UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
{X} Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the quarterly Period ended February 28, 1999
or
{ } Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the transition period from ________ to ________
Commission File Number: 1-13679
TOP AIR MANUFACTURING, INC.
(Exact name of small business issuer as specified in its charter)
Iowa 42-1155462
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
317 Savannah Park Road, Cedar Falls, Iowa 50613
(Address of principal executive offices) (Zip Code)
(319) 268-0473
(Issuer's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal
year, if changed since last report)
Check whether the issuer (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.
Yes X No
----- ------
4,968,957 Common Shares were outstanding as of March 31, 1999.
<PAGE>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARY
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets, February 28, 1999
(unaudited) and May 31, 1998 1
Unaudited Condensed Consolidated Statements of Operations,
Three Months and Nine Months Ended February 28, 1999 and 1998 2
Unaudited Condensed Consolidated Statements of Cash Flows, Nine
Months Ended February 28, 1999 and 1998 3
Notes to Condensed Consolidated Financial Statements (unaudited) 5
Item 2. Management's Discussion and Analysis or Plan of Operation 6
PART II. OTHER INFORMATION
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 8
<PAGE>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
FEBRUARY 28, MAY 31,
1999 1998*
------------ -----------
CURRENT ASSETS
Cash and cash equivalents $ 160,712 $ 5,146
Trade receivables, net of allowance
for doubtful accounts February 28, 1999
$135,929; May 31, 1998 $131,000 4,065,366 4,211,004
Inventories (Note 2) 6,945,114 5,167,744
Income tax benefits 290,821 --
Other current assets 178,924 169,852
---------- ----------
Total Current Assets 11,640,937 9,553,746
---------- ----------
LONG TERM RECEIVABLES AND OTHER ASSETS
Notes receivable, net of current portion 266,253 286,598
Goodwill 1,002,611 1,060,969
Other assets 39,523 63,682
---------- ----------
1,308,387 1,411,249
---------- ----------
PROPERTY AND EQUIPMENT, at cost,
less accumulated depreciation
February 28, 1999 $1,309,402;
May 31, 1998 $1,122,423 3,401,923 2,676,266
----------- -----------
$16,351,247 $13,641,261
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt $ 4,510,297 $ 2,624,707
Other liabilities and accrued items 787,513 1,231,416
---------- ----------
Total Current Liabilities 5,297,810 3,856,123
---------- ----------
LONG-TERM DEBT 4,251,607 2,323,567
---------- -----------
STOCKHOLDERS' EQUITY
Common stock 323,131 322,944
Additional paid-in capital 2,903,324 2,900,688
Retained earnings 3,911,351 4,369,952
---------- ----------
7,137,806 7,593,584
Less cost of treasury stock 335,976 132,013
---------- ----------
6,801,830 7,461,571
----------- -----------
$16,351,247 $13,641,261
=========== ===========
*Condensed from Audited Financial Statements.
See notes to Condensed Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
February 28, February 28,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $2,515,379 $4,371,915 $7,028,468 $10,782,157
---------- ---------- ---------- -----------
Costs and Expenses:
Cost of goods sold 1,744,375 2,917,720 4,967,342 7,450,463
Selling and administrative
expenses 643,947 746,138 2,035,226 2,135,153
Research and development
expenses 134,646 128,313 405,860 361,673
Interest expense 138,481 104,726 378,887 265,946
---------- ---------- ---------- -----------
2,661,449 3,896,897 7,787,315 10,213,235
---------- ---------- ---------- -----------
(146,070) 475,018 (758,847) 568,922
Other Income 19,170 14,649 43,060 30,284
---------- ---------- ---------- -----------
Income (loss) before
Income Taxes (126,900) 489,667 (715,787) 599,206
Income Taxes (credits) (46,444) 173,488 (257,186) 215,812
---------- --------- ---------- -----------
Net Income (loss) $ (80,456) $ 316,179 $ (458,601) $ 383,394
============= =========== ============ ===========
Earnings (loss) per share:
Basic $ (.02) $ .06 $ (.09) $ .08
============= =========== =========== ===========
Fully Diluted $ (.02) $ .06 $ (.09) $ .07
============= =========== =========== ===========
Weighted Average Shares:
Basic 4,968,957 5,083,590 5,019,677 5,088,998
Fully Diluted 4,968,957 5,261,828 5,019,677 5,250,711
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended February 28, 1999 and 1998
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash (used in) operating activities $ (2,182,465) $(1,562,428)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of equipment -- 1,600
Purchase of property and equipment (1,083,433) (926,006)
Payments received on long-term
notes receivable 16,414 25,422
------------ ------------
Net cash (used in) investing activities (1,067,019) (898,984)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings 8,009,699 6,517,400
Proceeds from long-term borrowings 4,662,414 725,000
Principal payments on short term borrowings (6,237,699) (4,657,400)
Principal payments on long term borrowings (2,828,224) (259,871)
Net proceeds from issuance of common
stock February 28, 1999 3,001 shares;
February 28, 1998 2,333 shares 2,823 2,198
Purchase of common stock for the treasury (203,963) (104,822)
Stock registration fees -- (7,500)
--------- ----------
Net cash provided by financing activities 3,405,050 2,215,005
---------- ----------
Increase (decrease) in Cash and
Cash Equivalents 155,566 (246,407)
CASH AND CASH EQUIVALENTS
Beginning 5,146 263,518
----------- ---------
Ending $ 160,712 $ 17,111
============ ==========
See notes to Condensed Consolidated Financial Statements.
<PAGE>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Condensed Consolidated Financial Statements
The financial statements of Top Air Manufacturing, Inc. and its wholly owned
subsidiary (Ficklin Machine Co.) have been presented on a consolidated basis as
of February 28, 1999, May 31, 1998 and for the three month and nine months ended
February 28, 1999 and 1998. All significant intercompany accounts and
transactions have been eliminated.
The condensed consolidated balance sheet as of February 28, 1999 and the
condensed consolidated statements of operations and cash flows for the nine
months ended February 28, 1999 and 1998 have been prepared by the Company
without audit. In the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows at February 28, 1999 and for all
periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principals
have been condensed or omitted. It is suggested that these condensed financial
statements be read in conjunction with the financial statements and notes
thereto included in the Company's May 31, 1998 Annual Report to Shareholders.
The results of operations for the periods ended February 28, 1999 and 1998 are
not necessarily indicative of the operating results for the full year.
Note 2. Inventories
Inventories consist of the following:
February 28, 1999 May 31, 1998
Finished Goods $6,358,657 $4,497,924
Work in Process 210,768 383,516
Raw Materials and Supplies 375,689 286,304
---------- -----------
$6,945,114 $5,167,744
========== ==========
Note 3. Other Information
As previously disclosed, on March 5, 1999, the Company acquired all of the
assets of the Parker Industries division of Owosso Corporation ("Parker") having
a book value of approximately $8.7 million, for a combination of long-term debt,
a non-interest-bearing note and the assumption of current liabilities. Parker is
a manufacturer of high quality grain handling equipment which generated sales of
approximately $11.7 million during Fiscal 1998. The Company currently intends to
continue the business of Parker in substantially the same manner as before the
transaction. In conjunction with the acquisition, the Company entered into a
long-term operating lease agreement with the City of Jefferson, Iowa, to lease
Parker's manufacturing facility. The acquisition will be accounted for under the
purchase method.
<PAGE>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This report contains certain forward-looking statements within the meaning
of the Federal Securities Laws which, while reflective of management's beliefs
or expectations, involve certain risks and uncertainties, many of which are
beyond the control of the Company. Accordingly, the Company's actual results and
the timing of certain events could differ materially from those discussed
herein. Factors that cause or contribute to such differences include, but are
not limited to, those factors discussed in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
those factors discussed in Exhibit 99 to the Company's Annual Report on Form
10-KSB for the fiscal year ended May 31, 1998.
RESULTS OF OPERATIONS
Net Sales:
The Company's net sales in the third quarter decreased 42% to $2,515,379
from $4,371,915 for the same period last year. Net sales for the nine months
ended February 28, 1999 decreased 35% to $7,028,468 from $10,782,157 for the
comparable period last year. The sales decreases are a result of continued
softness in the agricultural economy. While prices have rebounded slightly,
livestock and commodities are still at levels that are forcing farmers to
postpone purchases of farm equipment. The Company is continuing to implement new
sales strategies and expand cost cutting adjustments in order to minimize the
negative effects of the current agriculture downtrend.
The Company's ratio of cost of goods sold to net sales for the third
quarter ended February 28, 1999 increased to 69% from 67% for the same period
last year and increased to 71% from 69% for the nine months ended February 28,
1999 compared to the same nine month period last year. These increases are a
result of fixed overhead being spread over a lower volume of sales.
Operating Expenses:
Operating expenses in the third quarter decreased 11% to $778,593 from
$874,451 for the comparable period last year. This decrease was a result of
reductions in sales commissions of $45,000 and trucking expenses of $30,000,
both due to the lower sales volume, and a reduction in wages of $20,000 as a
result of the elimination of two administrative positions. Operating expenses
for the nine month period decreased 2% to $2,441,086 from $2,496,826 for the
same period last year. This decrease was a result of reduced sales commissions
of $125,000 offset by increases of $40,000 in consulting fees, $20,000 in
accounting fees and $20,000 in employee health insurance. Operating expenses are
expected to continue to decrease for the rest of fiscal 1999 as a result of cost
cutting actions implemented by the Company.
<PAGE>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Interest Expense:
The Company's interest expense for the third quarter increased 32% to
$138,481 from $104,726 for the comparable period last year. Interest expense for
the nine months ended February 28, 1999 increased 42% to $378,887 from $265,946
for the comparable period last year. The increases were due to higher levels of
short-term and long-term debt outstanding during the periods resulting from the
expansion of the Cedar Falls facility and the purchase of new machinery. In
connection with the acquisition of Parker Industries on March 5, 1999, the
Company increased long-term borrowings by $3.5 million.
Income Tax Expense:
The Company's Income Tax expense (credit) for the third quarter and the
nine months ended February 28, 1999 is an estimate based on an annualized
effective tax rate of 36%. The income tax credits of $46,444 for the third
quarter and $257,186 for the nine months ended February 28, 1999 represent the
benefit that would be received if the loss for the periods were carried back to
reclaim income tax paid in prior years.
Material Changes in Financial Position:
The Company's loss from operations of $458,601, the reacquisition of shares
of the Company's common stock of approximately $200,000, and the purchase of
approximately $200,000 of property and equipment with short-term debt were
offset by $1,500,000 of short-term debt that was converted to long-term
resulting in an increase in working capital of nearly $645,000 for the nine
months ended February 28, 1999. The converted short-term debt had previously
been used for the building expansion, purchase of new machinery and to fund
higher levels of inventory.
Liquidity and Capital Resources:
At February 28, 1999 the Company had working capital of $6,343,127, an
increase of $1,267,383 from a year ago and an increase of $645,504 since May 31,
1998. The increase from a year ago is primarily the $1,500,000 debt conversion
offset by the $200,000 common stock reacquisition, both described above. The
increase since May 31, 1998 is also described above. The current ratio at
February 28, 1999 decreased to 2.20 from 2.48 at May 31, 1998.
The Company's expansion project has been completed and the Company
anticipates no other significant outlays for property and equipment in the
foreseeable future. The Company believes it has access to sufficient working
capital to support its current needs for the foreseeable future.
<PAGE>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Year 2000 Readiness Disclosure:
The Company has formed a working group to address possible risks and the
associated costs of the upcoming Millennium change. This group's role is to
identify all company computers and control systems, to devise remedies for
systems incapable of properly processing date-related and other data due to such
Millenium change, to determine the costs associated with such remedial actions
and to develop contingency plans. The group is also polling vendors and
customers, where appropriate, to identify possible problems such third parties
may encounter due to the Millennium change.
The Company has been advised that its main computer hardware and software
systems will continue to function through the Millennium change. The Company has
just completed computer hardware and software updates for the Engineering
Department that are expected to make their systems fully functional through the
Millenium change. The Company believes that remaining actions and costs required
to prepare all other Company systems for the Millennium change will not have a
material impact on its business, operations or financial condition.
The Company's survey of its vendors and customers and the development of
contingency plans is expected to be completed by August 1999. Based upon the
information the Company has received to date, the Company has no reason to
believe that the Millennium change will materially affect such customers and
vendors or that the Company's contingency plans, if required to be implemented,
will not be successful.
<PAGE>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARY
PART II. OTHER INFORMATION
Item 5. Other Information
As previously disclosed, on March 5, 1999, the Company acquired all of the
assets of the Parker Industries division of Owosso Corporation ("Parker") having
a book value of approximately $8.7 million, for a combination of long-term debt,
a non-interest-bearing note and the assumption of current liabilities. Parker is
a manufacturer of high quality grain handling equipment which generated sales of
approximately $11.7 million during Fiscal 1998. The Company currently intends to
continue the business of Parker in substantially the same manner as before the
transaction. In conjunction with the acquisition, the Company entered into a
long-term operating lease agreement with the City of Jefferson, Iowa, to lease
Parker's manufacturing facility. The acquisition will be accounted for under the
purchase method.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number
--------------
(11) Statement re computation of earnings per common share
(27) Financial Data Schedule
(b) There were no reports on Form 8-K filed for the quarter ended February
28, 1999. However, an 8-K was filed on March 5, 1999 reporting the
acquisition of Parker Industries described in item 5 above.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TOP AIR MANUFACTURING, INC.
(Registrant)
Date April 14, 1999
/s/ Steven R. Lind
--------------------------------------
Steven R. Lind
President and Chief Executive Officer;
Principal Executive Officer
Date April 14, 1999
/s/ Steven F. Bahlmann
--------------------------------------
Steven F. Bahlmann
Chief Accounting Officer;
Principal Accounting Officer
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION
- ----------- -----------
11 Computation of Earnings (Loss) Per Common Share
27 Financial Data Schedule
<TABLE>
<CAPTION>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARY
EXHIBIT 11 - COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
Three Months Ended Nine Months Ended
February 28, February 28,
1999 1998 1999 1998
---- ---- ---- ----
Basic:
<S> <C> <C> <C> <C>
Common shares outstanding at
the beginning of the period 4,968,957 5,086,456 5,083,456 5,135,548
Weighted average of common
shares issued (retired) during
the period -- (2,866) (63,779) (46,550)
---------- ---------- ---------- ----------
Weighted average common
shares outstanding 4,968,957 5,083,590 5,019,677 5,088,998
========== ========== ========== ==========
Net Income (loss) $ (80,456) $ 316,179 $ (458,601) $ 383,394
========== ========== ========== ==========
Net Income (loss) per
common share $ (.02) $ .06 $ (.09) $ .08
========== ========== ========== ==========
Fully Diluted:
Weighted average common
shares outstanding 4,968,957 5,083,590 5,019,677 5,088,998
Net effect of dilutive securities
employee stock options # -- 178,238 -- 161,713
---------- ---------- ---------- -----------
Weighted average common and
common equivalent shares 4,968,957 5,261,828 5,019,677 5,250,711
========== ========== ========== ==========
Net income (loss) $ (80,456) $ 316,179 $ (458,601) $ 383,394
========== ========== ========== ==========
Net income (loss) per common
Share $ (.02) $ .06 $ (.09) $ .07
========== ========= ========== ==========
#The stock options for 1999 have not been included because they are
antidilutive.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> FEB-28-1999
<CASH> 160,712
<SECURITIES> 0
<RECEIVABLES> 4,201,295
<ALLOWANCES> 135,929
<INVENTORY> 6,945,114
<CURRENT-ASSETS> 11,640,937
<PP&E> 4,711,325
<DEPRECIATION> 1,309,402
<TOTAL-ASSETS> 16,351,247
<CURRENT-LIABILITIES> 5,297,810
<BONDS> 0
0
0
<COMMON> 323,131
<OTHER-SE> 6,478,699
<TOTAL-LIABILITY-AND-EQUITY> 16,351,247
<SALES> 7,028,468
<TOTAL-REVENUES> 7,071,528
<CGS> 4,967,342
<TOTAL-COSTS> 7,787,315
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 378,887
<INCOME-PRETAX> (715,787)
<INCOME-TAX> (257,186)
<INCOME-CONTINUING> (458,601)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (458,601)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
