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 29, 2000
or
{ } TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES 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
----- -----
4,954,803 Common Shares were outstanding as of March 31, 2000.
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, February 29, 2000 (unaudited)
and May 31, 1999 1
Unaudited Condensed Consolidated Statements of Operations, Three
Months and Nine Months Ended February 29, 2000 and February 28, 1999 2
Unaudited Condensed Consolidated Statements of Cash Flows,
Nine Months Ended February 29, 2000 and February 28, 1999 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 2. Changes in Securities 8
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 8
EXHIBIT INDEX 9
<PAGE>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
FEBRUARY 29, MAY 31,
2000 1999*
-------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 9,868 $ 58,157
Trade receivables, net of allowance for
doubtful accounts February 29, 2000
$841,174; May 31, 1999 $628,000 5,306,716 7,341,602
Inventories (Note 2) 6,743,665 7,851,251
Income tax benefits 702,810 520,000
Other current assets 295,126 346,471
----------- ----------
Total Current Assets 13,058,185 16,117,481
----------- ----------
LONG TERM RECEIVABLES AND OTHER ASSETS
Notes receivable, net of current portion 102,224 126,782
Goodwill 932,212 983,159
Other assets 230,175 435,222
------------- -------------
1,264,611 1,545,163
------------ ------------
PROPERTY AND EQUIPMENT, at cost,
less accumulated depreciation
February 29, 2000 $1,771,585;
May 31, 1999 $1,403,788 3,857,299 4,059,426
------------ ------------
$18,180,095 $21,722,070
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt $ 2,910,459 $ 3,104,699
Other liabilities and accrued items 2,563,305 4,856,838
------------ ------------
Total Current Liabilities 5,473,764 7,961,537
------------ ------------
LONG-TERM LIABILITIES 7,942,812 7,775,969
------------ ------------
STOCKHOLDERS' EQUITY
Common stock 323,589 323,131
Additional paid-in capital 2,910,918 2,903,324
Retained earnings 1,889,160 3,094,085
------------ ------------
5,123,667 6,320,540
Less cost of treasury stock 360,148 335,976
------------- -------------
4,763,519 5,984,564
------------ ------------
$ 18,180,095 $ 21,722,070
============ ============
*Condensed from Audited Financial Statements.
See Notes to Condensed Consolidated Financial Statements.
1
<PAGE>
<TABLE>
<CAPTION>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
February 29, February 28, February 29, February 28,
2000 1999 2000 1999
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 3,369,910 $2,515,379 $ 10,128,130 $ 7,028,468
---------- ---------- ------------- ------------
Costs and expenses:
Cost of goods sold 2,484,782 1,744,375 8,134,380 4,967,342
Selling and administrative
expenses 869,977 643,947 2,739,938 2,035,226
Research and development
expenses 206,458 134,646 603,947 405,860
Interest expense 182,654 138,481 595,468 378,887
----------- ----------- ------------- ------------
3,743,871 2,661,449 12,073,733 7,787,315
----------- ----------- ------------- ------------
(373,961) (146,070) (1,945,603) (758,847)
Other income 11,264 19,170 65,378 43,060
----------- ----------- ------------- ------------
Income (loss) before
income taxes (362,697) (126,900) (1,880,225) (715,787)
Income taxes (credits) (130,600) (46,444) (675,300) (257,186)
------------ ----------- ------------- ------------
Net income (loss) $ (232,097) $ (80,456) $ (1,204,925) $ (458,601)
============ =========== ============= ============
Earnings (loss) per share:
Basic $ (.05) $ (.02) $ (.24) $ (.09)
============ =========== ============= ============
Fully diluted $ (.05) $ (.02) $ (.24) $ (.09)
============ =========== ============= ============
Weighted average shares:
Basic 4,954,803 4,968,957 4,968,498 5,019,677
Fully diluted 4,954,803 4,968,957 4,968,498 5,019,677
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended February 29, 2000 and February 28, 1999
2000 1999
-------- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by (used in)
operating activities $ 464,745 $ (2,182,465)
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of property
and equipment 176,378 --
Purchase of property and equipment (347,266) (1,083,433)
Payments received on long-term notes
receivable 40,853 16,414
------------ -------------
Net cash provided by (used in)
investing activities (130,035) (1,067,019)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings 5,176,400 8,009,699
Proceeds from long-term borrowings 649,945 4,662,414
Principal payments on short term
borrowings (5,720,400) (6,237,699)
Principal payments on long term
borrowings (472,824) (2,828,224)
Net proceeds from issuance of common
stock February 29, 2000 7,333 shares;
February 28, 1999 3,001 shares 8,052 2,823
Purchase of common stock for the treasury (24,172) (203,963)
------------ -------------
Net cash provided by (used in) financing
activities (382,999) 3,405,050
------------ ------------
Increase (decrease) in Cash and
Cash Equivalents (48,289) 155,566
CASH AND CASH EQUIVALENTS
Beginning 58,157 5,146
------------ ------------
Ending $ 9,868 $ 160,712
============ ============
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 (Parker Industries, Inc. and Ficklin Machine Co.) have been
presented on a consolidated basis as of February 29, 2000, May 31, 1999 and for
the nine months ended February 29, 2000 and February 28, 1999. All significant
intercompany accounts and transactions have been eliminated.
The condensed consolidated balance sheet as of February 29, 2000, the condensed
consolidated statements of operations for the three and nine months ended
February 29, 2000 and February 28, 1999 and the statements of cash flows for the
nine months ended February 29, 2000 and February 28, 1999 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 29, 2000
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 February 29, 2000 and February
28, 1999 are not necessarily indicative of the operating results for the full
year.
Note 2. Inventories
Inventories consist of the following:
February 29, 2000 May 31, 1999
----------------- ------------
Finished Goods $ 4,550,551 $ 5,781,110
Work in Process 408,809 830,326
Raw Materials and Supplies 1,784,305 1,239,815
----------- -----------
$ 6,743,665 $ 7,851,251
=========== ===========
Note 3. Reclassification of Certain Assets
Certain assets on the balance sheet as of May 31, 1999 have been reclassified,
with no effect on total assets or equity, to be consistent with the
classifications adopted at February 29, 2000.
4
<PAGE>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARIES
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, 1999.
RESULTS OF OPERATIONS
Net Sales:
The Company's net sales in the third fiscal quarter increased 34% to $3,369,910
from $2,515,379 for the same period last year. Net sales for the nine months
ended February 29, 2000 increased 44% to $10,128,130 from $7,028,468 for the
comparable period last year. The third fiscal quarter increase was a result of
incremental sales of Parker Industries products of nearly $600,000 and an
increase in sales of Top Air and Ficklin products of approximately $250,000. The
nine months ended February 29, 2000 increase was a result of incremental Parker
Industries sales of approximately $3,750,000 offset by a decrease in the sales
of Top Air and Ficklin products of nearly $650,000. The increase in the sales of
Top Air and Ficklin products for the third quarter was a result of higher demand
for the Company's manufactured equipment offset by a $200,000 decrease in sales
of replacement parts. The decrease in sales of Top Air and Ficklin product lines
for the nine month period was a result of the farm economy recession. Despite
the current losses, cash flow has been improved by reducing dealer receivables
and inventory levels, enabling the company to reduce overall debt.
Operating Costs and Expenses:
The Company's cost of goods sold in the third fiscal quarter increased to 74% of
net sales compared to 69% of net sales for the same period last year. Cost of
goods sold for the nine month period ended February 29, 2000 increased to 80% of
net sales from 71% of net sales for the same nine month period last year. These
increases as a percentage of sales, were primarily a result of reduced sales of
the Top Air and Ficklin product lines, which have historically had higher gross
margins than the Parker products that are now incrementally included in the
sales mix, coupled with lower utilization of the production facilities.
Operating expenses in the third fiscal quarter and nine month period ended
February 29, 2000 and February 28, 1999 increased 38% to $1,076,435 from
$778,593 and 37% to $3,343,885 from $2,441,086 respectively compared to the same
periods last year. These increases were a result of the incremental expenses
incurred from the Parker acquisition and an approximate $90,000 loss on the sale
of property and equipment from the closing of the Ficklin Machine location.
These increases were offset by decreases in operating expenses at Top Air.
5
<PAGE>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Interest Expense:
The Company's interest expense for the third fiscal quarter increased 32% to
$182,654 from $138,481 for the comparable period last year. Interest expense for
the nine months ended February 29, 2000 increased 57% to $595,468 from $378,887
for the comparable period last year. The increases were due to higher levels of
short-term and long-term debt outstanding during the periods primarily to
finance the acquisition of Parker coupled with higher interest rates.
Income Tax Expense:
The Company's Income tax expense (credit) for the third fiscal quarter and the
nine months ended February 29, 2000 is an estimate based on an annualized
effective tax rate of 36%. The income tax credits of $130,600 for the third
quarter and $675,300 for the nine months ended February 29, 2000 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 $1,204,925 was offset by $500,000 in net
proceeds from the issuance of convertible subordinated debentures due January
2005 and proceeds of $176,378 from the sale of property and equipment. This
resulted in a decrease in working capital of approximately $570,000 for the nine
months ended February 29, 2000.
Liquidity and Capital Resources:
At February 29, 2000 the Company had working capital of $7,584,421, an increase
of $1,241,294 from a year ago and a decrease of $571,523 since May 31, 1999. The
increase from a year ago is primarily a result of approximately $2,900,000 in
working capital acquired with the acquisition of Parker, $800,000 in proceeds
from long term debt and a $500,000 increase in accounts receivable, offset by
approximately $2,000,000 in losses from operations. The decrease since May 31,
1999 is described in "Material Changes in Financial Position" above. The current
ratio increased to 2.39 at February 29, 2000 from 2.07 at May 31, 1999. The
Company anticipates no significant outlays for property and equipment in the
foreseeable future.
On January 21, 2000 the Company completed the acquisition of the Great Bend
Manufacturing running gear product line from Allied Products Corporation for a
cash purchase price of $235,400. The assets acquired in this transaction were
primarily inventory. The Company believes this product line will enable it to
control the volume and quality of running gear needed for the Parker wagon
product line and will improve plant utilization.
Because of the losses sustained by the Company over the last seven fiscal
quarters and the effects of the Parker acquisition, the Company continues to be
unable to meet certain financial covenants contained in the credit and security
agreement with respect to its $6,000,000 line of credit. However, the Company
has met its payment obligations under such agreement. As of February 29, 2000,
there was $1,838,000 outstanding under the Company's line of credit. The Company
is currently working with its bank to achieve full compliance with these
covenants by means of an appropriate modification or waiver thereof. The
6
<PAGE>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Company has continued to explore alternative sources of financing, and has
received a written proposal from a lending institution to provide such
financing. No assurance can be given that the Company will achieve full
compliance with the financial covenants or that the Company will be able to
obtain suitable alternative sources of financing.
On January 25, 2000 the Company issued $500,000 in convertible subordinated
debentures due January 2005 through a private placement with the Company's
significant shareholders and/or directors. These debentures were issued to
provide the company with additional working capital needed during the current
downturn in the agricultural economy.
Year 2000 Readiness Disclosure:
The Company developed a Year 2000 Plan during 1999 to assess its vulnerability
to system failures arising from the Millennium change that could impact the
Company adversely. These threats were identified, and priorities established to
address these risks based on the financial threat or seriousness of the
implications. The project's primary emphasis was to look at the risks with the
most severe financial implication first, and then to address these critical
problems. The risks to the Company and the Company's Year 2000 Plan have been
described in the Company's most recent quarterly report on Form 10-QSB for the
quarter ending November 30, 1999.
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 has materially
affected its customers and vendors and the Company believes that its contingency
plans, if required to be implemented, would be successful. Although problems as
a result of the Millennium change may still occur in the future, as of April 14,
2000 the Company has not encountered any material negative effects from the
Millennium change. The Company will continue to monitor its systems and the
risks identified in its Year 2000 Plan for any potential problems and take the
appropriate actions to minimize any adverse consequences.
7
<PAGE>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 2. Changes in Securities.
On January 25, 2000 the Company raised $500,000 through a private placement of
the Company's convertible subordinated debentures due January 2005 in the
aggregate principal amount of $500,000. The debentures were offered to the
Company's significant shareholders and/or directors. Each debenture is
convertible into one share of the Company's common stock at a conversion price
of $1.25 per share. The Company claims a registration exemption for the
debentures pursuant to Rule 506 of Regulation D, promulgated pursuant to Section
4(2) of the Securities Exchange Act of 1934.
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) Reports on Form 8-K
Form 8-K dated January 25, 2000 and filed February 2, 2000 reporting the
issuance of $500,000 in convertible subordinated debentures due January
2005.
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, 2000 /s/ Steven R. Lind
--------------------------------------
Steven R. Lind
President and Chief Executive Officer;
Principal Executive Officer
Date April 14, 2000 /s/ Steven F. Bahlmann
--------------------------------------
Steven F. Bahlmann
Chief Accounting Officer;
Principal Accounting Officer
8
<PAGE>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARIES
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
11 Computation of Earnings (Loss) Per Common Share
27 Financial Data Schedule
9
<TABLE>
<CAPTION>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
Three Months Ended Nine Months Ended
February 29, February 28, February 29, February 28,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Basic:
Common shares outstanding at
the beginning of the period 4,954,803 4,968,957 4,968,957 5,083,456
Weighted average of common
shares issued (retired) during
the period -- -- (459) (63,779)
Weighted average common
shares outstanding 4,954,803 4,968,957 4,968,498 5,019,677
========== =========== ========= ===========
Net income (loss) $ (232,097) $ (80,456) $(1,204,925) $ (458,601)
=========== =========== ============ ============
Net income (loss) per
common share $ (.05) $ (.02) $ (.24) $ (.09)
=========== =========== ============ ============
Fully Diluted:
Weighted average common
shares outstanding 4,954,803 4,968,957 4,968,498 5,019,677
Net effect of dilutive securities
employee stock options # -- -- -- --
----------- ----------- ------------ ------------
Weighted average common and
common equivalent shares 4,954,803 4,968,957 4,968,498 5,019,677
=========== =========== ============ ============
Net income (loss) $ (232,097) $ (80,456) $(1,204,925) $ (458,601)
=========== =========== ============ ============
Net income (loss) per common
share $ (.05) $ (.02) $ (.24) $ (.09)
=========== =========== ============ ============
</TABLE>
#The stock options have not been included because they are antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> JUN-01-1999
<PERIOD-END> FEB-29-2000
<CASH> 9,868
<SECURITIES> 0
<RECEIVABLES> 5,306,716
<ALLOWANCES> 841,174
<INVENTORY> 6,743,665
<CURRENT-ASSETS> 13,058,185
<PP&E> 5,628,884
<DEPRECIATION> 1,771,585
<TOTAL-ASSETS> 18,180,095
<CURRENT-LIABILITIES> 5,473,764
<BONDS> 0
0
0
<COMMON> 323,589
<OTHER-SE> 4,439,930
<TOTAL-LIABILITY-AND-EQUITY> 18,180,095
<SALES> 10,128,130
<TOTAL-REVENUES> 10,128,130
<CGS> 8,134,380
<TOTAL-COSTS> 3,343,885
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 595,468
<INCOME-PRETAX> (1,880,225)
<INCOME-TAX> (675,300)
<INCOME-CONTINUING> (675,300)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,204,925)
<EPS-BASIC> (.24)
<EPS-DILUTED> (.24)
</TABLE>
