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, 1999
Commission File No. 1-8125
TOROTEL, INC.
(Name of small business issuer in its charter)
MISSOURI 44-0610086
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
13402 SOUTH 71 HIGHWAY, GRANDVIEW, MISSOURI 64030
(Address of principal executive offices) (Zip Code)
Issuers telephone number (816) 761-6314
Securities registered under Section 12(b)
of the Exchange Act:
Name of each exchange
Title of each class on which registered
Common Stock, $.50 par value NONE
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
registrants 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 issuers revenues for the most recent fiscal year were
$4,553,000.
The aggregate market value of the voting stock held by non-
affiliates, based on the closing sale price of the over-
the-
counter market on August 31, 1999, was $376,000. As of
August 31, 1999, there were 2,811,590 shares of Common
Stock, $.50 Par Value, outstanding.
TOROTEL, INC.
FORM 10-KSB
Fiscal Year Ended April 30, 1999
TABLE OF CONTENTS
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of
Security Holders
PART II
Item 5. Market for Common Equity and Related
Stockholder Matters
Item 6. Managements Discussion and Analysis or
Plan of Operation
Item 7. Financial Statements and Supplementary Data
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons, Compliance With
Section 16(a) of the Exchange Act
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial Owners
and Management
Item 12. Certain Relationships and Related Transactions
Item 13. Exhibits and Reports on Form 8-K
SIGNATURES
PART I
ITEM 1. Business
Torotel, Inc. (Torotel) now conducts business through one
wholly-owned subsidiary, Torotel Products, Inc. (Torotel
Products), as a result of the sale of substantially all of
the assets of OPT Industries, Inc. (OPT), a wholly-owned
subsidiary, whose name was recently changed to East Coast
Holdings, Inc.
Torotel Products specializes in the custom design and
manufacture of a wide variety of precision magnetic
components, consisting of transformers, inductors,
reactors, chokes and toroidal coils. These components
modify and control electrical voltages and currents in
electronic devices. Torotel Products sells these magnetic
components to original equipment manufacturers, who use
them in products such as aircraft navigational equipment,
digital control devices, voice and data secure
communications, medical equipment, telephone and avionics
equipment, and conventional missile guidance systems.
On April 19, 1999, Torotel, Inc. sold substantially all
of the assets of OPT to SIGMA Associates, LLC (SIGMA), an
investor group led by Peter B. Caloyeras, for approximately
$2.7 million (see Note Q of Notes to Consolidated Financial
Statements). The assets sold included the land, buildings,
equipment, inventories, order backlog and intellectual
property, such as company name, patents, and product
designs. The Caloyeras investor group presently controls
and operates other companies in the magnetic component and
power conversion industry. Mr. Caloyeras is the beneficial
owner, as defined in Rule 13d-3(a) under the Securities
Exchange Act of 1934, of 198,900 shares of Torotel Common
Stock. Mr. Caloyeras also served as Torotels Chief
Executive Officer for a short time in February and March,
1999, until such time as the contemplated merger with
Electronika, Inc. was terminated. Since the OPT name was
part of the assets sold to SIGMA, Torotel recently changed
the corporate name of its OPT subsidiary to East Coast
Holdings, Inc.
Torotel 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 wide variety
of magnetic components for use in military, aerospace and
industrial electronic applications. These magnetic
components, which consist of transformers, inductors,
reactors, chokes, and toroidal coils, are used to modify
and control electrical voltages and currents in electronic
devices. For example, if equipment containing one of these
components receives an electrical voltage or current which
is too high for proper operation of the equipment, the
component would modify and control the electrical voltage
or current to allow proper operation of the equipment.
While Torotel Products primarily manufactures the
components in accordance with pre-developed mechanical and
electrical requirements, in some cases it will be
responsible for both the overall design and manufacture of
the components. The magnetic components are sold to
manufacturers who incorporate them into an end-product.
The major applications include aircraft navigational
systems, voice and data secure communications, medical
equipment, telephone and avionics equipment, and
conventional missile guidance systems.
Marketing and Customers
Historically, nearly all sales have been to the military
market; however, now approximately 35% of the annual sales
come from select commercial markets, such as aerospace,
medical, and telecommunications. While efforts to
diversify have been successful, Torotel Products primary
market remains the military. As a result, the business of
Torotel Products is subject to various risks including,
without limitation, dependence on government appropriations
and program allocations, and the competition for available
military business. Torotel Products sales do not represent
a significant portion of any particular market. Torotel
Products markets its components primarily through a direct
sales force and independent manufacturers representatives
paid on a commission basis. In addition, Torotel Products
is an approved source on numerous applications, and
generally is automatically solicited for any procurement
needs for such applications. The magnetic components
manufactured by Torotel 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 primary base of 40 customers that
provide over 90% of its annual sales volume. This customer
base includes many Fortune 100 prime defense and aerospace
companies. Torotel Products primary strategy focuses on
providing superior service to this core group of customers,
including engineering support and new product design. The
objective is to achieve growth with these customers, or
other targeted companies that possess the potential for
inclusion into the core group. In the fiscal year ended
April 30, 1999, sales to four major customers amounted to
17%, 12%, 11% and 11% of the net sales of Torotel Products.
Competition
The markets in which Torotel Products competes are highly
competitive. A substantial number of companies sell
components of the type manufactured and sold by Torotel
Products. In addition, Torotel Products sells to a number
of customers who have the capability of manufacturing their
own electronic components.
The ability of Torotel Products to compete depends, among
other things, upon its on-time delivery performance,
customized product engineering and technical support,
marketing capabilities, quality assurance and manufacturing
efficiency. While magnetic components are not susceptible
to rapid technological change, Torotel Products market
share
is susceptible to decline given the highly competitive
nature of the market.
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
long lead times for certain 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.
Environmental Laws
In fiscal 1999, Torotel Products incurred costs of
approximately $20,000 for compliance with federal, state
and
local regulations on the proper handling, storage,
disposal,
and discharge of hazardous materials into the environment,
or otherwise relating to the protection of employees, the
community, and the environment. Torotel Products
anticipates similar costs to be incurred in the fiscal year
ending April 30, 2000.
Employees
Torotel Products presently employs approximately 55 full-
time employees. An adequate supply of qualified personnel
is available in the facilitys immediate vicinity. From
1967-1996, Torotel Products production employees were
represented by the Torotel Employees Association, a non-
affiliated labor union. The production employees now are
represented by the International Association of Machinists
and Aerospace Workers, AFL-CIO, Lodge No. 92. The current
labor contract expires on May 31, 2001. 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 Companys executive offices. As of April 30, 1999, this
property was subject to a first deed of trust securing
indebtedness in the amount of $431,000.
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
There is one legal proceeding involving the Company. 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 Companys
investigation into the testing deficiencies, the Company
has
recorded an estimated charge of $486,000 against earnings.
The Companys investigation included a review of historical
sales and pricing data, labor bid sheets, and interviews
with past and present employees, to arrive at a best
estimate of the cost impact to the government. The
aggregate amount of the estimated penalty is still subject
to fluctuation until the government completes its
investigation, and a definitive amount is determined. The
Company believes the methodology it used to determine the
amount of the estimate is reasonable. As a result, the
amount of any additional charges (or the possible range of
any fluctuation in the estimated penalty) cannot be
estimated at this time.
The Company believes that certain of its former officers
may have been responsible for the misconduct related to the
test failures, and will evaluate ways of recovering the
damages once the government completes its investigation.
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
None.
PART II
ITEM 5. Market for Common Equity and Related Stockholder
Matters
(a) Market Information
Torotel no longer fully satisfied all of the continued
listing guidelines of the American Stock Exchange (AMEX)
and, as a result, the Company consented to the removal of
its common stock from the AMEX effective the close of
trading on March 12, 1999. Trading in the Companys common
stock is now conducted on the over-the-counter pink sheets
market under the symbol TTLO.
Price Range of Common Stock
The following table sets forth the high and low sales
prices of the Companys common stock.
<TABLE>
<S> <C> <C> <C> <C>
1999 1998
Fiscal Period High Low High Low
First Quarter 1-1/8 5/8 1-1/8 11/16
Second Quarter 1-3/4 1-1/4 1-1/16 3/4
Third Quarter 2-1/16 1-3/16 7/8 1/2
Fourth Quarter 1-3/8 1/8 13/16 5/16
</TABLE>
(b) Approximate Number of Equity Security Holders
Approximate Number of
Record Holders
Title of Class as of April 30, 1999
Common Stock, $.50 par value 1,500 (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 Companys present borrowing
agreements prohibit 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 Companys earnings, financial requirements,
general business conditions and credit agreement
restrictions.
ITEM 6. Managements Discussion and Analysis or Plan of
Operation
The following management comments regarding the Companys
results of operations and outlook should be read in
conjunction with the Consolidated Financial Statements
included pursuant to Item 7 of this Annual Report.
Due to the sale of substantially all of the assets of OPT
(see Note Q of Notes to Consolidated Financial Statements),
the discussion and analysis of the results of operations
includes only the continuing operations of Torotel, Inc.
and Torotel Products, Inc.
1999 Compared to 1998
Net sales decreased 25% from $6,059,000 to $4,553,000 due
to lower sales of the potted coil assembly for the Hellfire
II missile system and lower overall magnetics sales. In
previous years, sales of the potted coil assembly accounted
for about 25% of Torotel Products total sales. At the
present time, it is uncertain as to whether any additional
orders will be received for this product. The lower
magnetic sales were attributable to certain military
programs which are being phased out or replaced. As a
result of these factors, lower sales are expected in fiscal
2000.
Gross profit as a percentage of net sales decreased 21%
due primarily to a $424,000 write-down of slow-moving,
obsolete and discontinued inventory, negative labor
variances from established standards, and a product mix
yielding lower margins. Management is attempting to
improve the direct labor performance by implementing more
training and by segregating its manufacturing operation
into two segments. The first group specializes in
outsourced products while the second group handles the more
complex products, which are built internally.
Engineering expenses decreased 12% from $269,000 to
$236,000 due primarily to a $23,000 decrease in payroll
costs due to a reduction in personnel, a $7,000 decrease in
equipment rental costs due to the purchase of the
equipment, and a $3,000 decrease in education costs
associated with a tuition reimbursement benefit.
Management anticipates a further reduction in engineering
expenses during the next few months.
Selling, general and administrative (SG&A) expenses
increased 3%. The SG&A expenses of Torotel, Inc. increased
100% from $227,000 to $455,000 due primarily to higher
professional fees associated with the terminated definitive
merger agreement with Electronika, Inc. (see Note O of
Notes to Consolidated Financial Statements). The SG&A
expenses of Torotel Products decreased 17% from $1,135,000
to $944,000 due primarily to a $141,000 decrease in
professional fees due to the settlement of the litigation
that was ongoing in the prior year, a $30,000 decrease in
payroll costs due to a reduction in personnel, a $16,000
decrease in computer maintenance costs due to completing
the conversion to the OPT computer system, and a $4,000
decrease in utilities due to discontinued use of part of
the facility. Management anticipates a reduction in SG&A
expenses during the next few months.
Interest expense increased slightly. The interest
expense of Torotel, Inc. remained unchanged at $41,000.
The interest expense of Torotel Products increased slightly
from $47,000 to $48,000.
Sundry non-operating expense decreased due to two special
charges in fiscal 1998. The first was a $276,000 charge
for a settlement that ended a class action alleging racial
discrimination in hiring by Torotel Products; the second
was a $70,000 charge for an estimated penalty as discussed
in Note M of Notes to Consolidated Financial Statements.
This decrease was offset partially by a special charge of
$107,000 for a loss on disposition and discontinuance of
certain equipment.
For the reasons discussed above, the consolidated pretax
loss increased from $477,000 to $1,592,000. The pretax
loss of Torotel, Inc. increased from $268,000 to $496,000.
The pretax loss of Torotel Products increased from $209,000
to $1,096,000.
1998 Compared to 1997
Net sales decreased slightly from $6,062,000 to
$6,059,000. While sales of the potted coil assembly for
the Hellfire II missile system increased $740,000,
shipments of other magnetics products decreased due to
lower shippable bookings during the last six months of
fiscal 1998, and production inefficiencies and technical
design problems which contributed to delays in the shipment
of other orders.
Gross profit as a percentage of net sales decreased 4%
due primarily to labor inefficiencies resulting from
certain technical design problems and the conversion to a
computerized Information/MRP System.
Engineering expenses decreased 5% from $283,000 to
$269,000 due primarily to a reduction in clerical
personnel.
Selling, general and administrative (SG&A) expenses
decreased 33%. The SG&A expenses of Torotel, Inc.
decreased 46% from $424,000 to $227,000 due primarily to
costs of $107,000 associated with the terminated stock sale
to Brockson Technologies Group, LLC in fiscal 1997, a
$36,000 bonus award pursuant to the Incentive Compensation
Plan in fiscal 1997, a $27,000 decrease in professional
fees, a $22,000 decrease in travel costs, and a $5,000
decrease in investor relations expense. The SG&A expenses
of Torotel Products decreased 29% from $1,605,000 to
$1,135,000 due primarily to a restructuring charge of
$277,000 in fiscal 1997, an $79,000 decrease in payroll and
fringe benefits costs, a $70,000 decrease in professional
fees, a $27,000 decrease in sales commissions, and a
$15,000 charge for proper disposal of certain outdated
hazardous materials in fiscal 1997.
Interest expense decreased 8%. The interest expense of
Torotel, Inc. remained unchanged at $41,000. The interest
expense of Torotel Products decreased nearly 15% from
$55,000 to $47,000 due to a lower aggregate borrowing
level.
Sundry non-operating expense decreased 18% due to a
$416,000 charge in fiscal 1997 for an estimated penalty as
discussed in Note M of Notes to Consolidated Financial
Statements. This decrease was offset partially by the
additional $70,000 charge also discussed in Note M of Notes
to Consolidated Financial Statements, as well as a $276,000
charge for a settlement that ended a class action alleging
racial discrimination in hiring by Torotel Products.
For the reasons discussed above, the consolidated pretax
loss decreased from $1,015,000 to $477,000. The pretax
loss of Torotel, Inc. decreased from $465,000 to $268,000.
The pretax loss of Torotel Products decreased from $550,000
to $209,000.
Provision for income taxes increased due to an increase
in the valuation allowance for the deferred tax asset (see
Note E of Notes to Consolidated Financial Statements).
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; however, the
Company has sustained substantial operating losses in the
last three fiscal years, and has used, rather than
provided, cash in its overall operations in the last two
fiscal years. While the continuing operations of the
Company have provided cash in the last two years, a further
decrease in sales is anticipated. In addition, the Company
incurred substantial liabilities as a result of the
terminated merger with Electronika, Inc., and its
discontinued OPT subsidiary, whose name was recently
changed to East Coast Holdings, Inc., has a significant
amount of trade debt remaining from its operations (see
Note Q of Notes to Consolidated Financial Statements). At
the present time, the Company is operating without a
revolving credit line, and there is no assurance that the
Company will be able to secure such a lending arrangement
in the near future. While management will be evaluating
various alternatives for improving the Companys liquidity
position, achieving profitability from the lower sales
volume will be the most critical component for continuing
as a going concern. Management believes it has developed a
business strategy that offers the best chance for long-term
success.
During the year ended April 30, 1999, the Companys
overall operating activities used $1,238,000 in cash flow.
Corporate related matters provided $11,000. The operations
of Torotel Products provided $888,000 due primarily to
lower levels of receivables and inventories. The
discontinued operations of OPT used $2,137,000.
Investing activities provided $3,457,000 in cash flow due
to the product line sale and the asset sale as discussed in
Notes P and Q of Notes to Consolidated Financial
Statements. Capital expenditures for production and
engineering equipment were $46,000. The Company
anticipates a similar level of investments for capital
expenditures in fiscal 2000.
Financing activities used $2,214,000 in cash flow due
primarily to decreases in the revolving credit line and
long-term debt due to the transactions discussed in Notes P
and Q of Notes to Consolidated Financial Statements.
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.
Year 2000 Readiness
Management continues to assess the Companys Year 2000
readiness. Extensive testing has been performed on the
main operating system and its software applications, and it
has been determined that both hardware and software are
Year 2000 compliant. However, with the discontinuance of
OPT and the subsequent sale of assets (see Note Q of Notes
to Consolidated Financial Statements), the Company must
acquire and install a new computer system by the end of
October 1999.
Management also has polled its significant suppliers and
customers and, based on these responses, has determined
that its operation does not appear to be vulnerable to a
third parties failure to remediate their own Year 2000
issues. Management continues to test various equipment to
verify its Year 2000 functionality. These assessments
should be completed no later than August 1999.
The Company has not incurred any external costs for its
Year 2000 readiness reviews and assessments. Internal
costs have not been tracked separately; however, these
costs have been (and should continue to be) minimal, and
have been limited to the related payroll costs for certain
internal employees and postage for the mailing of
questionnaires to suppliers and customers.
A most reasonably likely worst case Year 2000 scenario is
not known at this time. The Company believes all necessary
steps are being taken to assure a smooth transition to the
Year 2000. While the Company has no reason to believe that
there will be any undue disruptions of goods or services,
there is no guarantee that the systems of major suppliers
and customers will be timely converted (even if their
completed questionnaires indicate they are, or will be,
Year 2000 compliant) and would not have a material adverse
effect on the Company.
The Company has not completed a contingency plan and nor
does it intend to unless the assessment process uncovers
potential problems.
Other
Except for historical information contained herein,
certain of the matters discussed above are forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995, and are subject to the safe
harbor created by that Act. These statements are based on
assumptions about a number of important factors and involve
risks and uncertainties that could cause actual results to
be different from what is stated here. These risk factors
include: decreased demand for products, delays in
developing new products, expected orders that do not occur,
loss of key customers, the DOD calling for payment of the
accrued penalty and assessing additional fees, 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
Consolidated Balance Sheet as of April 30, 1999
Consolidated Statements of Operations for the years ended
April 30, 1999 and 1998
Consolidated Statement of Changes in Stockholders Equity
for the period May 1, 1997 through April 30, 1999
Consolidated Statements of Cash Flows for the years ended
April 30, 1999 and 1998
Notes to Consolidated Financial Statements 16
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, 1999, and
the related consolidated statements of operations,
stockholders deficit, and cash flows for the years ended
April 30, 1999 and 1998. These financial statements are
the responsibility of the Companys 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, 1999 and the consolidated results of their
operations and their consolidated cash flows for the years
ended April 30, 1999 and 1998 in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have
been prepared assuming that the Company will continue as a
going concern. As discussed in Note B to the consolidated
financial statements, the Company has sustained substantial
losses in 1999 and 1998 and its ability to obtain adequate
financing and maintain profitable operations is uncertain.
Because of these factors, substantial doubts are raised
about the Companys ability to continue as a going concern.
The consolidated financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
/s/ Grant Thornton LLP
Kansas City, Missouri
June 17, 1999
CONSOLIDATED BALANCE SHEET
As of April 30, 1999
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash $ 51,000
Trade and other receivables,
less allowance for doubtful
accounts of $82,000 (Notes A, D and Q) 437,000
Inventories (Notes A, C, and D) 422,000
Prepaid expenses and other current assets 11,000
921,000
Property, plant and equipment (Notes A and D):
Land 189,000
Buildings and improvements 566,000
Equipment 1,215,000
1,970,000
Less accumulated depreciation
and amortization 1,464,000
506,000
Note receivable (Notes D and Q) 441,000
Other assets 9,000
$1,877,000
LIABILITIES AND STOCKHOLDERS DEFICIT
Current liabilities:
Current maturities of long-term debt
(Notes D and Q) $ 592,000
Trade accounts payable (Note Q) 984,000
Accrued liabilities (Notes J and Q) 266,000
1,842,000
Long-term debt, less current
maturities (Notes D and Q) 433,000
Note and interest payable to former
officer (Notes K and M) 479,000
Estimated government penalty (Note M) 486,000
Commitments and contingencies (Notes F and M) -
Stockholders deficit
(Notes D, G, H, I and L):
Common stock, $.50 par value; 6,000,000 shares
authorized; 2,882,795 shares issued 1,442,000
Capital in excess of par value 8,672,000
Accumulated deficit (11,272,000)
(1,158,000)
Less cost of treasury stock, 71,205 shares 205,000
(1,363,000)
$ 1,877,000
</TABLE> The accompanying notes are an integral
part of this statement.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended April 30,
<TABLE>
<S> <C> <C>
1999 1998
Net sales $ 4,553,000 $ 6,059,000
Cost of goods sold (Note N) 4,314,000 4,471,000
Gross profit 239,000 1,588,000
Operating expenses:
Engineering 236,000 269,000
Selling, general and
administrative (Note N) 1,399,000 1,362,000
1,635,000 1,631,000
Loss from operations (1,396,000) (43,000)
Other expense:
Interest expense 89,000 88,000
Other expense, net
(Notes M and N) 107,000 346,000
196,000 434,000
Loss from continuing
operations before
provision for income taxes (1,592,000) (477,000)
Provision for income taxes
(Note E) - 228,000
Loss from continuing operations (1,592,000) (705,000)
Discontinued operations
(Notes P and Q):
Loss from operations of
discontinued subsidiary (1,894,000) (818,000)
Gain on sale of product line 984,000 -
Gain on disposal of subsidiary,
net of provision of $210,000
for operating losses
during phase-out period 104,000 -
(806,000) (818,000)
Net loss $ (2,398,000) $(1,523,000)
Basic loss per share
(Notes H and I):
Continuing operations $ (.56) $ (.25)
Discontinued operations (.29) (.29)
$ (.85) $ (.54)
Diluted loss per share
(Notes H and I):
Continuing operations $ (.56) $ (.25)
Discontinued operations (.29) (.29)
$ (.85) $ (.54)
</TABLE> The accompanying notes are an integral part of
these statements.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
(DEFICIT)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Capital in Accum- Treasury Total
Common Excess of ulated Stock, Stockholders
Shares Stock Par Value Deficit at cost Equity (Deficit)
Balance,
May 1,
1997 2,879,473 $1,440,000 $8,671,000 $(7,351,000) $(205,000) $2,555,000
Net loss - - - (1,523,000) - (1,523,000)
Issuance
of common stock to
employee stock purchase
plan (Note G)
1,096 1,000 1,000 - - 2,000
Balance,
April 30,
1998 2,880,569 $1,441,000 $8,672,000 $(8,874,000) $(205,000) $1,034,000
Net loss - - - (2,398,000) - (2,398,000)
Issuance
of common stock to
employee stock purchase
plan (Note G)
2,226 1,000 - - - 1,000
Balance,
April 30,
1999
2,882,795 $1,442,000 $8,672,000 $(11,272,000) $(205,000) $(1,363,000)
</TABLE>
The accompanying notes are an integral
part of this statement.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended April 30,
<TABLE>
<S> <C> <C>
1999 1998
Cash flows from
continuing operating
activities:
Net loss $ (2,398,000) $ (1,523,000)
Adjustments to reconcile
net loss to net cash
provided by continuing
operations:
Loss from operations
of discontinued subsidiary 1,894,000 818,000
Gain on sale of product line (984,000) -
Gain on disposal
subsidiary (104,000) -
Loss on disposition of
fixed assets 107,000 -
Estimated government penalty - 70,000
Settlement of litigation - 276,000
Depreciation and amortization 153,000 141,000
Deferred tax asset - 228,000
Increase (decrease) in cash
flows from continuing
operations resulting from
changes in:
Trade and other receivables 1,127,000 556,000
Inventories 932,000 (217,000)
Prepaid expenses and
other assets 59,000 8,000
Trade accounts payable 289,000 (258,000)
Accrued liabilities (176,000) (30,000)
Net cash provided by
continuing operations 899,000 69,000
Cash flows from investing activities:
Capital expenditures (46,000) (88,000)
Proceeds from sale
of product line 1,250,000 -
Proceeds from disposition
of subsidiarys assets 2,253,000 -
Net cash provided by (used in)
investing activities 3,457,000 (88,000)
Cash flows from financing activities:
Borrowings against credit line 2,189,000 1,785,000
Payments against credit line (3,750,000) (1,080,000)
Proceeds from issuance of
long-term debt - 451,000
Principal payments
on long-term debt (677,000) (527,000)
Payments on capital
lease obligations (18,000) (8,000)
Note and interest payable
to former officer 41,000 54,000
Proceeds from issuance of
common stock 1,000 2,000
Net cash provided by (used in)
financing activities (2,214,000) 677,000
Net cash used in
discontinued operations (2,137,000) (808,000)
Net increase (decrease)
in cash $ 5,000 $ (150,000)
Cash, beginning of year 46,000 196,000
Cash, end of year $ 51,000 $ 46,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 289,000 $ 235,000
Income taxes $ - $ -
Non-cash investing and financing activities:
Note receivable
received in sale
of assets of
subsidiary $ 441,000 $ -
Settlement of
litigation paid
with asset held
for sale $ 76,000 $ -
Capital lease
obligation
incurred for
equipment $ - $ 46,000
</TABLE>
The accompanying notes are an integral
part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Torotel specializes in the custom design and manufacture
of a wide variety of precision magnetic components,
consisting of transformers, inductors, reactors, chokes and
toroidal coils. Approximately 97% of Torotels sales are
derived from domestic customers. 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., whose name was recently changed to East Coast
Holdings, Inc. All significant inter-company accounts and
transactions have been eliminated.
Use of Estimates
In preparing financial statements in conformity with
generally accepted accounting principles, management is
required to make estimates that affect the reported amounts
of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the consolidated
financial statements and revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Fair Value of Financial Instruments
Cost approximates market for all financial instruments as
of April 30, 1999 and 1998.
Revenue Recognition
Revenue is recognized on contracts and orders in the
period in which the units are shipped (unit-of-delivery
method). Both historically and currently, less than 5% of
the Companys 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 provided in amounts
sufficient to relate the costs of depreciable assets to
operations primarily using the straight-line method over
estimated useful lives of three to five years for property
and equipment, and ten to 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.
Employee Stock Option Plan
The employee stock option plan is accounted for under
Accounting Principles Board (APB) Opinion 25, Accounting
for Stock Issued to Employees, and related interpretations.
Advertising Costs
Advertising costs are expensed as incurred. Advertising
costs for continuing operations for the years ended April
30, 1999 and 1998 were $43,000 and $34,000, respectively.
Reclassifications
Certain reclassifications have been made to the 1998
consolidated financial statements in order to conform to
the presentations made in 1999.
NOTE B REALIZATION OF ASSETS
The accompanying consolidated financial statements have
been prepared in conformity with generally accepted
accounting principles, which contemplate continuation of
the Company as a going concern. The Company has sustained
substantial operating losses in the last three fiscal
years, and has used, rather than provided, cash in its
overall operations in the last two fiscal years. While the
continuing operations of the Company have provided cash in
the last two years, a further decrease in sales is
anticipated. In addition, the Company incurred substantial
liabilities as a result of the terminated merger with
Electronika, Inc., and its discontinued OPT subsidiary has
a significant amount of trade debt remaining from its
operations (see Note Q of Notes to Consolidated Financial
Statements). At the present time, the Company is operating
without a revolving credit line, and there is no assurance
that the Company will be able to secure such a lending
arrangement in the near future. Management believes that
achieving profitability from the lower sales volume will be
the most critical component for continuing as a going
concern. Management believes it has developed a business
strategy that offers the best chance for long-term success.
In view of the matters described in the preceding
paragraph, recoverability of a major portion of the
recorded asset amounts shown in the accompanying
consolidated balance sheet is dependent upon continued
operations of the Company, which in turn is dependent upon
the Companys ability to meet its financing requirements on
a continuing basis, to maintain present financing, and to
succeed in its future operations. The consolidated
financial statements do not include any adjustment relating
to the recoverability and classification of recorded asset
amounts or amounts and classification of liabilities that
might be necessary should the Company be unable to continue
in existence.
NOTE C - INVENTORIES
The following table summarizes the components of
inventories:
<TABLE>
<S> <C>
Raw materials $ 108,000
Work in process 271,000
Finished goods 43,000
$ 422,000
</TABLE>
NOTE D - FINANCING AGREEMENTS
On April 19, 1999, the Company, as guarantor of the bank
debt of its discontinued OPT subsidiary, executed a
Modification Agreement to an existing OPT loan with
Phillipsburg National Bank & Trust Company (PNBT) with a
principal balance of $495,000. The loan is collateralized
by the trade accounts receivable, inventories and equipment
of Torotel Products, the remaining trade accounts
receivable of OPT, and the note receivable from SIGMA (see
Note Q of Notes to Consolidated Financial Statements).
Under the terms of the loan, the outstanding balance
bears interest at a fixed rate of 8.0% per annum and has a
maturity date of April 1, 2003. During the first year, the
loan requires monthly interest only payments starting May
1, 1999. Starting May 1, 2000, the loan requires monthly
payments of principal and interest in equal amounts
necessary to pay off the full balance owed in 36 monthly
payments. In addition, as part of the OPT asset sale
discussed in Note Q of Notes to Consolidated Financial
Statements, PNBT has frozen OPTs lockbox account and will
apply all subsequent OPT cash receipts to the outstanding
balance of the loan. As of April 30, 1999, the outstanding
balance of the loan was $459,000. The Company is required
to comply with certain covenants including restrictions on
the payment of cash dividends. As of April 30, 1999, the
Company was not in compliance with a maximum leverage ratio
a quick ratio and a current ratio covenant. However, PNBT
is in the process of reviewing and resetting these
financial ratio covenants for the year 2000 based on
the revised corporate structure subsequent to the sale of
OPT assets. For reporting purposes, the outstanding loan
balance of $459,000 is classified as a current maturity
of long-term debt in the accompanying consolidated
balance sheet.
Torotel Products has a $451,000 note with PNBT dated
December 23, 1997. 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 banks base lending rate. The note requires monthly
principal and interest payments of $4,678. The note, which
is guaranteed by Torotel, Inc., has a maturity date of
December 23, 2012, and is collateralized by a first
mortgage on the land and buildings in Grandview, Missouri.
As of April 30, 1999, the outstanding balance on the note
was $431,000.
Pursuant to a settlement that ended a class action
alleging racial discrimination in hiring by Torotel
Products, Inc., the Company entered into an unsecured
promissory note for $200,000. The terms of the note
require eight quarterly installments of $25,000, the first
six of which are interest-free. The final two quarterly
installments will be due when the Company has earned a
profit in three consecutive quarters, or May 4, 2003,
whichever comes first. If either of the last two
installments are deferred due to lack of profitability,
interest will accrue on the deferred amount at the rate of
9% per annum. As of April 30, 1999, the outstanding
balance on the note was $100,000.
Information concerning the Companys long-term
indebtedness is as follows:
<TABLE>
<S> <C>
Term loan payable to PNBT,
maturing April 2003 $ 459,000
Note payable to PNBT,
maturing December 2012 431,000
Note payable to Settlement Fund,
maturing February 2000 100,000
Installment contract payable 11,000
Capitalized lease obligations (Note F) 24,000
1,025,000
Less: Current maturities 592,000
$ 433,000
</TABLE>
The amount of long-term debt maturing in each of the next
five years is as follows:
<TABLE>
<S> <C>
April 30, Amount
2000 $ 592,000
2001 34,000
2002 30,000
2003 24,000
2004 27,000
Thereafter 318,000
$1,025,000
</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>
1999 1998
Computed tax expense
at statutory rates $ - $ -
Increase in deferred
tax assets (279,000) (209,000)
Increase in valuation
allowance 279,000 437,000
$ - $ 228,000
The financial statement presentation of discontinued
operations has resulted in the following income tax
allocations:
1999 1998
Continuing operations $ - $ 228,000
Discontinued operations - -
$ - $ 228,000
</TABLE>
The Company has available as benefits to reduce future
income taxes, subject to applicable limitations, the
following estimated net operating loss (NOL) carryforwards:
<TABLE>
<S> <C>
Year of NOL
Expiration Carryforward
2000 $ 471,000
2001 1,420,000
2003 1,416,000
2007 340,000
2009 495,000
2010 694,000
2011 319,000
2012 889,000
2013 801,000
2014 2,972,000
$ 9,817,000
</TABLE>
The difference between the financial and tax bases 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 following table summarizes the components of the net
deferred tax asset:
<TABLE>
<S> <C>
Net operating loss carryforwards $ 3,043,000
Inventory valuation reserve 181,000
Tax credit carryforwards 55,000
Other 50,000
3,329,000
Less valuation allowance 3,329,000
$ -
</TABLE>
NOTE F COMMITMENTS AND CONTINGENCIES
The Company is party to one non-cancelable operating
lease used in the performance of its business. In
addition, in fiscal 1998, the Torotel Products entered into
two lease financing arrangements for a thermal shock
chamber and a phone system. The aggregate initial
capitalized cost of this equipment was $56,000 with a
discount rate of 19% and 15% implicit in the respective
lease agreements. These two leases are presented in the
financial statements as capital leases.
Future minimum lease payments subsequent to April 30,
1999, are as follows:
<TABLE>
<S> <C> <C> <C>
Capital Operating
April 30, Leases Leases
2000 $ 15,000 $ 12,000
2001 10,000 12,000
2002 4,000 12,000
2003 - 12,000
2004 - 12,000
$ 29,000 $ 60,000
</TABLE>
The future minimum capital lease payments of $29,000
include amounts representing interest of $5,000 which
results in a present value of $24,000 for net minimum
capital lease payments (see Note D of Notes to Consolidated
Financial Statements). Equipment recorded under capital
leases amounted to $40,000, net of accumulated depreciation
of $16,000 as of April 30, 1999.
Total rent expense for all operating leases for
continuing operations for the years ended April 30, 1999
and 1998 was $27,000 and $24,000, 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
Torotel common stock based on targeted pretax earnings, as
defined in the Plan. There were no awards under the Plan
during the years ended April 30, 1999 and 1998.
Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan which
allows employees to purchase Torotel common stock 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 employees contribution. Stock
purchased under the Plan is restricted from transfer for
one year after the date of issuance. There were no
expenses under the Plan during the year ended April 30,
1999. Expenses for continuing operations during the year
ended April 30, 1998, were $1,000.
Employee Stock Option Plans
In accordance with the 1982 Incentive Compensation Plan,
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, 1999, no options were available for future
grants, but options to purchase 3,357 shares were
exercisable. Stock option transactions under the 1982
Incentive Compensation Plan for each period are summarized
as follows:
<TABLE>
<S> <C> <C>
Shares Under Option Price
Option Per Share
Balance, May 1, 1997 18,207 $1.70 to $2.00
Exercised - -
Forfeited (14,850) $2.00
Balance, April 30, 1998 3,357 $1.70
Exercised - -
Forfeited - -
Balance, April 30, 1999 3,357 $1.70
</TABLE>
In accordance with the Incentive Compensation Plan
approved 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. The options
are accounted for under APB Opinion 25, Accounting for
Stock Issued to Employees, and related interpretations in
accounting for this Plan. The incentive stock options have
a term of five years when issued and vest 50% per year at
the end of each of the first two years. The non-qualified
stock options have a term of ten years when issued and vest
25% per year at the end of each of the first four years.
The exercise price of each option equals the market price
of the Companys common stock on the date of grant.
Accordingly, no compensation cost has been recognized for
the Plan. Had compensation cost for the Plan been
determined based on the fair value of the options at the
grant dates consistent with the method of Statement of
Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, the Companys operating results
would have been reduced to the pro forma amounts indicated
below.
<TABLE>
<S> <C> <C> <C>
1999 1998
Loss from
continuing
operations As Reported $(1,592,000) $ (705,000)
Pro Forma $(1,627,000) $ (745,000)
Basic loss
per share from
continuing
operations As Reported $ (.56) $ (.25)
Pro Forma $ (.58) $ (.27)
Diluted loss
per share from
continuing
operations As Reported $ (.56) $ (.25)
Pro Forma $ (.58) $ (.27)
</TABLE>
The fair values of the options granted were estimated on
the date of grant using the Black-Scholes options-pricing
model. The fair value of the incentive stock options was
determined using the following weighted average
assumptions: no dividend payments over the life of the
options; expected volatility of 106.1%; risk-free interest
rate of 6.94%; and expected life of five years. The fair
value of the non-qualified stock options was determined
using the following weighted average assumptions: no
dividend payments over the life of the options; expected
volatility of 106.1%; risk-free interest rate of 6.6%; and
expected life of ten years.
Stock option transactions under the 1994 Incentive
Compensation Plan for each period are summarized as
follows:
<TABLE>
<S> <C> <C> <C> <C>
1999 1998
Weighted Weighted
Shares Average Shares Average
Under Exercise Under Exercise
Option Price Option Price
Outstanding,
beginning of year 150,000 $1.00 150,000 $1.00
Granted - - - -
Exercised - - - -
Forfeited (142,500) $1.00 - -
Outstanding,
end of year 7,500 $1.00 150,000 $1.00
Options exercisable,
year-end 7,500 $1.00 - -
Weighted average
fair value of
options granted
during the year - -
</TABLE>
The following information applies to options outstanding at
April 30, 1999:
<TABLE>
<S> <C>
Number outstanding 7,500
Range of exercise prices $1.00
Weighted average exercise price $1.00
Weighted average remaining contractual life 2.6 years
</TABLE>
401(k) Retirement Plans
The Company has a separate 401(k) Retirement Plan for
Torotel Products union and non-union employees. Employer
contributions to either Plan are at the discretion of the
Board of Directors. Employer contributions to the union
Plan were $1,000 in each of the years ended April 30, 1999
and 1998. Employer contributions to the non-union Plan
were $2,000 and $5,000 for the years ended April 30, 1999
and 1998, respectively.
NOTE H - EARNINGS PER SHARE
Statement of Financial Accounting Standards (SFAS) No.
128, Earnings per Share, requires dual presentation of
basic and diluted EPS on the face of the statement of
earnings regardless of whether basic and diluted EPS are
the same; and requires a reconciliation of the numerator
and denominator used in computing basic and diluted EPS.
Basic EPS excludes dilution and is computed by dividing
earnings available to common stockholders by the weighted
average number of common shares outstanding for the period.
Diluted EPS is computed similarly to fully diluted EPS
pursuant to APB Opinion 15. Diluted EPS reflects the
potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity.
Pursuant to SFAS No. 128, the basic and diluted loss per
common share were computed as follows:
<TABLE>
<S> <C> <C>
1999 1998
Net loss $ (2,398,000) $ (1,523,000)
Weighted average
common shares outstanding 2,811,438 2,809,072
Incremental shares - -
Basic loss per share $ (.85) $ (.54)
Diluted loss per share $ (.85) $ (.54)
No incremental shares are included in the EPS calculations
due to the net loss in each fiscal year.
</TABLE>
NOTE I - STOCK WARRANTS
In connection with the acquisition of OPT in fiscal 1994,
warrants to purchase 66,667 shares of the Companys common
stock at $1.50 per share were issued to Chemical Bank New
Jersey N.A. The warrants expire on September 1, 2003.
Pursuant to a settlement that ended a class action alleging
racial discrimination in hiring by Torotel Products, Inc.,
the company agreed to issue a warrant certificate to the
Torotel Settlement Fund to purchase 100,000 shares of
Torotel, Inc. common stock at $.75 per share. The warrant
is 100% vested upon issuance and cannot be exercised until
the market price of the companys common stock reaches $2.00
per share. The warrant expires on May 4, 2003.
The $33,000 fair value of the warrant was estimated on
the date of grant using the Black-Scholes options-pricing
model using the following weighted average assumptions: no
dividend payments over the life of the warrant; expected
volatility of 75.9%; risk-free interest rate of 5.8%; and
expected life of two years.
Stock warrant transactions for each period are summarized
as follows:
<TABLE>
<S> <C> <C> <C> <C>
1999 1998
Weighted Weighted
Shares Average Shares Average
Under Exercise Under Exercise
Option Price Option Price
Outstanding at
beginning of year - $ - - $ -
Granted 100,000 .75 - -
Exercised - - - -
Forfeited - - - -
Outstanding at
end of year 100,000 $ .75 -
Warrants exercisable
at year-end - - - -
Weighted average
fair value of
warrants granted
during the year $ .33 -
</TABLE>
The following information applies to warrants outstanding
at April 30, 1999:
<TABLE>
<S> <C>
Number outstanding 100,000
Range of exercise prices $ .75
Weighted average exercise price $ .75
Weighted average remaining contractual life 4.0 years
</TABLE>
NOTE J - ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<S> <C>
Employee related expenses $ 103,000
Other, including interest 163,000
$ 266,000
</TABLE>
NOTE K - NOTE PAYABLE TO FORMER OFFICER
The Company has a $429,000 promissory note with Alfred F.
Marsh, former President of Torotel, Inc., dated July 10,
1996. The amount of this note consists of the principal
sum of $250,000 from a note executed in April 1986, plus
$179,000 of accrued unpaid interest. For the year ended
April 30, 1999, the Company accrued $41,000 in interest on
the note. 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 loan
with PNBT, unless the bank has waived the default condition
prior to any payment. As of April 30, 1999, the aggregate
amount due under the note is $479,000, which consists of
the outstanding principal balance of $384,000 plus accrued
interest of $95,000. The Company has suspended all
payments under the note due to the reasons discussed in
Note M of Notes to Consolidated Financial Statements.
NOTE L - DIVIDEND RESTRICTIONS
The Companys loan agreement prohibits the payment of cash
dividends without the prior consent of PNBT.
NOTE M - ESTIMATED GOVERNMENT 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 Companys
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 the
fourth quarter of its fiscal year 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 the first quarter of its fiscal year ended
April 30, 1998.
The Companys investigation included a review of
historical sales and pricing data, labor bid sheets, and
interviews with past and present employees, to arrive at a
best estimate of the cost impact to the government. The
aggregate amount of the estimated penalty is still subject
to fluctuation until the government completes its
investigation, and a definitive amount is determined. The
Company believes the methodology it used to determine the
amount of the estimate is reasonable. As a result, the
amount of any additional charges (or the possible range of
any fluctuation in the estimated penalty) cannot be
estimated at this time.
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 will evaluate ways of recovering the
damages once the government completes its investigation.
In the meantime, the Company has suspended all principal
and interest payments due under a note payable to a former
officer (see Note K of Notes to Consolidated Financial
Statements), and does not anticipate making any further
payments during the next twelve months. As a result, as of
April 30, 1999, the aggregate amount due of $479,000, which
consists of the outstanding principal of $384,000 plus the
accrued interest of $95,000, 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 $1,000 during the current fiscal year, $68,000
in fiscal 1998, and $272,000 in aggregate since the
investigation started in the third quarter of the fiscal
year ended April 30, 1997.
NOTE N - SPECIAL CHARGES AND CREDITS
For the year ended April 30, 1999, cost of goods sold as
presented in the accompanying consolidated statements of
operations included a special charge of $424,000 for the
write-down of slow-moving, discontinued and obsolete
inventory; selling, general and administrative expenses as
presented in the accompanying consolidated statements of
operations included special charges of $236,000 for
expenses associated with the terminated definitive merger
agreement with Electronika, Inc.; other expense as
presented in the accompanying consolidated statements of
operations included a special charge of $107,000 for a loss
on disposition and discontinuance of certain equipment.
For the year ended April 30, 1998, selling, general and
administrative expenses as presented in the accompanying
consolidated statements of operations included special
charges of $159,000, which consisted of $91,000 for legal
fees and claim notice publications associated with the
settlement of a class action alleging racial discrimination
in hiring by Torotel Products, and $68,000 for legal fees
associated with the DOD investigation discussed in Note M
of Notes to Consolidated Financial Statements; other
expense as presented in the accompanying consolidated
statements of operations included special charges of
$346,000, which consisted of $276,000 for the settlement of
the class action alleging racial discrimination, and
$70,000 for the additional estimated penalty discussed in
Note M of Notes to Consolidated Financial Statements.
NOTE O TERMINATION OF DEFINITIVE MERGER AGREEMENT
The Company and Electronika, Inc. mutually agreed to
cancel their merger plans due to increased regulatory
obstacles and higher than anticipated losses of Torotel.
The Company incurred costs of $236,000 in conjunction with
the terminated merger.
NOTE P PRODUCT LINE SALE
On September 18, 1998, Torotels wholly-owned subsidiary,
OPT Industries, Inc., completed the sale of its ultra-
miniature transformer and inductor product line to Pico
Electronics, Inc. of Pelham, New York. Pursuant to the
Asset Purchase Agreement, the Company received cash
proceeds of $1,250,000 in return for all assets related to
the product line including inventory, raw materials, work
in process, finished goods, backlog, fixed assets,
intellectual property, goodwill, contracts and rights,
whether tangible or intangible of every kind and
description.
As part of the Agreement, the Company agreed that neither
it nor any related entity shall re-establish any of the
product line sold to Pico, nor shall the Company nor any
related entity modify any of its existing products to
render the same mechanically and/or electrically
interchangeable or substantially interchangeable with any
of the products sold to Pico. The sale of the product line
resulted in a gain of $984,000.
NOTE Q DISPOSITION OF ASSETS
On April 13, 1999, Torotels wholly-owned subsidiary, OPT
Industries, Inc. (whose name was recently changed to East
Coast Holdings, Inc.), provided official notice, pursuant
to federal law, to the union representing its production
employees that the subsidiary had made the decision to sell
its assets to a third party. In addition, Torotel had
received a notice of default from PNBT with respect to the
Companys line of credit.
On April 19, 1999, a transaction was completed whereby
Torotel sold substantially all of the assets of OPT to
SIGMA Associates, LLC, an investor group led by Peter B.
Caloyeras, for approximately $2.7 million. The assets sold
included the land, buildings, equipment, inventories, order
backlog and intellectual property, such as company name,
patents, and product designs. The Caloyeras investor group
presently controls and operates other companies in the
magnetic component and power conversion field. Mr.
Caloyeras is the beneficial owner, as defined in Rule 13d-
3(a) under the Securities Exchange Act of 1934, of 198,900
shares of Torotel Common Stock. Mr. Caloyeras also served
as Torotels Chief Executive Officer for a short time in
February and March, 1999, until such time as the
contemplated merger with Electronika, Inc. was terminated
(see Note O of Notes to Consolidated Financial Statements).
Since the OPT name was part of the assets sold to SIGMA,
Torotel recently changed the corporate name of its OPT
subsidiary to East Coast Holdings, Inc. The purchase price
consisted of:
<TABLE>
<S> <C>
Cash $ 2,200,000
Note receivable 441,000
Assumption of liabilities 53,000
$ 2,694,000
</TABLE>
The cash proceeds were used to pay down most of Torotels
bank
borrowings with PNBT, which enabled the Company to cure the
default with PNBT. The $441,000 note receivable accrues
interest at a fixed rate of 8% per annum and has a maturity
date of April 19, 2003. During the first year, the note
requires monthly interest only payments starting May 19,
1999. Starting May 19, 2000, the note requires monthly
payments of principal and interest in equal amounts
necessary to pay off the full balance owed in36 monthly
payments.
OPTs losses from operations are shown separately as
discontinued operations in the accompanying consolidated
statements of operations. The remaining assets and
liabilities related to OPT as of April 30, 1999, are
included in the accompanying consolidated balance sheet
under the following captions and in the amounts shown:
<TABLE>
<S> <C>
Trade accounts receivable, net $ 122,000
Note receivable $ 441,000
Trade accounts payable $ 512,000
Accrued liabilities $ 156,000
Long-term debt $ 459,000
</TABLE>
OPTs net sales for the years ended April 30, 1999 and
1998 were $2,872,000 and $5,679,000, respectively.
NOTE R INFORMATION ABOUT MAJOR CUSTOMERS
For the year ended April 30, 1999, sales to four major
customers amounted to 17%, 12%, 11% and 11% of consolidated
net sales. For the year ended April 30, 1998, sales to
three major customers amounted to 27%, 12% and 10% of
consolidated net sales.
PART III
ITEM 9. Directors, Executive Officers, Promoters and
Control Persons, Compliance With Section 16(a) of the
Exchange Act
As of the date of this Annual Report, based solely upon a
review of copies of Forms 3, 4 and 5 and amendments thereto
furnished to the Company during its most recent fiscal
year, the Company believes that all directors and officers
are in compliance with the reporting requirements of
Section 16(a) of the Securities Exchange Act of 1934.
Biographical summaries concerning individuals serving on
the Board of Directors, the Companys executive officers and
significant employees, are shown below. Dale H. Sizemore,
Jr., both a Director and executive officer, and Richard A.
Sizemore, a Director, are brothers.
Dale H. Sizemore, Jr., age 47
Chairman of the Board, President and Chief Executive
Officer of Torotel, Inc.
President of Torotel Products, Inc.
Mr. Sizemore became a Director of the Company in 1984.
He has served as Chairman since 1995, and served as
President from 1995 to 1996, and recently assumed the title
President again in April 1999. Mr. Sizemore was President
of Kansas Communications, Inc., located in Lenexa, Kansas,
from 1983 to 1995, and was Chairman of the Board and
Treasurer from 1995 to 1998. Mr. Sizemore is currently
self employed.
Richard A. Sizemore, age 39
President of Interactive Design, Inc.
Mr. Sizemore became a Director of the Company in 1995.
He has been owner and President of Interactive Design, Inc.
in Lenexa, Kansas, since 1987. He holds a B.S. degree in
electrical engineering and an M.B.A. from the University of
Kansas.
H. James Serrone, age 44
Vice President of Finance, Chief Financial Officer, and
Secretary of Torotel, Inc.
Vice President of Finance and General Manager of Torotel
Products, Inc.
Mr. Serrone was appointed a Director of the Company in May
1999. He joined Torotel in 1979, became Controller in
1982, and was named Vice President in 1993. Mr. Serrone
has served as Vice President of Torotel Products, Inc.
since 1992. He has been General Manager of Torotel
Products, Inc. since August 1996.
ITEM 10. Executive Compensation
The following table sets forth the compensation of the
named executive officers for each of the Companys last
three completed fiscal years.
Summary Compensation Table
<TABLE>
<S> <C> <C> <C> <C> <C>
Long-Term
Name and Annual Compensation Compensation
Principal Options All Other
Position Year Salary Bonus Awarded Compensation
Dale H.
Sizemore,
Jr. (a) 1999 $ -0- $ -0- -0- $ 1,500
President 1998 $ -0- $ -0- -0- $ 10,200
and
Chief
Executive
Officer 1997 $ -0- $ -0- -0- $ 10,200
Christian T.
Hughes (b) 1999 $125,000 $ -0- -0- $ -0-
President 1998 $124,216 $ -0- -0- $ 700
and
Chief
Operating
Officer 1997 $126,676 $ 36,000 37,500 $ 8,200
</TABLE>
(a) Dale H. Sizemore, Jr. became President effective April
20, 1999.
(b) Christian T. Hughes became President and Chief
Operating Officer effective September 16, 1996. Mr. Hughes
was terminated effective April 20, 1999.
Option Grants
There were no grants of stock options made to any
executive officers during the Companys last completed
fiscal year.
Aggregate Option Exercises and Fiscal Year-End Option Value
There were no stock option exercises made during the last
completed fiscal year and the executive officers identified
above did not have any unexercised stock options as of
April 30, 1999.
Compensation of Directors
During the fiscal year ended April 30, 1999, Dale H.
Sizemore, Jr. and Richard A. Sizemore received compensation
of $1,500, and as of April 30, 1999, another $4,500 remains
due and payable.
ITEM 11. Security Ownership of Certain Beneficial Owners
and Management
Certain Beneficial Owners
The following persons beneficially own more than 5% of
the outstanding Common Stock of Torotel, Inc. as of June
28, 1999:
<TABLE>
<S> <C> <C>
Name and Address Amount Beneficially Percent
of Beneficial Owner Owned of Class
Richard A. Sizemore 214,868 (a) 7.6%
Linda V. Sizemore8356 Hallet
Lenexa, KS 66215
Gregory M. Sizemore 203,852 (b) 7.3%
Julie Sizemore
12735 Mohawk Circle
Leawood, KS 66209
Dale H. Sizemore 179,003 (c) 6.4%
Carol J. Sizemore
2705 W. 121st Terrace
Leawood, KS 66209
Paulette A. Durso 124,625 (d) 4.4%
James T. Durso
3917 N.E. 59th St.
Kansas City, MO 64119
Sizemore Enterprises 200,506 (e) 7.1%
2705 W. 121st Terrace
Leawood, KS 66209
Caloyeras Family
Partnership, L.P. 207,900 (f) 7.4%
2041 W. 139th Street
Gardena, CA 90249
Thomas E. Foster 142,100 5.1%
5506 Brite Drive
Bethesda, MD 20817
</TABLE>
(a) Richard A. Sizemore and Linda V. Sizemore are husband
and wife. Mr. and Mrs. Sizemores individual direct
ownership is 140,226 and 15,666 shares, respectively. Mr.
Sizemores indirect ownership includes 58,976 shares which
are owned by Mr. Sizemore as trustee for his children.
(b) Gregory M. Sizemore and Julie Sizemore are husband and
wife. Mr. and Mrs. Sizemores individual direct ownership
is 137,654 and 15,666 shares, respectively. Mr. Sizemores
indirect ownership includes 50,532 shares which are owned
by Mr. Sizemore as trustee for his children.
(c) Dale H. Sizemore, Jr. and Carol J. Sizemore are
husband and wife Mr. and Mrs. Sizemores individual direct
ownership is 130,964 and 14,351 shares, respectively. Mr.
Sizemores indirect ownership includes 33,688 shares which
are owned by Mr. Sizemore as trustee for his children.
(d) James T. Durso and Paulette A. Durso are husband and
wife. Mr. and Mrs. Dursos individual direct ownership is
9,000 and 103,149 shares, respectively. Mrs. Dursos
indirect ownership includes 12,476 shares which are owned
by Ms. Durso as trustee for her children.
(e) Sizemore Enterprises is a general partnership. The
general partners, who are brothers and sister, are Dale H
Sizemore, Jr., Paulette Durso, Gregory M. Sizemore and
Richard A. Sizemore.
(f) The Caloyeras Family Partnership L.P., is a limited
partnership in which PBC, Inc., a California corporation,
is the sole general partner. Peter B. Caloyeras is the
sole shareholder, sole director and president of PBC, Inc.
The limited partners of the Caloyeras Family Partnership
include the sons and daughter of Peter B. Caloyeras. The
number of shares indicated as owned by the Caloyeras Family
Partnership L.P. also includes 3,000 shares owned
individually by each of the sons and daughter of Peter B.
Caloyeras.
Management
The following table sets forth the individuals serving on
the Board of Directors, the Companys executive officers and
significant employees, and information with respect to the
number of shares of the Companys common stock beneficially
owned by each of them directly or indirectly, as of June
28, 1999. The number of shares beneficially owned includes
shares, if any, held in the name of the spouse, minor
children, or other relative of the individual living in his
home, as well as shares, if any, held in the name of
another person under an arrangement whereby the individual
enjoys the right to vote or the use of the income, or
whereby the individual can vest or revest title in himself
at once or at some future time. The business address of
each person listed below is 13402 South 71 Highway,
Grandview, Missouri 64030. Dale H. Sizemore, Jr., both a
Director and executive officer, and Richard A. Sizemore, a
Director, are brothers.
<TABLE>
<S> <C> <C>
Name and Address Amount Beneficially Percent
of Beneficial Owner Owned of Class
Dale H. Sizemore, Jr. 229,130 (a) 8.1%
Chairman of the Board,
President and
Chief Executive Officer
Richard A. Sizemore 264,995 (b) 9.4%
Director
H. James Serrone 10,273 (c) 0.4%
Vice President and
Chief Financial Officer
Directors and Executive 504,398 (d) 17.9%
Officers as a Group
(3 persons)
</TABLE>
(a) Dale H. Sizemore, Jr.s beneficial ownership includes
50,127 shares which is equivalent to 25% of the 200,506
shares owned by Sizemore Enterprises, a General Partnership
in which Mr. Sizemore is a general partner.
(b) Richard A. Sizemores beneficial ownership includes
50,127 shares which is equivalent to 25% of the 200,506
shares owned by Sizemore Enterprises, a General Partnership
in which Mr. Sizemore is a general partner.
(c) H. James Serrones beneficial ownership includes 3,357
shares which are acquirable within 60 days pursuant to the
exercise of outstanding stock options.
(d) The beneficial ownership of all directors and executive
officers as a group includes 3,357 shares which are
acquirable within 60 days pursuant to the exercise of
outstanding stock options.
ITEM 12. Certain Relationships and Related Transactions
Indebtedness to Former Officer
The Company has a $429,000 promissory note with Alfred F.
Marsh, former President of Torotel, Inc., dated July 10,
1996. The amount of this note consists of the principal
sum of $250,000 from a note executed in April 1986, plus
$179,000 of accrued unpaid interest. For the year ended
April 30, 1999, the Company incurred $41,000 in interest on
the note. 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 loan
with PNBT, unless the bank has waived the default condition
prior to any payment. As of April 30, 1999, the aggregate
amount due under the note is $479,000, which consists of
the outstanding principal balance of $384,000 plus accrued
interest of $95,000. The Company has suspended all
payments under the note due to the reasons discussed in
Note M of Notes to Consolidated Financial Statements.
ITEM 13. Exhibits and Reports on Form 8-K
(a) Exhibits (Electronic Filings Only)
<TABLE>
<S> <C>
Exhibit 3 Articles of Incorporation of Torotel, Inc.
Exhibit 4 By-laws of Torotel, Inc.
Exhibit 21 Subsidiaries of the Registrant
Exhibit 23 Consent of Independent Certified Public
Accountants
Exhibit 99 Undertakings
Exhibit 27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
There were three reports filed on Form 8-K during the
fourth quarter of the year ended April 30, 1999. One report
was dated March 15, 1999, and included information on the
terminated definitive merger agreement with Electronika,
Inc., as required by Item 5 of Form 8-K. A second report
was dated April 13, 1999, and included information on the
closing of the OPT subsidiary and the default notice from
the bank. A third report was dated April 19, 1999, and
included information on the sale of OPTs assets and the
cure of the bank default.
EXHIBIT 3
ARTICLES OF INCORPORATION
OF
TOROTEL, INC.
ARTICLE ONE
The name of the Corporation is TOROTEL, INC.
ARTICLE TWO
The address of its registered office in the State of
Missouri is 1200 Main Street, Suite 3100, Kansas City,
Missouri 64105 and the name of its registered agent at
such address is SHB Registered Agent, Inc.
ARTICLE THREE
The aggregate number of shares which the Corporation
shall have authority to issue shall be Six Million
(6,000,000) shares of common stock of par value of Fifty
Cents ($.50) per share, and there shall be no preemptive
rights for any shareholder arising therefrom and no
preferences or qualifications or limitations or
restrictions or special rights of any character whatsoever
in respect to said shares.
The Board of Directors is authorized in its discretion to
determine, fix and approve the consideration other than
money for shares which may be issued, and to determine the
fair value to the Corporation of such consideration.
ARTICLE FOUR
The number of shares to be issued before the Corporation
shall commence business is Fifty (50) shares having a total
value of $5,000.00. Five Thousand and No/100 Dollars
($5,000.00) has been paid up in lawful money of the United
States.
ARTICLE SIX
The number of directors for the Corporation who shall be
elected from time to time by the Shareholders is seven (7).
ARTICLE SEVEN
The duration of the Corporation is perpetual.
ARTICLE EIGHT
The Corporation is formed for the following purposes:
A. To buy, utilize, lease, rent, import, export,
franchise, operate, manufacture, produce, design, prepare,
assemble, fabricate, improve, develop, sell, lease,
mortgage, pledge, hypothecate, distribute and otherwise
deal in, at wholesale, retail or otherwise, and as
principal, agent or otherwise, all commodities, goods,
wares, merchandise, devices, apparatus, equipment and all
other personal property, whether tangible or intangible, of
every kind, without limitation as to description, location
or amount, including specifically, but not limited to,
electronic component parts and telecommunication component
parts.
B. To apply for, obtain, purchase, lease, take licenses in
respect of or otherwise acquire, and to hold, own use,
operate, enjoy, turn to account, grant franchise or
licenses in respect of, manufacture under, introduce, sell,
assign, mortgage, pledge or otherwise dispose of:
(1) Any and all inventions, devices, method, processes and
formulae and any improvements and modifications thereof;
(2) Any and all letters patent of the United States or of
any other country, state or locality, and all rights
connected therewith or appertaining thereto;
(3) Any and all copyrights, granted by the United States
or any other country, state or locality, and
(4) Any and all trademarks, trade names, trade symbols and
other indications or origin and ownership granted by or
recognized under the laws of the United States or of any
other country, state or locality; and to conduct and carry
on its business in any or all of its various branches under
any trade name or trade names.
C. To engage in, carry on and conduct research,
experiments, investigations, analyses, studies and
laboratory work, for the purpose of discovering new
products or to improve products or services.
D. To buy, lease, rent or otherwise acquire, own, hold,
use, divide, partition, develop, improve, operate and sell,
lease, mortgage or otherwise dispose of, deal in and turn
to account, real estate, leaseholds and any and all
interests or estates appertaining thereto.
E. To enter into any lawful contract or contracts with
persons, firms, corporations, other entities, governments
or any agencies or subdivision thereof, including
guaranteeing the performance of any contract or any
obligation of any person, firm, corporation or other
entity.
F. To purchase and acquire, as a going concern or
otherwise, and to carry on, maintain and operate all or any
part of the property or business of any corporation, firm,
association, entity, syndicate or persons whatsoever,
deemed to be of benefit to the Corporation, or of use in
any manner in connection with any of its purposes; and to
dispose thereof upon such terms as may seem advisable to
the Corporation.
G. To invest, lend and deal with monies of the Corporation
in any lawful manner, and to acquire by purchase, by the
exchange of stock or other securities of the Corporation,
by subscription or otherwise, and to invest in, to hold for
investment or for any other purpose, and to use, sell,
pledge or otherwise dispose of, and in general to deal in
any interest concerning, or enter into any transaction with
respect to (including long and short sales of), any stocks,
bonds, notes, debentures, certificates, receipts and other
securities and obligations of any government, state,
municipality, corporation, association or other entity,
including individuals and partnership and, while owner
thereof, to exercise all of the rights, powers and
privileges of ownership, including, among other things, the
right to vote thereon for any and all purposes and to give
consents with respect thereto.
H. To borrow or raise money for any purpose of the
Corporation and to secure any loan, indebtedness or
obligation of the Corporation and the interest accruing
thereon, and for that or any other purpose, to mortgage,
pledge, hypothecate or change all or any part of the
present or hereafter acquired property, rights and
franchises of the Corporation, real, personal, mixed or of
any character whatever, subject only to limitations
specifically imposed by law.
I. To do any or all of the things herein above enumerated,
alone for its own account, or for the account of others, or
as the agent for others, or in association with others or
by or through others, and to enter into all lawful
contracts and undertakings in respect thereof.
J. To have one or more offices, to conduct its business,
carry on its operations and promote its objects within and
without the State of Missouri, in other states, the
District of Columbia, the territories, colonies and
dependencies of the United States, in foreign countries and
anywhere in the world, without restriction as to place,
manner or amount, but subject to the laws applicable
thereto; and to do any or all of the things herein set
forth to the same extent as a natural person might or could
do and in any part of the world, either alone or in company
with others.
K. In general to carry on any other business in connection
with each and all of the foregoing or incidental thereto,
and to carry on, transact and engage in any and every
lawful business or other lawful thing calculated to be of
gain, profit or benefit to the Corporation, as fully and
freely as a natural person might do, to the extent and in
the manner, and any where within and without the State of
Missouri, as it may from time to time determine; and to
have and exercise each and all of the powers and
privileges, either direct or incidental, which are given
and provided by or are available under the laws of the
State of Missouri in respect of general business
corporations organized for profit thereunder; provided,
however, that the Corporation shall not engage in any
activity for which a corporation may not be formed under
the laws of the State of Missouri.
L. It is intended that each of the purposes and powers
specified in each of the paragraphs of this ARTICLE EIGHT
shall be in no way limited or restricted by reference to or
inference from the term of any other paragraph, but that
the purposes and powers specified in each of the paragraphs
of this ARTICLE EIGHT shall be regarded as independent
purposes and powers. The enumeration of specific purposes
and powers in this ARTICLE EIGHT shall not be construed to
restrict in any manner the general purposes and powers of
this Corporation, nor shall the expression of one thing be
deemed to exclude another, although it be of like nature.
The enumeration of purposes and powers herein shall not be
deemed to exclude or in any way limit by inference any
purposes or powers which this Corporation has power to
exercise, whether expressly by the laws of the State of
Missouri, now or hereafter in effect, or implied by any
reasonable construction of such laws.
ARTICLE NINE
Both the Shareholders and the Board of Directors shall have
equal power to make, alter, amend, suspend or repeal By-
laws for the Corporation from time to time; provided,
however, that the power of the Directors to alter, amend,
suspend or repeal the By-laws or any portion thereof may be
denied as to any By-laws or portion thereof enacted by the
Shareholders if at the time of such enactment the
shareholders shall so expressly provide.
ARTICLE TEN
These Articles of Incorporation may be amended in any
respect from time to time by the Shareholders as provided
by the laws of the State of Missouri.
EXHIBIT 4
BY-LAWS
OF
TOROTEL, INC.
ARTICLE I
OFFICES
The principal office of the Corporation in the State of
Missouri shall be located in Grandview, Missouri. The
Corporation may have such other offices either within or
without the State of Missouri, as the business of the
Corporation may require from time to time by the Board of
Directors.
The registered office of the corporation required by The
General and Business Corporation Law of Missouri to be
maintained in the State of Missouri, may be, but need not
be, identical with the principal office in the State of
Missouri, and the address of the registered office may be
changed from time to time by the Board of Directors.
ARTICLE II
SHAREHOLDERS
Section 1. ANNUAL MEETING. The annual meeting of the
Shareholders shall be held on the third Monday of September
in each year beginning with the year 1986, for the purpose
of electing Directors and for the transaction of such other
business as may come before the meeting. If the day fixed
for the annual meeting shall be a legal holiday, such
meeting shall be held on the next succeeding business day.
If the election of Directors shall not be held on the day
designated herein for any Annual Meeting, or at any
adjournment thereof, the Board of Directors shall cause the
election to be held at a special meeting of the
Shareholders as soon thereafter as conveniently may be
held.
Section 2. SPECIAL MEETINGS. Special meeting of the
Shareholders may be called by the President, by the Board
of Directors or by the holders of not less than one-fifth
of all the outstanding shares of the Corporation.
Section 3. PLACE OF MEETING. The Board of Directors may
designate any place, either within or without the State of
Missouri, as the place of meeting for any annual meeting of
the Shareholders or for any special meeting of the
Shareholders called by the Board of Directors. The
Shareholders may designate any place, either within or
without the State of Missouri, as the place for theholding
or such meeting, and may include the same in a waiver of
notice of any meeting. If no designation is made, or if a
special meeting be otherwise called, the place of meeting
shall be the registered office of the corporation in the
State of Missouri, except as otherwise provided in Section
5 of this Article.
Section 4. NOTICE OF MEETINGS. Written or printed
notice stating the place, day and hour of the meeting and,
in case of a special meeting, the purpose or purposes for
which the meeting is called, shall be delivered not less
than ten nor more than fifty (50) days before the date of
the meeting, either personally or by mail, by or at the
direction of the President, or the Secretary, or the
officer or persons calling such meeting, to each
Shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when
deposited in the United States mail in a sealed envelope
addressed to the Shareholder at his address as it appears
on the records of the Corporation, with postage thereon
prepaid. Notice shall be published to the extent required
by the laws of the State of Missouri.
Section 5. MEETING OF ALL SHAREHOLDERS. If all of the
Shareholders shall meet at any time and place, either
within or without the State of Missouri, and consent to the
holding of a meeting, such meeting shall be valid, without
call or notice, and at such meeting any corporate action
may be taken.
Section 6. VOTING LISTS. At least ten days before each
meeting of Shareholders, the officer or agent having charge
of the transfer book for shares of the Corporation shall
make a complete list of the Shareholders entitled to vote
at such meeting, arranged in alphabetical order with the
address of, and the number of shares held by, each
Shareholder, which list, for a period of ten days prior to
such meeting, shall be kept on file at the registered
office of the Corporation and shall be subject to
inspection by any Shareholder at any time during usual
business hours. Such list shall also be produced and kept
open at the time and place of the meeting and shall be
subject to the inspection of any Shareholder during the
whole time of the meeting. The original share ledger or
transfer book, or a duplicate thereof kept in this state,
shall be prima facie evidence as to who are the
Shareholders entitled to examine such list or share ledger
or transfer book or to vote at any meeting of Shareholders.
Section 7. QUORUM. A majority of the outstanding shares
of the Corporation, represented in person or by proxy,
shall constitute a quorum at any meeting of the
Shareholders; provided, that if less than a majority of the
outstanding shares are represented at said meeting, from
time to time, without further notice, to a date not longer
than ninety days from the date originally set for such
meeting.
Section 8. PROXIES. At all meetings of Shareholders, a
Shareholder may vote by proxy executed in writing by the
Shareholder or by his duly authorized attorney-in-fact.
Such proxy shall be filed with the Secretary of the
Corporation before or at the time of the meeting. No proxy
shall be valid after eleven months from the date of its
execution, unless otherwise provided in the proxy.
Section 9. VOTING OF SHARES. Subject to the provisions
of Section 12, each outstanding share of capital stock
having voting rights shall be entitled to one vote upon
each matter submitted to a vote at a meeting of
Shareholders.
Section 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares
standing in the name of another corporation, domestic or
foreign, may be voted by such officer, agent, or proxy as
the By-Laws of such corporation may prescribe, or, in the
absence of such provision, as the Board of Directors of
such corporation may determine.
Shares standing in the name of a deceased person may be
voted by his administrator or executor, either in person or
by proxy. Shares standing in the name of a guardian,
curator, or trustee may be voted by such fiduciary, either
in person or by proxy, but no guardian, curator, or trustee
shall be entitled, as such fiduciary, to vote shares held
by him without a transfer of such shares into his name
Shares standing in the name of a receiver may be voted by
such receiver, and shares held by or under the control of a
receiver may be voted by such receiver without the transfer
thereof into his name if authority so to do be contained in
an appropriate order of the court by which such receiver
was appointed.
A Shareholder whose shares are pledged shall be entitled
to vote such shares until the shares have been transferred
into the name of the pledgee, and thereafter the pledgee
shall be entitled to vote the shares so transferred.
Section 11. CUMULATIVE VOTING. In all elections for
Directors, every Shareholder shall have the right to vote,
in person or by proxy, the number of shares owned by him,
for as many persons as there are Directors to be elected,
or to cumulate said shares, and give one candidate as many
votes as the number of Directors multiplied by the number
of his shares shall equal, or distribute them on the same
principal among as many candidates as he shall see fit.
Section 12. INFORMAL ACTION BY SHAREHOLDERS. Any action
which may be taken at a meeting of the Shareholders may be
taken without a meeting if a consent in writing, setting
forth the action so taken, shall be signed by all of the
Shareholders entitled to vote with respect to the subject
matter thereof.
ARTICLE III
DIRECTORS
Section 1. GENERAL POWERS. The business and affairs of
the Corporation shall be managed by its Board of Directors.
Section 2. NUMBER, ELECTION AND TERM. The number of
Directors of the Corporation shall be seven (7), each of
whom shall be elected at the annual meeting of the
Shareholders for a term of one year and each of whom shall
hold office until his successor has been elected and has
qualified.
Section 3. REGULAR MEETINGS. A regular meeting of the
Board of Directors shall be held without other notice than
this By-Law, immediately after, and at the same place as,
the annual meeting of Shareholders. The Board of Directors
may provide, by resolution, the time and place, either
within or without the State of Missouri, for the holding of
additional regular meetings with notice of such resolution
to all Directors.
Section 4. SPECIAL MEETINGS. Special meetings of the
Board of Directors may be called by or at the request of
the President or any two Directors. The person or persons
authorized to call special meetings of the Board of
Directors may fix any place in the United States, either
within or without the State of Missouri, as the place for
holding any special meeting of the Board of Directors
called by them.
Section 5. NOTICE. Notice of any special meeting shall be
given at least five days previously thereto by written
notice delivered personally or mailed to each Director at
his business address, or by telegram provided, however,
that if the designated meeting place is without the State
of Missouri, an additional five days notice shall be given.
If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail in a sealed envelope so
addressed, with postage thereon prepaid. If notice be
given by telegram, such notice shall be deemed to be
delivered when the telegram is delivered to the telegraph
company. Any Director may waive notice of any meeting.
The attendance of a Director at any meeting shall
constitute a waiver of notice of such meeting, except where
a Director attends a meeting for the express purpose of
objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need
be specified in the notice or waiver of notice of such
meeting.
Section 6. QUORUM. A majority of the Board of Directors
shall constitute a quorum for the transaction of business
at any meeting of the Board of Directors, provided that if
less than a majority of the Directors are present at said
meeting, a majority of the Directors present may adjourn
the meeting from time to time without further notice.
Section 7. MANNER OF ACTING. The act of the majority of
the Directors present at a meeting of the Directors at
which a quorum is present shall be the act of the Board of
Directors.
Section 8. VACANCIES. In case of the death or
resignation or disqualification of one or more of the
Directors, a majority of the survivors or remaining
Directors, even if such majority does not constitute a
quorum, may fill such vacancy or vacancies until the
successor or successors are elected at the next annual
meeting of the Shareholders. A Director elected to fill a
vacancy shall serve as such until the next annual meeting
of the Shareholders. In the event the Shareholders do not
elect a full slate of seven (7) Directors at the annual
meeting or the number of Directors falls below seven (7)
for whatever reason between annual meetings, the remaining
Directors may establish any number of three (3), four (4),
five (5) or six (6) Directors to constitute the complete
Board of Directors until the next annual meeting without
the need to fill vacant Director positions and attendance
at meetings of a majority of the existing Directors at any
such designated, reduced size Board of Directors shall
constitute a quorum in accord with Section 6 of this
Article III.
Section 9. COMPENSATION. Directors as such shall not
receive any stated salaries for their services, but by
resolution of the Board of Directors, an annual retainer
and/or a fixed sum plus expenses of attendance, if any, may
be allowed for attendance at each regular or special
meeting of the Board of Directors or at any Committee
meeting thereof; provided, that nothing herein contained
shall be construed to preclude any Director from serving
the Corporation in any other capacity and receiving
compensation therefor.
Section 10. EXECUTIVE COMMITTEE. The Board of Directors
may authorize and designate from time to time or on a
regular basis three (3) Directors to constitute an
Executive Committee which shall have and exercise all
powers of the Board of Directors in the management of the
Corporation.
Section 12. INFORMAL ACTION BY DIRECTORS. Any action
which may be taken at a meeting of the Directors may be
taken without a meeting if a consent in writing, setting
forth the action so taken, shall be signed by all of the
Directors entitled to vote with respect to the subject
matter thereof.
ARTICLE IV
OFFICERS
Section 1. NUMBER. The officers of the Corporation
shall be a Chairman of the Board of Directors, a President,
one or more Vice-Presidents (the number thereof to be
determined by the Board of Directors), a Treasurer, a
Secretary and such other officers as may be elected in
accordance with the provisions of this Article. The
Chairman of the Board of Directors and the President shall
be chosen from the Members of the Board of Directors. The
remaining officers of the Corporation need not be chosen
from the Members of the Board, but they may be so chosen.
The Board of Directors, by resolution, may create the
offices of one or more assistant Treasurers and assistant
Secretaries, all of whom shall be elected by the Board of
Directors. Any two or more offices may be held by the same
person, except the offices of President and Secretary.
All officers and agents of the Corporation, as between
themselves and the Corporation, shall have such authority
and perform such duties in the management of the property
and affairs of the Corporation as may be provided in the
By-Laws, or, in the absence of such provisions, as may be
determined by resolution of the Board of Directors.
Section 2. ELECTION AND TERM OF OFFICE. The officers of
the Corporation shall be elected annually by the Board of
Directors at the first meeting of the Board of Directors
held after each annual meeting of Shareholders. If the
election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as
conveniently may be. New offices may be created and filled
at any meeting of the Board of Directors. Each officer
shall hold office until his successor shall have been duly
elected and shall have qualified or until his death or
until he shall resign or shall have been removed in the
manner hereinafter provided.
Section 3. REMOVAL. Any officer or agent elected or
appointed by the Board of Directors may be removed by the
Board of Directors whenever in its judgment the best
interests of the Corporation would be served thereby, but
such removal shall be without prejudice to the contract
rights, if any, of the person so removed.
Section 4. VACANCIES. If the office of any officer of
the Corporation becomes vacant because of death,
resignation, removal, disqualification or for any other
reason or if any officer of the Corporation is unable to
perform the duties of his office for any reason, the Board
of Directors may choose a successor who shall replace such
officer or the Board of Directors may delegate the duties
of any such vacant office to any other officer or to any
Director of the Corporation for the unexpired portion of
the term.
Section 5. THE CHAIRMAN OF THE BOARD. The Chairman of the
Board of Directors shall be the principal executive officer
of the Corporation and shall preside at all meetings of
Shareholders and Directors. The Chairman shall possess the
same power as the President and may sign all certificates,
contracts, and other instruments of the Corporation which
may be authorized by the Board of Directors except where by
law the signature of the President is required. During the
absence or disability of the President, he shall exercise
all the powers and discharge all the duties of the
President.
Section 6. PRESIDENT. The President shall supervise and
control the business and affairs of the Corporation. He
shall preside at all meetings of the Shareholders and of
the Board of Directors in the absence of the Chairman of
the Board of Directors. He may sign, with the Secretary or
Treasurer or any other proper officer thereunto authorized
by the Board of Directors, certificates for shares of the
Corporation, any deeds, mortgages, bonds, contracts, or
other instruments which the Board of Directors have
authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated
by the Board of Directors or by these By-Laws to some other
officer or agent of the Corporation, or shall be required
by law to be otherwise signed or executed; and, in general,
shall perform all duties incident to the office of
President and such other duties as may be prescribed by the
Board of Directors from time to time. Unless the Board
otherwise provides, the President, or any person designated
in writing by him, may (i) attend meetings of shareholders
of other corporations to represent this Corporation and to
vote or take action with respect to the shares of any such
corporation owned by this Corporation in such manner as he
or his designee may determine, and (ii) execute and deliver
waivers of notice and proxies for and in the name of the
Corporation with respect to any such shares owned by his
Corporation.
Section 7. THE VICE-PRESIDENT. In the absence of the
President or the Chairman of the Board or in the event of
inability or refusal to act by both, the Vice-President (or
in the event there be more than one Vice-President, the
Vice-Presidents in the order of their election) shall
perform the duties of the President, and when so acting,
shall have all the power of and be subject to all the
restrictions upon the President. Any Vice-President may
sign, with the Secretary or an Assistant Secretary, or with
the Treasurer or an Assistant Treasurer, certificates for
shares of the Corporation; and shall perform such other
duties as from time to time may be assigned to him by the
President or by the Board of Directors.
Section 8. THE TREASURER. If required by the Board of
Directors, the Treasurer shall give a bond for the faithful
discharge of his duties in such sum and with such surety or
sureties as the Board of Directors shall determine. He
shall: (a) have charge and custody of and be responsible
for all funds and securities of the Corporation from any
source whatsoever, and deposit all such monies in the name
of the Corporation in such banks, trust companies or other
depositaries as shall be selected in accordance with the
provisions of Article VI of these By-Laws; (b) in general,
perform all the duties incident to the office of Treasurer
and such other duties from time to time may be assigned to
him by the President or by the Board of Directors.
Section 9. THE SECRETARY. The Secretary shall: (a)
keep the minutes of the Shareholders and of the Board of
Directors meetings in one or more books provided for that
purpose; (b) see that all notices are duly given in
accordance with the provisions of these By-Laws or as
required by law; (c) be custodian of the corporate records
and of the seal of the Corporation and see that the seal of
the Corporation is affixed to all certificates for shares
prior to the issue thereof and to all documents, the
execution of which on behalf of the Corporation under its
seal is duly authorized in accordance with the provisions
of these By-Laws; (d) sign with the President, or a Vice-
President, certificates for shares of the Corporation, the
issue of which shall have been authorized by resolution of
the Board of Directors; (e) in general, perform all duties
as from time to time may be assigned to him by the
President or by the Board of Directors.
Section 10. ASSISTANT TREASURERS AND ASSISTANT
SECRETARIES. The Assistant Treasurers shall, respectively,
if required by the Board of Directors, give bonds for the
faithful discharge of their duties in such sums and with
such sureties as the Board of Directors shall determine.
Assistant Secretaries and Treasurers, as thereunto
authorized by the Board of Directors may sign with the
President or a Vice-President certificates for shares of
the Corporation the issue of which shall have been
authorized by a resolution of the Board of Directors. The
Assistant Treasurers and Assistant Secretaries, in general,
shall perform such duties as shall be assigned to them by
the Treasurer or the Secretary, respectively, or by the
President or the Board of Directors.
Section 11. SALARIES. The salaries of the officers
shall be fixed from time to time by the Board of Directors
and no officer shall be prevented from receiving such
salary by reason of the fact that he is also a Director of
the Corporation.
ARTICLE V
AGENTS AND ATTORNEYS
The Board of Directors may appoint such agents,
attorneys, and attorneys-in-fact of the Corporation as it
may deem proper, and may, by written power of attorney,
authorize such agents, attorneys, or attorneys-in-fact, to
represent it and for it and in its name, place and stead,
and for its use and benefit to transact any and all
business which said Corporation is authorized to transact
or do by its Articles of Incorporation, and in its name,
place and stead, and as its corporate act and deed, to
sign, acknowledge and execute any and all contracts and
instruments, in writing necessary
or convenient in the transaction of such business as fully
to all intents and purposes as said Corporation might or
could do if it acted by and through its regularly elected
and qualified officers.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Board of Directors may
authorize any officer or officers, agent or agents, to
enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Corporation,
and such authority may be general or confined to specific
instances.
Section 2. LOANS. No loans shall be contracted on
behalf of the Corporation and no evidences of indebtedness
shall be issued in its name unless authorized by a
resolution of the Board of Directors. Such authority may
be general or confined to specific instances.
Section 3. CHECKS, DRAFTS, ETC. All checks, drafts, or
other orders for the payment of money, notes or other
evidences of indebtedness issued in the name of the
Corporation, shall be signed by such officer of officers,
agent or agents of the Corporation and in such manner as
shall from time to time be determined by resolution of the
Board of Directors.
Section 4. DEPOSITS. All funds of the Corporation not
otherwise employed shall be deposited from time to time to
the credit of the Corporation in such banks, trust
companies or other depositaries as the Board of Directors
may select.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. CERIFICATES FOR SHARES. Certificates
representing shares of the Corporation shall be in such
form as may be determined by the Board of Directors. Such
certificates shall be signed, manually or by facsimile, if
such certificates be signed by the transfer agent and
registrar, by the President or Vice-President and by the
Secretary, Treasurer or an Assistant Secretary or
Treasurer, and shall be sealed with the seal of the
Corporation or facsimile thereof. All certificates for
shares shall be consecutively numbered. The name of the
person owning the shares represented thereby with the
number of shares and date of issue shall be entered on the
books of the Corporation. All certificates surrendered to
the Corporation for transfer shall be cancelled and no new
certificate shall be issued until the former certificate
for a like number of shares shall have been surrendered and
cancelled, except that in case of a lost, destroyed or
mutilated certificate a new one may be issued therefor upon
such terms and indemnity to the Corporation as the Board of
Directors may prescribe.
Section 2. TRANSFERS OF SHARES TRANSFER AGENT
REGISTRAR. Transfers of shares of stock shall be made on
the stock record or transfer books of the Corporation only
by the person named in the stock certificate, or by his
attorney lawfully constituted in writing, and upon
surrender of the certificate therefor. The stock record
book and other transfer records shall be in the possession
of the Secretary or of a transfer agent or transfer clerk
for the Corporation. The Corporation, by resolution of the
Board, may from time to time appoint a transfer agent or
transfer clerk, and, if desired, a registrar, under such
arrangements and upon such terms and conditions as the
Board deems advisable, but until and unless the Board
appoints some other person, firm or corporation as its
transfer agent or transfer clerk (and upon the revocation
of any such appointment, thereafter until a new appointment
is similarly made) the Secretary of the Corporation shall
be the transfer agent or transfer clerk of the Corporation
without the necessity of any formal action of the Board,
and the Secretary, or any person designated by him, shall
perform all or the duties thereof.
Section 3. TREASURY STOCK. All issued and outstanding
stock of the Corporation that may be purchased or otherwise
acquired by the Corporation shall be treasury stock, and
shall be subject to disposal by action of the Board of
Directors. Such stock shall neither vote nor participate
in dividends while held by the Corporation.
Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD
DATE. The Board of Directors of the Corporation may close
its stock transfer books for a period not exceeding fifty
(50) days preceding the date of any meeting of
Shareholders, or the date for the payment of any dividend
or for the allotment of rights or the date when any change
or conversion or exchange of shares shall be effective; or,
in lieu thereof, may fix in advance a date, not exceeding
fifty (50) days preceding the date of any dividend or for
the allotment of rights, or to the date when any change or
reconversion or exchange of shares shall be effective, as
the record date for determination of Shareholders entitled
to notice of, or to vote at, such meeting, or Shareholders
entitled to receive payment of any such dividend or to
receive any such allotment of rights, or to exercise rights
in respect of any such change, conversion or exchange of
shares; and the Shareholders of record on such date of
closing the transfer books, or on the record date so fixed,
shall be the Shareholders entitled to notice of and to vote
at, such meeting, or to receive payment of such dividend,
or to receive such allotment of rights, or to exercise such
rights, as the case may be. If the Board of Directors
shall not have closed the transfer books or set a record
date for the determination of its Shareholders entitled to
vote or of any other Shareholder rights, the date on which
notice of the meeting is mailed or the date such dividend
is declared or other right announced, as the case may be,
shall be the record date for such determination of
Shareholders so entitled to vote.
ARTICLE VIII
FISCAL YEAR
The fiscal year of the Corporation will begin on the
first day of May in each year starting in 1985 and end on
the last day of April in each year.
ARTICLE IX
DIVIDENDS
The Board of Directors may from time to time, declare,
and the Corporation may pay, dividends on its outstanding
shares in the manner and upon the terms and conditions
provided by law and its Articles of Incorporation.
ARTICLE X
SEAL
The Corporation shall have a corporate seal which shall
have inscribed around the circumference thereof TOROTEL,
INC., Missouri, and elsewhere thereon shall bear the words
Corporate Seal. The corporate seal may be affixed by
impression or may be by facsimile.
ARTICLE XI
WAIVER OF NOTICE
Whenever any notice whatever is required to be given
under the provisions of these By-Laws or under the
provisions of the Articles of Incorporation or under the
provisions of The General and Business Corporation Law of
Missouri, waiver thereof in writing, signed by the person
or persons entitled to such notice, whether before or after
the time stated therein, shall be deemed equivalent to the
giving of such notice.
ARTICLE XII
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
The Corporation will indemnify any person who was or is a
party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding
whether civil, criminal, administrative or investigative,
other than an action by or in the right of the Corporation,
by reason of the fact that he is or was serving at the
request of the Corporation as a Director, officer, employee
or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses,
including attorneys fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in
connection with such action, suit, or proceeding if he
acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct
was unlawful. The determination of any action, suit, or
proceeding by judgment, order, settlement, conviction or
upon a plea of nolo contendere or its equivalent, shall not
of itself create a presumption that the person did not act
in good faith and in a manner which he reasonably believed
to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his
conduct was unlawful.
The Corporation will indemnify any person who was or is a
party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its
favor by reason of the fact that he is or was a Director,
officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a Director,
officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise
against expenses, including attorneys fees, actually and
reasonably incurred by him in connection with the defense
or settlement of the action or suit if he acted in good
faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Corporation;
provided, however, that no indemnification shall be made in
respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable for negligence
or misconduct in the performance of this duty to the
Corporation unless and only to the extent that the court in
which the action or suit was brought determines upon
application that , despite the adjudication of liability
and in view of all the circumstances of the case, the
person is fairly and reasonably entitled to indemnity for
such expenses which the court shall deem proper.
To the extent that a Director, officer, employee or agent
of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding
referred to above, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses,
including attorneys fees, actually and reasonably incurred
by him in connection with the action, suit or proceeding.
Any indemnification under either of the first two
paragraphs of this Section, unless ordered by a court,
shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of
the Director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of
conduct set forth in the appropriate statutes of the State
of Missouri. Such determination shall be made by the Board
of Directors of the Corporation by a majority vote of a
quorum of Directors who were not parties to the action,
suit, or proceeding, or, if such a quorum is not
obtainable, or , even if obtainable, a quorum of
disinterested Directors so directs, by independent legal
counsel in a written opinion, or by the Shareholders of the
Corporation.
Expenses incurred in defending a civil or criminal
action, suit or proceeding may be paid by the Corporation
in advance of the final disposition of the action, suit, or
proceeding as authorized by the Board of Directors in the
specific case upon receipt of an undertaking by or on
behalf of the Director, officer, employee or agent to repay
such amount unless it shall ultimately be determined that
he is entitled to be indemnified by the Corporation.
The indemnification provided by this Section shall not be
deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any By-Law,
agreement, vote of Shareholders or disinterested Directors
or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to
be a Director, officer, employee or agent and shall inure
to the benefit of the heirs, executors and administrators
of such person.
The Corporation may purchase and maintain insurance on
behalf of any person who is or was a Director, officer,
employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a Director, officer,
employee or agent of another corporation, partnership, join
venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or
not the Corporation would have the power to indemnify him
against such liability under the provisions of this
Section.
ARTICLE XIII
AMENDMENTS
These By-Laws may be altered, amended or repealed and new
By-Laws may be adopted at any annual meeting of the
Shareholders or at any special meeting of the Shareholders
called for that purpose or by the Board of Directors;
however, that the power of the Directors to alter, amend,
suspend or repeal the By-Laws or any portion thereof may be
denied as to any By-Laws or portion thereof enacted by the
Shareholders if at the time of such enactment the
Shareholders shall so expressly provide,
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
(a) Subsidiary (wholly-owned)
Torotel Products, Inc. (a Missouri corporation)
(b) Subsidiary (wholly-owned)
East Coast Holdings, Inc. (a New Jersey corporation)
(formerly named OPT Industries, Inc.)
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated June 17, 1999, 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, 1999. We
hereby consent to the incorporation by reference of said
report in the Registration Statements of Torotel, Inc. on
Form S-8 (File Nos. 2-78819 and 2-78896).
/s/ Grant Thornton LLP
Kansas City Missouri
September 3, 1999
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 registrants 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 plans 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: September 3, 1999
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.
Dale H. Sizemore, Jr.
Chairman of the Board, President,
Chief Executive Officer
and Director
Date: September 3, 1999
By:: /s/ Richard A. Sizemore
Richard A. Sizemore
Director
Date: September 3, 1999
By:: /s/ H. James Serrone
H. James Serrone
Vice President of Finance,
Chief Financial Officer,
and Secretary
Date: September 3, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FINANCIAL STATEMENTS OF TOROTEL, INC.
AND SUBSIDIARIES CONTAINED IN ITS ANNUAL REPORT ON FORM 10-
KSB FOR THE ANNUAL PERIOD ENDED APRIL 30, 1999, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL YEAR-END> APR-30-1999
<PERIOD-END> APR-30-1999
<CASH> 51,000
<SECURITIES> 0
<NOTES AND ACCOUNTS RECEIVABLES> 960,000
<ALLOWANCES> 82,000
<INVENTORY> 422,000
<CURRENT-ASSETS> 921,000
<PP&E> 1,970,000
<DEPRECIATION> 1,464,000
<TOTAL-ASSETS> 1,877,000
<CURRENT-LIABILITIES> 1,842,000
<BONDS, MORTGAGES AND SIMILAR DEBT> 1,398,000
0
0
<COMMON STOCK> 1,442,000
<OTHER STOCKHOLDERS EQUITY> (2,805,000)
<TOTAL-LIABILITY-AND-EQUITY> 1,877,000
<SALES> 4,553,000
<TOTAL-REVENUES> 4,553,000
<CGS> 4,314,000
<TOTAL-COSTS> 5,949,000
<OTHER-EXPENSES> 107,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 89,000
<INCOME-PRETAX> (1,592,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,592,000)
<DISCONTINUED> (806,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,398,000)
<EPS-BASIC> (.85)
<EPS-DILUTED> (.85)
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