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 August 31, 1999.
or
{ } TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT.
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
--- ---
4,976,290 shares of Common Stock, No par Value, were outstanding as
of September 30, 1999.
Transitional Small Business Disclosure Format (Check One):
Yes No X
--- ---
<PAGE>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets,
August 31, 1999 (unaudited)
and May 31, 1999 1
Unaudited Condensed Consolidated Statements of
Operations, Three Months Ended
August 31, 1999 and 1998 2
Unaudited Condensed Consolidated Statements of
Cash Flows, Three Months Ended August 31, 1999
and 1998 3
Notes to Condensed Consolidated Financial Statements
(unaudited) 4
Item 2. Management's Discussion and Analysis or
Plan of Operation 5
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 7
SIGNATURES 8
EXHIBIT INDEX 9
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TOP AIR MANUFACTURING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AUGUST 31, MAY 31,
1999 1999*
----------- -------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 12,784 $ 58,157
Trade receivables, net of allowance for
doubtful accounts August 31, 1999
$597,236; May 31, 1999 $628,000 7,227,708 7,341,602
Inventories (Note 2) 7,898,882 8,211,251
Income tax benefits 774,080 520,000
Other current assets 350,535 346,471
--------- ---------
Total Current Assets 16,263,989 16,477,481
---------- ----------
LONG TERM RECEIVABLES AND OTHER ASSETS
Notes receivable, net of current portion 104,450 126,782
Goodwill 963,706 983,159
Other assets 242,120 435,222
----------- ------------
1,310,276 1,545,163
----------- -----------
PROPERTY AND EQUIPMENT, at cost,
less accumulated depreciation
August 31, 1999 $1,547,151;
May 31, 1999 $1,403,788 3,778,139 3,699,426
--------- ---------
$21,352,404 $21,722,070
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt $ 4,070,954 $ 3,104,699
Other Liabilities and accrued items 4,162,505 4,856,838
--------- ---------
Total Current Liabilities 8,233,459 7,961,537
--------- ---------
LONG-TERM LIABILITIES 7,637,935 7,775,969
--------- ---------
STOCKHOLDERS' EQUITY
Common stock 323,589 323,131
Additional paid-in capital 2,910,918 2,903,324
Retained earnings 2,582,479 3,094,085
--------- ---------
5,816,986 6,320,540
Less cost of treasury stock 335,976 335,976
---------- -----------
5,481,010 5,984,564
--------- ---------
$21,352,404 $21,722,070
========== ==========
*Condensed from Audited Financial Statements.
See notes to Condensed Consolidated Financial Statements.
1
<PAGE>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months ended August 31, 1999 and 1998
1999 1998
---- ----
Net Sales $2,904,971 $2,240,909
--------- ---------
Costs and Expenses:
Cost of goods sold 2,387,148 1,626,421
Selling and administrative expenses 892,205 725,285
Research and development expenses 216,341 133,898
Interest Expense 224,548 117,637
------- -------
3,720,242 2,603,241
Operating Income (loss) (815,271) (362,332)
Other Income 15,964 4,580
------ -----
Income (loss) before Income Taxes (799,307) (357,752)
Income Taxes (credits) (287,700) (131,931)
--------- ---------
Net Income (loss) $(511,607) $(225,821)
========= =========
Earnings (loss) per Share:
Basic $ (.10) $ (.04)
========= =========
Fully Diluted $ (.10) $ (.04)
========== =========
Weighted Average Shares
Basic 4,975,272 5,083,664
Fully Diluted 4,975,272 5,083,664
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended August 31, 1999 and August 31, 1998
1999 1998
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash (used in) operating activities $(1,232,698) $(1,108,091)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment 15,500 --
Purchase of property and equipment (42,158) (185,244)
Payments received on long-term
notes receivable 5,024 8,202
---------- ---------
Net cash (used in) investing activities (21,634) (177,042)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings 2,199,000 1,895,000
Proceeds from long-term borrowings -- 162,414
Principal payments on short term borrowings (952,000) (653,000)
Principal payments on long-term borrowings (46,093) (113,432)
Net proceeds from issuance of common stock
August 31, 1999 7,333 shares;
August 31, 1998 3,001 shares 8,052 2,823
Purchase of common stock for the treasury -- (10,230)
---------- ----------
Net cash provided by financing activities 1,208,959 1,283,575
--------- ----------
Increase (decrease) in Cash and
Cash Equivalents (45,373) (1,558)
CASH AND CASH EQUIVALENTS
Beginning 58,157 5,146
----------- ----------
Ending $ 12,784 $ 12,784
============ ============
See notes to Condensed Consolidated Financial Statements.
3
<PAGE>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARIES
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
subsidiaries (Ficklin Machine Co., Inc. and Parker Industries, Inc.) have been
presented on a consolidated basis as of August 31, 1999, May 31, 1999 and for
the three months ended August 31, 1999 and 1998. All significant intercompany
accounts and transactions have been eliminated.
The condensed consolidated balance sheet as of August 31, 1999 and the condensed
consolidated statements of operations and cash flows for the three months ended
August 31, 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 August 31, 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, 1999 Annual Report to Shareholders.
The results of operations for the periods ended August 31, 1999 and 1998 are not
necessarily indicative of the operating results for the full year.
Note 2. Inventories
Inventories consist of the following:
August 31, 1999 May 31, 1999
--------------- ------------
Finished Goods $5,705,795 $6,141,110
Work in Process 684,488 830,326
Raw Materials and Supplies 1,508,599 1,239,815
----------- ----------
$7,898,882 $8,211,251
========== ==========
4
<PAGE>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARIES
This report contains certain forward-looking statements within the meaning of
the Federal securities laws which, while reflective of management's beliefs or
expectations, involves certain risks and uncertainties, many of which are beyond
the control of Top Air Manufacturing, Inc. ("Top Air" or 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 "Item 2. Management's Discussion and Analysis or Plan of
Operation" and those factors discussed in Exhibit 99 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended May 31, 1999.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
Net Sales:
The Company's net sales for the first quarter of fiscal 2000 increased 30% to
$2,904,971 compared to $2,240,909 for the same period last year. The increase
was a result of incremental sales of approximately $1,271,000 derived from the
acquisition of Parker Industries ("Parker") offset by a decrease in sales of Top
Air's other product lines of approximately $607,000. The decrease in sales of
Top Air's other product lines was a result of the continuing farm recession that
began in the spring of 1998, which management believes has caused farmers to
postpone purchases of equipment in their operations. This sales decrease was
anticipated, and the Company has taken several steps believed by management to
be appropriate to control operating costs and overhead during this recessionary
period. Such steps include the permanent closing of the Company's production
facility in Onarga, Illinois, the intended sale of the land, buildings and
machinery located at such facility and temporary plant shutdowns which have
occurred or are planned for the Company's production facilities located in Cedar
Falls, Iowa and Jefferson, Iowa. The Company is also increasing its volume of
subcontract work for other companies in order to increase plant utilization.
Operating Costs & Expenses:
The Company's cost of goods sold for the quarter ended August 31, 1999 increased
to 82% of net sales compared to 73% for the first quarter of the previous year.
The increase as a percentage of sales, was primarily a result of the decline in
the sales of Top Air's other product lines, which have historically had higher
gross margins than the Parker products that are now incrementally included in
the sales mix.
Operating expenses increased 29% to $1,108,546 for the first quarter of fiscal
2000 compared to $859,183 for the previous year. The increase was primarily a
result of the incremental expenses incurred from the Parker acquisition offset
by a 4% decrease in operating expenses at Top Air.
Interest Expense:
Interest expense increased 91% to $224,548 compared to $117,637 for the first
quarter of last year. The increase was due to higher levels of short-term and
long-term debt outstanding during the period incurred primarily to finance the
acquisition of Parker.
5
<PAGE>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARIES
Income Taxes:
The income tax credits of $287,700 and $131,931 for the quarters ended August
31, 1999 and 1998, represent the benefit that would be received if the loss of
the quarter was carried back to reclaim income tax paid in prior years.
Net Income (Loss):
As a result of the factors discussed herein, the Company recorded a net loss of
$511,607 for the quarter ended August 31, 1999, as compared to a net loss of
$225,821 for the same period last year. Although the results for the first
quarter of the current year are lower than last year's first quarter results,
management believes the aforedescribed steps taken or to be implemented by the
Company in response to the current condition of the farm economy should improve
fiscal year 2000 results when compared to fiscal year 1999.
Material Changes in Financial Position:
The Company's loss from operations of $511,607 was primarily responsible for the
decrease in working capital of $485,414.
Liquidity and Capital Resources:
At August 31, 1999 the Company had working capital of $8,030,530 an increase of
$2,546,999 over a year ago and a decrease of $485,414 since May 31, 1999. The
increase from a year ago is primarily a result of approximately $4,400,000 of
working capital picked-up with the acquisition of Parker on March 5, 1999 offset
by approximately $1,600,000 of losses from operations. The decrease since May
31, 1999 is described in the changes in financial position above. The current
ratio decreased to 1.98 from 2.07 at May 31, 1999. The Company anticipates no
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.
Year 2000 Readiness Disclosure:
The Company has developed a Year 2000 Plan to assess the Company's vulnerability
to system failures that may arise from the Millennium change and potentially
could impact the Company adversely. These threats have been identified, and
priorities have been established to address these risks, based on the financial
threat or seriousness of the implications. The project's primary emphasis has
been to look at the risks with the most severe financial implication first, and
then to address these critical problems. The Company believes its review and
identification process has been comprehensive, specifically including:
o Vendors/Suppliers, including Utility Services;
o Central Accounting System;
o Office Systems;
o Building Systems;
o Factory Machinery and Equipment;
o Transportation Equipment;
6
<PAGE>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARIES
o Engineering Systems; and
o Customer Relations.
The Company believes that all mission critical risks have been reviewed or
identified and resolved. The Company has been advised that its main computer
hardware and software systems will continue to function through the Millennium
change. The Company believes its other equipment will not be adversely affected
by the Millennium change or other factors mitigate against such risks. Utilities
that service the Company are unable to provide absolute assurances on Year 2000
reliability. Each believes that their own equipment is reliable, but can make no
further assurance. The Company is developing contingency plans to address such
possibilities. To date, the Company has met all major deadlines set by its Year
2000 Plan, and the Company anticipates addressing all of the identified risks
well before the Millennium change.
The Company believes the implementation of the final aspects of its Year 2000
Plan, and the actions and costs required to prepare all remaining Company
systems for the Millennium change will not have a material impact on its
business, operations or financial condition.
Based upon the actions taken by the Company and the information it has received
to date, the Company does not believe that the Millennium change will materially
affect its customers and vendors and the Company does believe that its
contingency plans, if required to be implemented, will be successful.
PART II. OTHER INFORMATION
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) No reports on Form 8-K were filed by the Company during the quarter ended
August 31, 1999.
7
<PAGE>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARIES
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: October 15, 1999 /s/ Steven R. Lind
--------------------------------------
Steven R. Lind
President and Chief Executive Officer;
Principal Executive Officer
Date: October 15, 1999 /s/ Steven F. Bahlmann
--------------------------------------
Steven F. Bahlmann
Chief Accounting Officer;
Principal Accounting Officer
8
<PAGE>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
11 Computation of Earnings (Loss) Per Share
27 Financial Data Schedule
9
TOP AIR MANUFACTURING, INC. AND SUBSIDIARY
EXHIBIT 11 - COMPUTATION OF EARNINGS (LOSS) PER SHARE
Three Months Ended Three Months Ended
August 31, August 31,
1999 1998
------------------ ------------------
Basic:
Shares outstanding at
the beginning of the period 4,968,957 5,083,456
Weighted average of shares
issued (retired) during the
period 6,315 208
Weighted average shares
outstanding 4,975,272 5,083,664
========== ==========
Net income (loss) $ (511,607) $ (225,821)
========== ==========
Net income (loss) per
share $ (.10) $ (.04)
========== ==========
Fully Diluted:
Weighted average shares
outstanding 4,975,272 5,083,664
Net effect of dilutive securities
employee stock options # -- --
---------- -----------
Weighted average number of
equivalent shares 4,975,272 5,083,664
========== ==========
Net income (loss) $ (511,607) $ (225,821)
========== ==========
Net income (loss) per share $ (.10) $ (.04)
=========== ==========
#The stock options have not been included because they are antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> JUN-01-1999
<PERIOD-END> AUG-31-1999
<CASH> 12,784
<SECURITIES> 0
<RECEIVABLES> 7,227,708
<ALLOWANCES> 597,236
<INVENTORY> 7,898,882
<CURRENT-ASSETS> 16,263,989
<PP&E> 5,325,290
<DEPRECIATION> 1,547,151
<TOTAL-ASSETS> 21,352,404
<CURRENT-LIABILITIES> 8,233,459
<BONDS> 0
0
0
<COMMON> 323,589
<OTHER-SE> 5,157,421
<TOTAL-LIABILITY-AND-EQUITY> 21,352,404
<SALES> 2,904,971
<TOTAL-REVENUES> 2,920,935
<CGS> 2,387,148
<TOTAL-COSTS> 1,333,094
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 224,548
<INCOME-PRETAX> (799,307)
<INCOME-TAX> (287,700)
<INCOME-CONTINUING> (511,607)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (511,607)
<EPS-BASIC> (.10)
<EPS-DILUTED> (.10)
</TABLE>
