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, 2000
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
(Registrant'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 September 30, 2000.
Transitional Small Business Disclosure Format (check one):
Yes No X
---- -----
TOP AIR MANUFACTURING, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets,
August 31, 2000 (unaudited)
and May 31, 2000 1
Unaudited Condensed Consolidated Statements of
Operations, Three Months Ended
August 31, 2000 and 1999 2
Unaudited Condensed Consolidated Statements of
Cash Flows, Three Months Ended August 31, 2000
and 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 3. Defaults Upon Senior Securities 7
Item 6. Exhibits and Reports on Form 8-K 7
SIGNATURES 8
EXHIBIT INDEX 9
TOP AIR MANUFACTURING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AUGUST 31, MAY 31,
2000 2000 *
---------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents 84,347 $ 3,654
Trade receivables, net of allowance for
doubtful accounts August 31, 2000
$619,803; May 31, 2000 $528,811 4,384,449 4,672,455
Inventories (Note 2) 6,156,937 6,151,665
Income tax benefits 21,879 22,227
Other current assets 613,359 582,799
---------- ----------
Total Current Assets 11,260,971 11,432,800
---------- ----------
LONG TERM RECEIVABLES AND OTHER ASSETS
Notes receivable, net of current portion 95,810 98,748
Goodwill 893,157 912,759
Other assets 1,038,949 762,149
----------- -----------
2,027,916 1,773,656
----------- -----------
PROPERTY AND EQUIPMENT, at cost,
less accumulated depreciation
August 31, 2000 $1,967,514;
May 31, 2000 $1,817,300 3,642,008 3,739,542
----------- -----------
$16,930,895 $16,945,998
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt $ 2,895,676 $ 2,343,387
Other liabilities and accrued items 8,829,845 8,871,908
---------- ----------
Total Current Liabilities 11,725,521 11,215,295
---------- ----------
LONG-TERM LIABILITIES 1,081,069 1,102,245
---------- ----------
STOCKHOLDERS' EQUITY
Common stock 323,589 323,589
Additional paid-in capital 2,910,918 2,910,918
Retained earnings 1,249,946 1,754,099
---------- ----------
4,484,453 4,988,606
Less cost of treasury stock 360,148 360,148
---------- ----------
4,124,305 4,628,458
---------- ----------
$16,930,895 $16,945,998
========== ==========
*Condensed from Audited Financial Statements.
See Notes to Condensed Consolidated Financial Statements.
1
TOP AIR MANUFACTURING, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months ended August 31, 2000 and 1999
2000 1999
---------- -----------
Net Sales $3,352,357 $2,904,971
--------- ---------
Costs and Expenses:
Cost of goods sold 2,828,690 2,387,148
Selling and administrative expenses 833,757 892,205
Research and development expenses 162,991 216,341
Interest expense 316,889 224,548
--------- ---------
4,142,327 3,720,242
--------- ---------
Operating Income (loss) (789,970) (815,271)
Other income 3,017 15,964
-------- ---------
Income (loss) before income taxes (786,953) (799,307)
Income taxes (credits) (282,800) (287,700)
--------- ---------
Net Income (loss) $(504,153) $(511,607)
========= =========
Earnings (loss) per Share:
Basic $ (.10) $ (.10)
========== ==========
Fully Diluted $ (.10) $ (.10)
========== ==========
Weighted Average Shares
Basic 4,954,803 4,975,272
Fully Diluted 4,954,803 4,975,272
See Notes to Condensed Consolidated Financial Statements.
2
TOP AIR MANUFACTURING, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended August 31, 2000 and 1999
2000 1999
-------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by (used in)
operating activities $ 174,433 $ (1,232,698)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and
equipment 1,000 15,500
Purchase of property and equipment (55,179) (42,158)
Payments received on long-term
notes receivable 3,409 5,024
------------ -------------
Net cash (used in) investing activities (50,770) (21,634)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings 618,000 2,199,000
Principal payments on short term
borrowings (543,000) (952,000)
Principal payments on long-term
borrowings (117,970) (46,093)
Net proceeds from issuance of
common stock August 31, 2000 none;
August 31, 1999 7,333 shares -- 8,052
------------ -------------
Net cash provided by (used in)
financing activities (42,970) 1,208,959
------------ --------------
Increase (decrease) in Cash and
Cash Equivalents 80,693 (45,373)
CASH AND CASH EQUIVALENTS
Beginning 3,654 58,157
------------ -------------
Ending $ 84,347 $ 12,784
============ ============
See Notes to Condensed Consolidated Financial Statements.
3
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. and Parker Industries, Inc.) have been
presented on a consolidated basis as of August 31, 2000, May 31, 2000 and for
the three months ended August 31, 2000 and 1999. All significant intercompany
accounts and transactions have been eliminated.
The condensed consolidated balance sheet as of August 31, 2000 and the condensed
consolidated statements of operations for the three months ended August 31, 2000
and 1999 and the statements of cash flows for the three months ended August 31,
2000 and 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 August 31, 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 principles
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, 2000 Annual Report to Shareholders.
The results of operations for the periods ended August 31, 2000 and 1999 are not
necessarily indicative of the operating results for the full year.
Note 2. Inventories
Inventories consist of the following:
August 31, 2000 May 31, 2000
--------------- ------------
Finished Goods $5,432,729 $4,603,256
Work in Process 427,063 471,672
Raw Materials and Supplies 297,145 1,076,737
---------- ----------
$6,156,937 $6,151,665
========== ==========
4
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 or Plan 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, 2000.
RESULTS OF OPERATIONS
Net Sales:
The Company's net sales for the first quarter of fiscal 2001 increased
15% to $3,352,357 compared to $2,904,971 for the same period last year. The
increase was primarily a result of a $450,000 increase in the sales of grain
wagons and carts. The higher level of grain wagon and cart sales was due to
favorable acceptance of new models and to lower levels of inventory being
carried on dealers' lots. Sales and orders are continuing to show significant
improvement over last year's levels. The Company's backlog was in excess of $3
million as of August 31, 2000 compared to $1.5 million on the same date in 1999.
The Company recently announced a price increase covering many of its product
lines. While the effect of the recent price increases were not reflected to any
significant extent during the first quarter of 2000, it is expected that these
increases will have a more significant impact in the second quarter and beyond.
Operating Costs & Expenses:
The Company's cost of goods sold for the quarter ended August 31, 2000
increased to 84% of net sales compared to 82% for the first fiscal quarter of
the previous year. The increase, as a percentage of sales, was a result of the
higher volume of grain wagon and cart sales which typically have lower gross
margins than the rest of the Company's sales mix. The increase was also affected
by costs related to addressing the Company's cash flow needs.
Operating expenses decreased 10% to $996,748 for the first quarter of
fiscal 2001 from $1,108,546 during the same period last year. The decrease was a
result of staff reductions in administrative and research and development
positions coupled with various other cost cutting measures that are part of an
ongoing effort to return the Company to a profitable position.
Interest Expense:
Interest expense increased 41% to $316,889 for the first quarter of
fiscal 2001 compared to $224,548 for the same period last year. The increase was
due to significantly higher interest rates offset by lower levels of debt
outstanding during the period.
5
TOP AIR MANUFACTURING, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONT.)
Income Tax Expense:
The Company's income tax credits of $282,800 and $287,700 for the
quarters ended August 31, 2000 and 1999 are estimated based on an annualized
effective tax rate of 36%. These credits represent the benefit that would be
received if the loss for the periods were carried forward to offset tax expense
in other years.
Material Changes in Financial Position:
The Company's loss from operations of $504,153 was primarily responsible
for the decrease in working capital of approximately $682,000 for the three
months ended August 31, 2000.
Liquidity and Capital Resources:
At August 31, 2000 the Company had negative working capital of $464,550,
a decrease of $8,495,080 from working capital of $8,030,530 a year ago and a
decrease of $682,055 since May 31, 2000. The decrease from a year ago is
primarily a result of reclassifying $6,800,000 in long term debt to current
liabilities as explained below. Additionally, working capital was negatively
impacted by approximately $2,000,000 in losses from operations, which was
partially offset by $500,000 of proceeds from the issuance of convertible
subordinated debentures. The decrease since May 31, 2000 is described in
"Material Changes in Financial Position" in the previous paragraph. The current
ratio decreased to .96 at August 31, 2000 from 1.02 at May 31, 2000. The Company
anticipates no significant outlays for property and equipment in the foreseeable
future.
The Company has taken several steps designed to reduce its cash
requirements without negatively affecting its ability to return to profitability
in the future. For example, the Company has recently consolidated certain of its
operations to eliminate redundant costs, eliminated non-essential expenses,
down-sized and restructured certain of its operations and has instituted price
increases with no discernible negative impact on orders. Additionally, the
Company has retained the services of an independent consulting firm to analyze
the Company's operations, markets and financial needs and to make specific
recommendations for improvements in the areas in the form of a written report.
While the cost of such analysis and report is estimated to be $135,000, the
Company believes that this effort will be invaluable in terms of its potential
for enhanced profitability, assistance in the Company's ongoing discussions with
its lender and in the Company's effort to obtain suitable financing, as
discussed below.
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. As a result, the Company has entered into a forbearance
agreement in which the lender agreed to forbear from exercising its rights and
remedies against the Company up to and through October 31, 2000. This
forbearance agreement also prohibits the Company from borrowing in excess of
$2,000,000 under the line of credit, which is based on a percentage of
inventory, trade receivables and property and equipment at an interest rate of
12.5%. As a result, approximately $6,800,000 of long-term debt has been
reclassified as current liabilities to properly account for the Company's term
debt. The Company is continuing to seek alternative sources of debt and/or
equity financing. As of the date of this report, the Company has not received a
commitment from any source 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. If the Company is unable to achieve such compliance or obtain such
financing, the Company may be unable to fund its ongoing operations.
6
TOP AIR MANUFACTURING, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONT.)
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 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 October 16, 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.
PART II. OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
As is discussed in "Item 2. Management's Discussion and Analysis or Plan
of Operation" herein, the Company has been unable to meet certain financial
covenants contained in the credit and security agreement with respect to its
line of credit and bank term debt. As of October 16, 2000, the total amount
owing under the line of credit and the term debt is $8,306,741.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit Number
--------------
11 Statement Regarding Computation of Earnings (Loss) Per
Common Share
27 Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K dated June 28, 2000 and filed July 5, 2000 reporting that the
Company had entered into a "Special Advance Agreement" with its bank
lender under which the bank lender agreed to advance an additional
$200,000 that was due July 10, 2000.
Form 8-K dated July 10, 2000 and filed July 12, 2000 reporting that the
Company was unable to repay the $200,000 that was due July 10, 2000 under
the "Special Advance Agreement" and that the bank lender had issued a
notice of default to the Company.
7
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 16, 2000 /s/ Steven R. Lind
-----------------------------------------
Steven R. Lind
President and Chief Executive Officer;
Principal Executive Officer
Date: October 16, 2000 /s/ Steven F. Bahlmann
-----------------------------------------
Steven F. Bahlmann
Chief Accounting Officer;
Principal Accounting Officer
8
TOP AIR MANUFACTURING, INC. AND SUBSIDIARIES
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
11 Computation of Earning (Loss) per Common Share
27 Financial Data Schedule
9