<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For Period Ended December 31, 1996
-----------------------------------------------------------
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission File Number 0-19167
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TOPRO, INC.
---------------------------------------------------------
(Exact name of registrant as specified in its charter)
COLORADO 84-1042227
--------------------------- --------------------------
(State of Incorporation) (IRS Employer ID Number)
2525 West Evans Avenue Denver, Colorado 80219
- ----------------------------------------- -------------------------------
(Address of principle executive offices) (city) (state) (zip code)
(303) 935-1221
-------------------------------------------------
Registrant's telephone number including area code
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
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
------ ------
Transitional Small Business Disclosure format (check one):
YES X NO
------ ------
The number of shares outstanding of the Registrant's $0.0001 par value common
stock on February 14, 1997 was 9,657,023.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
TOPRO INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1996
------------ ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 236,000 $ 546,000
Receivables:
Trade, net of allowance for doubtful accounts 6,801,000 8,478,000
Refundable income taxes 222,000 143,000
Other receivable 54,000 40,000
Cost and estimated earnings in excess of billings on
uncompleted contracts 2,837,000 3,831,000
Inventories 148,000 288,000
Prepaid expense 173,000 307,000
Assets of discontinued operations 526,000 237,000
------------ ------------
Total current assets 10,997,000 13,870,000
PROPERTY AND EQUIPMENT, AT COST:
Building and land 850,000 850,000
Furniture and equipment 2,516,000 2,753,000
Leasehold improvements 743,000 765,000
------------ ------------
4,109,000 4,368,000
Less accumulated depreciation (1,285,000) (1,510,000)
------------ ------------
Net property and equipment 2,824,000 2,858,000
CAPITALIZED SOFTWARE COSTS, NET OF AMORTIZATION 572,000 1,771,000
OTHER ASSETS
Other assets 155,000 147,000
Debt issuance costs, net of amortization 354,000 382,000
Excess of cost over fair value of net assets
acquired, net of amortization 5,111,000 8,132,000
TOTAL ASSETS $ 20,013,000 $ 27,160,000
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
2
<PAGE> 3
TOPRO INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1996
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Line-of-credit $ 1,019,000 $ 1,170,000
Current portion of long-term debt:
Related parties 230,000 193,000
Financial institutions and other 975,000 1,111,000
Capital lease obligations 56,000 63,000
Accounts payable 5,915,000 6,631,000
Billings in excess of costs and estimated earnings
on uncompleted contracts 1,582,000 2,911,000
Accrued expenses 2,155,000 1,441,000
Deferred gain - bldg 24,000 24,000
------------ ------------
Total current liabilities 11,956,000 13,544,000
LONG-TERM DEBT, NET OF CURRENT PORTION:
Financial institutions and other 4,859,000 6,231,000
Capital lease obligations 151,000 148,000
------------ ------------
Total long-term debt 5,010,000 6,379,000
DEFERRED GAIN 45,000 36,000
STOCKHOLDERS' EQUITY
Preferred stock, par value $1.00 per share;
authorized 10,000,000 shares; no shares
issued
Common stock, par value $.0001 per share;
authorized 200,000,000 shares; 6,639,403 and
9,556,189 issued and outstanding June 30 and
December 31, 1996, respectively 1,000 1,000
Additional paid-in capital 7,774,000 11,977,000
Accumulated deficit (4,773,000) (4,777,000)
------------ ------------
Total stockholders' equity 3,002,000 7,201,000
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 20,013,000 $ 27,160,000
============ ============
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
3
<PAGE> 4
TOPRO INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1995 1996 1995 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Control systems integration $ 2,927,000 $ 8,137,000 $ 5,377,000 $ 16,104,000
Distributorship 335,000 -- 608,000 --
------------ ------------ ------------ ------------
3,262,000 8,137,000 5,985,000 16,104,000
COST OF SALES:
Control systems integration 2,099,000 5,598,000 3,701,000 10,680,000
Distributorship 250,000 -- 403,000 --
------------ ------------ ------------ ------------
2,349,000 5,598,000 4,104,000 10,680,000
GROSS PROFIT 913,000 2,539,000 1,881,000 5,424,000
EXPENSES
Sales expense 147,000 475,000 286,000 1,073,000
General & administrative expense 629,000 1,871,000 1,236,000 3,819,000
Distributorship selling and other expenses 410,000 -- 624,000 --
------------ ------------ ------------ ------------
1,186,000 2,346,000 2,146,000 4,892,000
OTHER INCOME (EXPENSE):
Gain (loss) on sale of assets 79,000 7,000 79,000 4,000
Interest expense (17,000) (206,000) (57,000) (378,000)
Other 6,000 9,000 6,000 12,000
Goodwill amortization -- (87,000) -- (174,000)
------------ ------------ ------------ ------------
68,000 (277,000) 28,000 (536,000)
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES (205,000) (84,000) (237,000) (4,000)
INCOME TAX BENEFIT (PROVISION): 0 0 0 0
DISCONTINUED OPERATIONS:
Income (loss) from discontinued operations - 0 0 0 0
Sharp
Loss on disposal - Sharp Electric (276,000) -- (385,000) --
------------ ------------ ------------ ------------
NET INCOME (LOSS) ($ 481,000) ($ 84,000) ($ 622,000) ($ 4,000)
============ ============ ============ ============
PRIMARY EARNINGS PER SHARE:
Continuing operations (0.05) (0.01) (0.06) 0.00
Discontinued operations
(0.07) 0.00 (0.11) 0.00
------------ ------------ ------------ ------------
Net income (Loss): $ (0.12) $ (0.01) $ (0.17) $ 0.00
============ ============ ============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING 3,891,354 7,796,321 3,703,898 7,221,023
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
4
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
DECEMBER 31
1995 1996
----------- -----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income (loss) from continuing operations $ (237,000) $ (4,000)
Adjustments to reconcile to net cash provided by (used in)
operating activities
Depreciation & Software amortization 61,000 375,000
Amortization of note costs 52,000
Amortization of goodwill 174,000
Allowance for doubtful accounts 23,000 23,000
Gain on sale of assets (79,000) 4,000
Changes in operating assets and liabilities: (Increase)
decrease in:
Accounts receivable - trade (338,000) 2,346,000
Other receivables 113,000 93,000
Cost & estimated earnings in excess of billing 487,000 (5,000)
Inventories 43,000 (83,000)
Prepaid expenses (144,000) (96,000)
Other assets 46,000 34,000
Increase (decrease) in:
Accounts payable (130,000) (2,227,000)
Accrued expenses (146,000) (1,108,000)
Billings in excess of costs & estimated earnings (258,000) (95,000)
Income (loss) from discontinued operations (385,000) --
Change in assets - from discontinued operations - Sharp
Electric 109,000 288,000
----------- -----------
Net cash used in operating activities (835,000) (229,000)
CASH FLOW FROM INVESTING ACTIVITIES:
Cash acquired in acquisition of ACS -- 3,000
Acquisition costs of Subsidiary -- (168,000)
Purchase of equipment (54,000) (42,000)
Capitalized software costs -- (627,000)
Purchase of certificate of deposit (350,000) --
Proceeds from the sale of investment 350,000 --
Investment in notes receivable (83,000) 28,000
----------- -----------
Net cash used in investing activities (137,000) (806,000)
Continued next page
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
5
<PAGE> 6
TOPRO, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
DECEMBER 31
1995 1996
----------- -----------
<S> <C> <C>
Continued from previous page:
CASH FLOW FROM FINANCING ACTIVITIES
Principal (payments) increase on borrowings 501,000 (1,289,000)
Deferred Note Costs (80,000)
Proceeds from issuance of convertible debentures 1,200,000
Proceeds from issuance of notes payables 150,000
Proceeds from sale of stock 427,000 1,364,000
----------- -----------
Net cash used in financing activities 928,000 1,345,000
INCREASE (DECREASE) IN CASH (44,000) 310,000
CASH: BEGINNING OF PERIOD 171,000 236,000
----------- -----------
CASH: END OF PERIOD $ 127,000 $ 546,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
6
<PAGE> 7
TOPRO, INC. AND SUBSIDIARIES
CONSOLIDATED
NOTES TO FINANCIAL STATEMENTS
1. Interim Financial Information
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments
necessary to present fairly the financial position as of
December 31, 1996 and June 30, 1996 and the results of
operations and statement of cash flows for the periods
presented. Management believes all such adjustments are of a
normal and recurring nature. The statements presented reflect
the acquisitions of Advanced Control Technology, Inc. (ACT)
acquired as of January 1, 1996; Vision Engineering (VEC)
acquired as of May 1, 1996 and All-Control Systems (ACS)
acquired as of December 1, 1996 for the period subsequent to the
acquisition dates. The acquisition of ACT, VEC and ACS were
recorded on the purchase method of accounting and no results for
previous years are recorded in the 1995 periods. The results of
operations for the six month periods ending December 31, 1996
and 1995 are not necessarily indicative of results to be
expected for the full year.
The following unaudited pro forma summary combines the
consolidated results of operations of the Company, ACT, Vision,
and ACS as if the acquisitions had occurred at July 1, 1995 and
1996, with pro forma adjustments to give effect to amortization
of goodwill, depreciation, and interest expense on debt incurred
in connection with the acquisitions. The pro forma summary is
not necessarily indicative of future operations or the results
that would have occurred had the transactions been consummated
at the beginning of the periods indicated.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
DECEMBER 31,
1995 1996
------------ ------------
(Unaudited)
<S> <C> <C>
Net revenues $ 18,915,000 $ 23,417,000
Net income (loss) (2,286,000) 514,000
Income (loss) per share ($ 62.00) $ 0.07
- -----------------------------------------------------------------------
</TABLE>
7
<PAGE> 8
2.Trade Receivables
The following information summarizes trade receivables:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1996
----------- -----------
<S> <C> <C> <C>
Contract receivables:
Completed contracts $ 869,000 $ 2,393,000
Uncompleted contracts 5,812,000 6,053,000
Retainage 497,000 1,309,000
----------- -----------
7,178,000 9,755,000
Less allowance for doubtful accounts (377,000) (1,277,000)
----------- -----------
$ 6,801,000 $ 8,478,000
=========== ===========
</TABLE>
3. Costs and Estimated Earnings on Uncompleted Contracts:
The following information is applicable to uncompleted contracts:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31
1996 1996
------------ ------------
<S> <C> <C>
Costs incurred on uncompleted contracts $ 32,071,000 $ 44,138,000
Estimated earnings 2,282,000 7,172,000
------------ ------------
34,353,000 51,310,000
Less billings to date (33,098,000) (50,390,000)
------------ ------------
$ 1,255,000 $ 920,000
============ ============
These amounts are included in accompanying
balance sheets under the following captions:
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 2,837,000 $ 3,831,000
Billings in excess of costs and estimated
earnings on uncompleted contracts (1,582,000) (2,911,000)
------------ ------------
$ 1,255,000 $ 920,000
============ ============
</TABLE>
8
<PAGE> 9
4. Line-Of-Credit and Long-Term Debt:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1996
---------- ----------
<S> <C> <C>
Lines-of-credit:
VEC has a $650,000 line-of-credit pursuant to a loan agreement with a financial
institution, collateralized by substantially all assets of VEC, with interest
at prime plus 2% (total of 10.25% at June 30 and December 31, 1996). The line
expires in June 1997 and requires monthly principal payments of $17,000. $ 583,000 $ 450,000
ACT has a $500,000 line-of-credit pursuant to a loan agreement with a financial
institution collateralized by substantially all assets of ACT and a deed of
trust on the real property, with interest at prime plus 2.5% (total of 10.75%
at June 30, 1996 and December 31, 1996). The line expires in February 1997. A
request has been made to extend the term until August 1997. 436,000 320,000
ACS has a $1,600,000 line of credit pursuant to a loan agreement with a
financial institution collateralized by substantially all assets of ACS, and
guaranteed by a stockholder, with interest at prime plus 1.5% (total of 9.75%
at December 31, 1996). The debt at December 31, 1996 was due upon demand. On
February 10, 1997, pursuant to the acquisition of ACS by the Company, the loan
agreement was amended to a term loan of $1,000,000 with interest at prime
plus 3%. -- 1,100,000
---------- ----------
Total Lines-of-Credit 1,019,000 1,870,000
========== ==========
Related Party:
Notes payable to an officer and a director of the Company at
10% interest payable semiannually, due on demand, unsecured. 80,000 80,000
Notes payable to a director and former majority stockholders of VEC, with
interest at 8%, monthly payments of $10,000, unsecured. 130,000 93,000
Note payable to relatives of a director and former majority stockholders of
VEC, interest payable quarterly at 10%, unsecured. 20,000 20,000
---------- ----------
Total Related Party $ 230,000 $ 193,000
========== ==========
</TABLE>
9
<PAGE> 10
4. Line-Of-Credit and Long-Term Debt - Continued:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1996
----------- -----------
<S> <C> <C>
Long-term 9% convertible debentures dated February 21, March 7, June 1, 1996
and October 30, 1996 with a small business investment fund. Outstanding
borrowings bear interest at 9% and interest is payable monthly. If the
debenture is not sooner redeemed or converted, a mandatory principal redemption
is due beginning March 1, 1999 in the amount of 1% of the then remaining
principal amount outstanding. $4,700,000 of the debenture is convertible into
the Company's common stock at $1.50 per share. The loan is collateralized by
all the assets of Topro, ACT, MDCS and ACS. The loan has certain restrictive
covenants described in the liquidity section below. 3,500,000 4,700,000
Term loan pursuant to a loan agreement with a financial institution
collateralized by substantially all assets and a deed of trust on the real
property of ACT. Monthly payments of $11,000 for principal and interest are
due, interest at prime plus 2.5% (total of 10.75% at June 30, 1996 and December
31, 1996). The loan has a balloon payment on the unpaid balance due August 1997. 474,000 435,000
Mortgage note payable to a bank, due in monthly installments of $2,941
including interest at 11%, a balloon payment of remaining balance is due
November 1, 2001, collateralized by a first deed of trust on ACT's land
and building. 241,000 259,000
Four year promissory note bearing interest at 8% payable to ElectroCom
Automation. Monthly payments of $6,103 are due beginning May 1, 1996. The
promissory note is collateralized by a second position on the real estate of ACT. 262,000 214,000
Senior convertible notes, 10% interest payable semiannually on December 31 and
March 31. Due March 2000. The notes are convertible into units consisting of
one share of common stock and one warrant at the rate of $.67 per unit. The
warrants are exercisable to purchase one share of common stock at $1.00,
expiring the earlier of 3 years from date of conversion or December 31, 2001. 350,000 350,000
</TABLE>
10
<PAGE> 11
4. Line-Of-Credit and Long-Term Debt - Continued:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1996
-------------- --------------
<S> <C> <C>
Term loan payable to a bank, with a variable interest adjusted quarterly based
on prime plus 2.75% (total of 11.0% at June 30 and December 31, 1996),
collateralized by a second security interest on substantially all assets of
VEC, guaranteed by the SBA and personally guaranteed by a stockholder, which
personal guarantee is collateralized by a third deed on the stockholder's
residence, payable in monthly principal payments of $7,000, adjusted quarterly,
through September 2002. 324,000 283,000
Term loan payable to a bank, with a variable interest rate at prime plus 2%
(total of 10.25% at June 30 and December 31, 1996), collateralized by equipment
and leasehold improvements of VEC, due on demand or if no demand, payable in
monthly installments of $7,000 plus interest through April 1998. 153,000 112,000
Non-interest bearing note payable to ACT's legal counsel payable over 30 months
at $5,000 monthly beginning April 1, 1996. The note has been discounted using
an effective interest rate of 10.25%. 121,000 108,000
Various notes payable and capital leases, due in maximum monthly installments
totaling $1,526 through March 1998, collateralized by equipment and vehicles. 34,000 46,000
Capital lease obligations secured by equipment of VEC. The
leases are of varying length and vary in imputed interest of
12% - 22%. The monthly installments total $ 10,000. 207,000 196,000
12% unsecured subordinated promissory notes series 1996-A is due along with
accrued interest on March 8, 1997. The Company will pay the lender a fee of
2,500 shares of common stock per $50,000 of the principal sum. $100,000 of the
notes were extended until March 8, 1997 in consideration for 10,000 shares of
the Company's common stock. In January 1997 $50,000 was repaid. Upon the event
of default, the shares will convert at one share per $.50 of principal and
accrued interest. -- 150,000
-------------- --------------
Total $ 6,041,000 $ 8,916,000
-------------- --------------
Less current portion (1,031,000) (2,537,000)
-------------- --------------
Long-term portion $ 5,010,000 $ 6,379,000
============== ==============
</TABLE>
11
<PAGE> 12
TOPRO, INC. SUBSIDIARIES
CONSOLIDATED
NOTES TO FINANCIAL STATEMENTS
5. Discontinued Operations
Sharp Electric Construction Co. Inc. - was discontinued in fiscal 1995,
all remaining backlog has been executed. The remaining suppliers and
subcontractors on these projects must be covered out of the remaining
billings to be collected on these projects. The anticipated cash impact of
the remaining negotiations will not be material.
Tech Sales, Inc. - was discontinued in December 1995. The results of the
distributorship operations are included on the statement of operations for
the six months ended December 31, 1995.
6. Earnings per Share
Earnings per share are computed on the basis of the weighted average
number of common shares outstanding during the period.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
In September and October of 1996 the Company issued $150,000 12% unsecured
subordinated promissory note Series 1996-A, and 7.500 shares of common stock as
loan origination fees. The notes were due November 8, 1996 but could be
extended for successive 30 days periods to February 8, 1997 upon payment of
7.500 shares of common stock. In January 1997 $50,000 of the notes were repaid.
$100,000 of the notes were extended until March 8, 1997 in consideration of
10,000 shares of common stock. Upon event of default the notes were to convert
at one share per $.50 of principal and accrued interest. In connection with the
extension of $50,000 of the notes, the terms were renegotiated so that this
note is convertible at $1.50 per share. A total of 32,500 shares of the
Company's common stock has been issued to the note holders.
On October 30, 1996 the Company issued $1,200,000, 9% convertible
debentures to Renaissance Capital Growth & Income Trust, PLC to provide working
capital funding. This indebtedness is collateralized by a security interest in
the assets of the Company including assets of ACT, MDCS, TSI, VEC, and Topro,
Inc. The Company also pledged the shares of its subsidiaries ACT and VEC to
secure repayment of the debenture, and agreed to pledge the assets and shares
of its subsidiary ACS when that company was acquired. Interest on the unpaid
principal balance is due monthly beginning November 1, 1996. Mandatory monthly
principal installments, if the debenture is not sooner redeemed or converted,
are due commencing on March 1, 1999, in principal installments of $10 per
$1,000 of the then remaining principal amount. The outstanding principal amount
of this debenture is redeemable at 120% of par if the closing bid price for the
Company's common stock
12
<PAGE> 13
averages at least $5.00 for 20 consecutive trading days and is supported by a
minimum of $0.25 in net earnings per share. The conversion price is $ 1.50 per
share on $1,200,000 of the principal amount of the convertible debentures.
Renaissance Capital Group, Inc. serves as investment adviser to Trust PLC
and to Renaissance Capital Growth & Income Fund III, Inc. which previously
purchased an aggregate of $3,500,000 principal amount of 9% convertible
debentures from the Company. On $1,000,000 of the principal amount of debenture
issued to Renaissance Capital Growth & Income Fund III, Inc. in June 1996 the
original conversion price was renegotiated. The original issuance required a
conversion price of $2.25 or 444,444 shares of the Company's common stock. This
was renegotiated to a conversion price of $1.50 or 666,667 shares of the
Company's common stock, consistent with the terms of the debentures issued to
Trust PLC.
The convertible debenture requires certain financial covenants. The
Company has received a waiver through January 1, 1998. These covenants now
consist of debt to equity ratio of less than 3 to 1, current ratio of no less
than 1 to 1, minimum tangible net worth of not less than a negative $1,400,000,
and times interest earned on the basis of EBITDA of at least 2.5 to 1. The
Company is in compliance with the waived covenants at December 31, 1996.
On November 27, 1996, the Company closed a private offering of 700,000
shares of its Common Stock to institutional and accredited investors. Net
proceeds to the Company after legal and broker fees netted the Company
approximately $970,000. Proceeds were used for working capital and repayment of
short term debt. The purchasers of the Shares were granted certain registration
rights with respect to the Shares. If the Company fails to have a registration
statement registering the Shares effective by February 1, 1997 the holders of
the shares will be issued warrants to purchase one share of common stock for
every ten shares purchased in this offering. The penalty warrants will be
exercisable for two years from the date of issuance at a price equal to the
average closing bid price of the common stock for the five business days prior
to the issuance dates. The Company was required to issued 70,000 warrants to
purchase the Company's common stock due to the registration not yet being
effective.
In November 1996 the Company had a request from the 8% 270 Day convertible
debentures to convert the notes to the Company's common stock. The debenture
were converted at the rate of one share per $1.75 of principal.
CASH FLOW
For the six months ending December 31, 1996, the Company's cash increased
$310,000. FUNDS WERE PROVIDED from profits from continuing operations inclusive
of non cash charges totaling $624,000 for depreciation, amortization of note
costs, goodwill, reserve for bad debts, and loss on sale of assets. Decreases
in trade, other receivables, other assets and reduction in assets of the
discontinued operations of Sharp Electric, added $2,761,000 for a source of
funds totaling $3,385,000. FUNDS WERE USED to finance increases in costs and
estimated earnings in excess of billings, inventories, prepaid expenses, and
decreases in accounts payables, accrued expenses, billings in excess of costs
and estimated earnings totaling $3,614,000. INVESTMENTS were made in capital
equipment ($42,000), capitalized software development costs ($627,000), and
cash expended (and acquired) in the
13
<PAGE> 14
acquisition of a new subsidiary ($165,000) less the receipt of a note
receivable for $28,000, for a total of $806,000. FINANCING ACTIVITIES from
short and long term debt, required $89,000 and a private placement of a note,
less deferred note costs generated $70,000 Proceeds from sale of common stock
generated $1,364,000.
The Company has no material commitments for external capital expenditures,
however it will continue to capitalize software development costs consistent
with its strategy of the development of discrete products for specific markets.
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THE
THREE MONTHS ENDED DECEMBER 31, 1995
The statement of operations contains 1995 detail on the distributing
business that was discontinued on December 31, 1995. The following analysis
discusses only the continuing operations of the Company.
REVENUES increased by $5,210,000 or 178% to $8,137,000 in the 1996 period
versus revenue of $2,927,000 in 1995. The increase is associated with the
acquisition of three wholly-owned subsidiaries: Advanced Control Technology,
Inc. ("ACT"), acquired as a purchase as of January 1, 1996, had revenue for the
current quarter of $1,514,000; Vision Engineering Corp. ("VEC"), acquired also
as a purchase as of May 1, 1996, added revenue of $2,259,000 during the
quarter. and All Control Systems, Inc. (ACS), acquired also as a purchase as of
December 1, 1996, added revenue of $1,565,000. Topro Systems Integration, Inc.
("TSI") had a decrease in revenue of $167,000, from $2,386,000 in 1995 to
$2,219,000 in 1996. Management, Design and Consulting Services, Inc.'s ("MDCS")
revenue for the three months ended December 31, 1996 was $580,000, an increase
of $39,000 over the comparable period in 1995 ($541,000).
GROSS PROFIT MARGIN in the current quarter was 31% of revenue ($2,537,000)
compared to 28% ($828,000) for the three months ended December 31, 1995. The
additions of ACT, VEC, and ACS contributed $1,988,000 to the increased gross
margin $558,000 from ACT (37% of revenue), $917,000 from VEC.(41% of revenue),
and $513,000 from ACS (32% of revenue). TSI's gross profit margin was 16% , a
decrease from 25% in the previous year bringing $349,000 in dollar gross profit
as compared to $595,000 in 1995. MDCS had a gross profit margin of 35%
($200,000) in the three months ended December 31, 1996 as compared to 43%
($233,000) in the 1995 period. The improvement of gross margin percentage of
three points is attributable to the higher range ( 33% to 41%) of margins in
each of the Company's new subsidiaries. The margin, however, is lower than the
six months ended December 31, 1996 (see below) primarily because of losses on a
number of waste water projects, now substantially completed, included in TSI's
results for the second quarter. MDCS's gross margin decreased due to two large
jobs with lower than normal levels of earnings due to higher material content.
One project is substantially completed while the other will affect the margins
in the third and fourth quarter.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A) increased $1,570,000
from $776,000 in the 1995's second quarter to $2,346,000 in the 1996 period.
The acquisitions accounted for $1,770,000 of the increase,( $547,000 from ACT,
$849,000 from VEC and $374,000 from ACS). TSI's SG&A decreased 35% ($221,000)
from $623,000 in 1995's second quarter to $402,000
14
<PAGE> 15
currently. MDCS increased $22,000 from $152,000 to $174,000 currently. SALES
EXPENSES increased $328,000 from $147,000 in 1995 to $475,000 in 1996.
Significant increases are associated with the ACT acquisition resulting in
$190,000 additional costs, with the VEC acquisition adding $42,000 currently,
and with the ACS acquisition adding $95,000. The selling expense for Topro
decreased by $24,000 for the period. MDCS's sales expense was $25,000 for the
three months ended December 31, 1996. MDCS did not allocate sales expense in
the 1995 quarter. GENERAL AND ADMINISTRATIVE EXPENSE increased $1,242,000, from
$629,000 in the 1995 period compared to $1,871,000 currently. Of this increase
$357,000 is associated with the ACT purchase, $807,000 is from the acquisition
of VEC and $279,000 from the acquisitions of ACS.. TSI's expense in the three
months ended December 31, 1996 deceased $197,000 to $279,000 from $476,000 in
the 1995 period. MDCS G&A decreased $4,000 in the current quarter compared to
$153,000 in 1995. It should be noted that the decrease in TSI expense is
attributable to allocations to the other subsidiaries. On the other hand the
assimilation of three new subsidiaries in less than a year has added, in the
short run, to the overall expenses of the Company.
GOODWILL AMORTIZATION resulting from the acquisitions totaled $87,000.
INTEREST EXPENSE increased $189,000 in the three months ended December 31,
1996 from $17,000 in 1995 to $206,000 in 1996. $123,000 of the increase is
attributable to the inclusion of the acquired subsidiaries, ACT ($64,000), VEC
($45,000), and ACS ($14,000). TSI accounted for $66,000 of the increase from
$17,000 in 1995 to $83,000 in 1996. As of December 31, 1996 there is $1,324,000
of short and long term debt carried by ACT, $1,154,000 by VEC, $1,145,000 by
ACS and $5,293,000 by the parent company, for a total of $8,916,000. MDCS has
no short or long term debt.
OTHER INCOME decreased $69,000 in the three months ended December 31, 1996
over the same period in 1995. There was a $79,000 gain from the sale of assets
in the 1995 period.
LOSS OF THE CONTROL SYSTEMS OPERATIONS was $84,000 for the three months
ended December 31, 1996, compared to $120,000 profit in the 1995 period, a
decrease of $204,000. The net income from the acquired subsidiaries ACT, VEC
and ACS total $14,000 ($93,000 loss from ACT, $18,000 loss from VEC and
$125,000 profit from ACS) while TSI had a decrease of $165,000 from the $39,000
earned in 1995 (a net loss of $126,000 in the current quarter). The losses
during the quarter at TSI can be attributed to the sharp decrease in gross
margin discussed above. MDCS earned $26,000 in the current period, a net
decrease of $55,000 from the $81,000 earned in the three months ended December
30, 1995.
LOSS FROM CONTINUING OPERATIONS inclusive of the distribution business
(Tech Sales, Inc.), which was discontinued in 1995, resulted in a loss of
$204,000 for 1995. This compares with a loss of $84,000 for the three months
ended December 31, 1996 or an improvement of $118,000. The distribution
business contributed a net loss in the period ended December 31, 1995 of
$325,000.
15
<PAGE> 16
RESULTS OF OPERATIONS FOR SIX MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THE
SIX MONTHS ENDED DECEMBER 31, 1995
The statement of operations contains 1995 detail on the distributing
business that was discontinued on December 31, 1995. The following analysis
discusses only the continuing operations of the Company.
REVENUES increased by $10,727,000 or 200% to $16,104,000 in the six months
ended December 31,1996 as compared to revenue of $5,377,000 in 1995. The
increase is associated with the acquisition of three wholly-owned subsidiaries:
Advanced Control Technology, Inc. ("ACT"), acquired as a purchase as of January
1, 1996, had revenue for the current six month period of $3,875,000; Vision
Engineering Corp. ("VEC"), acquired also as a purchase as of May 1, 1996, had
revenue of $4,740,000 during the six month period and All-Control Systems, Inc.
(ACS), acquired also as a purchase as of December 1, 1996, added revenue in
1996 of $1,565,000. Topro Systems Integration, Inc. ("TSI") had an increase in
revenue of $472,000, from $4,517,000 in 1995 to $4,989,000 in 1996. Management,
Design and Consulting Services, Inc.'s ("MDCS") revenue for the six months
ended December 31, 1996 was $935,000, an increase of $75,000 over the
comparable period in 1995 ($860,000). The Company's order backlog at December
31, 1996 was $13,986,000 ($4,271,000 in TSI, $4,070,000 in ACT, $443,000 in
VEC, $4,898,000 in ACS and $304,000 in MDCS). This compares to a total backlog
of $ 8,837,000 as of June 30, 1996.
GROSS PROFIT MARGIN in the current period was 34% of revenue ($5,424,000)
compared to 31% ($1,676,000) for the six months ended December 31, 1995. The
additions of ACT, VEC, and ACS contributed $4,013,000 to the increased gross
margin: $1,228,000 from ACT ( 32% of revenue), $2,271,000 from VEC (48% of
revenue), and $515,000 from ACS (33% of revenue ). TSI's gross profit margin
was 22% ($1,078,000), a decrease from 29% in the previous year ($1,297,000).
MDCS had a gross profit margin of 36% ($332,000) in the six months ended
December 31, 1996 as compared to 44% ($379,000) in the 1995 six month period.
The improvement of gross margin percentage of two points in attributable to the
higher range (32% to 48%) of margins in each of the Company's subsidiaries.
TSI's gross margin decrease is attributed to a number of waste-water projects
that have not performed well. They are substantially completed at the end of
the second quarter. MDCS's gross margin decreased due to two large jobs with
lower than normal levels of earnings. One project is substantially completed
while the other will affect the margins in the third and fourth quarter.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A) increased $3,370,000
from $1,522,000 in the 1995 period to $4,892,000 in the six months ended
December 31, 1996. The acquisitions accounted for $3,338,000 of the increase,($
1,045,000 from ACT, $1,918,000 from VEC and $375,000 from ACS). TSI's SG&A
decreased $51,000 from $1,271,000 in the 1995 period to $1,220,000 currently.
MDCS increased $83,000 from $251,000 to $334,000. SALES EXPENSES increased
$786,000 from $286,000 in 1995 to $1,073,000 in 1996. Significant increases are
associated with the ACT acquisition resulting in $393,000 additional costs,
with the VEC acquisition adding $249,000 currently, and with the ACS
acquisition adding $95,000. The selling expense for Topro increased by $3,000
to $289,000 as compared to $286,000 in 1995. MDCS's sales expense was $47,000
in the six month period ending December 31, 1996. There was no selling expense
allocated by MDCS in the 1995 period. GENERAL AND ADMINISTRATIVE EXPENSE
increased $2,584,000, from $1,235,000 in the 1995 period compared to $3,819,000
currently. Of this increase $652,000 is associated with the ACT purchase,
$1,669,000 is from the acquisition of VEC and $279,000 from the acquisition of
ACS. TSI's expense in the six months ended December 31, 1996 decreased $53,000
to $931,000 from $984,000 in the 1995 period. MDCS operations accounted for
$37,000 of the increase as its G&A was $288,000 in the current period compared
to $250,000 in 1995. It should be noted that the decrease in TSI expense is
attributable to allocations to the other subsidiaries. On the other hand the
assimilation of three new subsidiaries in less than a year has added, in the
short run, to the overall expenses of the Company
16
<PAGE> 17
GOODWILL AMORTIZATION resulting from the acquisitions totaled $174,000.
INTEREST EXPENSE increased $322,000 in the six months ended December 31,
1996 from $57,000 in 1995 to $379,000 in 1996. $254,000 of the increase is
attributable to the inclusion of the acquired subsidiaries, ACT ($153,000), VEC
($87,000), and ACS ($14,000). TSI accounted for $68,000 of the increase from
$57,000 in 1995 to $125,000 in 1996. As of December 31, 1996 there is
$1,324,000 of short and long term debt carried by ACT, $1,154,000 by VEC,
$785,000 by ACS and $5,293,000 by the parent company. MDCS has no short or long
term debt.
OTHER INCOME decreased $69,000 in the six months ended December 31, 1996
over the same period in 1995. There was a $79,000 gain from the sale of assets
in the 1995 period.
LOSSES OF THE CONTROL SYSTEMS OPERATIONS was $4,000 for the six months
ended December 31, 1996, compared to a profit of $183,000 in the 1995 period, a
decrease of $187,000. The net income from ACT, VEC and ACS total $253,000 ( a
loss of $52,000 from ACT, $178,000 profit from VEC and $127,000 profit from
ACS) while TSI had an earnings decrease of $310,000 from the $55,000 profit
earned in 1995 (to a net loss of $255,000 in the current six months ended
December 31, 1996). MDCS lost $2,000 in the current period, a net decrease of
$130,000 from the $128,000 earned in the six months ended December 30, 1995.
LOSS FROM CONTINUING OPERATIONS inclusive of the distribution
business(Tech Sales, Inc., which was discontinued in 1995), resulted in a loss
of $237,000 for 1995. This compares with a loss of $4,000 for the six months
ended December 31, 1996 an improvement of $233,000. The distribution business
contributed a net loss in the period ended December 31, 1995 of $419,000.
17
<PAGE> 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Kevin Fallon, formerly president and CEO of ACS closed by the
Company on February 7, 1997, has been elected Vice President and
Chief Operating Officer of Topro, Inc. and will be employed for
an initial term expiring February 6, 1999.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
10.1 Employment Agreement with Kevin Fallon. Filed herewith
10.2 Press release dated February 19, 1997. Filed herewith
10.3 Press release dated February 19,1997. Filed herewith
11.1 Computation of Earnings per Share.
27 Financial Data Schedule.
b) Reports on From 8-K. During the quarter covered by this
report, the Company filed the following reports on Form
8-K.
Form 8-K dated November 27, 1996 reporting information
pursuant to Item 5 was filed on December 13, 1996. No
financial statements were required. Form 8-K dated
December 18, 1996 reporting information pursuant to Item 5
was filed on December 18, 1996. No financial statements
were required.
18
<PAGE> 19
SIGNATURES
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.
TOPRO, INC.
(Registrant)
Date: February 19, 1997 /s/ John Jenkins
-------------------- ---------------------------------------
John Jenkins
President, Chief Executive Officer
And Principal Financial and Accounting
Officer
19
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.1 Employment Agreement with Kevin Fallon. Filed herewith
10.2 Press release dated February 19, 1997. Filed herewith
10.3 Press release dated February 19,1997. Filed herewith
11.1 Computation of Earnings per Share.
27 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into as of December 31, 1996, to
become effective as set forth below, by and between Topro, Inc., a Colorado
corporation (the "Employer" or "Company") and Kevin Fallon (the "Employee").
In consideration of the mutual covenants contained in this Agreement, the
Employer agrees to employ the Employee, and the Employee agrees to be employed
by the Employer, upon the terms and conditions hereinafter set forth.
WHEREAS, pursuant to an Agreement of Merger ("Merger Agreement") dated
December 31, 1996, All Control Systems, Inc. ("ACS"), a Pennsylvania
corporation of which Employee is the Chief Executive Officer, will become and
will operate as a subsidiary of the Company;
WHEREAS, since December 1, 1996, ACS and its operations effectively
have been controlled by and for the benefit of Employer;
WHEREAS, the Company believes Employee has particular knowledge and
expertise concerning the industry and business in which the Company and ACS are
engaged, desires to employ Employee to serve as the Chief Operating Officer of
the Company following the Company's acquisition of ACS, and Employee desires to
be so employed;
WHEREAS, In the event the Merger Agreement is not consummated, the
Employer and the Employee desire to provide compensation to ACS for the
services provided by Employee since December 1, 1996;
THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the Employer agrees to employ the Employee and the Employee agrees
to be employed by the Employer upon the terms and conditions hereinafter set
forth.
SECTION I
TERM OF EMPLOYMENT
1.1 Initial Term. The initial term of this Agreement shall be two
years (unless sooner terminated under Article V) and will commence on the
Closing Date of the Merger Agreement (such date hereafter referred to as the
"Commencement Date"). If the Merger Agreement is not consummated, this
Agreement will be void ab initio, except for the provisions of Subsection 1.3,
Section IV and Section VII hereof, which shall be effective upon execution of
this Agreement.
1.2 Renewal; Notice of Non-Renewal. At the end of the initial
term of this Agreement, and on each anniversary thereafter, the term of
Employee's employment automatically will be extended for one additional year
unless, at least 90 days before such anniversary, the Employer or the Employee
shall have delivered to the other written notice that this Agreement will not
be extended.
1.3 Services Prior to Commencement Date. As of December 1, 1996,
with the knowledge and approval of ACS and in anticipation of the closing of
the transaction contemplated by the Letter of Intent and the Merger Agreement,
Employee has devoted substantial time and effort to activities which are for
the common benefit of ACS and Employer. Recognizing that ACS and its operations
effectively have been controlled by and for the benefit of Employer since that
date, if for any reason the Merger Agreement is not consummated, Employer will
reimburse ACS for salary and benefits paid to Employee from December 1, 1996
through the date of termination of the Merger Agreement.
SECTION II
DUTIES OF THE EMPLOYEE
2.1 Duties. The Employee shall be employed as the Company's Vice
President and Chief Operating Officer, and as the President of ACS, with the
responsibilities and authority customary for such officers including, but not
limited to, those duties as from time to time may be assigned to Employee by
the Company's Chief Executive Officer ("CEO") and the Board of Directors.
Employee shall have responsibility and authority for directing and managing all
of the Company's operations, including the Company's sales, marketing and
engineering operations, and
<PAGE> 2
shall be responsible for operations of the Company within the strategic
guidelines and budgets approved by the Board of Directors. Employee shall also
manage the Company's Human Relations functions, including benefit program
administration and regulatory compliance, and will supervise the Company's
accounting and human relations staff. Employee shall not be responsible for
finance and accounting functions. Employee shall report directly to the CEO of
the Company.
2.2 Full Time Employment. Employee shall devote all of his
working time, efforts, attention and energies to the business of the Employer.
SECTION III
COMPENSATION OF THE EMPLOYEE
3.1 Base Compensation. As compensation for services rendered
under this Agreement, the Employee will be paid an annual base salary of not
less than $150,000, to be paid in accordance with Employer's normal payroll
practices. The annual base salary specified herein may be increased from time
to time at the discretion of the Employer's Board of Directors. If increased,
the Employee's annual base salary shall not thereafter be decreased without the
Employee's consent. The Employee's annual base salary shall not be deemed
exclusive compensation and shall not prevent Employee from participating in any
other compensation or benefit plan of Employer.
3.2 Short-Term Incentive Compensation Program. Employee shall be
eligible to participate in any performance bonus program which may be
established by the Company for its officers. The program currently
contemplated would provide the opportunity for officers, including Employee, to
earn annual bonuses which would average 50% of base salary over a five year
term. As of the date of this Agreement, such program has not been fully
designed and adopted. Participation in any such program, if adopted, shall not
preclude Employee from receiving additional bonus or incentive compensation
granted in accordance with Company programs or in the discretion of the Board
of Directors. During the term of this Agreement, Employee shall be guaranteed
a minimum annual bonus of $18,000 in year one of this Agreement and $15,000 in
year two of this Agreement, which bonuses shall become part of the performance
bonus program once established. Such bonuses shall be paid on a quarterly
basis.
3.3 Long-Term Incentive Compensation Program. Employee shall
receive incentive compensation for his services hereunder through the grant of
stock purchase options (the "Options") as set forth herein. Employee
understands that the Options and underlying Shares are "restricted securities"
under the Securities Act of 1933 and applicable state statutes. Employee
agrees to execute an investment representation letter to acknowledge his
understanding of the terms of the grant and the characteristics of this
investment in securities. Employee further understands and agrees that the
provisions of the "lock-up" agreement entered into by Employee in connection
with the Merger Agreement shall apply to the shares of Common Stock underlying
the Options. On the Commencement Date, the Company shall grant to Employee
Options exercisable as set forth herein to purchase 200,000 shares of the
Company's Common Stock at a per share price of $2.25. The Options shall be
exercisable commencing on the Commencement Date and thereafter for a period
-2-
<PAGE> 3
of ten years provided that no Option shall become exercisable if the
Employee's employment has been terminated, or if Notice of Termination
(hereafter defined) has been given by Employee or Employer, before the initial
exercise dates specified below:
a. on the day following the Commencement Date, Options shall
become exercisable to purchase an aggregate of 66,667 shares of Common
Stock;
b. on the day following the first anniversary of the Commencement
Date, Options shall become exercisable to purchase an aggregate of
66,667 shares of Common Stock; and
c. on the day following the second anniversary of the
Commencement Date, Options shall become exercisable to purchase an
aggregate of 66,666 shares of Common Stock.
3.4 Benefits.
a. Employee shall be entitled to paid vacation and all paid
holidays customarily extended to executive employees, and shall be
entitled to a minimum of four weeks paid vacation during the first
year of this Agreement. Employee shall be entitled to participate in
all of Employer's employee benefit plans and employee benefits,
including any retirement, 401(k), pension, profit-sharing, stock
option, insurance, hospital or other plans and benefits which now may
be in effect or which may hereafter be adopted, it being understood
that Employee shall have the same rights and privileges to participate
in such plans and benefits as any other executive employee.
Participation in any benefit plans shall be in addition to the
compensation otherwise provided for in this Agreement.
b. Employer shall provide an automobile allowance of $500 per
month to Employee, plus reimbursement for business related auto
expenses.
c. Employer will reimburse Employee for fees and reasonable
expenses associated with Employee's membership in the Young Presidents
Organization and associated with Employee's continuing education.
3.5 Expenses. Employee shall be reimbursed promptly for all
reasonable expenses incurred by Employee in the performance of his duties
hereunder following Employer's customary practice.
3.6 Term Life Insurance. Employer will pay the premiums on a term
life insurance policy on Employee's life with a death benefit of at least
$250,000. Employer shall be the owner of such policy. However, Employee shall
have right to designate the beneficiary under such policy.
3.7 Relocation Expenses. Employer shall pay Employee's reasonable
expenses for relocating one residence. Such expenses shall include, but not be
limited to, sales commissions, moving expenses, temporary living expenses,
house-hunting travel and closing costs on a new home. All expenses are subject
to the prior approval of Employer's CEO.
-3-
<PAGE> 4
3.8 Non-Exclusive Provisions. None of the provisions of this
Section III shall be deemed to limit additional compensation which the
Employer's Board of Directors may grant to Employee.
SECTION IV
NON-COMPETITION; CONFIDENTIALITY
4.1 The Employee will offer to the Employer any investment or
other opportunity of which he becomes aware in the process control and systems
integration industries (including, without limitation, software product
development) or in the other areas of business in which the Company operates.
If the Board of Directors of the Employer takes no action for 30 days from the
date of receipt of the offer, or refuses the opportunity during such 30 day
period, to participate in such investment or other opportunity, the Employee
may do so as permitted by Section 4.2 hereof and otherwise only if the
Employer's Board of Directors consents thereto.
4.2 Notwithstanding the above, the Employee may make passive
investments in companies involved in the process control and systems
integration industries or other industries in which the Company operates,
provided any such investment does not exceed a 5% equity interest. Employee
may acquire an equity interest exceeding 5% only if a majority of the
Employer's Board of Directors consents thereto.
4.3 Except as provided in Sections 4.1 and 4.2 hereof, during the
term of this Agreement the Employee may not participate in the process control
or systems integration industries or other areas of business in which the
Company is engaged except through and on behalf of the Company.
4.4 a. The Employee recognizes and acknowledges that the
information, business, customer list and any other trade secret or
other secret or confidential information relating to Employer's
business as they may exist from time to time are valuable, special and
unique assets of Employer's business. Therefore, Employee agrees as
follows:
(i) that Employee will hold in strictest confidence and
not disclose, reproduce, publish or use in any manner, whether
during or subsequent to this employment, without the express
authorization of the Board of Directors of the Employer, any
information, business, customer lists of other employees of
Employer, or any other secret or confidential matter relating
to any aspect of the Employer's business, except as such
disclosure or use may be required in connection with
Employee's work for the Employer;
(ii) that upon request or at the time of leaving the
employ of the Employer the Employee will deliver to the
Employer, and not keep or deliver to anyone else, any notes,
memoranda, documents and, in general, any and all material
relating to the Employer's business; and
-4-
<PAGE> 5
(iii) that the Board of Directors of Employer may from time
to time designate other subject matters requiring
confidentiality and secrecy that shall be covered by the terms
of this Agreement.
b. The restrictions imposed by this Section 4.4 shall not apply
to information which is publicly disclosed by the Company or otherwise
within the public domain through no fault or action or failure to act
of Employee or rightfully received by Employee from a third party
without restrictions on disclosure or use.
c. In the event of Employee's breach or threatened breach of the
provisions of this paragraph 4.4, the Employer shall be entitled to an
injunction (i) restraining the Employee from disclosing, in whole or
in part, any information as described above or from rendering any
services to any person, firm, corporation, association or other entity
to whom such information, in whole or in part, has been disclosed or
is threatened to be disclosed, and/or (ii) requiring that Employee
deliver to Employer all information, documents, notes, memoranda and
any other material as described above upon Employee's leave of the
employ of the Employer. Nothing herein shall prohibit the Employer
from pursuing other remedies available to the Employer for such breach
or threatened breach, including the recovery of damages from the
Employee.
d. In addition to the confidential information described above,
Employee agrees that prior to the Commencement Date, the existence of
this Agreement is considered by the Company to be confidential and
Employee agrees not to disclose this Agreement or Employee's
contemplated employment by the Company to any party prior to the
Company's announcement of these matters.
SECTION V
TERMINATION OF EMPLOYMENT
5.1 Termination. The Employee's employment hereunder may be
terminated without any breach of this Agreement only under the following
circumstances:
a. By Employee. Upon the occurrence of any of the following
events, this Agreement may be terminated by the Employee by written
notice to Employer:
(i) if Employer makes a general assignment for the
benefit of creditors, files a voluntary bankruptcy petition,
files a petition or answer seeking a reorganization,
arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any law, or any petition
or application for the involuntary bankruptcy of Employer, or
other similar proceeding, has been filed in which an order for
relief is entered or which remains undismissed for a period of
thirty days or more, or Employer seeks, consents to, or
acquiesces in the appointment of a trustee, receiver, or
liquidator of Employer or any material part of its assets;
-5-
<PAGE> 6
(ii) the sale by Employer of substantially all of its
assets;
(iii) the merger or consolidation of Employer with another
entity or an agreement to such a merger or consolidation or
any other type of reorganization;
(iv) there are material changes in Employee's duties and
responsibilities without his written consent;
(v) a decision by Employer to terminate its business and
liquidate its assets;
(vi) a Change in Control of Employer, if Employee makes an
election to terminate this Agreement within 90 days thereof.
"Change in Control" shall mean a change in at least 30% of
voting control of Employer, or a change in a majority of the
Employer's Board members after May 1997; or
(vii) Employer's breach of any of the terms of this
Agreement which breach is not cured by Employer after notice
from Employee.
b. Death. This Agreement shall terminate upon the death of
Employee.
c. Disability. The Employer may terminate this Agreement due to
Employee's permanent disability only in accordance with Employer's
policy applicable to other employees.
d. Cause. The Employer may terminate the Employee's employment
hereunder immediately for Cause. For purposes of this Agreement, the
Employer shall have "Cause" to terminate the Employee's employment
hereunder only upon the following: (i) the continued failure by the
Employee substantially to perform his duties hereunder (other than any
such failure resulting from the Employee's incapacity due to physical
or mental illness), after demand for substantial performance is
delivered by the Employer; or (ii) misconduct by the Employee that is
deemed by the Board of Directors to be harmful to the Employer,
monetarily or otherwise; or (iii) the violation by the Employee of the
provisions of this Agreement.
e. By Employer Other than for Cause. The Company shall have the
right to terminate Employee's employment hereunder other than for
Cause upon not less than 30 days' prior written notification to
Employee.
5.2 Delivery of Notice of Termination. Any termination of the
Employee's employment by the Employer or by the Employee (other than
termination pursuant to subsection 5.1 (b) above) shall be communicated by
written notice ("Notice of Termination") delivered to the other party in
accordance with Section 7.5 hereof.
-6-
<PAGE> 7
5.3 Date of Termination. "Date of Termination" shall mean (i) if
the Employee's employment is terminated by his death, the date of his death;
(ii) if the Employee's employment is terminated for any other reason, the date
specified in a Notice of Termination by Employer or Employee; and (iii) if the
Employee's employment is effectively terminated due to notice of non-renewal
delivered by the Employer in accordance with Section 1.2, the last day of the
initial term of this Agreement.
5.4 Payments Following Termination or Non-renewal.
a. Following the termination of this Agreement by Employee
pursuant to Sections 5.1 (a) or by Employer for Cause pursuant to
Section 5.1 (d), the Employee shall be entitled to compensation only
through the Date of Termination.
b. Following the termination of this Agreement due to Employee's
death pursuant to Section 5.1(b), Employer shall pay to Employee's
estate the compensation that would otherwise be payable through the
end of the month in which his death occurs. In addition, in the event
no life insurance policy is in force at the time of Employer's death
as required by Section 3.6, Employee's estate shall receive
compensation for 12 months following Employee's death.
c. Upon temporary or permanent disability of the Employee as
described in Section 5.1 (c) hereof, whether or not the Employer
elects to terminate this Agreement, Employee shall receive such
compensation and benefits, if any, as are payable to employees
generally in accordance with the policy of Employer.
d. If this Agreement is terminated by Employer other than for
Cause pursuant to Section 5.1(e), Employer shall continue to pay to
the Employee his base salary as then in effect for a period of 12
months following the date on which Notice of Termination is delivered
to Employee; provided, however, that if the Notice of Termination is
received within six months following a Change in Control (as defined
below) of Employer, then Employer shall continue to pay to the
Employee his base salary as then in effect for a period of 18 months
following the date on which Notice of Termination is delivered to
Employee. Change in Control is defined as a change in at least 30% of
voting control of Employer, or a change in a majority of the Employers
Board members after May 1997. Payments under this Section 5.4(d)
shall constitute severance pay.
e. In the event this Agreement is not renewed by Employer at the
end of the initial term, Employer shall continue to pay to the
Employee his base salary as then in effect for a period of nine months
following the Date of Termination.
5.5 Remedies. Any termination of this Agreement shall not
prejudice any other remedy to which the Employer or Employee may be entitled,
either at law, equity, or under this Agreement.
-7-
<PAGE> 8
SECTION VI
INDEMNIFICATION
6.1 Indemnification. To the fullest extent permitted by
applicable law, Employer agrees to indemnify, defend and hold Employee harmless
from any and all claims, actions, costs, expenses, damages and liabilities,
including, without limitation, reasonable attorneys' fees, hereafter or
heretofore arising out of or in connection with activities of Employer or its
employees, including Employee, or other agents in connection with and within
the scope of this Agreement or by reason of the fact that he is or was a
director or officer of Employer or any affiliate of Employer. To the fullest
extent allowed by applicable law, Employer shall advance to Employee expenses
of defending any such action, claim or proceeding. However, Employer shall not
indemnify Employee or defend Employee against, or hold him harmless from any
claims, damages, expenses or liabilities, including attorneys' fees, resulting
from the gross negligence or willful misconduct of Employee. The duty to
indemnify shall survive the expiration or early termination of this Agreement
as to any claims based on facts or conditions which occurred or are alleged to
have occurred prior to expiration or termination.
SECTION VII
GENERAL PROVISIONS
7.1 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Colorado.
7.2 Arbitration. Any controversy or claim arising out of or
relating to this Agreement or the breach thereof shall be settled by
arbitration in the City and County of Denver, Colorado in accordance with the
rules then existing of the American Arbitration Association and judgment upon
the award may be entered in any court having jurisdiction thereof.
7.3 Entire Agreement. This Agreement supersedes any and all other
Agreements, whether oral or in writing, between the parties with respect to the
employment of the Employee by the Employer. Each party to this Agreement
acknowledges that no representations, inducements, promises, or agreements,
orally or otherwise, have been made by either party, or anyone acting on behalf
of any party, that are not embodied in this Agreement, and that no agreement,
statement, or promise not contained in this Agreement shall be valid or
binding.
7.4 Successors and Assigns. This Agreement, all terms and
conditions hereunder, and all remedies arising herefrom, shall inure to the
benefit of and be binding upon Employer, any successor in interest to all or
substantially all of the business and/or assets of Employer (whether by merger,
consolidation or otherwise), and the heirs, administrators, successors and
assigns of Employee. Except as provided in the preceding sentence, the rights
and obligations of the parties hereto may not be assigned or transferred by
either party without the prior written consent of the other party.
-8-
<PAGE> 9
7.5 Notices. For purposes of this Agreement, notices, demands and
all other communications provided for in this Agreement shall be in writing and
shall be deemed given if delivered by hand or overnight courier or mailed by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other addresses for a party as shall be
specified by like notice), and shall be deemed given on the date on which so
hand-delivered, or on the business day following the day on which sent by
overnight courier, or on the third business day following the date on which so
mailed:
If to Employee: Kevin Fallon
c/o Jay Starr, Esq.
6 South Bryn Mawr Ave.
Suite 101
Bryn Mawr, PA 19010
If to Employer: Topro, Inc.
Attn: John Jenkins, President and CEO
2626 West Evans Avenue
Denver, CO 80219
7.6 Severability. If any provision of this Agreement is
prohibited by or is unlawful or unenforceable under any applicable law of any
jurisdiction as to such jurisdiction, such provision shall be ineffective to
the extent of such prohibition without invalidating the remaining provisions
hereof.
7.7 Section Headings. The section headings used in this Agreement
are for convenience only and shall not affect the construction of any terms of
this Agreement.
7.8 Survival of Obligations. Termination of this Agreement for
any reason shall not relieve Employer or Employee of any obligation accruing or
arising prior to such termination.
7.9 Amendments. This Agreement may be amended only by written
agreement of both Employer and Employee.
7.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original but all of which, when
taken together, shall constitute only one legal instrument. This Agreement
shall become effective when copies hereof, when taken together, shall bear the
signatures of both parties hereto. It shall not be necessary in making proof
of this Agreement to produce or account for more than one such counterpart.
7.11 Fees and Costs. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorneys fees, costs and necessary
disbursements in addition to any other relief to which that party may be
entitled.
IN WITNESS WHEREOF, the Employer and the Employee have executed this
Agreement to be effective as set forth above.
-9-
<PAGE> 10
"EMPLOYER"
TOPRO, INC.
By /s/ John Jenkins
-------------------------------
John Jenkins, President and CEO
"EMPLOYEE"
By /s/ Kevin Fallon
-------------------------------
Kevin Fallon
-10-
<PAGE> 1
Exhibit 10.2
FOR IMMEDIATE RELEASE NEWS
February 19, 1997 Nasdaq Small Cap-TPRO
TOPRO ANNOUNCES APPOINTMENT OF CHIEF OPERATING OFFICER
DENVER, Colorado - Topro, Inc. (Nasdaq-TPRO), a leading provider of automation
and information, technology solutions to industry, today announced the
appointment of Kevin Fallon as chief operating officer.
Fallon was the founder and president of All-Control Systems (ACS), a West
Chester, Pennsylvania-based provider of factory control and information system
integration that was recently acquired by Topro.
Fallon's primary responsibility will be to guide Topro in the effective
consolidation and operations of the three major acquisitions made by the Company
in the past year.
During his tenure at ACS, the company became ISO-9001 qualified, a first for the
independent control system integrator industry. The Company twice won the
Philadelphia Top 100 Fastest Growing Companies award.
John Jenkins, president of Topro, said Fallon's industry specific general
management experience will be critical to his work at Topro. "We believe
Kevin's experience will help us accelerate the process of effectively
assimilating our new business units and help assure the efficient operations of
the overall Company."
Prior to ACS, Fallon was with General Electric. He has undergraduate and
graduate degrees from Drexel and Wharton, respectively.
Jenkins noted that as part of the acquisition and consolidation process, Topro
has initiated a search for a Chief Financial Officer.
Statements made in this news release that are not historical facts may be
forwarded looking statements. Actual events may differ materially from those
projected in any forward looking statement. There are a number of important
factors beyond the control of the Company that could cause actual events to
differ materially from those anticipated by any forward looking information. A
description of risks and uncertainties attendant to Topro and its industry and
other factors which could affect the Company's financial results are included in
the Company's Securities and Exchange Commission Filings.
/ / /
CONTACTS:
TOPRO, Inc. Pacific Consulting Group
John Jenkins, CEO Scott Liolios
303/935-1221 714/574-3860
<PAGE> 1
EXHIBIT 10.3
Draft 3
FOR IMMEDIATE RELEASE NEWS
- ---------------------
February 19, 1997 Nasdaq Small Cap - TPRO
TOPRO, INC. REPORTS SECOND QUARTER AND SIX-MONTH RESULTS
ACQUISITIONS LEAD TO STRONG REVENUE GAINS
DENVER, Colorado - Topro, Inc. (Nasdaq-TPRO), a leading provider of automation
and information technology solutions to industry, today announced results for
its second quarter and six-month period ended December 31, 1996.
Second quarter revenue advanced 178% to $8,137,000 from $2,927,000 in the
second quarter last year. The Company reduced its net loss to $84,000 or 1
cent per share, compared with a net loss of $481,000, of 12 cents per share, in
the prior year period.
Through six months, Topro reported a 200% increase in revenue to $16,104,000
versus revenue of $5,377,000 in the prior year period. Net loss through six
months was $4,000, or less than 1 cent per share, versus a net loss of $622,000,
or 17 cents per share, in the comparable six month period.
"We are pleased with the sharp increase in revenue, however, these results do
not yet reflect the full impact of our acquisition program," said John Jenkins,
CEO. He explained that only one month of contributions from recently acquired
Advanced Control Systems (ACS) is included in the Company's second quarter
results. ACS, a major provider of factory control and information system
integration, reported approximately $10 million in revenue in 1995.
Jenkins said gross margin as a percent of sales was off slightly from recent
levels due to an unfavorable product mix. "One of our business units recently
completed two low-margin water treatment projects that were started nearly two
years ago," Jenkins said. "Additionally, we experienced a delayed ramp-up on a
large project for Matsushita. The combination of these factors contributed
significantly to our loss in the quarter."
Jenkins also noted that the December ended quarter is typically a lower
performing period due to the impact of the holiday season. He said management
expects margins to move higher in the balance of the year, as the Company's $14
million December backlog reflects a more favorable product mix.
"Demand for our products and services remains strong," Jenkins said.
"Additionally, the assimilation of the companies we have acquired in the past
12 months is progressing very well. We are already executing a number of large
projects on a shared resource basis across a number of our new locations."
Topro has acquired three systems integrators since August of 1995 -- MDCS of
Atlanta, Ga.; ACT of Albany, Ore.; Vision Engineering of Cyprus, Calif.; and
ACS, which is based in West Chester, Pa.
Continued on page 2
<PAGE> 2
Page 2 of 2
Statements made in this news release that are not historical facts may be
forward looking statements. Actual events may differ materially from those
projected in any forward looking statement. There are a number of important
factors beyong the control of the Company that could cause actual events to
differ materially from those anticipated by any forward looking information. A
description of risks and uncertainties attendant to Topro and its industry and
other factors which could affect the Company's financial results are included
in the Company's Securities and Exchange Commission Filings.
<TABLE>
<CAPTION>
EARNINGS RECAP THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenue:
Control Systems Integration $ 8,137,000 $ 2,927,000 $ 16,104,000 $ 5,377,000
Distributorship -- 335,000 -- 608,000
Totals 8,137,000 3,262,000 16,104,000 5,985,000
Cost of Sales
Control Systems Integration 5,598,000 2,099,000 10,680,000 3,701,000
Distributorship -- 250,000 -- 403,000
Totals 5,598,000 2,349,000 10,680,000 4,104,000
Gross Profit 2,539,000 913,000 5,424,000 1,881,000
Expenses:
Sales expenses 475,000 147,000 1,073,000 286,000
G&A expense 1,871,000 629,000 3,819,000 1,236,000
Distributership Selling and
Other Expenses -- 410,000 -- 624,000
Totals 2,346,000 1,186,000 4,892,000 2,146,000
Other income (expense):
Gain on sales of assets 7,000 79,000 4,000 79,000
Interest expense (206,000) (17,000) (378,000) (57,000)
Other 9,000 6,000 12,000 6,000
Goodwill Amortization (87,000) -- (174,000) --
Totals (277,000) 68,000 (536,000) 28,000
Income (Loss) From Continuing
Operations Before Income Taxes (84,000) (205,000) (4,000) (237,000)
Discontinued Operations:
Income (Loss) From Discontinued
Operations - Sharp -- -- -- --
Loss On Disposal - Sharp -- (276,000) -- (385,000)
Net Income (Loss) $ (84,000) $ (481,000) $ (4,000) $ (622,000)
Primary Earnings (Loss) Per Share:
Continuing operations $ (.01) $ (.05) $ 0 $ (.06)
Discontinued operations $ 0 $ (.07) $ 0 $ (.11)
Net income (loss) $ (.01) $ (0.12) $ 0 $ (.17)
Weighted avg. shs. outst 7,796,321 3,891,354 7,221,023 3,703,898
</TABLE>
CONTACTS:
Topro, Inc. Pacific Consulting Group
John Jenkins, CEO Scott Liolios
303/935-1221 714/719-6494
<PAGE> 1
EXHIBIT 11.1
TOPRO, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
DECEMBER 31
----------------------------
1995 1996
------------ ------------
<S> <C> <C>
Primary:
Income (loss):
Continuing operations $ (236,545) $ (4,381)
Discontinued operations (385,380) --
------------ ------------
$ (21,925) $ (4,381)
============ ============
Shares:
Weighted number of common shares outstanding 3,703,898 7,221,023
Add - Dilutive effect of outstanding options and warrants
determined by the application of the treasury stock -- --
------------ ------------
3,703,898 7,221,023
============ ============
Primary earnings per share:
Continuing operations $ (0.05) $ 0.00
Discontinued operations $ (0.07) $ 0.00
------------ ------------
$ (0.12) $ 0.00
============ ============
* Less than $.01 per share
Reconciliation of net income (loss) to amount used for fully
diluted computation
Income (loss) per primary computation above
Continuing operations $ (236,545) $ (4,381)
Discontinued operations (385,380) --
------------ ------------
$ (621,925) $ (4,381)
Add: Interest on 9% Convertible Debenture -- 157,500
Interest on 10% Senior Convertible Debenture -- 17,500
------------ ------------
$ (621,925) $ 170,619
============ ============
Reconciliation of weighted average number of shares outstanding
to amount used for fully diluted computation:
Weighted number of common shares outstanding 3,703,898 7,221,023
Add: Dilutive effect of outstanding options and warrants (as
determined by the application of the treasury stock -- 1,342,455
Shares issuable from assumed exercise of convertible -- 3,655,721
------------ ------------
3,703,898 12,219,199
============ ============
Fully diluted earnings per share:
Continuing operations $ (0.05) $ 0.01
Discontinued operations $ (0.07) $ 0.00
------------ ------------
$ (0.12) $ 0.01(a)
============ ============
</TABLE>
* Less than $.01 per share
(a) Effect is antidilutive, therefore not presented in statement of operations
20
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 545,963
<SECURITIES> 0
<RECEIVABLES> 8,660,719
<ALLOWANCES> 0
<INVENTORY> 4,118,397
<CURRENT-ASSETS> 13,869,692
<PP&E> 4,367,700
<DEPRECIATION> 1,509,910
<TOTAL-ASSETS> 27,159,674
<CURRENT-LIABILITIES> 13,544,202
<BONDS> 0
0
0
<COMMON> 955
<OTHER-SE> 7,199,771
<TOTAL-LIABILITY-AND-EQUITY> 27,159,674
<SALES> 16,104,219
<TOTAL-REVENUES> 16,104,219
<CGS> 10,680,235
<TOTAL-COSTS> 4,891,658
<OTHER-EXPENSES> 158,212
<LOSS-PROVISION> 23,140
<INTEREST-EXPENSE> 378,495
<INCOME-PRETAX> (4,381)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,381)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,381)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
