SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A NO. 1
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For Quarterly Period Ended December 31, 1994
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 1-11046
TOP SOURCE TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 84-1027821
(State or other jurisdiction of (I.R.S.Employer
incorporation or Identification Number)
organization)
2000 PGA BLVD., SUITE 3200, PALM BEACH GARDENS, FLORIDA 33408
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (407) 775-5756
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class
Outstanding at February 8, 1995 Common stock, $.001 par value
27,313,080 shares
TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
INDEX
Page
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1994
(Unaudited) and September 30, 1994 . . . . . . . . . . . . . . . . 1
Consolidated Statements of Operations for the
Three Months Ended December 31, 1994 and 1993
(Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Cash Flows for the
Three Months Ended December 31, 1994 and 1993
(Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Notes to Unaudited Interim Consolidated
Financial Statements . . . . . . . . . . . . . . . . . . . . . . 4-5
ITEM 2. Management's Discussion and Analysis of Interim
Financial Condition and Results of Operations . . . . 5-6
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . 7
i
TOP SOURCE TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1994 AND SEPTEMBER 30, 1994
(UNAUDITED)
DECEMBER 31, SEPTEMBER
ASSETS 1994 1994
CURRENT ASSETS: (RESTATED) (RESTATED)
CASH AND CASH EQUIVALENTS 340,528 1,429,362
ACCOUNTS RECEIVABLE (NET OF ALLOWANCE OF $150,000
AT DECEMBER 31 AND SEPTEMBER 30, RESPECTIVELY) 3,192,160 3,363,560
ADVANCES TO OFFICERS 30,000 40,000
INVENTORIES 501,713 356,498
PREPAID EXPENSES 430,412 307,605
OTHER 219,865 262,875
------------ ------------
TOTAL CURRENT ASSETS 4,714,678 5,759,900
PROPERTY AND EQUIPMENT, NET 3,140,504 2,204,858
MANUFACTURING AND DISTRIBUTION RIGHTS AND PATENTS, NET 370,670 376,799
CAPITALIZED DATABASE, NET 2,863,818 2,916,527
INTANGIBLE ASSETS RELATING TO BUSINESSES ACQUIRED, NET 4,890,133 4,869,746
DEFERRED INCOME TAX ASSETS, NET 2,270,000 2,270,000
OTHER ASSETS, NET 84,675 82,125
------------ ------------
TOTAL ASSETS 18,334,478 18,479,955
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE 1,476,285 1,605,322
ACCRUED LIABILITIES 415,895 657,779
DEFERRED SERVICE REVENUE 545,088 624,642
NOTE PAYABLE-AFFILIATE --- 88,042
------------ ------------
TOTAL CURRENT LIABILITIES 2,437,268 2,975,785
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
PREFERRED STOCK-$.10 PAR VALUE, 5,000,000 SHARES
AUTHORIZED; NONE OUTSTANDING --- ---
COMMON STOCK-$.001 PAR VALUE, 50,000,000 SHARES
AUTHORIZED; 27,303,080 AND 26,716,395 SHARES
ISSUED AT DECEMBER 31 AND SEPTEMBER 30,
RESPECTIVELY 27,303 26,716
ADDITIONAL PAID-IN CAPITAL 25,926,449 25,214,445
ACCUMULATED DEFICIT (9,924,757) (9,605,206)
TREASURY STOCK-AT COST; 87,534 SHARES (131,785) (131,785)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 15,897,210 15,504,170
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 18,334,478 18,479,955
============ ============
SEE ACCOMPANYING NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
TOP SOURCE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED
DECEMBER 31, 1994 AND 1993 (UNAUDITED)
1994 1993
------------ ------------
(RESTATED)
PRODUCT SALES 3,126,139 1,872,153
SERVICE REVENUE 1,369,693 1,782,733
OTHER --- 29,643
------------ ------------
NET SALES 4,495,832 3,684,529
COST OF PRODUCT SALES 1,910,458 1,149,127
COST OF SERVICES 1,134,059 1,177,226
OTHER --- 9,770
------------ ------------
COST OF SALES 3,044,517 2,336,123
------------ ------------
GROSS PROFIT 1,451,315 1,348,406
EXPENSES:
GENERAL AND ADMINISTRATIVE 1,320,912 614,784
SELLING AND MARKETING 272,748 268,455
PROFESSIONAL FEES 98,577 112,769
DEPRECIATION AND AMORTIZATION 82,272 50,997
RESEARCH AND DEVELOPMENT 10,848 25,690
------------ ------------
TOTAL EXPENSES 1,785,357 1,072,695
------------ ------------
INCOME (LOSS) FROM OPERATIONS (334,042) 275,711
OTHER INCOME (EXPENSE):
INTEREST INCOME 18,122 2,870
INTEREST EXPENSE --- (21,041)
INTEREST EXPENSE-AFFILIATE --- (5,398)
OTHER INCOME (EXPENSE), NET (3,631) (977)
------------ ------------
NET OTHER INCOME (EXPENSE) 14,491 (24,546)
------------ ------------
NET INCOME (LOSS) BEFORE INCOME TAXES (319,551) 251,165
INCOME TAX --- ---
------------ ------------
NET INCOME (LOSS) (319,551) 251,165
NET LOSS PER WEIGHTED AVERAGE COMMON SHARE ============
OUTSTANDING (0.01)
============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 27,094,705
============
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE:
PRIMARY 0.01
============
FULLY DILUTED 0.01
============
COMMON AND COMMON EQUIVALENT SHARES:
PRIMARY 29,964,531
============
FULLY DILUTED 27,416,657
============
SEE ACCOMPANYING NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
TOP SOURCE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED
DECEMBER 31, 1994 AND 1993 (UNAUDITED)
1994 1993
------------ ------------
OPERATING ACTIVITIES: (RESTATED)
NET INCOME (LOSS) (319,551) 251,165
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO
NET CASH USED IN OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 293,885 175,735
DISCOUNT AMORTIZATION --- 12,012
AMORTIZATION OF DEFERRED OFFICERS' COMPENSATION --- 6,221
ADVANCES TO OFFICERS (30,000) (75,000)
REPAYMENTS FROM OFFICER 40,000 ---
DECREASE (INCREASE) IN ACCOUNTS RECEIVABLE, NET 171,400 (637,114)
INCREASE IN INVENTORIES (145,215) (125,846)
INCREASE IN PREPAID EXPENSES (115,447) (73,909)
DECREASE (INCREASE) IN OTHER ASSETS 12,905 (24,790)
INCREASE (DECREASE) IN ACCOUNTS PAYABLE AND 0
ACCRUED LIABILITIES (450,475) 94,540
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (542,498) (396,986)
INVESTING ACTIVITIES:
PURCHASES OF PROPERTY AND EQUIPMENT, NET (1,163,084) (484,082)
ADDITIONS TO PATENT COSTS (7,801) ---
INCREASE IN OTHER ASSETS --- (19,295)
PURCHASE OF BUSINESSES, NET --- (36,382)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (1,170,885) (539,759)
FINANCING ACTIVITIES:
PROCEEDS FROM SALE OF COMMON STOCK, NET 712,591 953,250
PROCEEDS FROM BORROWINGS --- 300,000
REPAYMENTS OF BORROWINGS (88,042) (572,866)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 624,549 680,384
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,088,834) (256,361)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,429,362 362,351
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 340,528 105,990
============ ============
SEE ACCOMPANYING NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying financial statements of Top Source Technologies, Inc. (the
Company) have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included in the accompanying financial statements.
The results of operations of any interim period are not necessarily indicative
of the results of operations for the fiscal year. For further information,
refer to the financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended September 30, 1994.
Certain fiscal year 1994 amounts have been reclassified to conform to current
year presentation.
2. INVENTORIES
Inventories consisted of the following:
December 31 September 30
1994 1994
Raw materials $ 268,796 $ 292,211
Finished goods 232,917 64,287
$ 501,713 $ 356,498
3. NOTES PAYABLE
In November 1994, the Company entered into a $5,000,000 Loan Agreement with
the First Union National Bank of Florida (the "Bank"). The agreement
stipulates that $4,500,000 (OSA Line) of the proceeds are to be used for
the purchase of certain OSAs. The agreement also indicates that $500,000
will be available for short-term working capital through January 31, 1996.
The Bank is not required to fund any part of the OSA Line until such time
as the Company has invested or paid to Thermo Jarrell Ash (TJA) $1,900,000
for OSA units without Bank funding and such OSA units are leased to lessees
that are acceptable to the Bank. The Loan Agreement is secured by each OSA
unit purchased by the Company along with all of the Company's other assets
including leases for any of the OSA units and $650,000 paid by the Company
to TJA and is subject to certain covenants. The Company has paid, through
December 31, 1994, $986,000 toward the above $1,900,000 requirement.
Subsequent to the first quarter ended December 31, 1994, the Company
advanced an additional payment of $250,000 to TJA which brings the amount
paid to $1,236,000. Amounts outstanding under the Loan Agreement will bear
interest at the prime-rate plus .85% and interest will be payable monthly
commencing on December 10, 1994. A principal payment will be required that
is sufficient to reduce the principal amount to $2,250,000 on December 31,
1996, with the remaining amounts outstanding being due and payable on
December 31, 1997.
TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
4. CORRECTION OF REVENUE RECOGNITION PROCEDURES FOR THE COMPANY'S OIL ANALYSIS
SEGMENT
Effective April 1, 1995, the Company changed its method of revenue
recognition for its oil analysis test kits (oil analysis service segment).
Previously, the Company recorded revenue from the advance billing of unprocessed
test kits mailed to customers to collect oil samples. After April 1, 1995, the
Company began correctly recognizing revenue at the time the oil analysis service
is rendered.
Through the use of computer modeling techniques, creation of a new software
program to track test kits by identification numbers, and based on an analytic
review of the activity of major customers, the Company has determined that
retroactive application of this revised method to correct the accounting error
from using the previous method from the period October 1, 1993 through September
30, 1994 would have resulted in a cumulative zero net change in net income for
the period. Due to the large number of samples processed, the capabilities of
the computer system during this period and the cost prohibitive nature of
manually reconstructing records, the effect on quarterly financial reporting for
this period ended September 30, 1994 is indeterminable. Consequently, the
Company has not restated quarterly financial results for the period ended
September 30, 1994. In order to reflect the change in revenue recognition
method, the caption in the liability section of the Company's balance sheet at
September 30, 1994 was changed from "Accrued Testing Costs" to "Deferred Service
Revenue". Advance billings for oil analysis services will now be considered
deferred revenue until such time as the oil analysis is rendered.
Application of the correct method of recording oil service revenue for the
period October 1, 1994 through December 31, 1994 results in an increase of
approximately $78,543 in revenue and net income of .00 per share over the
previous method. This increase is included in the year to date revenue and
income for the three month period in the accompanying financial statements for
the period ended December 31, 1994.
After April 1, 1995, the Company implemented a new computer order entry
system to track samples from the time of mailing unprocessed kits until the
delivery sample results, and has instituted new internal control and accounting
procedures to ensure proper prospective accounting treatment.
5. INCOME TAXES
In February 1992, the Financial Accounting Standards Board adopted
Statement of Financial Accounting Standards ("SFAS") No. 109 "Accounting for
Income Taxes". The Company implemented SFAS No. 109 in fiscal 1994 by
accounting for the cumulative effect of the change in the period of adoption.
The cumulative effect upon adoption was not material. SFAS No. 109 changed the
method of computing deferred income taxes from a deferred method to a liability
method. Under the liability method, deferred income taxes are determined based
on temporary differences between the financial statement and tax bases of assets
and liabilities, using enacted tax rates in effect during the years in which the
differences are expected to reverse, and on available tax carryforwards.
The Company has recorded a deferred income tax benefit and related deferred
income tax asset based on the pre-tax loss in the first three months of fiscal
1995. A valuation allowance in the same amount has been established since the
Company's assessment of future taxable income is unchanged from September 30,
1994.
TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
5. INCOME TAXES, CONT'D
The income tax benefit in the consolidated statement of operations for the three
months ended December 31, 1994 consists primarily of a reduction in the
valuation allowance established upon adoption of SFAS No. 109 of $2,209,874 and
was based on expectations of future taxable income. The Company estimates
future taxable income by projecting the results of its business activities based
on known factors existing at the current date.
The Company's estimate of future taxable income changed from the beginning
of fiscal 1994 due to:
ogreater certainty regarding the Company's OHSS units for Jeep Cherokee
production installation (this application began in September 1993).
ogreater penetration in the Grand Cherokee OHSS application being attained.
othe decision by Chrysler to convert its Toledo facility to full
utilization for Jeep Cherokee production, thereby increasing the number of
units the Company would be supplying (previously the Toledo facility
produced not only Jeep Cherokees but also other Chrysler models).
oprogress, during mid-fiscal year 1994, in gaining new vehicle applications
for the OHSS.
6. COMMITMENTS AND CONTINGENCIES
On December 13, 1994, the Board of Directors ("Board") adopted a
Shareholder Rights Plan ("Plan"). As part of that Plan, the Board declared a
dividend distribution of one Preferred Stock Purchase Right ("Right") on each
outstanding share of Common Stock of the Company. These Rights have no
financial impact on the Company as of December 31, 1994.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION Inventories increased $145,215 since September 30, 1994
which is due to the increase in finished goods in order to build up
inventory levels to meet anticipated delivery schedules in January 1995
which are approximately 20% higher than October 1994. Also the last
shipment of the OHSS units was in mid-December and the factory continued to
build units, thereby increasing the inventory level at December 31, 1994.
Prepaid expenses increased $208,512 primarily due to the First Union Bank
loan commitment fee of $104,565 which was capitalized and is being amortized
over the term of the loan.
RESULTS OF OPERATIONS
Net sales increased 22.0% for the quarter ended December 31, 1994 compared
to the same period ended December 31, 1993. This increase is due to the
increased sales volume of the OHSS. However, the sales volume generated by UTG
decreased due to a decline in UTG's customer base.
TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONT'D
RESULTS OF OPERATIONS, CONT'D
The gross profit margin decreased to 32.3% for the three months ended
December 31, 1994 from 36.6% for the three months ended December 31, 1993. The
decrease was due to a decrease in revenue in UTG of $500,000 which was not
offset by a decrease in operating expenses as the majority of costs in this
subsidiary are fixed.
General and administrative expense increased 114.9% for the three months
ended December 31, 1994 compared to the same period ended December 31, 1993.
This increase is primarily due to the expansion of the Company's business
including increases in salary arising from additional personnel, merit increases
and incentive payments. In addition, expenses have been incurred in OSA, Inc.
in excess of $398,900 for the current period.
Depreciation and amortization increased 61.3% for the three months ended
December 31, 1994, compared to the same period ended December 31, 1993. This
increase is due primarily to the continued investments in additional capital
assets purchased whose depreciation was not allocated to cost of sales.
Depreciation and amortization of $211,613 was allocated to cost of sales as it
directly relates to the products and services sold during the three months ended
December 31, 1994.
Interest income increased $15,252 for the three months ended December 31,
1994 compared to the same period ended December 31, 1993. This increase is due
to the interest earned on the increased funds invested in the current fiscal
period.
The Company incurred no interest expense for the three months ended
December 31, 1994 as there was no debt outstanding during this period. The
notes payable were paid prior to their maturity date.
Income tax, see Note 5. Income Taxes of Notes to Unaudited Consolidated
Financial Statements for a discussion of income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows used in operating activities during the first three months
of the current fiscal year totalled ($542,498). The Company used a substantial
part of its cash in the funding of the development of its On-Site Analysis
subsidiary.
Net cash used in investing activities was ($1,170,885). The Compan
invested $1,163,084 for capital assets of which approximately $880,000 were
capital assets used in the OSA operation. This commitment is in line with prior
investment planning for OSA needs. At this time, the Company cannot determine
the number of OSA units which will be deployed in fiscal 1995. At December 31,
1994, the Company has no material commitments to purchase capital assets except
the OSA requirements as discussed.
TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONT'D
LIQUIDITY AND CAPITAL RESOURCES, CONT'D
Net cash provided by financing activities was $624,549 which was attributed
to the exercise of stock options (exercise prices ranged from $.53 to $5.875)
and in total generated $712,591 in net proceeds. During the three months ended
December 31, 1994, the Company paid-in-full the note payable to an affiliate of
$88,042. The Company had no debt at December 31, 1994.
The Company continues to rely on revenue from its product sales (OHSS) and
service revenue from the Oil Analysis Laboratory to provide for its liquidity
needs. Depending upon when the Company generates material revenue from its OSAs
and how quickly it ships a substantial number of OSAs, it may require additional
financing to support their rollout. Cash requirements to support currently
planned OSA deployment will be provided by existing bank lines. The Company is
in preliminary discussions with prospective investors and strategic partners
should the OSA deployment program be accelerated.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
None
B. REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended
December 31, 1994.
TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
Pursuant to the requirements 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.
TOP SOURCE TECHNOLOGIES, INC.
By: /s/ David Natan September 22, 1995
David Natan Date
Vice President & Chief Financial
Officer
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> DEC-31-1994
<CASH> 340,528
<SECURITIES> 0
<RECEIVABLES> 3,222,160
<ALLOWANCES> 150,000
<INVENTORY> 501,713
<CURRENT-ASSETS> 4,714,678
<PP&E> 3,140,504
<DEPRECIATION> 1,116,585
<TOTAL-ASSETS> 18,334,478
<CURRENT-LIABILITIES> 2,437,268
<BONDS> 0
<COMMON> 27,303
0
0
<OTHER-SE> 15,869,907
<TOTAL-LIABILITY-AND-EQUITY> 18,334,478
<SALES> 4,495,832
<TOTAL-REVENUES> 4,495,832
<CGS> 3,044,517
<TOTAL-COSTS> 3,044,517
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (319,551)
<INCOME-TAX> 0
<INCOME-CONTINUING> (319,551)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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