterloo, Iowa
July 19, 1996
BALANCE SHEETS
May 31, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS (NOTE 3) 1996 1995
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 517 $ 414,748
Trade receivables, less allowance for doubtful
accounts 1996 $167,000; 1995 $59,000 1,564,968 1,276,544
Current portion of long-term notes receivable (Note 4) 10,578 15,690
Inventories (Note 2) 2,635,802 1,553,830
Prepaid expenses 154,032 52,959
Deferred income taxes (Note 5) 13,000 28,000
Equipment held for sale (Note 10) 755,546 -
Other receivables (Note 10) 131,500 -
Total current assets 5,265,943 3,341,771
Long-Term Receivables and Other Assets
Notes receivable, net of current portion (Note 4) 160,216 54,711
Deferred income taxes (Note 5) 65,000 -
Other assets (Note 10) 920 73,734
226,136 128,445
Property and Equipment
Land and improvements 67,550 74,750
Buildings 454,933 454,933
Machinery and equipment 737,345 559,049
Transportation equipment 531,785 361,444
Office equipment 183,979 159,901
1,975,592 1,610,077
Less accumulated depreciation 967,939 831,371
1,007,653 778,706
$ 6,499,732 $ 4,248,922
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
<S> <C> <C>
Current Liabilities
Current maturities of long-term debt (Note 3) $ 81,497 $ 69,385
Accounts payable 558,294 435,172
Accrued salaries and bonuses, including amounts
due to officers 1996 $89,292; 1995 $75,878 239,269 156,913
Accrued commissions payable 175,433 126,715
Other accrued expenses, including amounts due to
officers and related party 1996 $7,210; 1995 $6,948 336,304 47,008
Income taxes payable (Note 5) 146,356 190,062
Total current liabilities 1,537,153 1,025,255
Long-Term Debt (Note 3) 830,111 270,207
Deferred Income Taxes (Note 5) - 79,000
Commitments (Notes 6 and 10)
Stockholders' Equity (Note 3)
Capital stock, common, no par value; stated value $.0625
per share; authorized 20,000,000 shares; issued 1996
4,013,765 shares; 1995 3,174,433 shares (Note 6) 250,860 198,402
Additional paid-in capital 1,388,730 840,877
Retained earnings 2,512,569 1,835,181
4,152,159 2,874,460
Less cost of common stock reacquired for the treasury
1996 29,217 shares; 1995 none 19,691 -
$ 4,132,468 $ 2,874,460
$ 6,499,732 $ 4,248,922
<FN>
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENTS OF INCOME
Years Ended May 31, 1996, 1995 and 1994
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Net sales $ 11,628,930 $ 6,215,866 $ 5,554,182
Cost of goods sold 7,724,645 4,042,058 3,725,139
Gross profit 3,904,285 2,173,808 1,829,043
Operating expenses:
Selling 1,403,264 869,373 772,980
Provision for doubtful accounts 6,572 11,039 9,156
Other general and administrative, including
amounts paid to related parties 1996 and
1995 $48,000; 1994 $45,500 (Note 7) 1,295,874 593,516 589,291
2,705,710 1,473,928 1,371,427
Operating income 1,198,575 699,880 457,616
Financial income (expense):
Interest income, including amounts
from stockholders 1996 and
1995 none; 1994 $1,040 49,653 8,281 6,507
Interest expense, including amounts paid to
related party and former officer 1996 $1,111
1995 $1,710; 1994 $2,403 (Note 3)
(197,834) (100,584) (61,432)
(148,181) (92,303) (54,925)
Income before income taxes 1,050,394 607,577 402,691
Federal and state income taxes (Note 5) 373,006 236,565 159,181
Net income $ 677,388 $ 371,012 $ 243,510
Earnings per common and common
equivalent share (Note 9) $ 0.17 $ 0.12 $ 0.08
<FN>
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended May 31, 1996, 1995 and 1994
<CAPTION>
Capital Additional
Stock, Paid-In Retained Treasury
Issued Capital Earnings Stock Total
<S> <C> <C> <C> <C> <C>
Balance, May 31, 1993 $ 198,381 $ 840,700 $ 1,220,659 $ - $ 2,259,740
Net income - - 243,510 - 243,510
Balance, May 31, 1994 198,381 840,700 1,464,169 - 2,503,250
Net income - - 371,012 - 371,012
Issuance of 333 shares of
common stock upon the
exercise of options 21 177 - - 198
Balance, May 31, 1995 198,402 840,877 1,835,181 - 2,874,460
Net income - - 677,388 - 677,388
Issuance of 837,666 shares
of common stock for the
purchase of Clay Equipment
Corporation (Note 10) 52,354 546,666 - - 599,020
Issuance of 1,666 shares
of common stock upon the
exercise of options 104 1,187 - - 1,291
Purchase of 29,217 shares
of common stock for the
treasury - - - (19,691) (19,691)
Balance, May 31, 1996 $ 250,860 $ 1,388,730 $ 2,512,569 $ (19,691) $4,132,468
<FN>
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENTS OF CASH FLOWS
Years Ended May 31, 1996, 1995 and 1994
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 677,388 $ 371,012 $ 243,510
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 268,933 159,379 135,220
Amortization 112 112 112
Deferred income taxes 159,000 29,300 (5,100)
(Gain) on sale of equipment (16,220) (17,431) (11,466)
Change in assets and liabilities, net of the
effects of the purchase of Clay Equipment
Corporation (Note 10):
(Increase) decrease in:
Trade receivables (74,289) (207,184) (187,778)
Inventories 305,413 (334,845) (105,636)
Prepaid expenses (87,242) (3,806) 212
Increase (decrease) in:
Accounts payable and accrued expenses (448,399) 81,663 300,470
Income taxes payable (43,706) 51,428 135,126
Net cash provided by
operating activities 740,990 129,628 504,670
Cash Flows From Investing Activities
Proceeds from sale of equipment 67,450 70,050 41,093
Purchase of property and equipment (442,464) (325,173) (264,197)
Payments received on long-term
notes and other receivable 540,076 23,271 28,000
Increase in intangible and other assets (45,164) (72,702) (50,000)
Net cash provided by (used in)
investing activities 119,898 (304,554) (245,104)
Cash Flows from Financing Activities
Proceeds from short-term borrowings 5,268,100 3,310,000 2,915,000
Principal payments on short-term borrowings (5,268,100) (3,310,000) (2,915,000)
Proceeds from long-term borrowings 3,562,700 360,000 -
Principal payments on long-term borrowings (4,819,419) (210,765) (35,336)
Purchase of common stock for the treasury (19,691) - -
Proceeds from issuance of common stock 1,291 198 -
Net cash provided by (used in)
financing activities (1,275,119) 149,433 (35,336)
Increase (decrease) in cash
and cash equivalents (414,231) (25,493) 224,230
Cash and Cash Equivalents
Beginning 414,748 440,241 216,011
Ending $ 517 $ 414,748 $ 440,241
Supplemental Disclosures of Cash Flow
Information
Cash payments for:
Interest $ 195,193 $ 99,341 $ 61,750
Income Taxes $ 257,712 $ 155,837 $ 29,155
Supplemental Schedule of Noncash Investing
and Financing Activities
Long-term note receivable received in
payment for sale of intangible asset (Note 4) $ 50,000
Acquisition of Clay Equipment Corporation
(Note 10):
Working capital acquired $ 1,329,160
Fair value of other assets acquired,
principally equipment 1,098,595
Long-term debt assumed (1,828,735)
$ 599,020
Issuance of 837,666 shares of common stock $ (599,020)
<FN>
See Notes to Financial Statements.
</TABLE>
Note 1. Nature of Business and Significant Accounting Policies
Nature of business: The Company's operations consist of the design,
manufacture and sale of agricultural equipment and repair and replacement parts
to dealers located primarily in twelve midwestern states on credit terms that
the Company establishes for individual customers.
Significant accounting policies:
Accounting estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount 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.
Cash and cash equivalents: For purposes of reporting cash flows, the Company
considers all money market funds and savings accounts to be cash equivalents.
Inventories: Inventories are valued at the lower of cost (first-in,
first-out method) or market.
Property and equipment and depreciation: Property and equipment is carried
at cost. Depreciation on property and equipment is computed by the
straight-line method over the estimated useful lives of the assets.
Revenue recognition: Sales of all products are recognized as goods are
shipped.
Income taxes: Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss carryforwards and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion
of management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of
enactment.
Research and development: Research and development costs are charged to
operations as they are incurred.
Stock options issued to employees: Compensation expense for stock issued
through stock option plans is accounted for using the intrinsic value based
method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock
Issued for Employees". Under this method, compensation is measured as the
difference between the estimated market value of the stock at the date of award
less the amount required to be paid for the stock. The difference, if any, is
charged to expense over the periods of service.
Fair value of financial instruments: The carrying amount of cash and cash
equivalents, trade receivables and accounts payable approximates fair value
because of the short maturity of these instruments. The carrying amount of
long-term debt approximates fair value because these instruments bear interest
at approximate current rates available to the Company for similar borrowings.
Recently issued accounting standards: In March 1995, the Financial
Accounting Standards Board (FASB) issued SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed Of,
which will require the Company to review for the impairment of long-lived
assets and certain identifiable intangibles to be held and used by the Company
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Adoption of SFAS No. 121 is required in
fiscal year ending May 31, 1997.
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation, which establishes a fair value based method for financial
accounting and reporting for stock-based employee compensation plans. However,
the new standard allows compensation to continue to be measured by using the
intrinsic value based method of accounting prescribed by Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to employee, but requires
expanded disclosures. SFAS No. 123 is effective in fiscal year ending May 31,
1997. The Company has elected to continue to apply the intrinsic value based
method of accounting for stock options.
Note 2. Composition of Inventories
Inventories at May 31, 1996 and 1995 consisted of the following:
1996 1995
Raw materials $ 143,808 $ 47,053
Work in process 38,303 36,095
Finished goods 2,453,691 1,470,682
$ 2,635,802 $ 1,553,830
Note 3. Pledged Assets and Related Debt
The Company has a line of credit agreement with a bank which expires October
31, 1996, under which they may borrow up to $3,000,000 in current notes payable
based on a percentage of inventory and trade receivables. Based on the levels
of inventory and trade receivables, approximately $2,490,000 could be borrowed
under this agreement at May 31, 1996. The interest rate on advances under this
agreement is the bank's prime rate (effective rate of 8.25% at May 31, 1996).
Under the terms of this agreement, the Company has outstanding letters of
credit as of May 31, 1996 of $250,000 for the benefit of certain vendors. There
were no amounts borrowed on the line or letters of credit as of May 31, 1996
and 1995. (a)
<TABLE>
Long-term debt at May 31, 1996 and 1995 consisted of the following:
<CAPTION>
Amount Owed
1996 1995
<S> <C> <C>
Line of credit, bank, borrowings bearing interest at
8.75%,all outstanding principal and interest due
June 26, 2000. Under the terms of this agreement
the Company is allowed to use excess cash to
temporarily pay down this loan and will be
allowed to borrow up to a maximum available
credit established by the bank. At May 31,
1996 $1,401,700 could be borrowed under this
agreement. This borrowing limit decreases
quarterly to approximately $900,000 at the
maturity of the agreement. (a) $ 689,700 $ -
Notes payable, City of Cedar Falls and Black Hawk
County, Iowa, due in monthly installments of
$1,934, including interest at 6%, through
May 11, 1998. Collateralized by substantially all
assets of the Company except land and buildings. 43,620 -
Note payable, City of Cedar Falls, Iowa, due in annual
installments of $12,857, noninterest bearing,
through September 15, 2000. Collateralized by all
inventory and trade receivable. 64,286 -
Contract payable, due in monthly installments of $2,494,
including interest at 8%, through May 7, 1999.
Collateralized by a note receivable of $134,622
(Note 4). 79,575 -
Other contracts payable, secured 34,427 -
Note payable, bank, due in monthly installments
of $7,375, including interest at 8.75%. (a) - 326,592
Contract payable, stockholder and former officer,
due in annual installments of $7,000, plus
interest at 10%. - 13,000
911,608 339,592
Less current maturities 81,497 69,385
$ 830,111 $ 270,207
<FN>
(a)These borrowings are collateralized by substantially all of the assets of the Company except land and
buildings. The agreements contain various restrictive covenants including, among others, ones which
require the Company to maintain certain amounts of working capital and equity and financial ratios.
All covenants have been complied with at May 31, 1996.
</TABLE>
The following is a schedule by years of the maturities of the long-term debt
as of May 31, 1996:
Year ending May 31:
1997 $ 81,497
1998 73,174
1999 41,523
2000 702,557
2001 12,857
$ 911,608
Note 4. Note Receivable
Notes receivable as of May 31, 1996 consist of the following:
8% note, to be received $1,386 monthly,
including interest, through June 2009. $ 134,622
Stockholder, noninterest bearing, to be
received three payments of $1,500 a
year through January 2004. 36,172
170,794
Less current portion 10,578
$ 160,216
Note 5. Income Taxes
Net deferred tax liabilities consist of the following components as of May 31,
1996 and 1995:
1996 1995
Deferred tax assets:
Allowance for doubtful accounts $ 62,000 $ 20,975
Accrued expenses 95,000 525
Contracts payable 42,000 -
Net operating loss carryforward 151,000 -
Deductible goodwill of predecessor
company 226,000 -
Inventory - 6,500
576,000 28,000
Deferred tax liabilities:
Property and equipment 334,000 79,000
Inventory 164,000 -
498,000 79,000
$ 78,000 $ (51,000)
The deferred tax amounts mentioned above have been classified on the
accompanying balance sheets as of May 31, 1996 and 1995 as follows:
1996 1995
Current assets $ 13,000 $ 28,000
Noncurrent assets 65,000 -
Noncurrent liabilities - (79,000)
$ 78,000 $ (51,000)
The Company acquired operating loss carryforwards in connection with the
purchase of certain assets of Clay Equipment Corporation (Note 10).
Limitations imposed by current tax laws limit the utilization of
these carryforwards to approximately $40,000 per year through 2009.
Income tax expense is made up of the following components:
Year Ended May 31,
1996 1995 1994
Current tax expense:
Federal $ 188,000 $ 185,500 $ 150,237
State 26,006 21,765 14,044
214,006 207,265 164,281
Deferred tax expense (credit) 159,000 29,300 (5,100)
$ 37,006 $ 236,565 $ 159,181
Total reported tax expense applicable to the Company's operations varies from
the amount that would have resulted by applying the federal income tax rate to
income before income taxes for the following reasons:
Year Ended May 31,
1996 1995 1994
Income tax expense at statutory
federal income tax rate $ 367,638 $ 212,652 $ 140,942
State tax expense, net of
federal income tax benefit 17,164 14,147 9,129
Benefit of income taxed at lower
rates (10,504) (6,076) (3,350)
Other (1,292) 15,842 12,460
$ 373,006 $ 236,565 $ 159,181
Note 6. Stock Option Plans
The Company has a stock option plan adopted in 1993 which provides for the
issuance of a maximum of 250,000 shares of common stock to officers, directors
and key employees at a price per share of not less than 100% of the market
price at the date of grant. The options granted under this plan become
exercisable over three years.
The Company had an incentive stock option plan adopted in 1983 which expired
during the year ended May 31, 1993, which provided for the issuance of a
maximum of 500,000 shares of common stock to officers and key employees at a
price per share of not less than 100% of the market price at the date of grant.
<TABLE>
The following table summarizes the options to purchase shares of the Company's
common stock:
<CAPTION>
Stock Options
Outstanding Exercisable Price Range
<S> <C> <C> <C> <C>
Balance at May 31, 1994 81,000 14,665 $ .5938 - $ .8438
Granted 59,500 - .7500 - 1.000
Became exercisable - 25,664 .5938 - .8438
Exercised (333) (333) .5938
Cancelled (3,000) (1,333) .5938 - .8438
Balance at May 31, 1995 137,167 38,663 $ .5938 $ 1.0000
Granted 67,000 - 1.2188 1.2183
Became exercisable - 45,160 .5938 1.0000
Exercised (1,666) (1,666) .5938 .8425
Cancelled (1,000) - - .7500
Balance at May 31, 1996 201,501 82,157 $ .5938 $ 1.2813
</TABLE>
Note 7. Research and Development
Research and development costs included in the statements of income as part of
other general and administrative expenses totaled $400,916, $173,791 and
$150,242 for the years ended May 31, 1996, 1995 and 1994, respectively.
Note 8. Employee Benefit Plan
The Company has a 401(k) defined contribution plan covering substantially all
employees. The plan provides for a matching employer contribution based on the
employee's contributions up to 10% of compensation. Additional discretionary
contributions to the plan may also be made. Employer contributions for the
years ended May 31, 1996, 1995 and 1994 were $35,029, $21,620 and $15,519,
respectively.
Note 9. Earnings Per Common and Common Equivalent Shares
Earnings per common and common equivalent shares, assuming no dilution, have
been computed on the weighted average number of common shares outstanding
during the period using the treasury stock method of accounting for the
dilutive common equivalent shares discussed in Note 6. The weighted average
number of shares of common stock outstanding for the years ended May 31, 1996,
1995 and 1994 were 4,002,432, 3,204,285 and 3,195,054, respectively.
Earnings per common and common equivalent shares, assuming full dilution, for
the years ended May 31, 1996, 1995 and 1994 are the same as the earnings per
common and common equivalent shares, assuming no dilution.
Note 10. Business Acquisition
On June 26, 1995 the Company acquired certain assets of Clay Equipment
Corporation ("Clay") of Cedar Falls, Iowa in exchange for the assumption of
approximately $2,500,000 of liabilities and 837,666 shares of the Company's no
par value common stock with a value of approximately $628,000. In connection
with the issuance of these shares, the Company incurred stock registration
costs of approximately $29,000. Clay designed, manufactured, and distributed
livestock equipment and other agricultural related products, primarily manure
spreader wagons and milking equipment. The Company will move the combined
operations to Cedar Falls, Iowa in October 1996 where the Company has entered
into a 15 year lease for an 85,000 square foot building to be constructed by
the City of Cedar Falls, Iowa. The lease will require monthly payments of
$16,722, plus insurance, utilities, and other expenses with an option to
purchase at the end of the lease for $1,285,955 plus all reasonable costs and
expenses incurred by the lessor for the sale. The lease will be accounted for
as an operating lease. In association with the City constructing the new
facility for the Company, the City purchased the land and building of the
former Clay site under a flood relocation plan. The City withheld $131,500 of
the purchase price for possible clean up costs after the former Clay site is
demolished in the fall of 1996. Also, as part of the flood relocation plan the
Company will sell equipment and be reimbursed by the City of Cedar Falls for
the moving costs or replacement of equipment with a book value of $755,546.
The Company estimates that these proceeds and the reimbursement will be
received based on preliminary estimates by the City of Cedar Falls. The
acquisition has been accounted for by the purchase method and results of
operations of Clay Equipment since the date of acquisition are included in the
financial statements.
Unaudited pro forma condensed financial statements for the years ended May 31,
1995 as though Clay equipment had been acquired as of June 1, 1994 are as
follows:
Net sales $12,724,000
Net (loss) (591,000)
(Loss) per common and common equivalent share (0.14)
SIGNATURES
In accordance with Section 13 or 15(d) 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:
Registrant Top Air Manufacturing, Inc.
By (Signature and Title) /s/ Steven R. Lind
Steven R. Lind, Principal Executive Officer
/s/ Steven F. Bahlmann
Steven F. Bahlmann, Principal Financial Officer
Date: August 29, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: /s/ Wayne C. Dudley By:_____________________________
Wayne C. Dudley, Director Franklin A. Jacobs, Director
Date: August 29, 1996 Date: August , 1996
By: /s/ Dennis W. Dudley By:____________________________
Dennis W. Dudley, Director S. Lee Kling, Director
Date: August 29, 1996 Date: August , 1996
By: /s/ Robert J. Freeman By:___________________________
Robert J. Freeman, Director Sanford W. Weiss, Director
Date: August , 1996 Date: August , 1996
By: /s/ Steven R. Lind
Steven R. Lind, Director
Date: August 29, 1996
INDEX TO EXHIBITS
Exhibit
Number Description Page
*3(a) Amended and restated Articles of Incorporation of the
Registrant, filed as Exhibit 3(c) to the Company's
Annual Report on Form 10-K for fiscal year 1991
(the "1991 Form 10-K")
*3(b) Amended and Restated By-laws of the Registrant, filed
as Exhibit 3(d) to the 1991 Form 10-K
*3(c) Amendments to the Amended and Restated By-laws,
effective October 21, 1992, filed as Exhibit 3(c) to
the Company's Annual Report on Form 10-KSB for fiscal
year 1993 (the "1993 Form 10-KSB)
*9 Amended and Restated Voting Trust Agreement by and
among Robert J. Freeman and Dennis W. Dudley and
their successors, dated September 15, 1992, filed as
Exhibit 9 to the 1993 Form 10-KSB
*10(a) Promissory note dated January 1, 1991, between the
Company and Wayne C. Dudley (the "Dudley Note"),
filed as Exhibit 10(b) to the 1991 Form 10-K
*10(b) Letter amendment, dated August 5, 1994, to the Dudley
Note, filed as Exhibit 10(c) to the Company's Annual
Report on Form 10-K for fiscal year 1994 (the "1994
Form 10-KSB")
*10(c) 1993 Stock Option Plan adopted by the Board of
Directors November 6, 1992, filed as Exhibit 10(c) to
the 1993 Form 10-KSB
*10(d) Summary Plan description for 401(k) plan adopted by
the Board of directors on October 22, 1991, filed as
Exhibit 28(b) to the Company's Annual Report on Form
10-K for fiscal year 1992 (the "1992 Form 10-K")
**10(e) Promissory note dated May 16, 1996 between the
Company and Norwest Bank Iowa, N.A.
**10(f) Variable balance promissory note dated November 1,
1995, between the Company and Norwest Bank Iowa, N.A.
*10(g) Credit and Security Agreement originally dated October
3, 1994, between the Company and Norwest Bank Iowa, N.A.
**11 Statement re computation of per share earnings
**23 Consent of accountants
**27 Financial Date Schedule
(Filed in EDGAR version only)
**99 Cautionary Statement Identifying Important Factors
that Could Cause the Company's Actual Results to
Differ from those Projected in Forward-Looking
Statements
* Incorporated by reference to the indicated documents or parts thereof,
previously filed with the Commission.
** Filed herewith.
EXHIBIT 10(e)
NORWEST BANKS Commercial Note
Name Top Air Manufacturing, Inc. Date May 16, 1996
Choose one of the following
__ On the earlier of demand or ______________, 19__ ; or _X_ on June 26, 2000
; or __ ______________ days after the Date, the resulting choice
being the "Due Date," which also means the date, if any, on which this note is
accelerated.
For value received, the undersigned (if more than one, jointly, and severally)
promise(s) to pay to the order of Norwest Bank Iowa, National Association (the
"Bank") at 191 West Fifth Street, Waterloo, Iowa 50701 or at any other place
designated at any time by the holder of this Note, in lawful money of the
United States of America, the principal sum of One Million Four Hundred One
Thousand Seven Hundred and 07/100 Dollars ($1,401,700.07), or as much as has
been disbursed and remains outstanding on this Note at the Due Date, as is
shown by the Bank's records, together with interest (calculated on the basis
of actual days elapsed in a year of 360 days) on the unpaid principal of
this Note from the Date until this Note is fully paid, at the following rate:
(choose one of the following):
__ an annual rate of ___________________% (the "Note Rate").
_X_ an annual rate equal to .50 % in excess of the Base Rate, each change
in the interest rate to become effective on the day the corresponding change
in the Base Rate becomes effective (the "Note Rate").
__ an annual rate equal to _______% in excess of the Base Rate, with an
initial rate to be tied to the Base Rate in effect on the date this
Note is signed and the rate for each month thereafter to be tied to the Base
Rate in effect on the _____ day of the immediately preceding month
(the "Note Rate").
__ an annual rate _____ (the "Note Rate").
"Base Rate" means the rate of interest established by Northwest Bank Iowa, N.A.
from time to time as its "base" or "prime" rate or "______" rate.
If this __ is checked, the Note Rate shall never be less than _____% and shall
never be greater than _____%.
After the Due Date, the unpaid principal and interest on this Note shall bear
interest until paid at the rate of _____% per annum in excess of the Note Rate
in effect on the Due Date except that, if the Bank is located in Minnesota and
the original principal amount of this Note is less than $100,000.00, or the
Bank is located in North Dakota, this Note shall bear the same interest rate
after its Due Date as was in effect on the Due Date. The interest rate on this
Note shall never exceed the maximum rate permitted by law.
__ Interest shall be payable on the Due Date.
_X_ Interest shall be payable monthly, commencing June 10, 1996, and on the
same day of each succeeding month, and on the Due Date.
If this __ is checked, if any payment required by this Note is not paid within
_____ days after the payment is due, Borrower will make an additional payment
to the Bank of (Choose one) __ $__________; or __ ______% of the amount of the
late payment (the "Late Fee").
The undersigned may, at any time, prepay this Note, in whole or from time to
time in part: (Choose one)
_X_ without premium or penalty, upon written or telephonic notice to the
Bank; or,
__ provided that, upon prepayment, the Bank will be entitled to receive a
prepayment penalty equal to _____% of the principal amount to
be prepaid.
__ In addition, the undersigned shall pay to the Bank a nonrefundable: (Mark
the applicable fee type(s)) __ commitment fee, __ facility fee, __
documentation fee, __ application and loan processing fee of (Choose one) __
$_____; __ _____% of the principal amount of this Note, at the time this Note
is signed.
(Check if applicable)
_X_ The undersigned may borrow, prepay and reborrow under this Note until the
Due Date within the limits of this Note and subject to the terms and conditions
in any other agreement between the undersigned and the Bank. See attached
First Amendment dated May 16, 1996.
_X_ Any advances made under this Note shall be at the sole discretion of the
Bank and the Bank is not obligated to make any advance. See addendum dated
__________.
This Note is Secured by: __ a Mortgage dated ____________, 19__. _X_ a
Mortgage dated June 26, 1995 and other collateral.
_X_ This Note is given in substitution and replacement for (and not in payment
of) a previous Note of the undersigned, payable to the Bank, dated June 26,
1995. This Note __ evidences indebtedness in addition to the indebtedness
evidenced by the previous Note, or __ evidences only a portion of the debt
evidenced by the previous Note.
IMPORTANT: READ BEFORE SIGNING, THE TERMS OF THIS AGREEMENT AND ANY RELATED
DOCUMENTS SHOULD BE READ CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE
ENFORCEABLE. NO OTHER TERMS OR ORAL PROMISES NOT CONTAINED IN THE WRITTEN
CONTRACT(S) MAY BE LEGALLY ENFORCED. YOU MAY CHANGE THE TERMS OF THE
AGREEMENT(S) ONLY BY ANOTHER WRITTEN AGREEMENT. THIS NOTICE ALSO
APPLIES TO ANY OTHER CREDIT AGREEMENTS (EXCEPT CONSUMER LOANS OR OTHER EXEMPT
TRANSACTIONS) NOW IN EFFECT BETWEEN YOU AND THIS LENDER.
The undersigned acknowledges receipt of a copy of this document. See Attached
Addendum.
THE REVERSE SIDE OF THIS NOTE CONTAINS IMPORTANT, ADDITIONAL PROVISIONS, ALL
OF WHICH ARE MADE A PART HEREOF.
The proceeds of this loan will be used for business or agricultural purposes
only.
Name Top Air Manufacturing, Inc. By: /s/ Steven R. Lind
Street address 406 Highway 20 By: Steven R. Lind, President
City, State and ZIP Parkersburg,
IA 50665 By:
By:
First Amendment to Top Air Loan Agreement
This First Amendment to Loan Agreement is entered into this 16th day of May,
1996, by and between Top Air Manufacturing, Inc. (the "Borrower") and Norwest
Bank Iowa, National Association (the "Bank").
The Borrower and the Bank had previously entered into a Loan Agreement dated
June 26, 1995, pursuant to which the parties agreed upon the terms and
conditions governing three promissory notes.
Borrower desires to amend the Loan Agreement and loan documents so as to
convert the committed non-revolving term loan with an original principal
balance of $1,500,000 dated May 16, 1996, to a committed, revolving term loan.
The terms and conditions as well as the required quarterly principal pay downs
for this new Note are as follows:
For so long as the Bank is the owner of this Note, the Borrower may at any time
borrow, repay and reborrow from the Bank, up to the amount of the Maximum
Credit Available as determined in the payment schedule listed below). The
liability of the undersigned hereunder shall be the amount from time to time
actually outstanding, plus interest thereon, as reflected by the Bank's
liability records for the undersigned. Principal shall be paid from time to
time, without demand therefore by the Bank, as and when necessary, to reduce
the principal amount outstanding hereunder so that the principal amount
outstanding hereunder will at no time exceed the then applicable Maximum Credit
Available for the time set forth in the payment schedule.
1.At no time shall the principal amount outstanding under the Note exceed the
"Maximum Credit Available" as reduced from time to time as hereinafter
provided.
2.The Maximum Credit Available shall be:
Date Amount
From the date hereof, including 06-30-96 $1,401,700
01-01-96 to and including 09-30-96 $1,392,700
10-01-96 to and including 12-31-96 $1,364,700
01-01-97 to and including 03-31-97 $1,336,100
04-01-97 to and including 06-30-97 $1,306,900
07-01-97 to and including 09-30-97 $1,277,100
10-01-97 to and including 12-31-97 $1,246,600
01-01-98 to and including 03-31-98 $1,215,400
04-01-98 to and including 06-30-98 $1,183,500
07-01-98 to and including 09-30-98 $1,150,900
10-01-98 to and including 12-31-98 $1,117,600
01-01-99 to and including 03-30-99 $1,083,600
04-01-99 to and including 06-30-99 $1,048,000
07-01-99 to and including 09-30-99 $1,013,300
10-01-99 to and including 12-31-99 $ 976,900
01-01-2000 to and including 03-30-2000 $ 939,800
03-01-2000 to and including 06-25-2000 $ 901,900
On 06-26-2000 the entire unpaid principal and accrued and unpaid interest
hereon shall become due and payable.
Top Air Manufacturing, Inc. Norwest Bank Iowa, National
Association
By: /s/ Steven R. Lind By: /s/ Cathy R. Rottinghaus
Steven R. Lind, President Cathy A. Rottinghaus, Vice
President
EXHIBIT 10(f)
NORWEST BANKS Commercial Note
Name Top Air Manufacturing, Inc.
Date November 1, 1995
Choose one of the following
__ On the earlier of demand or ____________, 19__ ; or _X_ on October 31 ,
19 96 ; or __ _________ days after the Date, the resulting choice being the
"Due Date," which also means the date, if any, on which this note is
accelerated.
For value received, the undersigned (if more than one, jointly, and severally)
promise(s) to pay to the order of Norwest Bank Iowa, National Association (the
"Bank") at 191 West Fifth Street, Waterloo, Iowa 50701 or at any other place
designated at any time by the holder of this Note, in lawful money of the
United States of America, the principal sum of Three Million and 00/100 Dollars
($3,000,000.00), or as much as has been disbursed and remains outstanding on
this Note at the Due Date, as is shown by the Bank's records, together with
interest (calculated on the basis of actual days elapsed in a year of 360 days)
on the unpaid principal of this Note from the Date until this Note is fully
paid, at the following rate:
(choose one of the following):
__ an annual rate of________% (the "Note Rate").
_X_ an annual rate equal to 0% in excess of the Base Rate, each change in
the interest rate to become effective on the day the corresponding change in
the Base Rate becomes effective (the "Note Rate").
__ an annual rate equal to ______% in excess of the Base Rate, with an
initial rate to be tied to the Base Rate in effect on the date this Note is
signed and the rate for each month thereafter to be tied to the Base Rate in
effect on the _____ day of the immediately preceding month (the "Note Rate").
__ an annual rate ______ (the "Note Rate").
"Base Rate" means the rate of interest established by Northwest Bank Iowa, N.A.
from time to time as its "base" or "prime" rate or "________" rate.
If this __ is checked, the Note Rate shall never be less than _____% and shall
never be greater than _____%.
After the Due Date, the unpaid principal and interest on this Note shall bear
interest until paid at the rate of _____% per annum in excess of the Note Rate
in effect on the Due Date except that, if the Bank is located in Minnesota and
the original principal amount of this Note is less than $100,000.00, or the
Bank is located in North Dakota, this Note shall bear the same interest rate
after its Due Date as was in effect on the Due Date. The interest rate on this
Note shall never exceed the maximum rate permitted by law.
__ Interest shall be payable on the Due Date.
_X_ Interest shall be payable monthly, commencing December 1, 1995, and on
the same day of each succeeding month, and on the Due Date.
If this __ is checked, if any payment required by this Note is not paid within
_____ days after the payment is due, Borrower will make an additional payment
to the Bank of (Choose one) __ $_______; or __ ______% of the amount of the
late payment (the "Late Fee").
The undersigned may, at any time, prepay this Note, in whole or from time to
time in part: (Choose one)
_X_ without premium or penalty, upon written or telephonic notice to the
Bank; or,
__ provided that, upon prepayment, the Bank will be entitled to receive a
prepayment penalty equal to _____% of the principal amount to
be prepaid.
__ In addition, the undersigned shall pay to the Bank a nonrefundable: (Mark
the applicable fee type(s)) __ commitment fee, __ facility fee, __
documentation fee, __ application and loan processing fee of (Choose one) __
$______; __ ______% of the principal amount of this Note, at the time this Note
is signed.
(Check if applicable)
_X_ The undersigned may borrow, prepay and reborrow under this Note until the
Due Date within the limits of this Note and subject to the terms and conditions
in any other agreement between the undersigned and the Bank.
_X_ Any advances made under this Note shall be at the sole discretion of the
Bank and the Bank is not obligated to make any advance.
This Note is Secured by:__ a Mortgage dated __________, 19__.
__ a Mortgage dated __________, 19__ and other
collateral.
__ This Note is given in substitution and replacement for (and not in payment
of) a previous Note of the undersigned, payable to the Bank, dated ___________,
19__. This Note __ evidences indebtedness in addition to the indebtedness
evidenced by the previous Note, or __ evidences only a portion of the debt
evidenced by the previous Note.
IMPORTANT: READ BEFORE SIGNING, THE TERMS OF THIS AGREEMENT AND ANY RELATED
DOCUMENTS SHOULD BE READ CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE
ENFORCEABLE. NO OTHER TERMS OR ORAL PROMISES NOT CONTAINED IN THE WRITTEN
CONTRACT(S) MAY BE LEGALLY ENFORCED. YOU MAY CHANGE THE TERMS OF THE
AGREEMENT(S) ONLY BY ANOTHER WRITTEN AGREEMENT. THIS NOTICE ALSO APPLIES TO
ANY OTHER CREDIT AGREEMENTS (EXCEPT CONSUMER LOANS OR OTHER EXEMPT
TRANSACTIONS) NOW IN EFFECT BETWEEN YOU AND THIS LENDER.
The undersigned acknowledges receipt of a copy of this document.
THE REVERSE SIDE OF THIS NOTE CONTAINS IMPORTANT, ADDITIONAL PROVISIONS, ALL
OF WHICH ARE MADE A PART HEREOF.
The proceeds of this loan will be used for business or agricultural purposes
only.
Name Top Air Manufacturing, Inc. By: /s/ Steven R. Lind
Street address 406 Highway 20 By: Steven R. Lind, President
City, State and ZIP Parkersburg, IA 50665 By:
By:
EXHIBIT 11
COMPUTATIONS OF EARNINGS PER SHARE
Year Ended May 31,
1996 1995 1994
Computation of weighted average number
of common shares outstanding and
common equivalent shares:
Common shares outstanding at the
beginning of the period 3,174,433 3,174,100 3,174,100
Weighted average number of shares
issued during the period 781,357 295 --
Weighted average of the common
equivalent shares attributable
to stock options granted, computed
under the treasury stock method# 59,098 29,890 20,954
Weighted average number of common
and common equivalent shares 4,014,888 3,204,285 3,185,054
Net Income $ 677,388 $ 371,012 $ 243,510
Earnings per common and common $ .17 $ .12 $ .08
equivalent share
# Some stock options have not been included because they are anti-dilutive.
EXHIBIT 23
McGLADREY & PULLEN, LLP
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference into the registration statement
to Top Air Manufacturing, Inc. on Form S-8 (Registration No. 33-74378) of our
report dated July 19, 1996 with respect to the financial statements of Top Air
Manufacturing, Inc. included in its Annual Report on Form 10-KSB for the fiscal
year ended May 31, 1996.
/s/ McGladrey & Pullen, LLP
Waterloo, Iowa
August 28, 1996
EXHIBIT 99
The following factors could affect the Company's actual results, including its
revenues, expenses and net income, and could cause them to differ from any
forward-looking statements made by or on behalf of the Company:
- - - The Company competes with a large number of other agricultural equipment
manufacturers and suppliers who distribute sprayers and sprayer parts.
Although the Company believes that its products are sufficiently different from
other products to enable it to establish and maintain a market for such
products, many of the Company's principal competitors are larger than the
Company and have substantial resources. There can be no assurance that
competitors will not be able to take actions, including developing new products
or offering reduced pricing, which could materially adversely affect the sales
revenues of the Company.
- - - The Company has warranted the products it manufactures to be free from
defects in material and workmanship under normal use and service for a period
of twenty-four months after date of purchase. Although the Company carries
product liability insurance and casualty insurance customary for manufacturing
operations of its type, there are certain types of losses which are uninsurable
or not economically insurable. There can be no guaranty against uninsured
losses of any kind.
- - - The continued success of the Company will depend upon the efforts and
abilities of certain key officers and employees, particularly Steven R. Lind,
its President and Chief Executive Officer. The Company could be adversely
affected if for any reason such officers and employees should no longer be
active in the Company's operations. Steven R. Lind, President and Chief
Executive Officer of the Company, has entered into an employment agreement with
the Company.
- - - The Company's executive officers and directors as a group beneficially own
approximately 52% of the outstanding shares of the Company's Common Stock.
Accordingly, these officers and directors have the ability to determine the
outcome of most corporate actions requiring stockholder approval and to
influence the policies and direction of the Company. There are no provisions
for cumulative voting by stockholders in the Company's Articles of
Incorporation and, accordingly, holders of a majority of the outstanding shares
can elect all of the Company's directors. These facts may tend to discourage
attempts to acquire control of the Company by persons other than those holders.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Balance Sheet at May 31, 1996 and the Company's Statement of Income
for the Twelve Months Ended May 31, 1996 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> MAY-31-1996
<CASH> 517
<SECURITIES> 0
<RECEIVABLES> 1,707,046
<ALLOWANCES> 167,000
<INVENTORY> 2,635,802
<CURRENT-ASSETS> 5,265,943
<PP&E> 1,975,592
<DEPRECIATION> 967,939
<TOTAL-ASSETS> 6,499,732
<CURRENT-LIABILITIES> 1,537,153
<BONDS> 830,111
0
0
<COMMON> 250,860
<OTHER-SE> 3,881,608
<TOTAL-LIABILITY-AND-EQUITY> 6,499,732
<SALES> 11,628,930
<TOTAL-REVENUES> 11,678,583
<CGS> 7,724,645
<TOTAL-COSTS> 10,430,355
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 6,572
<INTEREST-EXPENSE> 197,834
<INCOME-PRETAX> 1,050,394
<INCOME-TAX> 373,006
<INCOME-CONTINUING> 677,388
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 677,388
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
