FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended July 31, 1996
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 September 3, 1996, there were 2,810,179 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, 1996 1
Consolidated Statements of Operations for the three months
ended July 31, 1996 and 1995 2
Consolidated Statements of Cash Flows for the three months
ended July 31, 1996 and 1995 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis or Plan of Operation 6
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET (Unaudited)
As of July 31, 1996
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ASSETS
Current assets:
Cash $ 279,000
Accounts receivable, net (Note 2) 3,053,000
Inventories (Note 3) 2,512,000
Prepaid expenses and other current assets 171,000
6,015,000
Property, plant and equipment, net 1,797,000
Deferred tax asset (Note 4) 223,000
Other assets 32,000
$ 8,067,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt (Note 5) $ 1,320,000
Current maturity of note payable to former officer 85,000
Trade accounts payable 1,037,000
Accrued liabilities 493,000
2,935,000
Long-term debt, less current maturities (Note 5) 1,066,000
Note payable to former officer 337,000
Commitments -
Stockholders' equity:
Common stock, at par value 1,412,000
Capital in excess of par value 8,648,000
Retained earnings (deficit) (6,176,000)
3,884,000
Less treasury stock, at cost 155,000
3,729,000
$ 8,067,000
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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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1996 1995
Net sales $ 3,917,000 $ 4,234,000
Cost of goods sold 2,898,000 2,937,000
Gross profit 1,019,000 1,297,000
Operating expenses:
Engineering 195,000 229,000
Selling, general and administrative 728,000 711,000
923,000 940,000
Earnings from operations 96,000 357,000
Other income (expense):
Interest expense (70,000) (87,000)
Other, net (11,000) (1,000)
(81,000) (88,000)
Earnings before provision for income taxes 15,000 269,000
Provision for income taxes (Note 4) 5,000 92,000
Net earnings $ 10,000 $ 177,000
Earnings per common and common
equivalent share $ .00 $ .06
Weighted average common and common
equivalent shares outstanding 2,810,000 2,788,000
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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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1996 1995
Cash flows from operating activities:
Net earnings $ 10,000 $ 177,000
Adjustments to reconcile net earnings to
net cash provided by operations:
Gain from disposition of asset - (1,000)
Depreciation and amortization 75,000 68,000
Deferred tax asset 5,000 92,000
Increase (decrease) in cash flows from
operations resulting from changes in:
Accounts receivable 249,000 529,000
Inventories (44,000) (47,000)
Prepaid expenses and other assets (73,000) (50,000)
Trade accounts payable 151,000 (252,000)
Accrued liabilities (17,000) (16,000)
Accrued interest on note payable to former officer - 13,000
346,000 336,000
Net cash provided by operating activities 356,000 513,000
Cash flows from investing activities:
Capital expenditures (31,000) (101,000)
Proceeds from disposition of assets - 1,000
Net cash used in investing activities (31,000) (100,000)
Cash flows from financing activities:
Borrowings against credit line 2,929,000 4,375,000
Payments against credit line (3,104,000) (4,697,000)
Principal payments on long-term debt (18,000) (134,000)
Payments on capital lease obligations (3,000) (3,000)
Proceeds from issuance of common stock 1,000 4,000
Net cash used in financing activities (195,000) (455,000)
Net increase (decrease) in cash $ 130,000 $ (42,000)
Cash at beginning of year 149,000 101,000
Cash at end of July $ 279,000 $ 59,000
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest $ 108,000 $ 75,000
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, 1996,
and the results of operations for the three months ended July 31, 1996.
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, 1996.
Note 2 - Accounts Receivable
Accounts receivable are summarized as follows:
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Billed $ 2,265,000
Recoverable costs and accrued profit on progress
completed not billed 875,000
Other receivables 1,000
3,141,000
Less allowance for doubtful accounts 88,000
$ 3,053,000
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Note 3 - Inventories
The components of inventories are summarized as follows:
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Raw materials $ 1,498,000
Work in process 900,000
Finished goods 114,000
$ 2,512,000
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Note 4 - Income Taxes
The net deferred tax asset included in the accompanying consolidated
balance sheet at July 31, 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:
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Net operating loss carryforwards $ 1,485,000
Inventory valuation reserve 270,000
Tax credit carryforwards 378,000
Property, plant and equipment 170,000
Other 98,000
2,401,000
Less valuation allowance 2,178,000
$ 223,000
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The tax credit and operating loss carryforwards expire in various
amounts in the years 1997 through 2011.
Note 5 - Long-term Debt
The company has a $500,000 note with Bank IV, N.A. dated November
29, 1994. Under the terms of the note, the company is required to comply with
certain financial covenants. At April 30, 1996, the company was in violation
of an annual financial coverage ratio covenant contained in the note. As of
the filing of this Form 10-QSB, 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 $475,000 has been classified as
current in the accompanying consolidated balance sheet.
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, 1996 VERSUS THREE MONTHS ENDED
JULY 31, 1995
Net sales decreased 7%. The net sales of Torotel Products decreased
11% from $1,813,000 to $1,611,000 due primarily to a lower backlog position at
the beginning of the quarter. OPT's net sales decreased 5% from $2,421,000 to
$2,306,000 due to less favorable market conditions for its line of magnetic
components.
Gross profit as a percentage of net sales decreased 5%. The gross
profit percentage of Torotel Products decreased 7% due primarily to higher
material and labor costs which resulted from the product mix. The gross profit
percentage of OPT decreased 3% due primarily to higher material costs which
resulted from the product mix.
Engineering expenses decreased 15%. The engineering expenses of
Torotel Products decreased 35% from $109,000 to $71,000 due to lower payroll
costs associated with a cutback in personnel. The engineering expenses of OPT
increased 3% from $120,000 to $124,000 due to higher payroll costs.
Selling, general and administrative (SG&A) expenses increased 2%.
The SG&A expenses of Torotel, Inc. increased 35% from $52,000 to $70,000
due primarily to a $7,000 increase in professional fees, and a $7,000
increase in travel costs. The SG&A expenses of Torotel Products decreased
10% from $417,000 to $376,000 due primarily to a $69,000 decrease in legal
fees, and a $24,000 decrease in sales commissions. These decreases were
offset partially by a $35,000 increase in payroll costs associated with
severance pay offered to certain employees. The SG&A expenses of OPT
increased 17% from $242,000 to $282,000 due primarily to a $29,000 increase
in payroll costs, and a $7,000 increase in advertising costs.
Interest expense decreased 20%. The interest expense of Torotel, Inc.
decreased 15% from $13,000 to $11,000 due to a lower interest-bearing balance
on the note payable to a former officer. The interest expense of Torotel
Products decreased 22% from $27,000 to $21,000 due to a lower aggregate
borrowing level and lower interest rates associated with decreases in the prime
lending rate. The interest expense of OPT decreased 19% from $47,000 to
$38,000 due to a lower aggregate borrowing level and lower interest rates
associated with decreases in the prime lending rate.
For the reasons discussed above, consolidated pretax earnings
decreased from $269,000 to $15,000. The pretax loss of Torotel, Inc. increased
from a loss of $65,000 to a loss of $81,000. The pretax earnings of Torotel
Products decreased from a profit of $34,000 to a loss of $63,000. The pretax
earnings of OPT decreased from $300,000 to $159,000.
Provision for income taxes decreased due to lower 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. While years of cost control programs have allowed both Torotel
Products and OPT to produce sufficient margins and cash flow, this is not
enough to promote growth. To facilitate further expansion, the Board of
Directors and management are working on a long-term strategic plan for Torotel.
During the three months ended July 31, 1996, the company's operating
activities generated $356,000 in cash flow. Corporate related matters used
$154,000. The operations of Torotel Products provided $279,000 due primarily
to lower levels of receivables and inventories. OPT's operations provided
$231,000 due primarily to pretax earnings and a lower level of receivables.
Management's objective is to continue strengthening the company's liquidity
position through improved operations and asset management.
Investing activities used $31,000 in cash flow for capital expenditures for
production and engineering equipment. For the balance of the fiscal year, the
company anticipates additional investments of approximately $220,000 for
capital expenditures.
Financing activities used $195,000 in cash flow due primarily to
reductions in the revolving credit line. At July 31, 1996, the company had
used $795,000 of its revolving credit line and had $1,705,000 available for
future cash requirements, based on the lender's borrowing base formula. As
discussed in Note 5 of Notes to Consolidated Financial Statements, the company
was in violation of an annual financial coverage ratio covenant under the
terms of a note payable to Bank IV, N.A. As of the filing of this Form 10-QSB,
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 $475,000 at July
31, 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.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) 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 July 31, 1996.
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 10, 1996 /s/ H. James Serrone
H. James Serrone
Vice President of Finance and
Chief Financial Officer
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<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, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> JUL-31-1996
<CASH> 279,000
<SECURITIES> 0
<RECEIVABLES> 3,141,000
<ALLOWANCES> 88,000
<INVENTORY> 2,512,000
<CURRENT-ASSETS> 6,015,000
<PP&E> 4,288,000
<DEPRECIATION> 2,491,000
<TOTAL-ASSETS> 8,067,000
<CURRENT-LIABILITIES> 2,935,000
<BONDS> 0
<COMMON> 1,412,000
0
0
<OTHER-SE> 1,403,000
<TOTAL-LIABILITY-AND-EQUITY> 8,067,000
<SALES> 3,917,000
<TOTAL-REVENUES> 3,917,000
<CGS> 2,898,000
<TOTAL-COSTS> 3,821,000
<OTHER-EXPENSES> 11,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 70,000
<INCOME-PRETAX> 15,000
<INCOME-TAX> 5,000
<INCOME-CONTINUING> 10,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,000
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
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