U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 1996
Commission File No. 2-33256
TOROTEL, INC.
(Name of small business issuer 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) (Zip Code)
Issuer's telephone number (816) 761-6314
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
Common Stock, $.50 par value American Stock Exchange
Securities registered under Section 12(g) of the Exchange Act:
NONE
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 12 months and (2) has
been subject to such filing requirements for the past 90 days. YES X NO
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this Form 10-KSB, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. X
The issuer's revenues for the most recent fiscal year were $15,822,000.
The aggregate market value of the voting stock held by non-affiliates, based
on the closing sale price of the American Stock Exchange on July 12, 1996,
was $2,086,000. As of July 12, 1996, there were 2,790,366 shares on Common
Stock, $.50 Par Value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of
Shareholders on September 16, 1996, are incorporated by reference into
Part III.
TOROTEL, INC.
FORM 10-KSB
Fiscal Year Ended April 30, 1996
TABLE OF CONTENTS
PART I
Item 1. Business 1
Item 2. Properties
5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 6
Item 6. Management's Discussion and Analysis or Plan of Operation 7
Item 7. Financial Statements and Supplementary Data 11
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure 11
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons, Compliance With Section 16(a) of the
Exchange Act 27
Item 10. Executive Compensation 27
Item 11. Security Ownership of Certain Beneficial Owners and
Management 27
Item 12. Certain Relationships and Related Transactions 27
PART IV
Item 13. Exhibits and Reports on Form 8-K 28
SIGNATURES 33
PART I
ITEM 1. Business
Torotel, Inc. (the "company") conducts business through two wholly-owned
subsidiaries, Torotel Products, Inc. ("Torotel Products") and OPT Industries,
Inc. ("OPT").
Torotel Products specializes in the custom design and manufacture of
precision magnetic components, consisting of transformers, inductors,
reactors, chokes and toroidal coils. Torotel Products sells these magnetic
components to original equipment manufacturers, who use them in products such
as aircraft navigational equipment, voice and data secure communications,
telephone and avionics equipment, and conventional missile guidance systems.
OPT specializes in the custom design and manufacture of high power,
switching power supplies and a broad line of magnetic components. OPT sells
these products to a predominantly U.S. customer base in the computer,
telecommunications, industrial and military markets.
The company acquired 100% of the common stock of OPT on September 1, 1993.
The total purchase price of $404,000 consisted of $200,000 for a fund used
to retire all of the pre-merger outstanding shares of OPT, and $204,000 for
professional fees. In addition, warrants to purchase 66,667 shares of the
company's common stock at $1.50 per share were issued to Chemical Bank New
Jersey N.A. (see Note I of Notes to Consolidated Financial Statements). In
connection with the acquisition, the company agreed to guarantee OPT's
continuing mortgage obligations which amounted to $1,188,000 on the date of
acquisition. The acquisition was accounted for under the purchase method of
accounting.
The company was incorporated under the laws of the State of Missouri in 1956.
Its offices are located at 13402 South 71 Highway, Grandview, Missouri, and
its telephone number is (816) 761-6314. The term "company" as used herein
includes Torotel, Inc. and its subsidiaries, unless the context otherwise
requires.
TOROTEL PRODUCTS
Products
Torotel Products designs and manufactures a broad line of magnetic
components for use by the military and industry in electronic applications.
These components, which are used to modify and control electrical voltages
and currents in electronic devices, consist of transformers, inductors,
reactors, chokes, and toroidal coils. The major applications for these
components are aircraft navigational systems, voice and data secure
communications, telephone and avionics equipment, and conventional missile
guidance systems.
In 1992, Torotel Products attempted to expand its product base by bidding on
defense contracts for complete electrical assemblies that use many magnetic
components. One contract for $605,000 was awarded in January 1993, with
production concluding in fiscal 1997. Since the sales emphasis has shifted
more toward commercial markets, management does not anticipate bidding on
these contracts in the future.
In 1995, Torotel Products expanded its product base with the introduction of
five new lines of miniature power inductors for the military and commercial
markets. Higher revenues are anticipated from these products in fiscal 1997.
Management anticipates more new products, presently in the planning and
development stages, may be introduced toward the end of fiscal 1997.
Marketing and Customers
Historically, substantially all sales have been to the military market. In
the past few years, Torotel Products' sales and marketing focus has been more
toward commercial markets. In fiscal 1996, about 35% of the sales have come
from select commercial markets. The magnetic components are sold to
manufacturers who incorporate them into an end-product.
Torotel Products markets its components through an in-house technical team
of sales, engineering, and quality assurance personnel, through independent
manufacturers' representatives who are paid on a commission basis, and
through advertising. The products are sold primarily in the United States
and most sales are awarded on a competitive bid basis. Although all existing
orders are subject to schedule changes or cancellation, adequate financial
compensation is usually provided in such instances to protect from suffering
a loss on a contract.
Torotel Products has a customer base of over 300 companies including many
"Fortune 100" prime defense contractors. During the year ended April 30, 1996,
sales to three major customers amounted to 24%, 13% and 12% of the net sales
of Torotel Products.
Competition
Torotel Products' business is highly competitive, but it is not susceptible
to rapid technological change. A substantial number of companies sell
components of the type manufactured and sold by Torotel Products. It also
sells to customers who have the capability of manufacturing their own
electronic components.
The ability of Torotel Products to compete depends, among other things, upon
its customized product engineering and technical support, marketing
capabilities, quality assurance and manufacturing efficiency. Torotel
Products maintains a qualified environmental laboratory which enables it to
perform tests on a product's ability to withstand various environmental
conditions as may be specified by customers.
Manufacturing
A major portion of Torotel Products' sales consist of electronic components
manufactured to customers' specifications. Consequently, only a limited
inventory of finished goods is maintained. Although special wire-winding
machines and molding machines are used in the production process, the various
electronic components are manually assembled with numerous employees and
subcontractors contributing to the completion of the components.
Essential materials used by Torotel Products in the manufacturing process
include magnetic materials, copper wire, and plastic housings. These
materials are available from many sources. Major suppliers include
Magnetics, Inc., Electrical Insulation Suppliers, Inc., and Mod & Fab.
Torotel Products has not experienced any significant curtailment of
production because of material shortages, but longer lead times for magnetic
cores could have an impact on sales bookings.
Engineering, Research and Development
Torotel Products does not engage in significant research and development
activities, but does incur engineering expense in designing products to meet
customer specifications.
Employees
Torotel Products presently employs approximately 120 full-time employees.
An adequate supply of qualified personnel is available in the facility's
immediate vicinity. Its production employees have been represented by the
Torotel Employees Association, a non-affiliated labor union, since 1967.
The current labor contract expires on December 31, 1997. There have been no
interruptions of production as a result of labor disputes.
OPT INDUSTRIES
Products
OPT designs and manufactures switching power supplies and a broad line of
magnetic components. The switching power supplies convert available power to
low voltage/high current outputs. OPT offers air cooled, conduction cooled,
and immersion cooled power supplies. Most of the power supplies utilize a
proprietary ultra low leakage converter transformer designed and patented by
OPT, and all have full safety agency approval. The major applications for
these power supplies are supercomputers. New product development is critical
for continued sales growth in power supplies as the existing products in this
line have a remaining life cycle of approximately four years. Two new
products, targeted for the telecommunications market, will be introduced in
fiscal 1997. More products are in the planning stage and likely will include
standard power supplies and other products for the telecommunications market.
OPT's magnetic components consist of toroidal coils, transformer rectifiers,
utlra miniature transformers and inductors. The major applications for these
components are voice and data secure communications, supercomputers, aircraft
navigational systems, and conventional missile guidance systems. New products
in the development stages which are currently expected to be introduced in
fiscal 1997 include high voltage ballast type magnetics used in ultra-violet
and anti-static applications.
Marketing and Customers
OPT markets its products primarily through a direct sales force. OPT also
markets its magnetic components through independent manufacturers'
representatives who are paid on a commission basis, and through distributors.
All of these products are sold primarily in the United States. Although all
existing orders are subject to schedule changes or cancellation, adequate
financial compensation is usually provided in such instances to protect OPT
from suffering a loss on a contract. OPT has a customer base of over 300
companies including many "Fortune 100" companies. During the year ended
April 30, 1996, sales to a major customer amounted to 49% of the net sales of
OPT.
Competition
OPT is one of the smaller companies in the custom design power supply market,
but its technology provides greater packaging density, power transfer
efficiency and operating reliability than a number of its competitors. As a
result, OPT has limited competition in its switching power supplies business.
OPT's magnetics business is highly competitive, but it is not susceptible to
rapid technological change. A substantial number of companies sell components
of the type manufactured and sold by OPT, except for ultra miniature
transformers which have a unique construction common only to one competitor.
The ability of OPT to compete depends, among other things, upon its
customized product engineering and technical support, marketing capabilities,
and manufacturing efficiency.
Manufacturing
Most of the sales of OPT consist of products manufactured to customers'
specifications. In these instances, only a limited inventory of finished
goods is maintained; however, a finished goods inventory is maintained for
the magnetic components sold through distributors. Although special
wire-winding machines, molding machines, and wave soldering machines are used
in the production process, the products are manually assembled, with numerous
employees and subcontractors contributing to the completion of the product.
Essential materials used by OPT in the manufacture of switching power
supplies include printed circuit board assemblies, solid state power
electronic components, power semiconductors and fabricated sheet metal
housings. These materials are available from many sources. Major suppliers
include East Allen Machine Company, General Aviation Company, and Advanced
Power Technology.
Essential materials used in the manufacture of magnetic components include
magnetic materials, copper wire, and plastic housings. These materials are
available from many sources. Major suppliers include National Arnold and Rea
Magnet Wire.
Historically, OPT has not experienced any significant curtailment of
production because of material shortages; however, OPT did experience
production delays during the third quarter of fiscal 1996 due to a shortage
of a custom component part used in the immersion power supply. This shortage
was due to a vendor's failure to deliver as contractually committed. OPT did
obtain an alternate source and initial deliveries were received in December
1995. OPT does not anticipate any further shortages of this component part.
Engineering, Research and Development
Historically, OPT has not engaged in significant research and development
activities, but has incurred engineering expense in designing products to
meet customer specifications. Management does anticipate more expenses in
this area as new power supplies products are developed for the
telecommunications market.
Employees
OPT presently employs approximately 120 full-time employees. An adequate
supply of qualified personnel is available in the facility's immediate
vicinity. Its production employees have been represented by the United
Steelworkers of America, AFL-CIO Local 8169 since 1972. The current labor
contract expires on September 17, 1996. There have been no interruptions of
production as a result of labor disputes.
ITEM 2. Properties
The company owns a two-building complex with approximately 29,000 square feet
located in Grandview, Missouri. This facility is occupied by Torotel
Products, and also serves as the company's executive offices. The company
also owns 17 acres of unimproved land in an airport industrial park in Kansas
City, Missouri. As of April 30, 1996, these properties were subject to a
first deed of trust securing indebtedness in the amount of $480,000.
OPT owns a two-building complex with approximately 55,000 square feet located
in Phillipsburg, New Jersey. As of April 30, 1996, this facility was subject
to a first deed of trust securing indebtedness in the amount of $619,000. As
of July 5, 1996, this facility also was subject to a second and third lien
mortgage collateralizing the new credit agreement discussed in Note D of Notes
to Consolidated Financial Statements.
The company believes that its existing facilities and equipment are well
maintained and in good operating condition. Present utilization of the
existing facilities is less than 50 % of maximum capacity.
ITEM 3. Legal Proceedings
The company is not party to any material legal proceedings.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
PART II
ITEM 5. Market for Common Equity and Related Stockholder Matters
(a) Market Information
The Company's common stock is traded on the American Stock Exchange (AMEX)
under the symbol "TTL".
Price Range of Common Stock
The following table sets forth the high and low sales prices as reported on
the AMEX.
<TABLE>
1996 1995
<S> <C> <C> <C> <C>
Fiscal Period High Low High Low
First Quarter 1-5/16 1-1/16 1-3/8 7/8
Second Quarter 2-3/8 1-1/16 1-9/16 15/16
Third Quarter 1-13/16 1-7/16 1-3/8 1
Fourth Quarter 1-3/4 1-7/16 1-3/8 1
</TABLE>
(b) Approximate Number of Equity Security Holders
Approximate Number of
Record Holders
Title of Class as of April 30, 1996
Common Stock, $.50 par value 2,000 (1)
(1) Included in the number of stockholders of record are shares held in
"nominee" or "street" name.
(c) Dividend History and Restrictions
The company has never paid a cash dividend on its common stock and has no
present intention of paying cash dividends in the foreseeable future. The
company's credit agreement prohibits the payment of cash dividends without
the prior consent of the lender.
(d) Dividend Policy
Future dividends, if any, will be determined by the Board of Directors in
light of the circumstances then existing, including the company's earnings,
financial requirements, general business conditions and credit agreement
restrictions.
ITEM 6. Management's Discussion and Analysis or Plan of Operation
The following management comments regarding the company's results of
operations and outlook should be read in conjunction with the Consolidated
Financial Statements included pursuant to Item 7 of this Annual Report.
1996 Compared to 1995
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.
Net sales increased 5%. The net sales of Torotel Products increased 2% from
$6,439,000 to $6,597,000 due primarily to a $682,000 increase in sales of the
headcoil assembly for the Hellfire II missile system and increased sales to
commercial markets. These increases offset lower sales associated with less
favorable market conditions for other magnetic components for the military
market. OPT's net sales increased 7% from $8,624,000 to $9,225,000 due
primarily to higher sales of its immersion power supply; however, these sales
in the current year were adversely impacted by a raw material shortage caused
by a vendor's failure to deliver as contractually committed. An alternate
source was obtained and initial deliveries were received in December.
Gross profit as a percentage of net sales increased 2%. The gross profit
percentage of Torotel Products decreased 1% due primarily to higher cost of
materials associated with the production of the headcoil assembly. The gross
profit percentage of OPT increased 5% due to improved labor efficiencies
and lower fixed production costs.
Engineering expenses increased 3%. The engineering expenses of Torotel
Products decreased 1% from $438,000 to $433,000 due to lower payroll costs.
The engineering expenses of OPT increased 8% from $464,000 to $500,000 due to
higher development costs associated with new power supplies products for the
telecommunications market.
Selling, general and administrative (SG&A) expenses increased 4%. The SG&A
expenses of Torotel, Inc. increased 13% from $245,000 to $278,000 due to a
non-recurring cost of $26,000 associated with the company's 401(k) plan for
non-union employees and a $6,000 increase in the aggregate of the directors
fees associated with the annual retainer for an additional outside director.
The SG&A expenses of Torotel Products increased 5% from $1,522,000 to
$1,595,000 due primarily to a $118,000 increase in legal fees associated with
an advertising lawsuit that was settled prior to trial without any payment to
the plaintiff, a $27,000 increase in payroll costs, a $7,000 increase in
facility costs, a $6,000 increase in mailing costs, and a $4,000 increase in
advertising costs. These increases were offset partially by a $93,000
decrease in sales commissions. The SG&A expenses of OPT decreased slightly
from $1,018,000 to $1,013,000.
Interest expense decreased 7%. The interest expense of Torotel, Inc.
decreased slightly from $46,000 to $45,000. The interest expense of Torotel
Products increased 13% from $83,000 to $94,000 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
16% from $195,000 to $163,000 due to a lower aggregate borrowing level which
was offset partially by higher interest rates associated with increases in
the prime lending rate.
Sundry nonoperating income increased due to a $510,000 non-recurring gain
from the final settlement of the business income and contents insurance claim
which resulted from the fire in March 1995 (see Note M of Notes to
Consolidated Financial Statements).
For the reasons discussed above, consolidated pretax earnings increased from
a loss of $396,000 to a profit of $507,000. The pretax loss of Torotel, Inc.
increased from $291,000 to $323,000. The pretax earnings of Torotel Products
increased from a loss of $183,000 to a profit of $148,000. The pretax
earnings of OPT increased from $78,000 to $682,000.
Provision for income taxes increased due to a change in deferred tax assets
(see Note E of Notes to Consolidated Financial Statements).
The cumulative effect of adopting FASB Statement No. 109, "Accounting for
Income Taxes", in fiscal 1994 was a benefit of $400,000. At the date of
adoption, a valuation allowance was recorded to net the total deferred asset
of $1,532,000 to an amount the company estimated was more likely than not
to be realized. The allowance relates to operating loss carryforwards, and
reflects the continued softness in the defense electronics industry and the
risks inherent in Torotel Products' new sales direction toward commercial
markets. The significant earnings improvement at OPT in fiscal 1996 enabled
the company to realize a portion of the net deferred tax asset. Management
anticipates another good year from OPT, which should enable the consolidated
group to be profitable in fiscal 1997. Accordingly, management expects the
remaining deferred tax asset of $228,000 to be realizable.
1995 Compared to 1994
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. It should be noted that the results for 1994 include
only eight months of OPT because it did not become a subsidiary until
September 1, 1993.
Net sales increased 29%. The net sales of Torotel Products increased 20%
from $5,380,000 to $6,439,000 due to more favorable market conditions for its
magnetic components and increased sales to commercial markets. While the
comparative sales results are favorable, the current year's volume is lower
than expected due to a fire at Torotel Products' facility in March which
severely restricted operations for the last five weeks of the year (see Note
M of Notes to Consolidated Financial Statements). OPT's net sales were
$8,624,000 compared with $6,269,000.
Gross profit as a percentage of net sales decreased 3%. The gross profit
percentage of Torotel Products remained unchanged at 28%. While the current
year's fixed production costs were lower, the inefficiencies caused by the
fire had a significant impact on Torotel Products' gross margin in 1995. The
gross profit percentage of OPT was 20% compared with 25%. OPT's lower gross
margin is due to a higher mix of power supplies shipments, higher direct
labor costs associated with start-up production of the immersion power
supplies, and a $154,000 charge to raw material inventory to reflect
adjustments for slow-moving items.
Engineering expenses decreased 7%. The engineering expenses of Torotel
Products increased 2% from $431,000 to $438,000 due to salary reductions
implemented for the fourth quarter last year, most of which were reinstated
in fiscal 1995. OPT's engineering expenses were significantly lower at
$464,000 compared with $543,000 due to reductions in personnel associated
with the completion of the development of the immersion power supply.
Selling, general, and administrative (SG&A) expenses increased 20%. The SG&A
expenses of Torotel, Inc. decreased 8% from $267,000 to $245,000 due
primarily to a decrease in consulting fees associated with the consulting
agreement with the former Chairman of the Board. The SG&A of Torotel
Products increased 9% from $1,396,000 to $1,522,000 due primarily to a
$159,000 increase in sales commissions and an $82,000 increase in the costs
for compensated absences. However, these increases were partially offset by
a $73,000 decrease in payroll costs associated with layoffs and salary
reductions, a $27,000 decrease in consulting fees, and a $15,000 decrease in
advertising costs. OPT's SG&A expenses were $1,018,000 compared with $663,000.
Proceeds from a life insurance policy on Dale H. Sizemore, Sr., founder and
former Chairman of the Board, resulted in a gain in 1994 for Torotel, Inc. of
$216,000.
Interest expense increased 54%. The interest expense of Torotel, Inc.
decreased 2% from $47,000 to $46,000 due to the payoff of loans on a life
insurance policy. The interest expense of Torotel Products increased 107%
from $40,000 to $83,000 due to a higher aggregate borrowing level and the
effect of higher interest rates associated with increases in the prime
lending rate. OPT's interest expense was $195,000 compared with $123,000.
Sundry nonoperating income increased due to a $147,000 gain on the
involuntary conversion of equipment destroyed in the fire. This gain was
offset partially by non-property related expenses resulting from the fire
which will be submitted as part of the business income insurance claim (see
Note M of Notes to Consolidated Financial Statements).
For the reasons discussed above, the consolidated pretax loss increased from
$244,000 to $396,000. The pretax loss of Torotel, Inc. increased from
$110,000 to $291,000. The pretax loss of Torotel Products decreased from
$338,000 to $183,000. The pretax earnings of OPT decreased from $204,000 to
$78,000.
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.
Management believes the new credit agreement discussed in Note D of Notes to
Consolidated Financial Statements provides greater flexibility and improved
liquidity.
The company's operating activities generated $1,137,000 in cash flow during
fiscal 1996. Corporate related matters used $358,000. The operations of
Torotel Products provided $811,000 in cash flow due primarily to the insurance
settlement from a business income and contents claim described in Note M of
Notes to Consolidated Financial Statements and a lower level of receivables
which resulted from a decrease in unbilled receivables derived from progress
completed on contracts accounted for using the percentage of completion method
of recognizing revenue. OPT's operations provided $684,000 in cash flow due
primarily to higher pretax earnings. Management's objective is to continue
strengthening the company's liquidity position through improved operations
and asset management.
Investing activities used $166,000 in cash flow for capital expenditures for
production equipment and building improvements, which is net of $31,000 in
proceeds from the dispositon of assets. The company expects investments of
approximately $250,000 for capital expenditures in fiscal 1997.
Financing activities used $923,000 in cash flow due primarily to reductions
in the revolving credit line and long-term debt. Under the terms of the new
credit agreement discussed in Note D of Notes to Consolidated Financial
Statements, at April 30, 1996, the company had used $971,000 of its revolving
credit line and had $1,529,000 available for future cash requirements, based
on the lender's borrowing base formula. As discussed in Note D, the
company was in violation of a financial coverage ratio covenant under the
terms of a note payable to Bank IV, N.A. As of the filing of this Annual
Report, the bank has not determined whether it will waive compliance with the
subject provision as of April 30, 1996. One of the remedies available to the
bank is to demand full payment of the outstanding balance, which is $480,000
at April 30, 1996. While the company has the liquidity available to pay-off
the note, management believes another source of financing can be obtained in
the event such demand is made.
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.
Other
Except for historical information contained herein, certain of the matters
discussed above are forward-looking statements that are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those set forth in the forward-looking statements, including the
company's dependence on timely development, introduction and customer
acceptance of new products, the impact of competition and price erosion as
well as supply and manufacturing constraints, and other risks and
uncertainties.
ITEM 7. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants 12
Consolidated Balance Sheet as of April 30, 1996 13
Consolidated Statements of Operations for the years ended
April 30, 1996 and 1995 14
Consolidated Statement of Changes in Stockholders' Equity for
the period May 1, 1994 through April 30, 1996 15
Consolidated Statements of Cash Flows for the years ended
April 30, 1996 and 1995 16
Notes to Consolidated Financial Statements 17
Supplementary Quarterly Financial Data 26
ITEM 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Torotel, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Torotel, Inc.
and Subsidiaries as of April 30, 1996, and the related consolidated statements
of earnings, stockholders' equity, and cash flows for each of the two years
in the period ended April 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Torotel, Inc.
and Subsidiaries as of April 30, 1996 and the consolidated results of their
operations and their consolidated cash flows for each of the two years in the
period ended April 30, 1996 in conformity with generally accepted accounting
principles.
/s/ Grant Thornton LLP
Grant Thornton LLP
Kansas City, Missouri
June 20, 1996
CONSOLIDATED BALANCE SHEET
As of April 30, 1996
<TABLE>
ASSETS
<S> <C>
Current assets:
Cash $ 149,000
Trade and other receivables, less allowance for
doubtful accounts of $95,000 (Notes A, B, and D) 3,302,000
Inventories, less allowance for obsolescence of
$959,000 (Notes A, C, and D) 2,468,000
Prepaid expenses and other current assets 102,000
6,021,000
Property, plant and equipment (Notes A and D):
Land 368,000
Buildings and improvements 1,446,000
Equipment 2,443,000
4,257,000
Less accumulated depreciation and amortization 2,416,000
1,841,000
Deferred tax asset (Note E) 228,000
Other assets 28,000
$ 8,118,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt (Note D) $ 1,500,000
Current maturity of note payable to former officer (Note K) 68,000
Trade accounts payable 886,000
Accrued liabilities (Note J) 510,000
2,964,000
Long-term debt, less current maturities (Note D) 1,075,000
Note payable to former officer (Note K) 361,000
Commitments (Note F) -
Stockholders' equity (Notes D, G, H, I, and L):
Common stock, $.50 par value; 6,000,000 shares authorized;
2,824,111 shares issued 1,412,000
Capital in excess of par value 8,647,000
Accumulated deficit (6,186,000)
3,873,000
Less cost of treasury stock, 34,084 shares 155,000
3,718,000
$ 8,118,000
</TABLE>
The accompanying notes are an integral part of this statement.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended April 30,
<TABLE>
<S> <C> <C>
1996 1995
Net sales $15,822,000 $15,063,000
Cost of goods sold 11,714,000 11,524,000
Gross profit 4,108,000 3,539,000
Operating expenses:
Engineering 933,000 902,000
Selling, general and administrative 2,886,000 2,785,000
3,819,000 3,687,000
Earnings (loss) from operations 289,000 (148,000)
Other income (expense):
Interest expense (302,000) (324,000)
Other income, net (Note M) 520,000 76,000
218,000 (248,000)
Earnings (loss) before provision for income taxes 507,000 (396,000)
Provision for income taxes (Note E) 172,000 -
Net earnings (loss) $ 335,000 $ (396,000)
Earnings (loss) per common and common equivalent
share (Notes H and I) $ .12 $ (.14)
</TABLE>
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Capital in Treasury Total
Common Excess of Accumulated Stock, Stockholders'
Shares Stock Par Value Deficit at cost Equity
Balance,
May 1,1994 2,762,531 $1,381,000 $8,615,000 $(6,125,000) $(146,000) $3,725,000
Net loss - - - (396,000) - (396,000)
Issuance of
common stock
to employee
stock purchase
plan (Note G) 1,874 1,000 1,000 - - 2,000
Issuance of
common stock
to incentive
compensation
plan (Note G) 32,780 17,000 8,000 - - 25,000
Acquisition of
8,858 shares
of treasury
stock - - - - (9,000) (9,000)
Balance,
April 30,
1995 2,797,185 $1,399,000 $8,624,000 $(6,521,000) $(155,000) $3,347,000
Net earnings - - - 335,000 - 335,000
Issuance of
common stock
to employee
stock purchase
plan (Note G) 5,616 3,000 4,000 - - 7,000
Issuance of
common stock
to incentive
compensation
plan (Note G) 21,310 10,000 19,000 - - 29,000
Balance,
April 30,
1996 2,824,111 $1,412,000 $8,647,000 $(6,186,000) $(155,000) $3,718,000
</TABLE>
The accompanying notes are an integral part of this statement.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended April 30,
<TABLE>
<S> <C> <C>
1996 1995
Cash flows from operating activities:
Net earnings (loss) $ 335,000 $ (396,000)
Adjustments to reconcile net earnings (loss)
to net cash provided by operations:
Gain from disposition of assets (27,000) (146,000)
Depreciation and amortization 293,000 246,000
Deferred tax asset 172,000 -
Increase (decrease) in cash flows from
operations resulting from changes in:
Trade and other receivables 778,000 (642,000)
Inventories 155,000 507,000
Prepaid expenses and other assets 6,000 65,000
Trade accounts payable (466,000) 160,000
Accrued liabilities (27,000) 164,000
Accrued interest on note payable to
officer (82,000) 47,000
802,000 401,000
Net cash provided by operations 1,137,000 5,000
Cash flows from investing activities:
Capital expenditures (197,000) (268,000)
Proceeds from disposition of assets 31,000 -
Proceeds from involuntary conversion of equipment - 151,000
Net cash used in investing activities (166,000) (117,000)
Cash flows from financing activities:
Borrowings against credit line 16,895,000 15,003,000
Payments against credit line (17,427,000) (15,017,000)
Proceeds from issuance of long-term debt 620,000 500,000
Principal payments on long-term debt (1,034,000) (374,000)
Payments on capital lease obligations (13,000) (7,000)
Proceeds from issuance of common stock 36,000 27,000
Acquisition of treasury stock - (9,000)
Net cash provided by (used in) financing
activities (923,000) 123,000
Net increase in cash $ 48,000 $ 11,000
Cash at beginning of year 101,000 90,000
Cash at end of year $ 149,000 $ 101,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 358,000 $ 279,000
Income taxes $ - $ -
</TABLE>
The accompanying notes are an integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following summarizes the significant accounting policies consistently
applied in the preparation of the accompanying consolidated financial
statements.
Principles of Consolidation
The consolidated financial statements include the accounts of Torotel, Inc.
and its wholly-owned subsidiaries, Torotel Products, Inc. and OPT Industries,
Inc. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements
and revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Revenue Recognition
Torotel Products recognizes revenue from government contractors on a
percentage of completion basis using the ratio of labor hours incurred to
estimated total labor hours as a measure of progress toward completion for
each contract. For commercial customers, Torotel Products recognizes
revenue on a percentage of completion basis using the unit-of-delivery method
for measuring progress toward completion for each contract. OPT recognizes
revenue on a percentage of completion basis primarily using the unit-of-
delivery method for measuring progress toward completion for each contract.
Both historically and currently, less than 5% of the company's annual
consolidated sales arise from contracts which are performed over a period of
more than one year.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using a moving average cost method of valuation which currently and
historically approximates the first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation and
amortization are charged to operations primarily using the straight-line
method over estimated useful lives of three to ten years for property and
equipment, and twenty years for buildings and improvements.
Cash Flows
For purposes of the statement of cash flows, the company considers all
short-term investments purchased with a maturity of three months or less to
be cash equivalents.
NOTE B - TRADE AND OTHER RECEIVABLES
The following table summarizes the components of trade and other receivables:
<TABLE>
<S> <C>
Billed $2,395,000
Recoverable costs and accrued profit on production
completed not billed, net of unliquidated progress
payments of $18,000 1,001,000
Other receivables 1,000
3,397,000
Less allowance for doubtful accounts 95,000
$3,302,000
</TABLE>
NOTE C - INVENTORIES
The following table summarizes the components of inventories:
<TABLE>
<S> <C>
Raw materials $1,295,000
Work in process 1,014,000
Finished goods 159,000
$2,468,000
</TABLE>
NOTE D - FINANCING AGREEMENTS
At April 30, 1996, the company was operating under a credit agreement with
Mercantile Business Credit, Inc. On July 5, 1996, the company, through its
OPT subsidiary, signed a new credit agreement with Phillipsburg National Bank
& Trust Company (PNBT). The accompanying consolidated balance sheet reflects
the terms of the new agreement. The new credit agreement provides a
$2,500,000 revolving credit line and a $475,000 term loan. The revolving line
expires on July 5, 1997, and the term loan expires on July 5, 2006. Advances
under the credit line are limited to the sum of 75% of eligible billed
receivables and 50% of inventories, net of reserves. The aggregate credit
line is collateralized by trade accounts receivable, inventories, equipment,
and a second and third mortgage on OPT's facility.
Under the terms of the agreement, the outstanding balance of the revolving
line bears interest at 1/2% over the bank's prime rate. The outstanding
balance of the term loan bears interest at a fixed rate of 8-3/4% per annum
during the first five years, thereafter the rate will be fixed for one-year
intervals at 1/2% over the bank's prime rate. As of July 5, 1996, the
effective borrowing rate for the revolving credit line was 8-3/4%. The term
loan requires monthly principal and interest payments of $5,986 during the
first five years. At the end of the fifth year and every year thereafter,
the payments will be automatically adjusted to reflect the change in the i
nterest rate and the remaining term of the loan. As of April 30, 1996, the
company had utilized $971,000 of the revolving line. The company is required
to comply with certain covenants including restrictions on the payment of
cash dividends.
On March 19, 1996, OPT paid off notes payable to the New Jersey Economic
Development Authority and to the County of Warren by executing a $620,000
promissory note with PNBT. Under the terms of the note, the outstanding
balance bears interest at a fixed rate of 9% per annum during the first
five years, thereafter the rate will fluctuate at 1/2% over the bank's prime
rate. The note requires monthly principal and interest payments of $5,632
during the first five years. At the end of the fifth year and for the
remaining term of the note, the monthly principal and interest payments will
be $5,548. The note, which is guaranteed by Torotel, Inc., has a maturity
date of March 19, 2016, and is collateralized by a first mortgage on OPT's
land and buildings.
The company has a $500,000 note with Bank IV, N.A. ("Bank IV") dated
November 29, 1994. The note is collateralized by the land and buildings in
Grandview, Missouri, and the unimproved land in Kansas City, Missouri. The
note is payable in monthly installments of $5,207 including interest at an
annual rate of 9-1/4% through December 15, 1997, whereupon the remaining
principal balance of $451,000 will be due and payable. Under the terms of
the note, the company is required to comply with certain covenants including
restrictions on the payment of cash dividends. At April 30, 1996, the
company was in violation of a financial coverage ratio covenant contained in
the note. As of the filing of this Annual Report, the bank has not
determined whether it will waive compliance with the subject provision as of
April 30, 1996. One of the bank's remedies is to demand full payment of the
outstanding balance. Accordingly, the outstanding balance of $480,000 has
been classified as current in the accompanying consolidated balance sheet.
Information concerning the company's long-term indebtedness, classified to
reflect borrowings under the new credit agreement, is as follows:
<TABLE>
<S> <C>
Revolving line payable to PNBT, maturing July 1997 $ 971,000
Term loan payable to PNBT, maturing July 2006 475,000
Note payable to PNBT, maturing March 2016 619,000
Note payable to Bank IV, on demand 480,000
Capitalized lease obligations (Note F) 30,000
2,575,000
Less current maturities 1,500,000
$1,075,000
</TABLE>
The amount of long-term debt maturing in each of the five years subsequent
to April 30, 1996, classified to reflect the borrowings under the new credit
agreement, is as follows:
<TABLE>
<S> <C>
April 30, Amount
1997 $1,500,000
1998 57,000
1999 57,000
2000 56,000
2001 61,000
Thereafter 844,000
$2,575,000
</TABLE>
NOTE E - INCOME TAXES
The provision for income taxes reflected in the consolidated statements of
operations differs from the amounts computed at the federal statutory tax
rates. The principal differences between the statutory income tax expense
and the effective provision for income taxes are summarized as follows:
<TABLE>
<S> <C> <C>
1996 1995
Computed tax expense (benefit) at statutory rates $ - $ -
Change in deferred tax assets 247,000 (22,000)
Change in valuation allowance (75,000) 22,000
$ 172,000 $ -
</TABLE>
The company has available as benefits to reduce future income taxes, subject
to applicable limitations, the following estimated net operating loss ("NOL")
and credit carryforwards:
<TABLE>
<S> <C> <C> <C> <C>
Investment
Year of NOL Tax R & D Job Target
Expiration Carryforward Credit Tax Credit Tax Credit
1997 $ - $ 25,000 $ 95,000 $ 24,000
1998 - 42,000 103,000 13,000
1999 - 17,000 38,000 1,000
2000 471,000 16,000 - -
2001 1,420,000 4,000 - -
2002 - - - -
2003 1,416,000 - - -
2008 1,000 - - -
2009 819,000 - - -
2010 366,000 - - -
2011 308,000 - - -
$4,801,000 $ 104,000 $ 236,000 $ 38,000
</TABLE>
Effective May 1, 1993, the company adopted The Financial Accounting Standards
Board ("FASB") Statement No. 109, "Accounting for Income Taxes", which
requires an asset and liability approach to financial accounting and reporting
for income taxes. The difference between the financial and tax basis of
assets and liabilities is determined annually.
Deferred income taxes and liabilities are computed for those differences that
have future tax consequences using the currently enacted tax laws and rates
that apply to the periods in which they are expected to effect taxable income.
Valuation allowances are established, if necessary, to reduce the deferred tax
asset to the amount that will, more likely than not, be realized. Income tax
expense is the current tax payable or refundable for the period plus or minus
the net change in the deferred tax assets or liabilities.
The net deferred tax asset included in the accompanying balance sheet at
April 30, 1996, 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 $ 1,490,000
Inventory valuation reserve 270,000
Tax credit carryforwards 378,000
Property, plant and equipment 170,000
Other 98,000
2,406,000
Less valuation allowance 2,178,000
$ 228,000
</TABLE>
The valuation allowance was decreased by $75,000 as of April 30, 1996, due to
changes in the deferred tax assets.
NOTE F - COMMITMENTS
The company is party to a non-cancelable operating lease used in the
performance of its business. In addition, the company entered into two lease
financing arrangements in fiscal 1995 for an office phone system and test
equipment. These two leases are presented in the financial statements as
capital leases. The aggregate initial capitalized cost of this equipment was
$52,000 with a discount rate of 16% implicit in each of the lease agreements.
Future minimum lease payments subsequent to April 30, 1996, are as follows:
<TABLE>
<S> <C> <C>
Capital Operating
April 30, Leases Leases
1997 $ 17,000 $ 24,000
1998 14,000 24,000
1999 9,000 24,000
2000 2,000 7,000
$ 42,000 $ 79,000
</TABLE>
The future minimum capital lease payments of $42,000 include amounts
representing interest of $12,000 which results in a present value of $30,000
for net minimum capital lease payments (see Note D of Notes to Consolidated
Financial Statements). Equipment recorded under capital leases amounted to
$34,000, net of accumulated depreciation of $18,000 as of April 30, 1996.
Total rent expense for all operating leases for the years ended April 30,
1996 and 1995 was $24,000 and $43,000, respectively.
NOTE G - EMPLOYEE INCENTIVE PLANS
Incentive Compensation Plan
On September 19, 1994, the shareholders approved the Incentive Compensation
Plan. All key employees are eligible to participate in the Plan. The Plan
provides for participants to receive incentive payments in cash and/or company
common stock based on targeted pretax earnings, as defined in the Plan. There
were no awards under the Plan for the years ended April 30, 1996 and 1995.
Employee Stock Purchase Plan
The company has an Employee Stock Purchase Plan which permits employees of
both operating subsidiaries to purchase common stock of the company at a
formula price which approximates market value. The Plan enables employees to
purchase stock through payroll deductions of up to 10% of their compensation.
The company matches one-half of the employee's contribution. Stock purchased
under the Plan is restricted from transfer for one year after the date of
issuance. Expenses of the Plan in each of the years ended April 30, 1996 and
1995 were $1,000 and $2,000, respectively.
Employee Stock Option Plans
In accordance with the Incentive Compensation Plan approved by shareholders
on September 19, 1994, the company reserved 400,000 common shares for issuance
to key employees pursuant to the exercise of incentive and non-qualified stock
options granted prior to June 20, 2004. At April 30, 1996, options on all
400,000 shares remained available for future grants.
In accordance with the Incentive Compensation Plan approved by shareholders
in 1982, the company reserved 630,000 common shares for issuance to key
employees pursuant to the exercise of incentive and non-qualified stock
options granted prior to May 20, 1992. At April 30, 1996, no options
were available for future grants, but options to purchase 155,353 shares were
exercisable.
Stock option transactions under the 1982 Plan for each period are summarized
as follows:
<TABLE>
<S> <C> <C>
Shares Under Option Price
Option Per Share
Balance, May 1, 1994 377,393 $.75 to $2.00
Exercised (32,780) $ .75
Canceled (33,250) $ .75
Balance, April 30, 1995 311,363 $.75 to $2.00
Exercised (21,310) $1.38
Canceled (131,537) $.75 to $2.00
Balance, April 30, 1996 158,516 $.75 to $2.00
</TABLE>
401(k) Retirement Plans
The company has a 401(k) Retirement Plan for non-union employees of both
operating subsidiaries. Employer contributions to the Plan for the years
ended April 30, 1996 and 1995, were $35,000 and $3,000, respectively.
Torotel Products has a separate 401(k) Retirement Plan for union employees.
Employer contributions to this Plan for the years ended April 30, 1996 and
1995, were $2,000 and $1,000, respectively.
OPT also has a separate 401(k) Retirement Plan for its union employees.
Pursuant to a collective bargaining agreement with the United Steelworkers of
America, AFL-CIO Local 8169, employer contributions to this Plan for the years
ended April 30, 1996 and 1995 were $37,000 and $44,000, respectively.
NOTE H - EARNINGS PER SHARE
Earnings per common and common equivalents share have been computed using
the weighted average shares of common stock and common stock equivalents
outstanding during the periods. The weighted average shares outstanding for
the periods presented were as follows:
<TABLE>
<S> <C> <C> <C>
Weighted Weighted
Average Average
Shares of Common Stock Shares
Year Ended Common Stock Equivalents Outstanding
April 30, 1995 2,755,738 - 2,755,738
April 30, 1996 2,781,132 31,703 2,812,835
</TABLE>
The common stock equivalents, consisting of shares issuable upon assumed
exercise of the incentive and non-qualified stock options, are accounted for
under the treasury stock method using the average price of the company's
shares during the periods. Fully diluted earnings per share are the same
as the earnings per share indicated on the accompanying consolidated
statements of operations.
NOTE I - STOCK WARRANTS
In connection with the acquisition of OPT, warrants to purchase 66,667
shares of the company's common stock at $1.50 per share were issued to
Chemical Bank New Jersey N.A. The warrants expire on September 1, 2003. As
of April 30, 1995 and 1996, there was no dilutive effect from these warrants.
NOTE J - ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<S> <C>
Employee related expenses $ 367,000
Other, including interest 143,000
$ 510,000
</TABLE>
NOTE K - NOTE PAYABLE TO FORMER OFFICER
At April 30, 1996, the company was indebted to Alfred F. Marsh, former
President of Torotel, Inc., for $250,000 in the form of a promissory note,
which was executed in April 1986. The face value of the note plus $179,000
of its accrued interest were subordinated to Mercantile Business Credit, Inc.
(MBCI) pursuant to a Subordination Agreement between MBCI and Mr. Marsh. For
the year ended April 30, 1996, the company incurred $45,000 in interest on
the note. Since the inception of the note, the company has accrued total
interest of $338,000, of which $179,000 remains due and payable.
In conjunction with the new credit agreement with PNBT discussed in Note D
of Notes to Consolidated Financial Statements, on July 10, 1996, the company
executed a new promissory note with Mr. Marsh in the amount of $429,000,
which consists of the original principal sum of $250,000 plus the accrued
unpaid interest of $179,000. The outstanding balance of this unsecured note
bears interest at a fixed rate of 10% per annum. The note requires monthly
principal and interest payments of $10,881, and matures on July 1, 2000.
Under the terms of the note, no payments shall be made to Mr. Marsh as long
as any default condition exists under the terms of the company's credit
agreement with PNBT, unless the bank has waived the default condition prior
to any payment. The accompanying consolidated balance sheet has been
classified to reflect the borrowing under the new promissory note.
The amount of the debt maturing in each of the five years subsequent to
April 30, 1996, classified to reflect the borrowing under the new promissory
note, is as follows:
<TABLE>
<S> <C>
April 30, Amount
1997 $ 68,000
1998 99,000
1999 109,000
2000 121,000
2001 32,000
$ 429,000
</TABLE>
NOTE L - DIVIDEND RESTRICTIONS
The company's credit agreement prohibits the payment of cash dividends
without the prior consent of PNBT and Bank IV.
NOTE M - 1995 OPERATIONS IMPACTED BY FIRE
On March 25, 1995, Torotel Products' facility was struck by lightning which
resulted in significant fire and water damage to the machine shop and
shipping department. While all equipment and supplies were covered by
insurance, Torotel Products experienced a significant curtailment in
production during the last five weeks of fiscal 1995, which negatively
impacted operating results for the quarter and the year.
For the year ended April 30, 1996, other income as presented in the
accompanying consolidated statements of operations included a $510,000 gain
from the final settlement for business income and contents insurance. For
the year ended April 30, 1995, other income included a $147,000 gain on the
involuntary conversion of equipment destroyed in the fire. This gain was
offset partially by non-property related expenses resulting from the fire
which were submitted as part of the business income insurance claim.
NOTE N - INDUSTRY SEGMENT INFORMATION
The following table summarizes industry segment information for 1996 and
1995. The components segment includes the magnetic components product lines
of Torotel Products and OPT, while the telecommunications segment includes
OPT's switching power supplies.
<TABLE>
<S> <C> <C>
1996 1995
Sales to unaffiliated customers:
Components $11,563,000 $11,609,000
Telecommunications 4,259,000 3,454,000
$15,822,000 $15,063,000
Earnings (loss) from operations:
Components $ 112,000 $ (97,000)
Telecommunications 455,000 194,000
Corporate (278,000) (245,000)
$ 289,000 $ (148,000)
Identifiable assets:
Components $ 5,816,000 $ 7,076,000
Telecommunications 1,990,000 1,720,000
Corporate 312,000 485,000
$ 8,118,000 $ 9,281,000
Capital expenditures:
Components $ 49,000 $ 200,000
Telecommunications 148,000 118,000
$ 197,000 $ 318,000
Depreciation and amortization expense:
Components $ 213,000 $ 188,000
Telecommunications 80,000 58,000
$ 293,000 $ 246,000
</TABLE>
For the year ended April 30, 1996, sales by the components segment to
Lockheed Martin were 13% of consolidated net sales; sales by the
telecommunications segment to Cray Research were 27% of consolidated net
sales. For the year ended April 30, 1995, sales by the telecommunications
segment to Cray Research were 14% of consolidated net sales. Intersegment
and export sales were not significant. Sales of the components segment to
defense contractors for conventional military applications for the years
ended April 30, 1996 and 1995, were approximately 65% and 80%, respectively.
SUPPLEMENTARY QUARTERLY FINANCIAL DATA (Unaudited)
The following tables summarize certain selected quarterly unaudited
consolidated financial data for the last two fiscal years and should be read
in conjunction with the Consolidated Financial Statements for the years ended
April 30, 1996 and 1995, included herein (in thousands, except per share data):
Fiscal 1996 by Quarter
<TABLE>
<S> <C> <C> <C> <C>
4th 3rd 2nd 1st
Net sales $3,879 $3,688 $4,021 $4,234
Gross profit $ 953 $ 819 $1,039 $1,297
Net earnings $ 3 $ 119 $ 36 $ 177
Earnings per share $ .00 $ .04 $ .01 $ .06
Fiscal 1995 by Quarter
4th 3rd 2nd 1st
Net sales $3,575 $3,846 $3,819 $3,823
Gross profit $ 373 $1,071 $1,032 $1,063
Net earnings (loss) $ (469) $ 4 $ 22 $ 47
Earnings (loss) per
share $ (.17) $ .00 $ .01 $ .02
</TABLE>
PART III
ITEM 9. Directors, Executive Officers, Promoters and Control Persons,
Compliance With Section 16(a) of the Exchange Act
Information required under this Item is contained in the company's 1996
Proxy Statement, which is herein incorporated by reference.
ITEM 10. Executive Compensation
Same as Item 9 above.
ITEM 11. Security Ownership of Certain Beneficial Owners and Management
Same as Item 9 above.
ITEM 12. Certain Relationships and Related Transactions
Indebtedness to Former Officer
At April 30, 1996, the company was indebted to Alfred F. Marsh, former
President of Torotel, Inc., for $250,000 in the form of a promissory note,
which was executed in April 1986. The face value of the note plus $179,000
of its accrued interest were subordinated to Mercantile Business Credit, Inc.
(MBCI) pursuant to a Subordination Agreement between MBCI and Mr. Marsh.
For the year ended April 30, 1996, the company incurred $45,000 in interest
on the note. Since the inception of the note, the company has accrued total
interest of $338,000, of which $179,000 remains due and payable.
In conjunction with the new credit agreement with PNBT discussed in Note D
of Notes to Consolidated Financial Statements, on July 10, 1996, the company
executed a new promissory note with Mr. Marsh in the amount of $429,000,
which consists of the original principal sum of $250,000 plus the accrued
unpaid interest of $179,000. The outstanding balance of this unsecured note
bears interest at a fixed rate of 10% per annum. The note requires monthly
principal and interest payments of $10,881, and matures on July 1, 2000.
Under the terms of the note, no payments shall be made to Mr. Marsh as long
as any default condition exists under the terms of the company's credit
agreement with PNBT, unless the bank has waived the default condition prior
to any payment.
Certain Transactions
(a) Donald H. Loudon, secretary of the company, is a director of the law
firm of Shughart, Thomson and Kilroy, a Professional Corporation, which has
provided legal services to the company.
PART IV
ITEM 13. Exhibits and Reports on Form 8-K
(a) Exhibits
Included in Part IV of this report:
Exhibit 21 Subsidiaries of the Registrant 29
Exhibit 23 Consent of Independent Certified Public Accountants 30
Exhibit 99 Undertakings 31
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of the year ended
April 30, 1996.
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
(a) Subsidiary (wholly-owned)
Torotel Products, Inc. (a Missouri corporation)
(b) Subsidiary (wholly-owned)
OPT Industries, Inc. (a New Jersey corporation)
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated June 20, 1996, accompanying the consolidated
financial statements incorporated by reference or included in the Annual
Report of Torotel, Inc. on Form 10-KSB for the year ended April 30, 1996. We
hereby consent to the incorporation by reference of said report in the
Registration Statements of Torotel, Inc. on Form S-8 (File Nos. 2-88012,
2-54748, 2-78819, and 2-78896).
/s/ Grant Thornton LLP
Grant Thornton LLP
Kansas City, Missouri
July 25, 1996
EXHIBIT 99
To Be Incorporated by Reference Into Form S-8 Registration Statements
UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) to include any
prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii)
to reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represents a
fundamental change in the information set forth in the registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement; Provided
however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8 and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by
the registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to section 13(a) or section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Torotel, Inc.
(Registrant)
By: /s/ H. James Serrone
H. James Serrone
Vice President of Finance and
Chief Financial Officer
Date: July 25 1996
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
By: /s/ Dale H. Sizemore, Jr. By:
Dale H. Sizemore, Jr. Ronald L. Benjamin
Chairman of the Board, Director
President, Chief Executive Officer
and Director Date:
Date: July 25, 1996
By: /s/ Victor K. Brewer, Jr. By:
Victor K. Brewer, Jr. Dr. Thomas L. Lyon, Jr.
Vice President, Treasurer and Director Director
Date: July 25, 1996 Date:
By: /s/ Christian T. Hughes By:
Christian T. Hughes Richard A. Sizemore
Director Director
Date: July 25, 1996 Date:
By: /s/ Jack C. Beecroft By: /s/ H. James Serrone
Jack C. Beecroft H. James Serrone
Director Vice President of Finance and
Chief Financial Officer
Date: July 25, 1996 Date: July 25, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF TOROTEL, INC. AND SUBSIDIARIES CONTAINED IN ITS
ANNUAL REPORT IN FORM 10-KSB FOR THE YEAR ENDED APRIL 30, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> APR-30-1996
<CASH> 149,000
<SECURITIES> 0
<RECEIVABLES> 3,302,000
<ALLOWANCES> 95,000
<INVENTORY> 2,468,000
<CURRENT-ASSETS> 6,021,000
<PP&E> 4,257,000
<DEPRECIATION> 2,416,000
<TOTAL-ASSETS> 8,118,000
<CURRENT-LIABILITIES> 2,964,000
<BONDS> 0
<COMMON> 1,412,000
0
0
<OTHER-SE> 8,647,000
<TOTAL-LIABILITY-AND-EQUITY> 8,118,000
<SALES> 15,822,000
<TOTAL-REVENUES> 16,342,000
<CGS> 11,714,000
<TOTAL-COSTS> 3,819,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 302,000
<INCOME-PRETAX> 507,000
<INCOME-TAX> 172,000
<INCOME-CONTINUING> 335,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 335,000
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
