<PAGE>
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 MARCH 31, 1997
-----------------------------------
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number 0-19167
TOPRO, INC.
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(Exact name of registrant as specified in its charter)
COLORADO 84-1042227
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(State of Incorporation) (IRS Employer ID Number)
2525 WEST EVANS AVENUE DENVER, COLORADO 80219
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(Address of principal executive offices) (city) (state) (zip code)
(303) 935-1221
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Registrant's telephone number including area code
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(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 NO X
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The number of shares outstanding of the Registrant's $0.0001 par value common
stock on May 14, 1997 was 11,708,473.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS.
TOPRO, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1997 March 31, 1997
June 30,1996 (Historical) (Pro forma)
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(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 236,000 $ 30,000 $ 1,230,000
Receivables:
Trade, net of allowance for doubtful accounts 6,801,000 9,387,000 9,387,000
Refundable income taxes 222,000 3,000 3,000
Other receivables 54,000 20,000 20,000
Costs and estimated earnings in excess of
billings on uncompleted contracts 2,837,000 6,852,000 6,852,000
Inventories 148,000 302,000 302,000
Prepaid expenses 173,000 310,000 310,000
Assets of discontinued operations 526,000 180,000 180,000
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Total current assets 10,997,000 17,084,000 18,284,000
PROPERTY AND EQUIPMENT, AT COST:
Building and land 850,000 850,000 850,000
Furniture and equipment 2,516,000 2,863,000 2,863,000
Leasehold improvements 743,000 765,000 765,000
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4,109,000 4,478,000 4,478,000
Accumulated depreciation (1,285,000) (1,768,000) (1,768,000)
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Net property and equipment 2,824,000) 2,710,000 2,710,000
CAPITALIZED SOFTWARE COSTS, NET OF AMORTIZATION 572,000 2,009,000 2,009,000
OTHER ASSETS
Other assets 155,000 254,000 254,000
Debt issuance costs, net of amortization 354,000 437,000 437,000
Excess of cost over fair value of assets
acquired, net of amortization 5,111,000 8,380,000 8,380,000
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TOTAL ASSETS $20,013,000 $30,874,000 $32,074,000
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</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
TOPRO, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,1996 March 31, 1997 March 31, 1997
(Historical) (Pro forma)
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(Unaudited)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 1,019,000 $ 492,000 $ 492,000
Current portion of long-term debt:
Related parties 230,000 173,000 173,000
Financial institutions and other 975,000 1,739,000 1,739,000
Capital lease obligations 56,000 75,000 75,000
Accounts payable 5,915,000 8,038,000 6,838,000
Billings in excess of costs and estimated earnings
on uncompleted contracts 1,582,000 4,057,000 4,057,000
Accrued expenses 2,155,000 1,770,000 1,770,000
Deferred gain 24,000 24,000 24,000
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Total current liabilities 11,956,000 16,368,000 15,168,000
LONG-TERM DEBT, NET OF CURRENT PORTION
Financial institutions and other 4,859,000 5,376,000 5,376,000
Capital lease obligations 151,000 146,000 146,000
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Total long-term debt 5,010,000 5,522,000 5,522,000
DEFERRED GAIN 45,000 30,000 30,000
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.0001 per share; authorized
10,000,000 shares, no shares issued, 100,000 pro forma -- -- --
Common stock, par value $.0001 per share; authorized
200,000,000 shares; 6,639,403 and 10,747,907
issued and outstanding June 30, 1996 and
March 31, 1997, respectively 1,000 1,000 1,000
Additional paid-in capital 7,774,000 13,237,000 15,637,000
Accumulated deficit (4,773,000) (4,284,000) (4,284,000)
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Total stockholders' equity 3,002,000 8,954,000 11,354,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $20,013,000 $30,874,000 $32,074,000
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</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
3
<PAGE>
TOPRO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
1996 1997 1996 1997
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<S> <C> <C> <C> <C>
REVENUES:
Control systems integration $ 5,859,000 $11,183,000 $11,236,000 $27,287,000
COST OF SALES:
Control systems integration 4,852,000 7,049,000 8,552,000 17,730,000
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GROSS PROFIT 1,007,000 4,134,000 2,684,000 9,557,000
EXPENSES:
Sales expenses 394,000 695,000 681,000 1,768,000
General and administrative expenses 937,000 2,438,000 2,135,000 6,255,000
Distributorship selling and other expenses 65,000 -- 483,000 --
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1,396,000 3,133,000 3,299,000 8,023,000
OTHER INCOME (EXPENSE):
Gain on sale of assets 6,000 -- 85,000 7,000
Interest expense (53,000) (402,000) (148,000) (780,000)
Other 47,000 46,000 53,000 54,000
Goodwill amortization -- (152,000) -- (326,000)
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-- (508,000) (10,000) (1,045,000)
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (389,000) 493,000 (625,000) 489,000
INCOME TAX BENEFIT (PROVISION) -- -- -- --
DISCONTINUED OPERATIONS:
Income (loss) from discontinued operations -- -- -- --
Loss on disposal (665,000) -- (1,051,000) --
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NET INCOME (LOSS) $(1,054,000) $ 493,000 $(1,676,000) $ 489,000
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PRIMARY EARNINGS PER SHARE:
Continuing operations $ (0.10) $ 0.05 $ (0.16) $ 0.05
Discontinued operations (0.16) 0.00 (0.26) 0.00
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NET INCOME (LOSS): $ (0.26) $ 0.05 $ (0.42) $ 0.05
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FULLY DILUTED EARNINGS PER SHARE:
Continuing operations $ (0.10) $ 0.04 $ (0.16) n/a
Discontinued operations (0.16) 0.00 (0.26) n/a
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NET INCOME (LOSS): $ (0.26) $ 0.04 $ (0.42) n/a
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WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 4,016,000 10,750,000 4,016,000 9,131,000
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</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
4
<PAGE>
TOPRO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31,
1996 1997
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<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net cash flows from operating activities $(2,161,000) $ (988,000)
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Net cash used in operating activities (2,161,000) (988,000)
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CASH FLOW FROM INVESTING ACTIVITIES:
Cash acquired in acquisitions of subsidiaries 191,000 3,000
Acquisition costs of subsidiaries (304,000) (381,000)
Purchase of equipment -- (152,000)
Capitalized software costs -- (865,000)
Purchase of certificate of deposit (350,000) --
Proceeds from the sale of investment 350,000 --
Proceeds from issuance of notes receivable 42,000 28,000
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Net cash used in investing activities (71,000) (1,367,000)
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CASH FLOW FROM FINANCING ACTIVITIES:
Principal payments on borrowings and notes, net (537,000) (634,000)
Deferred note and other financing costs -- (158,000)
Proceeds from issuance of convertible debentures 2,500,000 1,200,000
Proceeds from issuance of notes payables -- 150,000
Proceeds from sale of stock 458,000 1,591,000
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Net cash provided by financing activities 2,421,000 2,149,000
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INCREASE (DECREASE) IN CASH 189,000 (206,000)
CASH, BEGINNING OF PERIOD 171,000 236,000
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CASH, END OF PERIOD $ 360,000 $ 30,000
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</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
5
<PAGE>
TOPRO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 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 March 31, 1997 and June 30, 1996 and the results of
operations and cash flows for the periods presented. Management believes
all such adjustments are of a normal and recurring nature. The consolidated
financial statements include the accounts of Topro, Inc. (Topro), Management,
Design & Consulting Services, Inc. (MDCS) and the acquisitions of Advanced
Control Technology, Inc. (ACT), acquired as of January 1, 1996; Vision
Engineering Corporation (VEC), acquired as of May 1, 1996 and All Control
Systems, Inc. (ACS), acquired as of December 1, 1996. The acquisitions of
ACT, VEC and ACS were recorded under the purchase method of accounting and
accordingly, no results are presented for periods prior to their acquisition.
The results of operations for interim periods are not necessarily indicative
of results to be expected for a full year.
The unaudited pro forma balance sheet presented at March 31, 1997 reflects
the following pro forma adjustments: The exercise of 950,566 warrants to
purchase 939,719 common shares which occurred between April 1 and 11, 1997,
and the sale of 100,000 shares of Series A Convertible Preferred Stock and
300,000 Common Stock Purchase Warrants which occurred on April 29, 1997, both
of which are more fully explained in Note 4.
The following unaudited pro forma summary combines the consolidated results
of operations of the Company, ACT, VEC, 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.
Nine months ended March 31,
1996 1997
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(Unaudited)
Net revenues $29,592,000 $32,832,000
Net income (loss) $(3,324,000) $ 648,000
Income (loss) per share $ (0.82) $ .0.07
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6
<PAGE>
TOPRO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS.
The following information is applicable to uncompleted contracts:
June 30, 1996 March 31, 1997
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Costs incurred on uncompleted contracts $ 32,071,000 $ 54,532,000
Estimated earnings 2,282,000 8,846,000
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34,353,000 63,825,000
Less billings to date (33,098,000) (61,030,000)
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$ 1,255,000 $ 2,795,000
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These amounts are included in the accompanying
consolidated balance sheets under the following
captions:
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 2,837,000 $ 6,852,000
Billings in excess of costs and estimated
earnings on uncompleted contracts (1,582,000) 4,057,000
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$ 1,255,000 $ 2,795,000
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NOTE 3. LINES-OF-CREDIT AND SHORT AND LONG-TERM DEBT.
June 30, 1996 March 31, 1997
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LINES- OF CREDIT:
$650,000 line-of-credit pursuant to a loan
agreement with a financial institution,
collateralized by substantially all assets of
VEC, interest at the prime rate plus 2.0% per
annum. The line-of-credit was converted to a
term loan during the third fiscal quarter. $ 583,000 $ --
$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 its real property,
interest at the prime rate plus 2.0% per annum.
The line expires in August 1997. 436,000 492,000
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Total lines-of-credit $1,019,000 $ 492,000
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RELATED PARTY:
Notes payable to an officer and a director of the
Company, interest at 10.0% per annum payable
semiannually, due on demand, unsecured. $ 80,000 $ 80,000
Notes payable to a director and former majority
stockholders of VEC, interest at 8.0% per annum,
monthly payments of $10,000, unsecured. 130,000 73,000
Note payable to relatives of a director and
former majority stockholders of VEC, interest at
10.0% per annum payable quarterly, unsecured. 20,000 20,000
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Total related party $ 230,000 $ 173,000
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7
<PAGE>
TOPRO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Line-of-credit and short and long-term debt - continued
<TABLE>
<CAPTION>
June 30, 1996 March 31,1997
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<S> <C> <C>
SHORT-TERM DEBT:
$1,000,000 term loan pursuant to a loan agreement with a financial institution
collateralized by substantially all assets of ACS and guaranteed by an officer
and major stockholder, interest at the prime rate plus 3.5% per annum, monthly
principal payments of $20,000. Prior to February 10, 1997, this obligation was
a $1,600,000 line-of-credit. At that time, in conjunction with the acquisition
of ACS, the line-of-credit was converted to a term loan of $1,000,000 which is
due on January 1, 1998. $ -- $ 743,000
Term loan pursuant to a loan agreement with a financial institution,
collateralized by substantially all assets of VEC, interest at the prime rate
plus 2.0% per annum. This loan was converted from a line-of-credit during the
third quarter. The loan matures in June 1997 and requires monthly principal
payments in the amount of $17,000 plus interest. -- 325,000
LONG-TERM DEBT:
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 9.0% per annum, interest 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. 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 principal and interest payments of $11,000, interest
at the prime rate plus 2.5% per annum. The loan has a balloon payment on the
unpaid balance due August 1997. 474,000 421,000
8% 270 day convertible notes, interest payable quarterly. Convertible into
common shares at the rate of one share for each $1.00 of principal. Notes are
unsecured. 375,000 --
Mortgage note payable to a bank, due in monthly installments of $2,941 including
interest at 11.0% per annum, balloon payment of remaining balance is due
November 1, 2001, collateralized by a first deed of trust on ACT's land and
building. 241,000 249,000
Four year promissory note bearing interest at 8.0% per annum payable to a
creditor. 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. 262,000 190,000
</TABLE>
8
<PAGE>
TOPRO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Line-of-credit and short and long-term debt - continued
<TABLE>
<CAPTION>
June 30, 1996 March 31,1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Term loan payable to a bank, interest adjusted quarterly based upon the prime
rate plus 2.75% per annum, collateralized by a second security interest on
substantially all assets of VEC, guaranteed by the Small Business Administration
and personally guaranteed by an officer, which personal guarantee is
collateralized by a third deed on the officer's residence, payable in monthly
principal payments of $7,000, adjusted quarterly, through September 2002. 324,000 286,000
Senior convertible notes, Interest rate 10.0% per annum payable semi-annually on
March 31 and September 30. The notes are convertible into units consisting of
one share of common stock and one warrant to purchase one common share for
$1.00 per share. 350,000 --
Term loan payable to a bank, interest rate at the prime rate plus 2.0% per
annum, 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 90,000
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 97,000
Various notes payable and capital leases, due in maximum monthly installments
totaling $1,526 through March 1998, collateralized by equipment and vehicles. 34,000 14,000
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. 207,000 221,000
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Total short and long-term debt $ 6,041,000 $ 7,336,000
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Total $ 7,290,000 $ 8,001,000
Less current portion (2,280,0000) (2,479,000)
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Long-term portion $ 5,010,000 $ 5,522,000
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</TABLE>
During September and October 1996, the Company issued its 12% unsecured
subordinated Series 1996-A Promissory Notes in the amount of $150,000. The
Company paid the lenders fees in the amount of 2,500 shares of its common stock
for each $50,000 of principal and an aggregate of 22,500 shares of its common
stock as fees to extend the maturities of the notes. During the quarter ended
March 31, 1997, $100,000 of principal plus accrued interest was repaid. The
holder of a note in the principal amount of $50,000 converted its note into
35,000 shares of the Company's common stock at the rate of one share for each
$1.50 of principal plus accrued interest..
During November 1996, the Company received a request from the holders of its 8%
270 day convertible notes to convert them into the Company's common stock. The
entire principal in the amount of $375,000 was converted into 214,285 common
shares at the of one share per $1.75 of principal.
9
<PAGE>
TOPRO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On March 31, 1997, holders of the Company's 10% senior convertible notes in the
amount of $350,000 converted their notes into units of the Company's securities
at the rate of $.67 for each $1.00 of principal plus accrued interest. Each
unit consisted of one share of common stock and one warrant to purchase common
stock. The warrants are exercisable to purchase one share of common stock for
$1.00 per share until March 31, 2000.
NOTE 4. STOCKHOLDERS' EQUITY AND SUBSEQUENT EVENTS.
On March 6, 1997, the Company had a registration statement declared effective by
the Securities and Exchange Commission registering 13,841,211 shares of common
stock for sale by selling shareholders. Of those shares registered, 5,413,606
shares represented restricted shares outstanding which, as a result of the
filing, may be offered for sale by the holders and 8,427,605 shares which are
not outstanding but may be issued by the Company upon the exercise or
conversion of outstanding options, warrants and convertible securities. On
March 13, 1997, the Company called 1,043,447 redeemable warrants, representing
an equal number of underlying common shares, for redemption. These warrants
were exercisable by the holders at rates of $1.00 and $1.75 for each common
share. At March 31, 1997, holders of warrants representing 227,450 shares of
common stock exercised their rights thereunder. The Company received proceeds
in the amount of $227,450. During the remainder of the exercise period, which
expired on April 11, 1997, holders of warrants representing 678,875 shares of
common stock exercised their rights thereunder. The Company received proceeds
in the amount of $678,875. Upon the expiration of the exercise period, 122,835
warrants to purchase common stock at $1.00 and 14,286 warrants to purchase
common stock for $1.75 were canceled due to non-exercise by the holders.
During April 1997, the holder of warrants to purchase 32,870 and 24,537 shares
of common stock for $.67 and $1.00, respectively, exercised its rights
thereunder. The Company received proceeds in the amount of $46,560.
During April 1997, the Company reduced the exercise price from $4.25 to $1.00
per share to holders of warrants to purchase 222,284 shares of common stock.
The holders exercised their rights thereunder and the Company received proceeds
in the amount of $222,284.
During April 1997, the Company lowered the exercise price and extended the
exercise period of its 772,000 publicly traded warrants. The warrants' exercise
price was reduced from $4.25 to $3.50 and the exercise period was extended from
August 31, 1997 to June 24, 1999.
On April 29,1997, the Company sold 100,000 shares, with a stated value of $15.00
per share, of its Series A Convertible Preferred Stock and 300,000 Common Stock
Purchase Warrants in a private placement. Each share of preferred stock is
convertible at any time at the holder's option, into 10 shares of the Company's
$.0001 par value common stock at a rate of $1.50 per share of common stock,
subject to adjustment. The preferred shares will automatically convert into
common stock if the closing sales price of the Company's common stock for 20
consecutive trading days is $3.00 or more or on April 30, 2002, whichever
occurs first. Each share of preferred stock shall receive a 6% cumulative
dividend, payable quarterly, based upon its stated value and has voting rights
on matters submitted to a vote of common stockholders equal to the number of
common shares into which it may be converted. Each warrant may be exercised at
any time until June 30, 1999 to purchase one share of the Company's common
stock for $3.50.
NOTE 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.
NOTE 6. EARNINGS PER SHARE.
Earnings per share are computed on the basis of the weighted average number of
common and common equivalent shares outstanding during the period.
10
<PAGE>
TOPRO, INC.
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 March 8, 1997 upon payment of 7,500
shares of common stock. In January 1997, $50,000 of the notes were repaid. The
remaining $100,000 of the notes were extended until March 8, 1997 in
consideration of 10,000 shares of common stock. On March 8, 1997 one $50,000
note was repaid and one $50,000 note plus accrued interest was converted into
35,000 shares of common stock.
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, VEC and Topro. The Company
also pledged the shares of its subsidiaries ACT, ACS and VEC to secure
repayment of the debenture. 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 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 Renaissance
Capital Growth & Income 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. In June 1994, the
original conversion price on $1,000,000 of the principal amount of debenture
issued to Renaissance Capital Growth & Income Fund III, Inc. 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, which is consistent with
all the terms of the debentures issued to Renaissance Capital & Growth Income
Trust PLC. The convertible debenture requires certain financial covenants.
The Company is in compliance with the covenants.
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, were approximately $970,000. Proceeds
were used for working capital and repayment of short-term debt. The purchasers
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. On February 1, 1997, 70,000 warrants were issued and are exercisable
through February 1, 1999 at a rate of $2.46 per share. The Company fulfilled
its obligations with respect to the registration rights by having a registration
statement covering the shares declared effective on March 6, 1997.
During November 1996, the Company received a request from the holders of its 8%
270 day convertible debentures to convert the notes into the Company's common
stock. The entire principal in the amount of $375,000 was converted into
214,285 common shares at the of one share per $1.75 of principal.
On March 31, 1997, holders of the Company's 10% senior convertible notes in the
amount of $350,000 converted their notes into units of the Company's securities
at the rate of $.67 for each $1.00 of principal plus accrued interest. Each
unit consisted of one share of common stock and one warrant to purchase common
stock. The warrants are exercisable to purchase one share of common stock for
$1.00 per share until March 31, 2000.
11
<PAGE>
TOPRO, INC.
On March 6, 1997, the Company had a registration statement declared effective by
the Securities and Exchange Commission registering 13,841,211 shares of its
common stock. Of these shares, 8,427,605 may be issued by the Company upon the
exercise or conversion of outstanding options, warrants and convertible
securities. On March 13, 1997, the Company called 1,043,447 redeemable
warrants, representing an equal number of underlying common shares, for
redemption. These warrants were exercisable by the holders at rates of $1.00
and $1.75 for each common share. At March 31, 1997, holders of warrants
representing 227,450 shares of common stock exercised their rights thereunder.
The Company received proceeds in the amount of $227,450. During the remainder
of the exercise period, which expired on April 11, 1997, holders of warrants
representing 678,875 shares of common stock exercised their rights thereunder.
The Company received proceeds in the amount of $678,875. Upon the expiration of
the exercise period, 122,835 warrants to purchase common stock for $1.00 per
share and 14,286 warrants to purchase common stock for $1.75 per share were
canceled due to non-exercise by the holders.
On April 9, 1997, the holder of warrants to purchase 32,870 and 24,537 shares of
common stock for $.67 and $1.00, respectively, exercised its rights thereunder.
The Company received proceeds in the amount of $46,560.
On April 7, 1997, the Company reduced the exercise price from $4.25 to $1.00 per
share to holders of warrants to purchase 222,284 shares of common stock. The
holders exercised their rights thereunder and the Company received proceeds in
the amount of $222,284.
On April 29,1997, the Company sold 100,000 shares, with a stated value of $15.00
per share, of its Series A Convertible Preferred Stock and 300,000 Common Stock
Purchase Warrants in a private placement. Each share of preferred stock is
convertible at any time at the holder's option, into 10 shares of the Company's
$.0001 par value common stock at a rate of $1.50 per share of common stock,
subject to adjustment. The preferred shares will automatically convert into
common stock if the closing sales price of the Company's common stock for 20
consecutive trading days is $3.00 or more or on April 30, 2002, whichever
occurs first. Each share of preferred stock shall receive a 6% cumulative
dividend, payable quarterly, based upon its stated value and has voting rights
on matters submitted to a vote of common stockholders equal to the number of
common shares into which it may be converted. Each warrant may be exercised at
any time until June 30, 1999 to purchase one share of the Company's common
stock for $3.50.
During the past twelve months, the Company has assumed debt obligations to three
banks in the course of executing its acquisition strategy. According to the
terms of those debt assumptions, the Company must repay two of those outstanding
obligations before June 30, 1997. These are term loans in the amounts of
$421,000 and $325,000 and a $492,000 revolving line-of-credit. The Company has
begun the process of securing replacement financing lines for these debts.
While a firm commitment has not yet been made, the Company is reasonably
confident that it will be successful in these efforts.
The Company is specifically negotiating with one of the banks for a six month
extension on the term of the revolving line-of-credit and has received
indication that this is likely to be forthcoming.
The Company plans to consolidate its outstanding debt obligations into one or
two larger facilities and secure an increase in its revolving credit facility to
provide improved capacity to handle the short-term working capital requirements
of the larger projects it is now undertaking.
In the course of the past six months, the Company has experienced severe cash
flow issues, primarily as a result of the rapid growth of a semiconductor
fabrication facility expansion project undertaken for IBM/Toshiba, through
Marshall Hyman Construction. The project has more than doubled in size from its
inception as a result of scope increases and massive functional requirement
changes. The invoice processing system employed by the customer was inadequate
to the task of keeping up with the changes they were directing. As a result,
the Company has had significant and disproportionate cash tied up in accounts
receivable, retention and change order processing on this one project and
management would be forced to delay payment of its accounts to preserve maximum
possible liquidity.. The Company has had to repeatedly force the issue of
improved invoice processing with the customer's management. As of May 15, 1997,
management believes that the invoice and change order processing beginning to
accelerate to an appropriate level. The Company expects cash in the amount of
approximately $2,250,000 to be released from this project in the next two
months. Against this, the Company has approximately $500,000 of obligations
related to this project. Should this cash not be released as forecast, the
Company's working capital would continue to be effected.
12
<PAGE>
TOPRO, INC.
CASH FLOW
During the nine months ended March 31, 1997, cash decreased by $206,000. Funds
used in operations were $988,000. Excluding the amount added through the
acquisition of All Control, operating funds were used to finance the $2,845,000
increase in costs and estimated earnings in excess of billings. Cash resources
were also used to fund the increases in accounts receivable, inventories and
prepaid expenses. Investments were made in capital equipment ($152,000),
capitalized software development costs ($865,000), and cash expended in the
acquisition of a subsidiary ($381,000)., less the receipt of a note receivable
in the amount of $28,000, for total uses of $1,370,000. Financing activities
required $634,000 in debt repayments and $158,000 in deferred acquisition costs.
Proceeds from sale of common stock generated $1,591,000 and $1,350,000 was
provided through the issue of notes and debentures. See last paragraph of the
Liquidity and Capital Resources section.
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 THE THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 1996
The 1996 statement of operations contains detail information 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 $5,324,000 or 91% in the 1997 period over the same period
in 1996. The increase is associated with further execution of the Company's
growth strategy by which it has created a national presence in its selected
markets with operations in nine major cities spanning the continental United
States. The current period includes the effect of two acquisitions not included
in the corresponding prior year quarter. All Control Systems, Inc. (ACS) was
acquired in a purchase transaction as of December 1, 1996 and contributed
revenue for the current quarter in the amount of $3,404,000. Vision Engineering
Corporation (VEC) was also acquired in a purchase transaction as of May 1, 1996
through acquisition of Visioneering Holding Corporation and added revenue in the
amount of $2,603,000 during the quarter.
Through its acquisition strategy, the Company has significantly increased its
technology asset base, its professional staff and its geographical reach. As a
result, the Company is now able to obtain and staff larger individual projects
and increase business opportunities by bringing its newly acquired expertise to
different geographical and application markets. Management believes this offers
a competitive advantage in the Company's markets.
As a specific example, in the current quarter, the Company experienced strong
revenue contributions from two major contracts for its products and services in
the semiconductor fabrication market, one of which was nearly completed during
the quarter. Neither of these projects would have been secured without the
combined resource base now resident in the Company.
Gross profit in the current quarter was $4,133,000 or 37% of revenues, an
increase of $3,126,000 over the gross profit of $1,008,000 recorded for the
three months ended March 31, 1996. The noted additions of VEC and ACS
contributed $1,099,000 and $1,090,000, respectively, during the quarter. The
gross profit in the March 31, 1996 quarter was depressed as a result of
accelerated completion on low margin municipal water treatment projects. The
Company has changed its strategy as applied to the municipal water treatment
market and is securing higher margins from work currently undertaken in this
market.
Current gross margins, while subject to variation by product mix, vertical
markets served, project material content and execution, more closely reflect the
Company's performance expectations. The Company has been shifting its market
focus toward segments that offer higher margin opportunity. The current quarter
gross margin performance was also supported by the Company's strong overall
activity rate which improves direct cost efficiencies.
13
<PAGE>
TOPRO, INC.
Selling, general and administrative expenses increased to $3,133,000 in the
current period, an increase of $1,802,000 over the March 31, 1996 quarter. Of
the increase, $301,000 was in selling expense and $1,501,000 was in general and
administrative expenses. The increases are attributable to the general increase
in the Company's business levels and acquisitions. The Company now operates
from branch locations across the United States, each of which carries attendant
operating expenses such as rent and local administration. The Company is in the
process of consolidating sales and marketing activities from its acquisitions
into a single national sales organization. The Company also continues its
process of centralizing certain financial administration, control and reporting
functions.
Goodwill amortization was $152,000 for the current quarter. This is attributed
to the acquisitions of ACT, VEC and ACS in the amounts of $41,000, $49,000, and
$62,000, respectively.
Interest expense for the current quarter increased by $349,000 from the March
31, 1996 period. The increase is due to the debt financing incurred to support
the working capital needs of the acquisitions, the bank lines assumed as part of
the acquisitions and a short-term bridge loan carried in the March 31, 1997
quarter.
Profit from continuing operations increased by $882,000 to $493,000 from a loss
of $389,000 during the March 31, 1996 quarter. The increase is attributed to
improved revenues and improved gross margins resulting from the Company's growth
strategy and acquisitions. The March 1996 quarter results were also depressed
by accelerated completion of low margin municipal water treatment projects. The
Company expects that its growth and acquisition strategy will continue to
provide opportunities to improve earnings through volume increase and greater
operating efficiencies at both the direct and overhead expense levels.
The Company's backlog at March 31, 1997 was $12,336,000. This compares to a
total backlog of $8,837,000 as of June 30, 1996.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE
NINE MONTHS ENDED MARCH 31, 1996.
The 1996 statement of operations contains 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 $16,051,000 or 143% to $27,287,000 during the nine months
ended March 31,1997 as compared to revenue of $11,236,000 in 1996. The increase
is associated with execution of the Company's growth strategy by which it has
created a national presence in its selected markets with operations spanning the
continental United States. The current nine month period includes the effect of
the acquisitions of ACS and VEC which were not included in the corresponding
prior year period. ACS contributed revenue for the current period in the amount
of $4,578,000. VEC revenue of $7,404,000 in this nine month period. Further,
the current period includes a full nine months of contribution from ACT,
acquired as of January 1,1996, and accounted for revenues of $6,067,000. In the
nine months ended March 31, 1996, ACT was included for only one quarter and
contributed revenues of $2,268,000.
Through its acquisition strategy, the Company has increased significantly its
technology asset base, its professional staff, and its geographical reach. As a
result, the Company is now able to obtain and staff larger individual projects
and increase business opportunity by bringing its newly acquired technologies
and expertise to different geographical and application markets. Management
believes this offers competitive advantage in the Company's markets.
During the current nine month period, the Company has undertaken a number of
programs to stimulate sharing of resources and technologies among branch
locations and markets. The beneficial effect of these programs is not always
immediate and takes time to have a significant cumulative effect. Management
believes that the positive impact of these programs began to accelerate in the
final quarter of this nine month period, contributing in part, along with
favorable product mix to strong results for that three month period.
14
<PAGE>
TOPRO, INC.
As a specific example, in the second half of this nine month period, the Company
experienced strong revenue contributions from two major contracts for its
products and services in the semiconductor fabrication market. Neither of these
projects would have been secured without the combined resource base resident in
the company.
Gross profit margin in the current nine month period increased to $9,557,000
(35%) or $6,873,000 over the period ending March 31, 1996. The noted additions
of VEC and ACS contributed $2,154,000 and $1,605,000, respectively, in this
period. Further, the current period includes a full nine months of operations
of ACT, acquired as of January 1, 1996. During the current nine months, ACT
contributed $2,154,000 to gross profit. The nine months ending March 31, 1996
included only three months of operation of ACT with a corresponding $691,000
gross profit contribution.
The consolidated gross profit in the March 31, 1996 nine month period was
depressed as a result of accelerated completion on low margin municipal water
treatment projects in the March 31 quarter. The Company has changed its
strategy as applied to the municipal water treatment market and is securing
higher margins from work currently undertaken in this market. Current
consolidated gross margins, while subject to variation by product mix, vertical
markets served, project material content and execution more closely reflect the
Company's performance expectations. The current gross margin performance was
also supported by the Company's strong overall activity rate in the quarter
ending March 31, 1997 which improved direct cost efficiencies.
Selling, general and administrative expenses for the current nine month period
increased by $5,207,000 over the nine month period ending March 31, 1996.
Selling expense accounted for $1,087,000 of the increase with general and
administrative expense accounting for $4,120,000. The increases are
attributable to the general increase in the Company's business levels and
acquisitions. The Company now operates from branch locations across the United
States, each of which carries attendant operating expenses such as rent and
local administration. In the nine month period ending March 31, 1996, the
Company had operations only in Denver, Colorado, Albany, Oregon and Seattle,
Washington.
During the past three months of this period, the Company has begun the process
of consolidating sales and marketing activities from its acquisitions into a
single national sales organization. The Company also continues its program to
centralize certain financial administration, control and reporting functions.
Goodwill amortization resulting from the acquisitions totaled $326,000 for the
nine month period, attributed $122,000, $142,000, and $66,000 to ACT, VEC, and
ACS, respectively.
Interest expense increased by $632,000 to $780,000 for the nine months ended
March 31, 1997. The increase is due to the debt financing incurred to support
the working capital needs of the acquisitions, the bank lines assumed as part of
the acquisitions and a short-term bridge loan carried in the March 31, 1997
quarter.
Profit from continuing operations increased by $1,114,000 to $489,000 from a
prior year loss of $625,000. The increase is attributed to improved revenues
and improved gross margins resulting from the Company's growth strategy and
acquisitions. For the first six months of the nine month period ending March
31, 1996 the Company had yet to make any major acquisitions. In addition, those
nine month results were also depressed by accelerated completion of low margin
municipal water treatment projects in the March 31 quarter.
The Company expects that its growth and acquisition strategy will continue to
provide opportunities to improve earnings through volume increase and greater
operating efficiencies at both the direct and overhead expense levels.
15
<PAGE>
TOPRO, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDING.
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.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
3.1 Amendment to Articles of Incorporation - Designation of
Series-A preferred stock. 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.
Current Report on Form 8-K dated December 31, 1996 and
amendments thereto, reporting the acquisition of ACS
pursuant to "Item 2 - Acquisition or Disposition of Assets."
Pro forma financial information and financial statements of
the acquired business were filed pursuant to Item 7 of Form
8-K.
Current Report on Form 8-K dated March 13, 1997 reporting
information pursuant to Item 5 was filed on March 5, 1997.
No financial statements were required.
16
<PAGE>
TOPRO, INC.
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: May 15, 1997 /s/ JOHN JENKINS
------------------------------
John Jenkins
President, Chief Executive
Date: May 15, 1997 /s/ FREDERICK R. BETTS
------------------------------
Frederick R. Betts
Principal Financial and
Accounting Officer
17
<PAGE>
EXHIBIT 3.1
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
TOPRO, INC.
Pursuant to Sections 7-106-102 and 7-110-106 of the Colorado Corporation
Code, the undersigned corporation adopts the following Articles of Amendment:
1. The name of the corporation is: Topro, Inc.
2. In accordance with the authority granted to the Board of Directors by
the Company's Articles of Incorporation, Article II shall be amended to include
the following Statement of Designation of a Series of Preferred Stock. The
following statement supersedes the Statement of Designation of a Series of
Preferred Stock, relating to 100,000 shares of Series A Convertible Preferred
Stock, filed on April 18, 1997:
100,000 shares of the Company's authorized preferred stock are designated as
"Series A Convertible Preferred Stock," with a stated value of $15.00 per share,
and with the rights and preferences set forth below:
A. Each share of Series A Convertible Preferred Stock shall initially be
convertible into ten shares of the Company's $.0001 par value Common Stock
("Common Stock") i.e., at a price ("Conversion Price") of $1.50 per share of
Common Stock, subject to adjustment as set forth below.
B. Each outstanding share of Series A Convertible Preferred Stock shall be
converted to Common Stock upon the earliest to occur of the following events:
(1) at the option of the holder, upon notice to the Company, at any time;
or
(2) automatically, at any time commencing one year from the date of
issuance of such share, at such time as (a) the Common Stock is listed on
the Nasdaq Stock Market (either the National Market System or the Small Cap
Market) ("Nasdaq") or on the New York Stock Exchange or American Stock
Exchange (an "Exchange"); and (b) the closing sale price of the Common
Stock on Nasdaq or an Exchange for 20 consecutive trading days is $3.00 per
share or more; and (c) the Common Stock into which the share of Series A
Convertible Preferred Stock is convertible either (i) is available for sale
to the public pursuant to a currently effective registration statement
filed with the Securities and Exchange Commission ("SEC") pursuant to the
Securities Act of 1933, as amended (the "Securities Act"); or (ii) the
share may be sold pursuant to Rule 144(k) promulgated by the SEC under the
Securities Act.; or
(3) automatically, on the date which is five years and one day following
the date of issuance of such share;
<PAGE>
C. (1) On the issue date of the Series A Convertible Preferred Stock and
until such time as an adjustment shall occur, the Conversion Price shall be
$1.50 per share of Common Stock; provided, however, that the Conversion Price
shall be subject to adjustment at the times, and in accordance with the
provisions, as follows:
(a) Adjustment for Issuance of Common Stock at Less Than The Conversion
Price: If and whenever (the "Stock Issue Date") any Additional Common Stock
shall be issued by the Company for a consideration per share less than the
Conversion Price, then in each such case the initial Conversion Price shall
be reduced to a new Conversion Price in an amount equal to the
consideration per share received by the Company for the additional shares
of Common Stock then issued and the number of shares issuable upon
conversion shall be proportionately increased; and, in the case of shares
issued without consideration, the initial Conversion Price shall be reduced
in amount and the number of shares issued upon conversion shall be
increased in an amount so as to maintain the right to convert the Series A
Convertible Preferred Stock into shares equal in amount to the same
percentage interest in the Common Stock of the Company as existed
immediately preceding the Stock Issue Date. The provisions of this section
shall not apply to issuances of the first 40,000 shares of Additional
Common Stock that are sold or granted for less than the Conversion Price.
(b) Sale of Shares: In case of the issuance of Additional Common Stock
for a consideration part or all or which shall be cash, the amount of the
cash consideration therefor shall be deemed to be the amount of the cash
received by the Company for such shares, after any compensation or discount
in the sale, underwriting or purchase thereof by underwriters or dealers or
others performing similar services or for any expenses incurred in
connection therewith. In case of the issuance of any shares of Additional
Common Stock for a consideration part or all of which shall be other than
cash, the amount of the consideration therefor, other than cash, shall be
deemed to be the then fair market value of the property received.
(c) Reclassification of Shares: In case of the reclassification of
securities into shares of Common Stock, the shares of Common Stock issued
in such reclassification shall be deemed to have been issued for a
consideration other than cash. Shares of Additional Common Stock issued by
way of dividend or other distribution on any class of stock of the Company
shall be deemed to have been issued without consideration.
(d) Split up or Combination Shares: In case issued and outstanding
shares of Common Stock shall be subdivided or split up into a greater
number of shares of the Common Stock, the Conversion Price shall be
proportionately decreased, and in case issued and outstanding shares of
Common Stock shall be combined into a smaller number of shares of Common
Stock, the Conversion Price shall be proportionately increased, such
increase or decrease, as the case may be, becoming effective at the time of
record of the split-up or combination, as the case may be.
-2-
<PAGE>
(e) Exceptions: The term "Additional Common Stock" herein shall mean
all shares of Common Stock hereafter issued by the Company (including
Common Stock held in the treasury of the Company), except (1) Common Stock
issued upon the conversion of any of the Series A Convertible Preferred
Stock; (2) Common Stock issued upon exercise of any warrants, stock
purchase options or other convertible securities issued and outstanding as
of the date of issuance of any Series A Convertible Preferred Stock; (3)
Common Stock issued pursuant to exercise of outstanding options under any
currently existing incentive stock option plan for the officers, directors,
and certain other key personnel as defined in said stock option plans of
the Company as of the date of issuance of any Series A Convertible
Preferred Stock; and (4) Common Stock issued in connection with any
underwritten public offering of securities completed prior to December 31,
1997. If the exercise price or conversion price of any security described
in subsection 2 or 3 above is decreased, such action will be considered to
be a new issuance of such security.
(2) Adjustment for Mergers, Consolidations, Etc:
(a) In the event of distribution to all Common Stock holders of any
stock, indebtedness of the Company or assets (excluding cash dividends or
distributions from retained earnings) or other rights to purchase
securities or assets, then, after such event, the Series A Convertible
Preferred Stock will be convertible into the kind and amount of securities,
cash and other property which the holder of the Series A Convertible
Preferred Stock would have been entitled to receive if the holder owned the
Common Stock issuable upon conversion of the Series A Convertible Preferred
Stock immediately prior to the occurrence of such event.
(b) In case of any capital reorganization, reclassification of the
stock of the Company (other than a change in par value or as a result of a
stock dividend, subdivision, split up or combination of shares), the Series
A Convertible Preferred Stock shall be convertible into the kind and number
of shares of stock or other securities or property of the Company to which
the holder of the Series A Convertible Preferred Stock would have been
entitled to receive if the holder owned the Common Stock issuable upon
conversion of the Series A Convertible Preferred Stock immediately prior to
the occurrence of such event. The provisions of these foregoing sentence
shall similarly apply to successive reorganizations, reclassifications,
consolidations, exchanges, leases, transfers or other dispositions or other
share exchanges.
(c) The term "Fair Market Value," as used herein, is the value ascribed
to consideration other than cash as determined by the Board of Directors of
the Company in good faith, subject to the objection proceedings described
in sub-paragraph (d), below.
(d) Notice of Adjustment. (i) In the event the Company shall propose
to take any action which shall result in an adjustment in the Conversion
Price, the Company shall give notice to the holders of the Series A
Convertible Preferred Stock, which notice shall specify the record date, if
any, with respect to such action and the date on which such action is to
take
-3-
<PAGE>
place. Such notice shall be given on or before the earlier of 10 days
before the record date or the date which such action shall be taken. Such
notice shall also set forth all facts (to the extent known) material to the
effect of such action on the Conversion Price and the number, kind or class
of shares or other securities or property which shall be deliverable or
purchasable upon the occurrence of such action or deliverable upon the
conversion of the Series A Convertible Preferred Stock. (ii) Following
completion of an event wherein the Conversion Price shall be adjusted, the
Company shall furnish to the holders of the Series A Convertible Preferred
Stock a statement, signed by the Chief Executive Officer of the Company, of
the facts creating such adjustment and specifying the resultant adjusted
Conversion Price then in effect. The Company will make its books and
records available during normal business hours for inspection by the holder
so as to permit a determination of the correctness of the valuation or
adjustment. The officer's certificate described in this sub-paragraph
shall be deemed to be conclusive as to the valuation and the adjustment
reflected therein if and only if no holder of Series A Convertible
Preferred Stock delivers written notice of an objection thereto to the
Company within 30 days after the officer's certificate is delivered to the
holder or holders of the Series A Convertible Preferred Stock. If written
notice of an objection is delivered by a holder to the Company and the
parties cannot reconcile the dispute, the holder and the Company shall
submit the dispute to arbitration under and pursuant to the rules and
regulations of the American Arbitration Association, and the decision of
the arbitrators shall be final, conclusive and binding, and a final
judgment may be entered thereon, provided, however, that such arbitration
shall be limited to determination of the fair market value of assets
tendered in consideration for the issue of Common Stock and the adjusted
Conversion Price.
D. The Conversion Price of the Series A Convertible Preferred Stock shall
be adjusted to 75% of the average closing bid price of the Common Stock for
the 20 consecutive days following the filing with the SEC of the Company's
Form 10-QSB for the period ending December 31, 1997 ("Adjustment Average")
if the Adjustment Average is less than $1.50 per share.
E. Each share of Series A Convertible Preferred Stock shall receive an
annual dividend of 6% of the stated value per share, payable quarterly on
the last day of each calendar quarter, from funds legally available
therefor, as and if declared by the Board of Directors, such dividend to be
cumulative and to be paid before any dividend is paid on outstanding shares
of Common Stock;
F. Shares of Series A Convertible Preferred Stock shall have the right to
vote in the election of directors and all other matters which may be
submitted to a vote of holders of the Common Stock Company. Each share of
Series A Convertible Preferred Stock shall be entitled to that number of
votes equal to the number of shares of Common Stock into which it could be
converted as of the record date for determining the number of shares
entitled to vote.
-4-
<PAGE>
G. While any share of Series A Convertible Preferred Stock is outstanding,
these Articles of Incorporation may not be further amended to authorize the
issuance of any class or series of stock that has dividend or liquidation
preferences senior or superior to that of the Series A Convertible
Preferred Stock without the affirmative approval of holders of a majority
of the outstanding shares of Series A Convertible Preferred Stock.
3. This Amendment was adopted on April 25, 1997.
4. This Amendment was duly adopted by the Board of Directors of the
Company without shareholder action. Shareholder action was not required to
adopt this Amendment.
Signed this 28th day of April, 1997.
TOPRO, INC.
By: /S/ JOHN JENKINS
---------------------------
John Jenkins, President
-5-
<PAGE>
TOPRO, INC.
COMPUTATION OF EARNINGS PER SHARE
EXHIBIT 11.1
For the nine months ended
March 31
1996 1997
- --------------------------------------------------------------------------------
Primary earnings per share:
Net income (loss):
Continuing operations $ (625,000) $ 489,000
Discontinued operations (1,051,000) --
- --------------------------------------------------------------------------------
$(1,676,000) $ 489,000
- --------------------------------------------------------------------------------
Shares:
Weighted number of common shares outstanding 4,016,000 8,044,000
Add - Dilutive effect of outstanding options
and warrants (as determined by the
application of the treasury stock method) -- 1,178,000
- --------------------------------------------------------------------------------
4,016,000 9,222,000
- --------------------------------------------------------------------------------
Primary earnings per share:
Continuing operations $ (0.16) $ 0.05
Discontinued operations (0.26) $ .00
- --------------------------------------------------------------------------------
$ (0.42) $ 0.05
- --------------------------------------------------------------------------------
Reconciliation of net income (loss) to amount
used for fully diluted computation
Income (loss) per primary computation above:
Continuing operations $ (625,000) $ 489,000
Discontinued operations (1,051,000) --
- --------------------------------------------------------------------------------
$(1,676,000) $ 489,000
Add: Interest on 9% Convertible Debenture -- 281,000
Interest on 10% Senior Convertible Debenture -- 26,000
- --------------------------------------------------------------------------------
$(1,676,000) $ 796,000
Reconciliation of weighted average number of shares
outstanding to amount used for fully diluted
computation:
Weighted number of common shares outstanding 4,016,000 8,044,000
Add: Dilutive effect of outstanding options and
warrants (as determined by the application
of the treasury stock method) -- 1,605,000
Shares issuable from assumed exercise of
convertible debt -- 3,133,000
Dilutive effect of warrants exercised during
the period -- 219,000
- --------------------------------------------------------------------------------
4,016,000 13,001,000
- --------------------------------------------------------------------------------
Fully diluted earnings (loss) per share:
Continuing operations $ (0.10) $ 0.06
Discontinued operations (0.16) 0.00
- --------------------------------------------------------------------------------
$ (0.26)(a) $ 0.06
- --------------------------------------------------------------------------------
(a) Antidilutive. Not presented in the Statement of Operations.
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF TOPRO, INC. AT MARCH 31, 1997 AND FOR THE
NINE MONTH PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 30,000
<SECURITIES> 0
<RECEIVABLES> 10,140,000
<ALLOWANCES> (658,000)
<INVENTORY> 302,000
<CURRENT-ASSETS> 17,084,000
<PP&E> 4,478,000
<DEPRECIATION> 1,883,000
<TOTAL-ASSETS> 30,874,000
<CURRENT-LIABILITIES> 16,368,000
<BONDS> 8,001,000
0
0
<COMMON> 1,000
<OTHER-SE> 8,953,000
<TOTAL-LIABILITY-AND-EQUITY> 30,874,000
<SALES> 27,287,000
<TOTAL-REVENUES> 27,287,000
<CGS> 17,730,000
<TOTAL-COSTS> 1,781,000
<OTHER-EXPENSES> 6,255,000
<LOSS-PROVISION> (528,000)
<INTEREST-EXPENSE> 780,000
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 489,000
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.00
</TABLE>
