FORM 10-QSB/A-2
Quarterly Report Under Section 13 or 15(d) of the Securities Exc
hange Act of 1934
For the quarterly period ended July 31, 1995
Commission File No. 2-33256
TOROTEL, INC.
(Exact name of small business issuer as specified in its charter)
MISSOURI 44-0610086
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
13402 SOUTH 71 HIGHWAY, GRANDVIEW, MISSOURI 64030
(Address of principal executive offices)
(816) 761-6314
(Issuer's telephone number)
NONE
(Former name, former address and former fiscal year, if change s
ince last report)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
12 months and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
As of August 29, 1995, there were 2,766,688 shares of Common
Stock, $.50 Par Value, outstanding.
TOROTEL, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of July 31, 1995 1
Consolidated Statements of Operations for the three
months ended July 31, 1995 and 1994 2
Consolidated Statements of Cash Flows for the three
months ended July 31, 1995 and 1994 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis or
Plan of Operation 6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET (Unaudited)
As of July 31, 1995
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ASSETS
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Current assets:
Cash $ 59,000
Accounts receivable, net (Note 2) 3,551,000
Inventories (Note 3) 2,670,000
Prepaid expenses and other current assets 145,000
6,425,000
Property, plant and equipment, net 1,974,000
Deferred tax asset (Note 4) 308,000
Other assets 41,000
$8,748,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt (Note 5) $ 959,000
Trade accounts payable 1,100,000
Accrued liabilities 521,000
Accrued interest on note payable to officer 95,000
2,675,000
Long-term debt, less current maturities (Note 5) 2,116,000
Subordinated note and interest payable to officer 429,000
Contingencies (Note 6) -
Stockholders' equity:
Common stock, at par value 1,400,000
Capital in excess of par value 8,627,000
Retained earnings (deficit) (6,344,000)
3,683,000
Less treasury stock, at cost 155,000
3,528,000
$8,748,000
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The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three months Ended July 31,
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1995 1994
Net sales $4,234,000 $3,823,000
Cost of goods sold 2,937,000 2,760,000
Gross profit 1,297,000 1,063,000
Operating expenses:
Engineering 229,000 263,000
Selling, general and
administrative (Note 6) 711,000 650,000
940,000 913,000
Earnings from operations 357,000 150,000
Other expense:
Interest expense 87,000 73,000
Other, net 1,000 6,000
88,000 79,000
Earnings before provision for
income taxes 269,000 71,000
Provision for income taxes (Note 4) 92,000 24,000
Net earnings $ 177,000 $ 47,000
Earnings per common and common
equivalent share $ 0.06 $ 0.02
Weighted average common and common
equivalent shares outstanding 2,788,000 2,769,000
</TABLE>
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended July 31,
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1995 1994
Cash flows from operating
activities:
Net earnings $ 177,000 $ 47,000
Adjustments to reconcile net
earnings to net cash provided
by operations:
Gain from disposition of asset (1,000) -
Depreciation 68,000 62,000
Increase (decrease) in cash
flows from operations
resulting from changes in:
Accounts receivable 529,000 (31,000)
Inventories (47,000) (40,000)
Prepaid expenses and
other assets (50,000) (39,000)
Deferred tax asset 92,000 24,000
Trade accounts payable (252,000) 96,000
Accrued liabilities (16,000) 15,000
Accrued interest on note
payable to officer 13,000 12,000
336,000 99,000
Net cash provided by operations 513,000 146,000
Cash flows from investing
activities:
Capital expenditures (101,000) (18,000)
Proceeds from involuntary
conversion 1,000 -
Net cash used in investing (100,000) (18,000)
Cash flows from financing
activities:
Borrowings against credit line 4,375,000 3,730,000
Payments against credit line (4,697,000) (3,812,000)
Principal payments on
long-term debt (134,000) (73,000)
Payments on capital lease
obligations (3,000) -
Proceeds from issuance of
common stock 4,000 1,000
Net cash used in financing (455,000) (154,000)
Net increase (decrease) in cash $ (42,000) $ (26,000)
Cash at beginning of year 101,000 90,000
Cash at end of July $ 59,000 $ 64,000
Supplemental Disclosures of Cash
Flow Information
Cash paid during the period for:
Interest $ 75,000 $ 58,000
Income taxes $ - $ -
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The accompanying notes are an integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements
reflect the normal recurring adjustments which are, in the
opinion of management, necessary to present fairly the company's
financial position at July 31, 1995, and the results of
operations for the three months ended July 31, 1995.
The financial statements contained herein should be read in
conjunction with the company's financial statements and related
notes filed on Form 10-KSB for the year ended April 30, 1995.
Note 2 - Accounts Receivable
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Accounts receivable are summarized as
follows:
Billed $2,077,000
Recoverable costs and accrued profit
on progress completed not billed,
net of unliquidated progress payments
of $40,000 1,568,000
Other receivables 1,000
3,646,000
Less allowance for doubtful accounts 95,000
$3,551,000
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Note 3 - Inventories
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The components of inventories are
summarized as follows:
Raw materials $1,516,000
Work in process 942,000
Finished goods 212,000
$2,670,000
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Note 4 - Income Taxes
The net deferred tax asset included in the accompanying
consolidated balance sheet at July 31, 1995, includes the tax
effects of temporary differences and carryforwards which are the
source of the deferred asset, less a valuation allowance.
The components of the net deferred tax asset are summarized
as follows:
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Net operating loss carryforwards $1,301,000
Inventory valuation reserve 563,000
Tax credit carryforwards 378,000
Property, plant and equipment 223,000
Other 96,000
2,561,000
Less valuation allowance 2,253,000
$ 308,000
</TABLE>
The tax credit and operating loss carryforwards expire in
various amounts in the years 1997 through 2010.
Note 5 - Long-term Debt
Effective August 7, 1995, Mercantile Business Credit, Inc.
and Bank IV Missouri, N.A. agreed to amend their respective
credit agreements with the company for the purpose of modifying a
net worth covenant beginning with the quarter ended July 31,
1995. As a result, the company's financial statements are in
compliance with the financial covenants as of July 31, 1995.
Note 6 - Contingencies
The company's two operating subsidiaries (Torotel Products,
Inc. and OPT Industries, Inc.) have both been named as defendants
in a lawsuit brought by Pico Electronics, Inc. in the U.S.
District Court for the Southern District of New York. The
litigation involves product advertising utilized by the
subsidiaries which is claimed to violate trade dress, to be false
and to be unfair competition. The plaintiff is seeking
injunctive relief and unspecified damages according to its proof.
The company has filed an Answer disputing the plaintiff's claims
and believes it has a valid defense. During the quarter ended
July 31, 1995, legal fees associated with this lawsuit amounted
to $69,000.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
The discussion and analysis of the results of operations
includes the operations of Torotel, Inc. and its subsidiaries,
Torotel Products, Inc. and OPT Industries, Inc.
THREE MONTHS ENDED JULY 31, 1995 COMPARED TO THREE MONTHS ENDED
JULY 31, 1994
Net sales increased 11%. The net sales of Torotel Products
increased 22% from $1,486,000 to $1,813,000 due to sales
attributable to the contract with Lockheed Martin for the
headcoil assembly for the Hellfire II missile system, and
increased sales to commercial markets. OPT's net sales increased
4% from $2,337,000 to $2,421,000 due to an improved backlog
position at the beginning of the quarter; however, OPT's sales in
future periods may be adversely impacted by a raw material
shortage caused by a vendor's failure to deliver as contractually
committed. OPT's management is exploring other alternatives to
minimize the impact.
Gross profit as a percentage of net sales increased 3%. The
gross profit percentage of Torotel Products decreased 6% due to
higher fixed production costs. The gross profit percentage of
OPT increased 8% due to lower material costs and improved labor
efficiencies.
Engineering expenses decreased 13%. The engineering expenses
of Torotel Products remained unchanged at $109,000. The
engineering expenses of OPT decreased 22% from $154,000 to
$120,000 due to reductions in personnel associated with
completing the development of the immersion power supply.
Selling, general and administrative (SG&A) expenses increased
9%. The SG&A expenses of Torotel, Inc. increased 13% from
$46,000 to $52,000 due primarily to higher professional fees.
The SG&A expenses of Torotel Products increased 23% from $339,000
to $417,000 due primarily to a $69,000 increase in legal fees
(see Note 6 of Notes to Consolidated Financial Statements), and a
$41,000 increase in payroll costs. However, these increases were
partially offset by a $37,000 decrease in sales commissions. The
SG&A expenses of OPT decreased 9% from $265,000 to $242,000 due
primarily to lower payroll and rental costs.
Interest expense increased 19%. The interest expense of
Torotel, Inc. increased from $12,000 to $13,000. The interest
expense of Torotel Products increased 125% from $12,000 to
$27,000 due to a higher aggregate borrowing level and the effect
of higher interest rates associated with increases in the prime
lending rate. The interest expense of OPT decreased 4% from
$49,000 to $47,000 due to a lower aggregate borrowing level which
was partially offset by higher interest rates primarily
associated with increases in the prime lending rate.
For the reasons discussed above, consolidated pretax earnings
increased from $71,000 to $269,000. The pretax results of
Torotel, Inc. decreased from a loss of $58,000 to a loss of
$65,000. The pretax earnings of Torotel Products decreased from
$103,000 to $34,000. The pretax earnings of OPT increased from
$26,000 to $300,000.
Provision for income taxes increased due to higher
consolidated pretax earnings.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the company has relied on funds generated
internally and bank borrowings to meet its normal operating
requirements, such as accounts payable, payroll, and to service
bank indebtedness and other liabilities. The company has a
$560,000 mortgage payment due in December 1995, which the company
intends to renew or extend. If this is not acceptable to the
holder of the note, management is confident that new financing
can be obtained from another lender.
During the three months ended July 31, 1995, the company's
operating activities generated $513,000 in cash flow. Of this
amount, corporate related matters used $114,000; Torotel
Products' operations provided $287,000 due primarily to lower
levels of receivables and inventories; and OPT's operations
provided $340,000 due primarily to higher pretax earnings.
Management recognizes the need to improve asset management in
order to strengthen the company's liquidity position.
Investing activities used $100,000 in cash flow for capital
expenditures for production equipment. For the balance of the
fiscal year, the company anticipates additional investments of
approximately $50,000 for capital expenditures.
Financing activities used $455,000 in cash flow due primarily
to reductions in the revolving line of credit and long-term debt.
At July 31, 1995, the company had used $1,216,000 of its
revolving credit line and had $628,000 available for future
requirements, based on the lender's borrowing base formula.
The company believes that inflation will have only a minimal
effect on future operations since such effects will be offset by
sales price increases which are not expected to have a
significant effect upon demand.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The company's two operating subsidiaries (Torotel Products,
Inc. and OPT Industries, Inc.) have both been named as defendants
in a lawsuit brought by Pico Electronics, Inc. in the U.S.
District Court for the Southern District of New York. The case
is No. 95Civ 3918 (CSH) and was filed on May 31, 1995. The
litigation involves product advertising utilized by the
subsidiaries which is claimed to violate trade dress, to be false
and to be unfair competition. The company has filed an Answer
disputing the plaintiff's claims and believes it has a valid
defense. The plaintiff is seeking injunctive relief and
unspecified damages according to its proof.
Item 6. Exhibits and Reports of Form 8-K
a) Exhibit 27 - Financial Data Schedule (electronic filings only)
b) Reports on Form 8-K -- There were no reports filed on
Form 8-K during the three months ended July 31, 1995.
SIGNATURES
In accordance with the requirements of the Securities
Exchange Act of 1934, the registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly
authorized.
Torotel, Inc.
(Registrant)
Date: September 8, 1995 /s/ H. James Serrone
H. James Serrone, Vice President
Principal Financial Officer
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FINANCIAL STATEMENTS OF TOROTEL, INC. AND SUBSIDIARIES CONTAINED IN
ITS QUARTERLY REPORT ON FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED
JULY 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> JUL-31-1995
<CASH> 59,000
<SECURITIES> 0
<RECEIVABLES> 3,646,000
<ALLOWANCES> 95,000
<INVENTORY> 2,670,000
<CURRENT-ASSETS> 6,425,000
<PP&E> 4,230,000
<DEPRECIATION> 2,256,000
<TOTAL-ASSETS> 8,748,000
<CURRENT-LIABILITIES> 2,675,000
<BONDS> 2,545,000
<COMMON> 1,400,000
0
0
<OTHER-SE> 2,128,000
<TOTAL-LIABILITY-AND-EQUITY> 8,748,000
<SALES> 4,234,000
<TOTAL-REVENUES> 4,234,000
<CGS> 2,937,000
<TOTAL-COSTS> 3,877,000
<OTHER-EXPENSES> 1,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 87,000
<INCOME-PRETAX> 269,000
<INCOME-TAX> 92,000
<INCOME-CONTINUING> 177,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 177,000
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
