FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended January 31, 1998
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 March 12, 1998, there were 2,809,364 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 January 31, 1998 1
Consolidated Statements of Operations for the nine months
ended January 31, 1998 and 1997 2
Consolidated Statements of Operations for the three months
ended January 31, 1998 and 1997 3
Consolidated Statements of Cash Flows for the nine months
ended January 31, 1998 and 1997 4
Notes to Consolidated Financial Statements 5
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 January 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash $ 191,000
Accounts receivable, net 1,322,000
Inventories (Note 2) 3,065,000
Prepaid expenses and other current assets 168,000
4,746,000
Property, plant and equipment, net 1,702,000
Deferred tax asset (Note 3) 228,000
Other assets 28,000
$ 6,704,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term revolving credit line (Note 4) $ 1,121,000
Current maturities of long-term debt (Note 5) 105,000
Current maturity of note payable to former
officer (Note 6) -
Trade accounts payable 642,000
Accrued liabilities (Note 6) 371,000
2,239,000
Long-term debt, less current maturities (Note 5) 1,511,000
Note and interest payable to former officer (Note 6) 428,000
Commitments and contingencies (Notes 6 and 7) 486,000
Stockholders' equity (Note 8):
Common stock, at par value 1,440,000
Capital in excess of par value 8,672,000
Accumulated deficit (7,867,000)
2,245,000
Less treasury stock, at cost 205,000
2,040,000
$ 6,704,000
</TABLE>
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Nine Months Ended January 31,
<TABLE>
<S> <C> <C>
1998 1997
Net sales $ 9,119,000 $11,341,000
Cost of goods sold 7,006,000 8,296,000
Gross profit 2,113,000 3,045,000
Operating expenses:
Engineering 581,000 570,000
Selling, general and administrative 1,773,000 2,313,000
2,354,000 2,883,000
Earnings (loss) from operations (241,000) 162,000
Other income (expense):
Interest expense (204,000) (191,000)
Other, net (71,000) (14,000)
(275,000) (205,000)
Earnings (loss) before provision for income
taxes and cumulative effect of change in
method of accounting (516,000) (43,000)
Provision for income taxes (Note 3) - -
Earnings (loss) before cumulative effect of
change in method of accounting (516,000) (43,000)
Cumulative effect of change in method of
accounting - (506,000)
Net earnings (loss) $ (516,000) $ (549,000)
Earnings (loss) per common and common
equivalent share:
Earnings (loss) before cumulative effect $ (.18) $ (.02)
Cumulative effect - (.18)
$ (.18) $ (.20)
Weighted average common and common equivalent
shares outstanding 2,809,000 2,801,000
</TABLE>
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended January 31,
<TABLE>
<S> <C> <C>
1998 1997
Net sales $ 2,477,000 $ 3,506,000
Cost of goods sold 2,005,000 2,597,000
Gross profit 472,000 909,000
Operating expenses:
Engineering 185,000 165,000
Selling, general and administrative 608,000 597,000
793,000 762,000
Earnings (loss) from operations (321,000) 147,000
Other income (expense):
Interest expense (71,000) (64,000)
Other, net - (2,000)
(71,000) (66,000)
Earnings (loss) before provision for
income taxes (392,000) 81,000
Provision (credit) for income taxes (Note 3) - -
Net earnings (loss) $ (392,000) $ 81,000
Earnings (loss) per common and common
equivalent share $ (.14) $ .03
Weighted average common and common
equivalent shares outstanding 2,809,000 2,820,000
</TABLE>
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended January 31,
<TABLE>
<S> <C> <C>
1998 1997
Cash flows from operating activities:
Net earnings (loss) $ (516,000) $ (549,000)
Adjustments to reconcile net earnings
to net cash provided by operations:
Loss from estimated government penalty 70,000 -
Depreciation and amortization 263,000 245,000
Deferred tax asset - -
Increase (decrease) in cash flows from
operations resulting from changes in:
Accounts receivable 798,000 1,334,000
Inventories (271,000) (469,000)
Prepaid expenses and other assets (70,000) (84,000)
Trade accounts payable (311,000) 22,000
Accrued liabilities (89,000) (23,000)
390,000 1,025,000
Net cash provided by (used in) operating
activities (126,000) 476,000
Cash flows from investing activities:
Capital expenditures (105,000) (249,000)
Net cash used in investing activities (105,000) (249,000)
Cash flows from financing activities:
Borrowings against credit line 1,155,000 4,394,000
Payments against credit line (890,000) (4,574,000)
Proceeds from issuance of long-term debt 451,000 113,000
Principal payments on long-term debt (507,000) (87,000)
Payments on capital lease obligations (16,000) (9,000)
Note and interest payable to former officer 32,000 -
Proceeds from issuance of common stock - 51,000
Acquisition of treasury stock 1,000 (50,000)
Net cash provided by (used in) financing
activities 226,000 (162,000)
Net increase (decrease) in cash $ (5,000) $ 65,000
Cash at beginning of year 196,000 149,000
Cash at end of January $ 191,000 $ 214,000
Supplemental Disclosures of Cash Flow
Information
Cash paid during the period for:
Interest $ 172,000 $ 225,000
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 January 31, 1998, and the results of operations
for the three and nine months ended January 31, 1998.
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, 1997.
Note 2 - Inventories
The components of inventories are summarized as follows:
<TABLE>
<S> <C>
Raw materials, less allowance for obsolescence of $739,000 $ 1,678,000
Work in process 963,000
Finished goods 424,000
$ 3,065,000
</TABLE>
Note 3 - Income Taxes
The net deferred tax asset included in the accompanying
consolidated balance sheet at January 31, 1998, 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 $ 2,009,000
Inventory valuation reserve 245,000
Tax credit carryforwards 406,000
Property, plant and equipment 188,000
Other 60,000
2,908,000
Less valuation allowance 2,680,000
$ 228,000
</TABLE>
The tax credit and operating loss carryforwards expire in
various amounts in the years 1998 through 2012.
Note 4 - Short-term Revolving Credit Line
On September 2, 1997, the company renewed its revolving
credit agreement with Phillipsburg National Bank & Trust Company
(PNBT). The credit agreement, which provides a $2,500,000
revolving credit line, expires August 31, 1998. Advances under the
credit line are limited to the sum of 75% of eligible billed receivables
and 50% of inventories, net of reserves. The revolving credit line is
collateralized by trade accounts receivable, inventories, and a third
lien 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 lending rate. As of January 31, 1998, the
company had utilized $1,121,000 of the revolving credit line and the
effective borrowing rate was 9%. The company is required to
comply with certain covenants including restrictions on the payment
of cash dividends.
Note 5 - Long-term Debt
On December 23, 1997, Torotel Products, Inc. executed a
$451,000 promissory note with PNBT. Under the terms of the note,
the outstanding balance bears interest at a fixed rate of 9-1/4% per
annum through March 18, 2001, thereafter the rate will be adjusted
annually and will fluctuate at 1/2% over the bank's base lending rate.
The note requires monthly principal and interest payments of
$4,678. The note, which is guaranteed by Torotel, Inc. and OPT
Industries, Inc., has a maturity date of December 23, 2012, and is
collateralized by a first mortgage on the land and buildings in
Grandview, Missouri, and the unimproved land in Kansas City,
Missouri. As of January 31, 1998, the outstanding balance on the
note was $450,000.
Note 6 - Contingency for Estimated Penalty
On May 6, 1997, Torotel Products, Inc. was accepted into
the Voluntary Disclosure Program of the United States Department
of Defense, resulting from its failure to perform some required
"thermal shock" testing as frequently as required, and inaccurately
certifying that all required testing had been performed. As a result
of the company's investigation into the thermal shock deficiencies,
which was first reported in November 1996, the company recorded
an estimated charge of $416,000 against earnings in its fiscal fourth
quarter ended April 30, 1997. Because the investigation was
ongoing, the company subsequently determined that there also were
some deficiencies in performing some required electrical testing as
frequently as required. As a result, the company recorded an
additional estimated charge of $70,000 against earnings in its fiscal
first quarter ended July 31, 1997. The company does not anticipate
incurring any additional major charges related to the investigation;
however, the aggregate amount of the estimated penalty is still
subject to fluctuation as further evidence is investigated.
At this time, the company is not certain when payment of the
damage amount will be required; however, the company does not
anticipate making any payments during the next twelve months. As
a result, the entire $486,000 has been classified as a long-term
liability in the accompanying consolidated balance sheet.
The company believes that certain of its former officers may
have been responsible for the misconduct related to the test failures,
and continues to evaluate ways of recovering the damages. In the
meantime, the company has suspended all principal and interest
payments due under a note payable to a former officer, and does
not anticipate making any further payments during the next twelve
months. As a result, as of January 31, 1998, the aggregate amount
due of $428,000, which consists of the outstanding principal of
$384,000 plus the accrued interest of $44,000, has been classified
as a long-term liability in the accompanying consolidated balance
sheet.
The legal fees associated with the DOD investigation have
amounted to $58,000 during the current fiscal year, and $265,000 in
aggregate since the investigation started last year.
Note 7 - Other Litigation
Torotel, Inc. and Torotel Products, Inc. have both been
named as defendants in a lawsuit brought by Joseph Turner in the
U.S. District Court for the Western District of Missouri. The case
number is 96-0646-CV-W-5 and was filed on June 18, 1996.
Plaintiff alleges a racially motivated failure to hire and that Torotel
Products, Inc. has discriminated against minorities in its hiring
practices. Plaintiff's motion to have the case certified as a class
action was approved by the court on September 30, 1997, with the
court entering an Order Concerning Class Certification. The court
certified the case as a class action regarding the liability phase and
deferred certification of a damage phase. The case has a trial
setting on May 4, 1998. The company believes it has a meritorious
defense and continues to vigorously defend the case.
The legal fees associated with this lawsuit have amounted to
$44,000 during the current fiscal year, and $78,000 in aggregate
since the lawsuit was filed.
Note 8 - Employee Stock Options
Employee stock options are accounted for under APB
Opinion 25, Accounting for Stock Issued to Employees, and related
interpretations. The exercise price of each option equals the market
price of the company's common stock on the date of grant.
Accordingly, no compensation cost has been recognized. The
company chose not to adopt Statement of Financial Accounting
Standards 123, Accounting for Stock-Based Compensation. The
difference in the two methods of accounting for stock options is not
deemed to have a material effect on the fair value of the options at
the grant date.
Stock option transactions under the 1994 Incentive
Compensation Plan for the nine months ended January 31, 1998
and 1997, are summarized as follows:
<TABLE>
<S> <C> <C> <C> <C>
1998 1997
Weighted Weighted
Shares Average Shares Average
Under Exercise Under Exercise
Option Price Option Price
Outstanding at beginning of year 150,000 $1.00 - -
Granted - - 150,000 $1.00
Exercised - - - -
Forfeited - - - -
Outstanding at end of January 150,000 $1.00 150,000 $1.00
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
1998 1997
Weighted Weighted
Shares Average Shares Average
Under Exercise Under Exercise
Option Price Option Price
Options exercisable at end of January - - - -
Weighted average fair value of
options granted during the year - -
</TABLE>
The following information applies to options outstanding at January 31, 1998:
<TABLE>
<S> <C>
Number outstanding 150,000
Range of exercise prices $1.00
Weighted average exercise price $1.00
Weighted average remaining contractual life 7.85 years
</TABLE>
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.
NINE MONTHS ENDED JANUARY 31, 1998 VERSUS NINE
MONTHS ENDED JANUARY 31, 1997
Net sales decreased nearly 20%. The net sales of Torotel
Products decreased 7% from $4,693,000 to $4,356,000 due
primarily to the elimination of some low-margin jobs for non-major
customers, and production inefficiencies, which contributed to delays
in the shipment of certain orders. These decreases were offset
partially by a $299,000 increase in sales of the potted coil assembly
for the Hellfire II missile system. OPT's net sales decreased 28%
from $6,648,000 to $4,763,000 due primarily to lower sales of power
supplies to a major customer. No new orders are expected from this
customer for several months, which will have a significant adverse
impact on sales in the next few quarters. Additionally, due to
changing prototype requirements and development delays, orders
for new power supply products are not expected to materialize for
another few months. As a result, OPT does not expect any
significant increases in sales in the fourth fiscal quarter ending April
30, 1998; however, higher sales are anticipated in fiscal year 1999.
Gross profit as a percentage of net sales decreased nearly
4%. The gross profit percentage of Torotel Products decreased
nearly 4% due primarily to labor inefficiencies resulting from certain
design problems and the conversion to a computerized
Information/MRP System. The gross profit percentage of OPT
decreased 4% due primarily to lower sales volume without a
comparable decrease in fixed production costs. This percentage
decrease in the gross profit was offset partially by lower material and
labor costs attributable to a change in the mix of product shipments.
Engineering expenses increased 2%. The engineering
expenses of Torotel Products decreased 4% from $216,000 to
$207,000 due primarily to a reduction in clerical personnel. The
engineering expenses of OPT increased nearly 6% from $354,000 to
$374,000 due to a $9,000 increase in depreciation; a $6,000
increase in operating supplies; and a $5,000 increase in travel costs.
Selling, general and administrative (SG&A) expenses
decreased 23%. The SG&A expenses of Torotel, Inc. decreased
29% from $252,000 to $178,000 due primarily to a $36,000
decrease in compensation costs arising from a bonus awarded in
fiscal 1997; a $19,000 decrease in travel costs; a $13,000 decrease
in professional fees; and a $6,000 decrease in consulting costs. The
SG&A expenses of Torotel Products decreased 32% from
$1,277,000 to $865,000 due primarily to a $251,000 restructuring
charge incurred in fiscal 1997; a $75,000 decrease in payroll costs
due to a reduction in personnel; a $50,000 decrease in professional
fees; an $18,000 decrease in sales commissions; an $11,000
decrease in disposal costs for hazardous materials; and a $7,000
decrease in advertising costs. The SG&A expenses of OPT
decreased 7% from $784,000 to $730,000 due primarily to an
$18,000 decrease in professional fees; a $14,000 decrease in office
supplies; a $10,000 decrease in sales commissions; a $10,000
decrease in computer maintenance costs; and a $7,000 decrease in
bank charges. These decreases were offset partially by a $5,000
increase in consulting costs.
Interest expense increased 7%. The interest expense of
Torotel, Inc. remained unchanged at $31,000. The interest expense
of Torotel Products increased nearly 43% from $68,000 to $97,000
due to a higher aggregate borrowing level. The interest expense of
OPT decreased 17% from $92,000 to $76,000 due to a lower
aggregate borrowing level.
Sundry non-operating expense increased due primarily to a
$70,000 charge in the current fiscal year for an estimated penalty as
discussed in Note 6 of Notes to Consolidated Financial Statements.
For the reasons discussed above, the consolidated pretax
loss increased from $43,000 to $516,000. The pretax loss of
Torotel, Inc. decreased from $284,000 to $209,000. The pretax loss
of Torotel Products decreased from $185,000 to $121,000. The
pretax earnings of OPT decreased from a profit of $426,000 to a
loss of $186,000.
THREE MONTHS ENDED JANUARY 31, 1998 VERSUS THREE
MONTHS ENDED JANUARY 31, 1997
Net sales decreased 29%. The net sales of Torotel
Products decreased 5% from $1,394,000 to $1,322,000 due
primarily to production inefficiencies, which contributed to delays in
the shipment of certain orders. OPT's net sales decreased 45%
from $2,112,000 to $1,155,000 due primarily to lower sales of power
supplies to a major customer. No new orders are expected from this
customer for several months, which will have a significant adverse
impact on sales in the next few quarters. Additionally, due to
changing prototype requirements and development delays, orders
for new power supply products are not expected to materialize for
another few months. As a result, OPT does not expect any
significant increases in sales in the fourth fiscal quarter ending April
30, 1998; however, higher sales are anticipated in fiscal year 1999.
Gross profit as a percentage of net sales decreased 7%.
The gross profit percentage of Torotel Products decreased 11% due
primarily to labor inefficiencies resulting from certain design
problems and the conversion to a computerized Information/MRP
System. The gross profit percentage of OPT decreased 5% due
primarily to lower sales volume without a comparable decrease in
fixed production costs. This percentage decrease in the gross profit
was offset partially by lower material and labor costs attributable to a
change in the mix of product shipments.
Engineering expenses increased 12%. The engineering
expenses of Torotel Products increased slightly from $65,000 to
$66,000. The engineering expenses of OPT increased 19% from
$100,000 to $119,000 due primarily to higher costs associated with
the development of the new power supply products.
Selling, general and administrative (SG&A) expenses
increased 2%. The SG&A expenses of Torotel, Inc. decreased 9%
from $67,000 to $61,000 due primarily to a $6,000 decrease in
travel costs. The SG&A expenses of Torotel Products increased 4%
from $296,000 to $309,000 due primarily to a $17,000 increase in
payroll costs and a $5,000 increase in consulting costs. These
increases were offset partially by a $9,000 decrease in sales
commissions. The SG&A expenses of OPT increased 2% from
$234,000 to $238,000 due primarily to a $19,000 increase in payroll
costs; an $11,000 increase in advertising costs; and a $5,000
increase in consulting costs. These increases were offset partially
by a $14,000 decrease in sales commissions; a $10,000 decrease in
office supplies; and a $7,000 decrease in professional fees.
Interest expense increased 11%. The interest expense of
Torotel, Inc. remained unchanged at $10,000. The interest expense
of Torotel Products increased 48% from $25,000 to $37,000 due to a
higher aggregate borrowing level. The interest expense of OPT decreased
17% from $29,000 to $24,000 due to a lower aggregate borrowing
level.
For the reasons discussed above, consolidated pretax
earnings decreased from a profit of $81,000 to a loss of $392,000.
The pretax loss of Torotel, Inc. decreased from $77,000 to $71,000.
The pretax earnings of Torotel Products decreased from a profit of
$58,000 to a loss of $131,000. The pretax earnings of OPT
decreased from a profit of $100,000 to a loss of $190,000.
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. For the nine
months ended January 31, 1998, the company incurred a pretax loss
of $516,000. This amount consisted of $344,000 in actual operating
losses, $172,000 in special legal fees, and another $70,000 for an
estimated penalty (see Notes 6 and 7 of Notes to Consolidated
Financial Statements). While management does anticipate an
improvement in sales and operating earnings at Torotel Products
during the next few months, this operation will continue to incur
substantial legal costs for the class-action discrimination suit
discussed in Note 7 of Notes to Consolidated Financial Statements.
In all probability, these legal costs will offset the anticipated
improvement in operating earnings. As for OPT, management does
not anticipate any substantial increase in the present rate of sales
during the next few months. As a result, further losses from this
operation are likely. As of January 31, 1998, the company is in
compliance with all financial covenants under the terms of the credit
agreement with Phillipsburg National Bank & Trust Company
(PNBT). However, given the short-term outlook and the ongoing
legal costs, it is likely that the company will be in violation of one or
more of the covenants as of April 30, 1998. If this occurs, and the
bank does not waive compliance with the subject provisions, one of
the remedies available to the bank is to demand full payment of all
outstanding indebtedness, which is $2,670,000 at January 31, 1998.
While the company may be able to find an alternate source for
financing, it would likely be short-term in nature, carry substantially
higher costs and lending rates, and be much more restrictive for
liquidity purposes. In any event, regardless of the financing
arrangements, it is becoming, and will continue to be, increasingly
difficult for the company to generate positive cash given the cash
requirements of the ongoing litigation matters.
During the nine months ended January 31, 1998, the
company's operating activities used $126,000 in cash flow.
Corporate related matters used $214,000. The operations of Torotel
Products used $313,000 due primarily to increased inventories and
lower levels of trade payables and other liabilities. OPT's operations
provided $401,000 due primarily to a lower level of receivables.
Investing activities used $105,000 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 $15,000 for capital expenditures.
Financing activities provided $226,000 in cash flow due
primarily to increases in the revolving credit line. At January 31,
1998, the company had used $1,121,000 of its revolving credit line
and had $1,379,000 available for future cash requirements, based
on the lender's borrowing base formula and subject to compliance
with the financial covenants contained in the credit agreement with
PNBT, as discussed above.
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 (see Notes 6 and 7 of Notes to Consolidated Financial
Statements, and the Liquidity and Capital Resources section of
Management's Discussion and Analysis or Plan of Operation).
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are two legal proceedings involving the company. In
the first matter, Torotel, Inc. and Torotel Products, Inc. have both
been named as defendants in a lawsuit brought by Joseph Turner in
the U.S. District Court for the Western District of Missouri. The case
number is 96-0646-CV-W-5 and was filed on June 18, 1996.
Plaintiff alleges a racially motivated failure to hire and that Torotel
Products, Inc. has discriminated against minorities in its hiring
practices. Plaintiff's motion to have the case certified as a class
action was approved by the court on September 30, 1997, with the
court entering an Order Concerning Class Certification. The court
certified the case as a class action regarding the liability phase and
deferred certification of a damage phase. The case has a trial
setting on May 4, 1998. The company believes it has a meritorious
defense and continues to vigorously defend the case.
In the second matter, on May 6, 1997, Torotel Products, Inc.
was accepted into the Voluntary Disclosure Program by the
Inspector General of the United States Department of Defense,
resulting from its failure to perform some required testing as
frequently as required, and inaccurately certifying that all required
testing had been performed. As a result of the company's
investigation into the testing deficiencies, the company has recorded
an estimated charge of $486,000. The estimated penalty is still
subject to fluctuation as further evidence is investigated. The
company believes that certain of its former officers may have been
responsible for the misconduct related to the test failures, and is
evaluating ways of recovering the damages. In the meantime, the
company has suspended all payments under a note payable to a
former officer.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Stockholders' Meeting was held in Kansas City,
Missouri, on September 15, 1997, to elect a Board of Directors. At
the meeting, there were 1,679,603 shares voting in the election, with
nominees needing 839,803 shares to be elected. Shareholders
elected the following individuals to a one-year term on the Board of
Directors, with the voting results indicated.
<TABLE>
<S> <C> <C>
Votes
Votes Against or
For Withheld
Dale H. Sizemore, Jr. 1,634,372 45,231
Ronald L. Benjamin 1,623,608 55,995
Christian T. Hughes 1,638,051 41,552
Dr. Thomas L. Lyon, Jr. 1,636,492 43,111
Richard A. Sizemore 1,634,372 45,231
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit 27 -- Financial Data Schedule (electronic filings only)
b) Reports on Form 8-K -- There were no reports filed on Form 8-K during
the three months ended January 31, 1998.
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: March 16, 1998 /s/ H. James Serrone
H. James Serrone
Vice President of Finance and
Chief Financial Officer
<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
QUARTERLY REPORT ON FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED JANUARY 31,
1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> JAN-31-1998
<CASH> 191,000
<SECURITIES> 0
<RECEIVABLES> 1,402,000
<ALLOWANCES> 80,000
<INVENTORY> 3,065,000
<CURRENT-ASSETS> 4,746,000
<PP&E> 4,384,000
<DEPRECIATION> 2,682,000
<TOTAL-ASSETS> 6,704,000
<CURRENT-LIABILITIES> 2,239,000
<BONDS> 0
<COMMON> 1,440,000
0
0
<OTHER-SE> 2,425,000
<TOTAL-LIABILITY-AND-EQUITY> 6,704,000
<SALES> 9,119,000
<TOTAL-REVENUES> 9,119,000
<CGS> 7,006,000
<TOTAL-COSTS> 9,360,000
<OTHER-EXPENSES> 71,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 204,000
<INCOME-PRETAX> (516,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (516,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (516,000)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
