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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended February 28, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 33-10984-LA
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TUFCO INTERNATIONAL, INC.
(Name of Small Business Issuer as specified in its charter)
Nevada 95-4071623
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization identification No.)
Pioneer Lane, Gentry, AR 72734
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(Address of principal executive offices)
Registrant's telephone no., including area code: (501) 736-2201
No Change
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Former name, former address, and former fiscal year, if
changed since last report.
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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.
Common Stock outstanding at April 20, 1999 - 6,965,800 shares of $.001 par value
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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<PAGE>
FORM 10-QSB
FINANCIAL STATEMENTS AND SCHEDULES
TUFCO INTERNATIONAL, INC.
For the Quarter Ended February 28, 1999
The following financial statements and schedules of the registrant and its
consolidated subsidiaries are submitted herewith:
PART I - FINANCIAL INFORMATION
Page of
Form 10-Q
Item 1 Financial Statements:
Condensed Consolidated Balance Sheet--February 28, 1999......... 3
Condensed Consolidated Statements of Income for the three months
and nine months ended February 28, 1999 and 1998............... 5
Condensed Consolidated Statements of Cash Flows--for the three
months and nine months ended February 28, 1999 and 1998....... 6
Notes to Condensed Consolidated Financial Statements............ 7
Item 2Management's Discussion and Analysis of Financial Condition
and Results of Operations............................... 8
PART II - OTHER INFORMATION
Page
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6(a).Exhibits 11
Item 6(b).Reports on Form 8-K 11
2
<PAGE>
TUFCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
FEBRUARY 28, 1999
Unaudited
ASSETS
CURRENT ASSETS:
Cash ......................................................... $ 14,226
Accounts and notes receivable, less allowance
for doubtful accounts of $185,000
Trade .................................................. 1,002,108
Affiliates ............................................. 471,024
Inventories .................................................. 497,556
Deferred income tax benefits ................................. 79,085
Other current assets ......................................... 22,451
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2,086,450
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Property and equipment ....................................... 1,126,351
Accumulated depreciation ..................................... 493,258
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633,093
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Reacquired franchise territory ............................... 356,558
Accumulated amortization ..................................... 294,890
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61,668
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Other assets ................................................. 3,705
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$2,784,916
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3
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt .................... $ 50,071
Trade accounts payable .................................. 918,238
Income taxes payable .................................... 169,849
Accrued expenses ........................................ 33,766
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1,171,924
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LONG-TERM DEBT ................................................ 445,571
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DEFERRED INCOME TAXES ......................................... 31,438
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COMMON STOCKHOLDERS' EQUITY:
Common stock,$.001 par value; authorized 50,000,000
shares; issued and outstanding 6,965,800 shares ...... 6,966
Retained earnings ....................................... 1,315,606
Other common stockholders' equity ....................... (186,589)
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1,135,983
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$ 2,784,916
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4
<PAGE>
TUFCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three months and nine months ended February 28, 1999 and 1998
Unaudited
<TABLE>
<CAPTION>
1999 1998
------------------------------------------------------------
3 MONTHS 9 MONTHS 3 MONTHS 9 MONTHS
------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES:
Trade $ 1,223,405 $ 3,929,563 $ 1,355,746 $ 3,835,214
Affiliates 88,650 332,136 470,821 1,174,609
------------------------------------------------------------
1,312,055 4,261,699 1,826,567 5,009,823
------------------------------------------------------------
Cost of sales 885,706 2,873,395 1,282,286 3,510,643
Selling expenses 70,947 205,046 88,157 305,861
General and administrati 342,377 913,706 352,861 937,952
Bad debts 37,019 37,019 9,035 17,488
Other income (36,463) (106,024) (32,555) (90,911)
------------------------------------------------------------
1,299,586 3,923,142 1,699,784 4,681,033
------------------------------------------------------------
Income before income taxes 12,469 338,557 126,783 328,790
------------------------------------------------------------
Provision (credit) for income taxes
Current (27,447) 110,595 44,228 92,237
Deferred (535) (2,711) 789 29,148
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(27,982) 107,884 45,017 121,385
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Net Income $ 40,451 $ 230,673 $ 81,766 $ 207,405
============================================================
EARNINGS PER SHARE:
Net income (loss) $ 0.00581 $ 0.03312 $ 0.01174 $ 0.02977
============================================================
Weighted average number of
shares outstanding 6,965,800 6,965,800 6,965,800 6,965,800
============================================================
</TABLE>
5
<PAGE>
TUFCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months and nine months ended February 28, 1999 and 1998
Unaudited
<TABLE>
<CAPTION>
1999 1998
--------------------------------------------------------
3 MONTHS 9 MONTHS 3 MONTHS 9 MONTHS
--------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES PROVIDED BY (USED IN)
Operating Activities $ 93,094 $ 252,971 $ 89,286 $ 126,832
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (26,768)
Proceeds from sale of property and
equipment 18,500 20,500
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Net cash provided by (used in) 18,500 (6,268)
investing activities -------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (12,614) (37,302) (12,796) (34,723)
Collection of capital contributions
receivable 2,000 4,500 500 500
Net employer advances for purchase 57,393 (86,264) (101,764) (101,764)
of ESOP shares
Dividends paid (139,316) (139,316)
--------------------------------------------------------
Net cash used in financing activities (92,537) (258,382) (114,060) (135,987)
--------------------------------------------------------
INCREASE (DECREASE) IN CASH 557 13,089 (24,774) (15,423)
CASH, BEGINNING OF PERIO 13,669 1,137 30,748 21,397
--------------------------------------------------------
CASH, END OF PERIOD $ 14,226 $ 14,226 $ 5,974 $ 5,974
========================================================
</TABLE>
6
<PAGE>
TUFCO INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE 1: BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements are presented in
accordance with the requirements of Form 10-QSB and consequently do not include
all of the disclosures normally required by generally accepted accounting
principles for complete financial statements or those normally made in the
Company's annual Form 10-KSB filing. Accordingly, the reader of these financial
statements may wish to refer to the Company's financial statements for the year
ended May 31, 1998 included in the Company's Form 10-KSB for further
information.
The financial information has been prepared in accordance with generally
accepted accounting principles and has not been audited. In the opinion of
management, the information presented reflects all adjustments necessary for a
fair statement of interim results. All such adjustments are of a normal and
recurring nature. The condensed consolidated results of operations for the three
months and nine months ended February 28, 1999 and 1998 are not necessarily
indicative of the operating results for the full year.
7
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company is engaged in the business of selling and installing
industrial flooring systems. The following Management's Discussion and Analysis
should be read in conjunction with the Management's Discussion and Analysis
included in the Company's Form 10-KSB for the year ended May 31, 1998.
Financial Condition
Total assets at February 28, 1999 were $2,784,916 compared to $3,040,757
at the year ended May 31, 1998. The Company's cash position remains limited,
$14,226 at February 28, 1999 compared to $1,137 at May 31, 1998. During the last
several years, the Company's cash position has been limited and its ability to
expand its operations in a meaningful way is restricted by its limited cash
position.
Receivables from non-affiliates decreased from $1,269,310 at May 31, 1998
to $1,002,108 at February 28, 1999 a decrease of approximately 21%. This
decrease was primarily the result of increased collections and a reduction in
sales. Receivables from affiliates were down slightly from $474,720 at May 31,
1998 to $471,024 at February 28, 1999.
Inventories increased to $497,556 at February 28, 1999 compared to
$361,850 at May 31, 1998. The increase was due to shipments of raw materials
received for purchase orders placed in February, 1999 for March, 1999.
The Company does not currently have any lines of credit and has
historically borrowed short term funds from its affiliates and from commercial
banks for working capital. At February 28, 1999, the Company had total
liabilities to banks of $479,210 which $39,045 was classified as current debt.
At May 31, 1998, the Company had total liabilities to banks of $506,163 of which
$40,092 was classified as current debt. This loan is secured by the Company's
real property and is guaranteed by Brent Mills, officer and director of the
Company.
At February 28, 1999, total liabilities were $1,648,933 compared to
$1,915,217 at May 31, 1998.
8
<PAGE>
Results of Operations
The Company's revenues are primarily attributed to the sale of flooring
components to franchisees and licensees, the sale and installation of complete
flooring jobs by the Company. Effective March 1, 1997, the Company discontinued
the sale and installation of interior ceiling and wall systems. The Company
discontinued the product line to concentrate on Tufco flooring.
Total net sales for the three month period ended February 28, 1999, were
$1,312,055 compared to $1,826,567 for the three month period ended February 28,
1998, a decrease of approximately 28%. Total net sales for the nine month period
ended February 28, 1999, were $4,261,699 compared to $5,009,823 for the nine
month period ended February 28, 1998, a decrease of approximately 15%. The
reduction in sales was primarily attributable to a reduction in installations
performed by the Company. The installations are now being performed by a
franchisee who has purchased the Pennsylvania franchise. The franchisee is also
performing installations in certain areas which are not under a franchise
agreement.
Operating Expenses. Cost of sales during the three month period ended
February 28, 1999 was 68% compared to 70% for the three month period ended
February 28, 1998. Cost of sales during the nine month period ended February 28,
1999 was 67% of total sales compared to 70% for the nine month period ended
February 28, 1998.
For the three month period ended February 28, 1999, total general and
administrative expenses were $342,377 (approximately 26% of total sales)
compared to $352,861 (19% of total sales) for the three month period ended
February 28, 1998. For the nine month period ended February 28, 1999, total
general and administrative expenses were $913,706 (approximately 21% of total
sales) compared to $937,952 (19% of total sales) for the nine month period ended
February 28, 1998.
Selling expenses were down for both the three month period and nine month
period ended February 28, 1999 from $88,157 and $305,861 respectively for the
three months and nine months ended February 28, 1998 to $70,947 and $205,046 for
the three months and nine months ended February 28, 1999. The decrease in
selling expenses is primarily related to a reduction in sales commissions due to
the Pennsylvania franchise being sold.
Total cost of sales and operating expenses for the three month period
ended February 28, 1999 were $1,299,030 (99% of total sales) compared to
$1,723,304 (94% of total sales) for the three month period ended February 28,
1998. Total cost of sales and operating expenses for the nine month period ended
February 28, 1999 were $3,992,147 (94% of total sales) compared to $4,754,456
(95% of total sales) for the nine month period ended February 28, 1998.
Net Income. For the three month period ended February 28, 1999, the Company
had net income of $40,451 compared to net income of $81,766 for the three month
period ended February
9
<PAGE>
28, 1998. For the nine month period ended February 28, 1999, the Company had net
income of $230,673 compared to net income of $207,405 for the nine month period
ended February 28, 1998.
Inflation
The Company's business and operations have not been materially affected by
inflation during the past year and the current fiscal year.
Year 2000
The year 2000 ("Y2K") issue is the result of computer programs using a
two-digit format, as opposed to four digits, to indicate the year. Such computer
systems will be unable to interpret dates beyond 1999, which could cause a
system failure or other computer errors, leading to disruptions in operations.
In 1998, the Company developed a three-phase program for Y2K information systems
compliance. Phase I is to identify those systems with which the Company has
exposure to Y2K issues. Phase II is the development and implementation of action
plans to be Y2K compliant in all areas by January 1999. Phase III to be
completed by Mid-1999, is the final testing of each major area of exposure to
ensure compliance. The Company has identified the major areas determined to be
critical for successful Y2K compliance. (1) financial and informational system
applications, and (2) third party relationships.
The Company, in accordance with Phase I of the program conducted an
internal review of all systems and contacted all software suppliers to determine
major areas of exposure to Y2K issues. In the financial and information system
area, a number of applications have been identified as Y2K compliant due to
their recent implementation. The Company's core financial and reporting systems
are Y2K compliant. In the third-party area, the Company has communicated with
the primary vendors and has determined that all are making significant progress
toward their Y2K compliance. Effective February 28, 1999, the Company believes
it is compliant with Y2K.
Forward-looking Statements
The foregoing discussions in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contain forward-looking
statements, within the meaning of section 27a of the Securities Act of 1933 and
section 21e of the Securities Act, which reflect Management's current views with
respect to the future events and financial performance. Such forward looking
statements may be deemed to include, among other things, statements relating to
anticipated growth, and increased profitability, as well as to statements
relating to the Company's strategic plan, including plans to develop and
increase factored receivables, loan originations, and to selectively acquire
other companies. These forward-looking statements are subject to certain risks
and uncertainties, including, but not limited to, future financial performance
and future events, competitive pricing for services, costs of obtaining capital
as well as national, regional and local economic conditions. Actual results
could differ materially from those addressed in the forward
10
<PAGE>
looking statement. Due to such uncertainties and risks, readers are cautioned
not to place undue reliance on such forward-looking statements, which speak only
of the date hereof.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Changes in Securities. None.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information.
Item 6(a). Exhibits. None.
Item 6(b). Reports on Form 8-K. None
11
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Dated: May 6, 1999. TUFCO INTERNATIONAL, INC.
By /S/ Brent E. Mills
Brent E. Mills
President
Principal Executive Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
TUFCO INTERNATIONAL, INC.'S FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> 14,226
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> DEC-01-1998
<PERIOD-END> FEB-28-1999
<EXCHANGE-RATE> 1
<CASH> 14,226
<SECURITIES> 0
<RECEIVABLES> 1,658,132
<ALLOWANCES> 185,000
<INVENTORY> 497,556
<CURRENT-ASSETS> 2,086,450
<PP&E> 1,126,351
<DEPRECIATION> 493,258
<TOTAL-ASSETS> 2,784,916
<CURRENT-LIABILITIES> 1,171,924
<BONDS> 0
0
0
<COMMON> 6,966
<OTHER-SE> 1,129,017
<TOTAL-LIABILITY-AND-EQUITY> 2,784,916
<SALES> 4,261,699
<TOTAL-REVENUES> 4,261,699
<CGS> 2,873,395
<TOTAL-COSTS> 3,923,142
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 338,557
<INCOME-TAX> 107,884
<INCOME-CONTINUING> 230,673
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 230,673
<EPS-PRIMARY> .03
<EPS-DILUTED> 0
</TABLE>
