UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended November 30, 1998.
or
{ } TRANSITION REPORT PURSUANT TO 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 December 31, 1998.
<PAGE>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARY
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets, November 30, 1998
(unaudited) and May 31, 1998 1
Unaudited Condensed Consolidated Statements of Operations,
Three Months and Six Months Ended November 30, 1997 and 1998 2
Unaudited Condensed Consolidated Statements of Cash Flows, Six
Months Ended November 30, 1997 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 4. Submission of Matters to a Vote of Security Holders 8
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
NOVEMBER 30, MAY 31,
1998 1998*
------------ -------------
CURRENT ASSETS
Cash and cash equivalents $ 11,500 $ 5,146
Trade receivables, net of allowance
for doubtful accounts November 30, 1998
$128,096; May 31, 1998 $131,000 3,163,059 4,211,004
Inventories (Note 2) 6,809,453 5,167,744
Income tax benefits 405,508 --
Other current assets 169,772 169,852
---------- ----------
Total Current Assets 10,559,292 9,553,746
---------- ----------
LONG TERM RECEIVABLES AND OTHER ASSETS
Notes receivable, net of
current portion 272,171 286,598
Goodwill 1,022,064 1,060,969
Other assets 45,344 63,682
---------- ----------
1,339,579 1,411,249
---------- ----------
PROPERTY AND EQUIPMENT, at cost,
less accumulated depreciation
November 30, 1998 $1,213,920;
May 31, 1998 $1,122,423 3,223,733 2,676,266
----------- -----------
$15,122,604 $13,641,261
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt $ 3,088,250 $ 2,624,707
Other liabilities and accrued items 819,265 1,231,416
----------- -----------
Total Current Liabilities 3,907,515 3,856,123
----------- -----------
LONG-TERM DEBT 4,332,803 2,323,567
----------- -----------
STOCKHOLDERS' EQUITY
Common stock 323,131 322,944
Additional paid-in capital 2,903,324 2,900,688
Retained earnings 3,991,807 4,369,952
----------- ----------
7,218,262 7,593,584
Less cost of treasury stock 335,976 132,013
----------- ----------
6,882,286 7,461,571
----------- ----------
$15,122,604 $13,641,261
=========== ===========
*Condensed from Audited Financial Statements.
See notes to Condensed Consolidated Financial Statements.
1
<PAGE>
<TABLE>
<CAPTION>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
November 30, November 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $2,272,180 $3,812,315 $4,513,089 $6,410,242
-------- ---------- ---------- ----------
Costs and Expenses:
Cost of goods sold 1,596,546 2,649,837 3,222,967 4,532,743
Selling and administrative
expenses 665,994 697,977 1,391,279 1,389,015
Research and development
expenses 137,316 124,054 271,214 233,360
Interest expense 122,769 88,521 240,406 161,220
--------- ---------- --------- ----------
2,522,625 3,560,389 5,125,866 6,316,338
--------- ---------- --------- ----------
(250,445) 251,926 (612,777) 93,904
Other Income 19,310 3,832 23,890 15,635
--------- ---------- --------- ----------
Income (loss) before
Income Taxes (231,135) 255,758 (588,887) 109,539
Income Taxes (credits) (78,811) 94,939 (210,742) 42,324
----------- ---------- ---------- ----------
Net Income (loss) $ (152,324) $ 160,819 $ (378,145) $ 67,215
============ =========== ============== ==========
Earnings (loss) per share:
Basic $ (.03) $ .03 $ (.07) $ .01
============ =========== ============== ==========
Fully Diluted $ (.03) $ .03 $ (.07) $ .01
============ =========== ============== ==========
Weighted Average Shares:
Basic 5,005,192 5,086,287 5,044,622 5,092,550
Fully Diluted 5,005,192 5,260,478 5,044,622 5,243,880
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS Six Months Ended November 30, 1998 and 1997
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash (used in) operating activities $ (1,473,306) $ (363,442)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (785,984) (825,576)
Payments received on long-term notes
receivable 12,835 4,726
----------- -----------
Net cash (used in) investing activities (773,149) (820,850)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings 6,010,699 3,915,000
Proceeds from long-term borrowings 4,662,414 725,000
Principal payments on short term borrowings (5,473,699) (3,429,000)
Principal payments on long term borrowings (2,745,465) (175,504)
Net proceeds from issuance of common
stock November 30, 1998 3,001 shares;
November 30, 1997 2,333 shares 2,823 2,198
Purchase of common stock for the treasury (203,963) (96,422)
Stock registration fees -- (7,500)
----------- ----------
Net cash provided by financing activities 2,252,809 933,772
----------- ----------
Increase (decrease) in Cash and
Cash Equivalents 6,354 (250,520)
CASH AND CASH EQUIVALENTS
Beginning 5,146 263,518
----------- ----------
Ending $ 11,500 $ 12,998
============ ==========
See notes to Condensed Consolidated Financial Statements.
3
<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 November 30, 1998, May 31, 1998 and for the six months ended November 30,
1998 and 1997. All significant intercompany accounts and transactions have been
eliminated.
The condensed consolidated balance sheet as of November 30, 1998 and the
condensed consolidated statements of operations and cash flows for the six
months ended November 30, 1998 and 1997 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 November 30, 1998 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 November 30, 1998 and 1997 are
not necessarily indicative of the operating results for the full year.
Note 2. Inventories
Inventories consist of the following:
November 30, 1998 May 31, 1998
----------------- ------------
Finished Goods $6,085,626 $4,497,924
Work in Process 389,812 383,516
Raw Materials and Supplies 334,015 286,304
---------- ----------
$6,809,453 $5,167,744
========== ==========
4
<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 could cause or contribute to such differences include, but
are not limited to, those factors discussed herein 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 second quarter decreased 40% to $2,272,180
from $3,812,315 for the comparable period last year. Net sales for the six
months ended November 30, 1998 decreased 30% to $4,513,089 from $6,410,242 for
the comparable period last year. The sales decreases are a result of an ongoing
downturn in the agricultural economy. Historically low commodity and livestock
prices have continued to compel farming operations to postpone purchases of farm
equipment during the first six months of the Company's fiscal 1999. The Company
has made several production adjustments such as layoffs, shutdowns and other
measures to reduce costs. The Company will implement new sales strategies during
the third and fourth quarters of fiscal 1999 in order to maximize sales during
this downtrend.
The Company's cost of goods sold in the second quarter remained constant
at 70% of net sales compared with the same period last year. Cost of goods sold
for the six month period also remained constant with the same six month period
last year at 71%.
Operating Expenses:
Operating expenses in the second quarter decreased 2% to $803,310 from
$822,031 for the comparable period last year. This decrease was the result of a
reduction in sales commissions of approximately $40,000 due to lower sales,
offset by consulting fees of $20,000 paid to help establish new material
requirements planning systems. Operating expenses for the six month period
increased 2% to $1,662,493 from $1,622,375 for the same period last year. This
increase was the result of reduced sales commissions of approximately $80,000
offset by increases of $40,000 in consulting fees, $40,000 in overall Research
and Development costs, $20,000 in accounting fees and $20,000 in employee health
insurance expense. Operating expenses are expected to decrease for the rest of
fiscal 1999 as a result of actions implemented by the Company during the second
quarter, including the production adjustments discussed above.
5
<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 second quarter increased 39% to
$122,769 from $88,521 for the comparable period last year. Interest expense for
the six months ended November 30, 1998 increased 49% to $240,406 from $161,220
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.
Income Tax Expense:
The Company's income tax expense for the second quarter and the six
months ended November 30, 1998 is an estimate based on an annualized effective
tax rate of 36%. The income tax credits of $78,811 for the second quarter and
$210,742 for the six months ended November 30, 1998 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 $378,145 and the reacquisition of
shares of the Company's common stock of approximately $200,000, were offset by
$1,500,000 of short-term debt that was converted to long-term which resulted in
an increase in working capital of nearly $955,000. 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 November 30, 1998 the Company had working capital of $6,651,777, an
increase of $1,665,840 from a year ago and an increase of $954,154 since May 31,
1998. The increase from a year ago is primarily a result of the following four
factors. First, the $1,500,000 debt conversion described above increased working
capital. Secondly, approximately $500,000 of income from operations also
increased working capital. Third, the $200,000 common stock reacquisition
described above decreased working capital. Finally, a $150,000 current note
receivable for the sale of the Company's old plant that was renegotiated to
long-term for a period of two years reduced working capital. The increase since
May 31, 1998 is described above. The current ratio increased to 2.70 from 2.48
at May 31, 1998.
The Company's expansion project is on schedule and is nearing completion.
The project is coming in on budget and will be completed during the third
quarter of fiscal 1999. The project is being financed with long-term debt. The
Company believes it has access to sufficient working capital to fund its
operations for the foreseeable future.
6
<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
Millennium 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 and believes
that 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 have a material impact on its business,
operations or financial condition. However, no assurance can be given that the
Millennium change will not materially affect such customers and vendors or that
the Company's contingency plans, if required to be implemented, will be
successful.
7
<PAGE>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARY
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The annual meeting of the stockholders of the Company was held on November
9, 1998.
(b) The following individuals were elected as directors of the Company at
such meeting: Steven R. Lind, Thaddeus P. Vannice, Sr., Wayne C.
Dudley, Dennis W. Dudley, Robert J. Freeman, Franklin A. Jacobs,
Sanford W. Weiss and S. Lee Kling.
(c) The election of eight individuals as directors of the Company was the
only matter voted upon at the annual meeting. The number of votes cast
for or withheld with respect to each of the nominees was as follows:
Votes Votes
Nominee Cast For Withheld
------- -------- --------
Steven R. Lind 4,719,734 4,400
Thaddeus P. Vannice, Sr. 4,720,734 3,400
Wayne C. Dudley 4,706,059 18,075
Dennis W. Dudley 4,707,059 17,075
Robert J. Freeman 4,720,734 3,400
Franklin A. Jacobs 4,720,734 3,400
Sanford W. Weiss 4,720,734 3,400
S. Lee Kling 4,720,734 3,900
(d) Not applicable.
Item 5. Other Information
As previously announced, on December 10, 1998 the Company signed a letter
of intent to acquire the business and assets of Parker Industries. Parker is a
manufacturer of high quality grain handling equipment. The transaction is
contingent upon completion of the Company's due diligence review and the
negotiation of a definitive Asset Purchase Agreement. The purchase of Parker is
anticipated to be accomplished with a combination of cash, a note and the
assumption of certain specified liabilities. The completion of this purchase is
expected to occur during the first calendar quarter of 1999.
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 during the quarter ended
November 30, 1998.
8
<PAGE>
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 January 13, 1999 /s/ Steven R. Lind
--------------------------------------
Steven R. Lind
President and Chief Executive Officer;
Principal Executive Officer
Date January 13, 1999 /s/ Steven F. Bahlmann
--------------------------------------
Steven F. Bahlmann
Chief Accounting Officer;
Principal Accounting Officer
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT NUMBER 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 Six Months Ended
November 30, November 30,
1998 1997 1998 1997
---------------------- ---------------------
<S> <C> <C> <C> <C>
Basic:
Common shares outstanding at
the beginning of the period 5,078,757 5,086,123 5,083,456 5,135,548
Weighted average of common
shares issued (retired) during
the period (73,565) 164 (38,834) (42,998)
---------- --------- --------- ----------
Weighted average common
shares outstanding 5,005,192 5,086,287 5,044,622 5,092,550
========== ========== ========= =========
Net Income (loss) $ (152,324) $ 160,819 $(378,145) $ 67,215
========== ========= ========= =========
Net Income (loss) per
common share $ (.03) $ .03 $ (.07) $ .01
========== ========= ========= =========
Fully Diluted:
Weighted average common
shares outstanding 5,005,192 5,086,287 5,044,622 5,092,550
Net effect of dilutive securities
employee stock options # -- 174,191 -- 151,330
---------- --------- --------- ----------
Weighted average common and
common equivalent shares 5,005,192 5,260,478 5,044,622 5,243,880
========== ========= ========= =========
Net income (loss) $ (152,324) $ 160,819 $(378,145) $ 67,215
========== ========= ========= ==========
Net income (loss) per common
Share $ (.03) $ .03 $ (.07) $ .01
========== ========= ========= ==========
</TABLE>
#The stock options for 1998 have not been included because they are
antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> NOV-30-1998
<CASH> 11,500
<SECURITIES> 0
<RECEIVABLES> 3,291,155
<ALLOWANCES> 128,096
<INVENTORY> 6,809,453
<CURRENT-ASSETS> 10,559,292
<PP&E> 4,437,653
<DEPRECIATION> 1,219,920
<TOTAL-ASSETS> 15,122,604
<CURRENT-LIABILITIES> 3,907,515
<BONDS> 0
0
0
<COMMON> 323,131
<OTHER-SE> 6,559,155
<TOTAL-LIABILITY-AND-EQUITY> 15,122,604
<SALES> 4,513,089
<TOTAL-REVENUES> 4,536,979
<CGS> 3,222,967
<TOTAL-COSTS> 5,125,866
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 240,406
<INCOME-PRETAX> (588,887)
<INCOME-TAX> (210,742)
<INCOME-CONTINUING> (378,145)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (378,145)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
