FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended October 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
since last report)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months
and (2) has been subject to such filing requirements for the past
90 days. Yes X No
As of December 8, 1995, there were 2,784,603 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 October 31, 1995 3
Consolidated Statements of Operations for the six
months ended October 31, 1995 and 1994 4
Consolidated Statements of Operations for the
three months ended October 31, 1995 and 1994 5
Consolidated Statements of Cash Flows for the six
months ended October 31, 1995 and 1994 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan of
Operation 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET (Unaudited)
As of October 31, 1995
<TABLE>
ASSETS
<S> <C>
Current assets:
Cash $ 106,000
Accounts receivable, net (Note 2) 3,623,000
Inventories (Note 3) 2,731,000
Prepaid expenses and other current assets 170,000
6,630,000
Property, plant and equipment, net 1,948,000
Deferred tax asset (Note 4) 290,000
Other assets 35,000
$ 8,903,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt (Note 5) $ 880,000
Trade accounts payable 1,207,000
Accrued liabilities 609,000
Accrued interest on note payable to former officer 11,000
2,707,000
Long-term debt, less current maturities (Note 5) 2,173,000
Subordinated note and interest payable to
former officer 429,000
Contingencies (Note 6) -
Stockholders' equity:
Common stock, at par value 1,411,000
Capital in excess of par value 8,646,000
Retained earnings (deficit) (6,308,000)
3,749,000
Less treasury stock, at cost 155,000
3,594,000
$ 8,903,000
</TABLE>
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Six Months Ended October 31,
<TABLE>
<S> <C> <C>
1995 1994
Net sales $ 8,255,000 $ 7,642,000
Cost of goods sold 5,919,000 5,547,000
Gross profit 2,336,000 2,095,000
Operating expenses:
Engineering 466,000 477,000
Selling, general and administrative 1,375,000 1,358,000
1,841,000 1,835,000
Earnings from operations 495,000 260,000
Other expense:
Interest expense 169,000 146,000
Other, net 3,000 10,000
172,000 156,000
Earnings before provision for income taxes 323,000 104,000
Provision for income taxes (Note 4) 110,000 35,000
Net earnings $ 213,000 $ 69,000
Earnings per common and common
equivalent share $ .08 $ .03
Weighted average common and common
equivalent shares outstanding 2,801,000 2,781,000
</TABLE>
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended October 31,
<TABLE>
<S> <C> <C>
1995 1994
Net sales $ 4,021,000 $ 3,819,000
Cost of goods sold 2,982,000 2,787,000
Gross profit 1,039,000 1,032,000
Operating expenses:
Engineering 237,000 214,000
Selling, general and administrative 664,000 708,000
901,000 922,000
Earnings from operations 138,000 110,000
Other expense:
Interest expense 82,000 73,000
Other, net 2,000 4,000
84,000 77,000
Earnings before provision for income taxes 54,000 33,000
Provision for income taxes (Note 4) 18,000 11,000
Net earnings $ 36,000 $ 22,000
Earnings per common and common
equivalent share $ .01 $ .01
Weighted average common and common
equivalent shares outstanding 2,851,000 2,812,000
</TABLE>
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended October 31,
<TABLE>
<S> <C> <C>
1995 1994
Cash flows from operating activities:
Net earnings $ 213,000 $ 69,000
Adjustments to reconcile net earnings to
net cash provided by operations:
Gain from disposition of asset (1,000) -
Depreciation 138,000 125,000
Increase (decrease) in cash flows from
operations resulting from changes in:
Accounts receivable 457,000 (242,000)
Inventories (108,000) (29,000)
Prepaid expenses and other assets (69,000) (30,000)
Deferred tax asset 110,000 35,000
Trade accounts payable (145,000) 275,000
Accrued liabilities 72,000 13,000
Accrued interest on note to former officer (71,000) 24,000
383,000 171,000
Net cash provided by operating activities 596,000 240,000
Cash flows from investing activities:
Capital expenditures (145,000) (71,000)
Proceeds from involuntary conversion 1,000 -
Net cash used in investing activities (144,000) (71,000)
Cash flows from financing activities:
Borrowings against credit line 8,496,000 7,244,000
Payments against credit line (8,702,000) (7,320,000)
Principal payments on long-term debt (269,000) (146,000)
Payments on capital leases obligations (7,000) (1,000)
Proceeds from issuance of common stock 35,000 25,000
Acquisition of treasury stock - (9,000)
Net cash used in financing activities (447,000) (207,000)
Net increase (decrease) in cash $ 5,000 $ (38,000)
Cash at beginning of year 101,000 90,000
Cash at end of October $ 106,000 $ 52,000
Supplemental Disclosures of Cash Flow
Information Cash paid during the period for:
Interest $ 241,000 $ 113,000
Income taxes $ - $ -
</TABLE>
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
October 31, 1995, and the results of operations for the three and six
months ended October 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
<TABLE>
<S> <C>
Accounts receivable are summarized as follows:
Billed $ 2,040,000
Recoverable costs and accrued profit on
progress completed not billed 1,644,000
Other receivables 34,000
3,718,000
Less allowance for doubtful accounts 95,000
$ 3,623,000
</TABLE>
Note 3 - Inventories
<TABLE>
<S> <C>
The components of inventories are
summarized as follows:
Raw materials $ 1,624,000
Work in process 933,000
Finished goods 174,000
$ 2,731,000
</TABLE>
Note 4 - Income Taxes
The net deferred tax asset included in the accompanying consolidated
balance sheet at October 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:
<TABLE>
<S> <C>
Net operating loss carryforwards $ 1,283,000
Inventory valuation reserve 563,000
Tax credit carryforwards 378,000
Property, plant and equipment 223,000
Other 96,000
2,543,000
Less valuation allowance 2,253,000
$ 290,000
</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 of October 31, 1995, the company's
financial statements are in compliance with the financial covenants.
Note 6 - Contingencies
A lawsuit seeking injunctive relief and unspecified damages against the
company's two operating subsidiaries (Torotel Products, Inc. and OPT
Industries, Inc.) concerning the subsidiaries' product advertising was
dismissed with prejudice on November 15, 1995, without any payment to
plaintiff. Settlement of the litigation in the U.S. District Court for the
Southern District of New York was obtained prior to trial. Most of the
company's legal fees resulting from the litigation are expected to be borne
by the company's insurance. During the three and six months ended
October 31, 1995, legal fees associated with this litigation amounted to
$7,000 and $76,000, respectively.
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.
SIX MONTHS ENDED OCTOBER 31, 1995 VERSUS SIX MONTHS ENDED OCTOBER 31, 1994
Net sales increased 8%. The net sales of Torotel Products increased 17%
from $3,105,000 to $3,631,000 primarily due to sales attributable to the
contract with Lockheed Martin for the headcoil assembly on the Hellfire II
missile system. OPT's net sales increased 2% from $4,537,000 to $4,624,000
due to an improved backlog position at the beginning of the fiscal year;
however, OPT's sales in the current year have been adversely impacted by a
raw material shortage caused by a vendor's failure to deliver as
contractually committed. An alternate source has been obtained with initial
deliveries scheduled to commence in late December.
Gross profit as a percentage of net sales increased 1%. The gross profit
percentage of Torotel Products decreased 8% due to higher material and fixed
production costs. The gross profit percentage of OPT increased 7% due to
lower material costs, improved labor efficiencies, and lower fixed production
costs.
Engineering expenses decreased 2%. The engineering expenses of Torotel
Products increased 3% from $220,000 to $226,000 due to higher payroll costs.
The engineering expenses of OPT decreased 7% from $257,000 to $240,000 due
to lower development costs associated with completing the design of the
immersion power supply.
Selling, general and administrative (SG&A) expenses increased 1%. The SG&A
expenses of Torotel,Inc. increased 11% from $110,000 to $122,000 due
primarily to higher professional fees and travel costs. The SG&A expenses of
Torotel Products increased 9% from $710,000 to $772,000 due primarily to a
$76,000 increase in legal fees (see Note 6 of Notes to Consolidated Financial
Statements), and a $43,000 increase in payroll costs. However, these
increases were partially offset by a $57,000 decrease in sales commissions.
The SG&A expenses of OPT decreased 11% from $538,000 to $481,000 due
primarily to lower payroll and rental costs.
Interest expense increased 16%. The interest expense of Torotel, Inc. was
unchanged at $24,000. The interest expense of Torotel Products increased
104% from $26,000 to $53,000 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 $96,000 to
$92,000 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
$104,000 to $323,000. The pretax results of Torotel, Inc. decreased from a
loss of $134,000 to a loss of $146,000. The pretax earnings of Torotel
Products decreased from $175,000 to $6,000. The pretax earnings of OPT
increased from $63,000 to $463,000.
Provision for income taxes increased due to higher pretax earnings.
THREE MONTHS ENDED OCTOBER 31, 1995 VERSUS THREE MONTHS ENDED
OCTOBER 31, 1994
Net sales increased 5%. The net sales of Torotel Products increased 12%
from $1,619,000 to $1,818,000 primarily due to sales attributable to the
contract with Lockheed Martin for the headcoil assembly on the Hellfire II
missile system. OPT's net sales were relatively unchanged at $2,203,000
compared to the $2,200,000 for last year's quarter; however, OPT's sales in
the current quarter were adversely impacted by a raw material shortage
caused by a vendor's failure to deliver as contractually committed. An
alternate source has been obtained with initial deliveries scheduled to
commence in late December.
Gross profit as a percentage of net sales decreased 1%. The gross profit
percentage of Torotel Products decreased 9% due to higher material and fixed
production costs. The gross profit percentage of OPT increased 5% due to
lower material costs, improved labor efficiencies, and lower fixed production
costs.
Engineering expenses increased 11%. The engineering expenses of Torotel
Products increased 5% from $111,000 to $117,000 due to higher payroll costs.
The engineering expenses of OPT increased 17% from $103,000 to $120,000 due
to higher design costs associated with new product development.
Selling, general and administrative (SG&A) expenses decreased 6%. The SG&A
expenses of Torotel,Inc. increased 9% from $64,000 to $70,000 due primarily
to higher travel costs. The SG&A expenses of Torotel Products decreased 4%
from $371,000 to $355,000 due primarily to a $20,000 decrease in sales
commissions. This decrease was offset partially by a $7,000 increase in
legal fees (see Note 6 of Notes to Consolidated Financial Statements). The
SG&A expenses of OPT decreased 12% from $273,000 to $239,000 due primarily to
lower payroll and rental costs.
Interest expense increased 12%. The interest expense of Torotel, Inc.
decreased 8% from $12,000 to $11,000. The interest expense of Torotel
Products increased 86% from $14,000 to $26,000 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 $47,000 to $45,000 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
$33,000 to $54,000. The pretax results of Torotel, Inc. decreased from a
loss of $76,000 to a loss of $81,000. The pretax earnings of Torotel
Products decreased from $72,000 to a loss of $28,000. The pretax earnings of
OPT increased from $37,000 to $163,000.
Provision for income taxes increased due to higher pretax earnings.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the company has relied on funds generated internally and bank
borrowings to meet its normal operating requirements and to service bank
indebtedness. The company has a $560,000 mortgage payment due in January
1996. The company intends to refinance this amount, plus an existing second
mortgage balance of $46,000, with a new lender. Management's anticipates
funding on the new loan to take place in January.
During the six months ended October 31, 1995, the company's operating
activities generated $596,000 in cash flow. Of this amount, corporate
related matters used $274,000; Torotel Products' operations provided $437,000
due primarily to lower levels of receivables and inventories; and OPT's
operations provided $433,000 due primarily to higher pretax earnings.
Management's objective is to continue improving asset management to
strengthen the company's liquidity position.
Investing activities used $144,000 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 $447,000 in cash flow due primarily to reductions
in the revolving credit line and long-term debt. At October 31, 1995, the
company had used $1,332,000 of its revolving credit line and had $677,000
available for future cash 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
A lawsuit seeking injunctive relief and unspecified damages against the
company's two operating subsidiaries (Torotel Products, Inc. and OPT
Industries, Inc.) concerning the subsidiaries' product advertising was
dismissed with prejudice on November 15, 1995, without any payment to
plaintiff. Settlement of the litigation in the U.S. District Court for the
Southern District of New York was obtained prior to trial.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Stockholders' Meeting was held in Kansas City, Missouri, on
September 18, 1995, to elect a Board of Directors. At the meeting, there
were 2,216,337 shares voting in the election, with nominees needing 1,108,170
shares to be elected.
Shareholders elected the following individuals to a one-year term on the
Board of Directors, with the number of shares voting "FOR" each nominee
indicated.
<TABLE>
<S> <C>
Dale H. Sizemore, Jr., Chairman 2,193,848
Jack C. Beecroft 2,191,483
Ron L. Benjamin 2,168,318
Victor K. Brewer, Jr. 2,194,731
Christian T. Hughes 2,180,468
Dr. Thomas L. Lyon, Jr. 2,168,317
Richard A. Sizemore 2,193,848
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
a) Financial Data Schedule - Exhibit 27 (electronic filings only)
b) Reports on Form 8-K -- There were no reports filed on Form 8-K during
the three months ended October 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: December 11, 1995 /s/ H. James Serrone
H. James Serrone, Vice President
Principal Financial Officer
<TABLE> <S> <C>
<S> <C>
<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 OCTOBER 31,
1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> OCT-31-1995
<CASH> 106,000
<SECURITIES> 0
<RECEIVABLES> 3,718,000
<ALLOWANCES> 95,000
<INVENTORY> 2,731,000
<CURRENT-ASSETS> 6,630,000
<PP&E> 4,274,000
<DEPRECIATION> 2,326,000
<TOTAL-ASSETS> 8,903,000
<CURRENT-LIABILITIES> 2,707,000
<BONDS> 2,602,000
<COMMON> 1,411,000
0
0
<OTHER-SE> 2,183,000
<TOTAL-LIABILITY-AND-EQUITY> 8,903,000
<SALES> 8,255,000
<TOTAL-REVENUES> 8,255,000
<CGS> 5,919,000
<TOTAL-COSTS> 7,760,000
<OTHER-EXPENSES> 3,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 169,000
<INCOME-PRETAX> 323,000
<INCOME-TAX> 110,000
<INCOME-CONTINUING> 213,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 213,000
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
