-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QVYzsjth045vd7suhMTw9K/2PLJlmjpJsKEH0MMUIeHvrnrGZU2BbwHn6//bKMCA FVorEIrYN1a8OWqf4X3z/w== 0000950134-97-001218.txt : 19970222 0000950134-97-001218.hdr.sgml : 19970222 ACCESSION NUMBER: 0000950134-97-001218 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970219 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TOPRO INC CENTRAL INDEX KEY: 0000874263 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRICAL INDUSTRIAL APPARATUS [3620] IRS NUMBER: 841042227 STATE OF INCORPORATION: CO FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-19167 FILM NUMBER: 97538972 BUSINESS ADDRESS: STREET 1: 2525 W EVANS AVE CITY: DENVER STATE: CO ZIP: 80219 BUSINESS PHONE: 3039351221 MAIL ADDRESS: STREET 1: 2525 W EVANS AVE CITY: DENVER STATE: CO ZIP: 80219 FORMER COMPANY: FORMER CONFORMED NAME: ENTERINVESTMENT CORP DATE OF NAME CHANGE: 19600201 10QSB 1 FORM 10-QSB FOR QUARTER ENDING DECEMBER 31, 1996 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For Period Ended December 31, 1996 ----------------------------------------------------------- [ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the transition period from to ---------------------------------------------- Commission File Number 0-19167 ------------------------------------------------------ TOPRO, INC. --------------------------------------------------------- (Exact name of registrant as specified in its charter) COLORADO 84-1042227 --------------------------- -------------------------- (State of Incorporation) (IRS Employer ID Number) 2525 West Evans Avenue Denver, Colorado 80219 - ----------------------------------------- ------------------------------- (Address of principle executive offices) (city) (state) (zip code) (303) 935-1221 ------------------------------------------------- Registrant's telephone number including area code - ------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ------ ------ Transitional Small Business Disclosure format (check one): YES X NO ------ ------ The number of shares outstanding of the Registrant's $0.0001 par value common stock on February 14, 1997 was 9,657,023. 2 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS TOPRO INC., AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JUNE 30, DECEMBER 31, 1996 1996 ------------ ------------ ASSETS CURRENT ASSETS Cash $ 236,000 $ 546,000 Receivables: Trade, net of allowance for doubtful accounts 6,801,000 8,478,000 Refundable income taxes 222,000 143,000 Other receivable 54,000 40,000 Cost and estimated earnings in excess of billings on uncompleted contracts 2,837,000 3,831,000 Inventories 148,000 288,000 Prepaid expense 173,000 307,000 Assets of discontinued operations 526,000 237,000 ------------ ------------ Total current assets 10,997,000 13,870,000 PROPERTY AND EQUIPMENT, AT COST: Building and land 850,000 850,000 Furniture and equipment 2,516,000 2,753,000 Leasehold improvements 743,000 765,000 ------------ ------------ 4,109,000 4,368,000 Less accumulated depreciation (1,285,000) (1,510,000) ------------ ------------ Net property and equipment 2,824,000 2,858,000 CAPITALIZED SOFTWARE COSTS, NET OF AMORTIZATION 572,000 1,771,000 OTHER ASSETS Other assets 155,000 147,000 Debt issuance costs, net of amortization 354,000 382,000 Excess of cost over fair value of net assets acquired, net of amortization 5,111,000 8,132,000 TOTAL ASSETS $ 20,013,000 $ 27,160,000 ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 2 3 TOPRO INC., AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JUNE 30, DECEMBER 31, 1996 1996 ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Line-of-credit $ 1,019,000 $ 1,170,000 Current portion of long-term debt: Related parties 230,000 193,000 Financial institutions and other 975,000 1,111,000 Capital lease obligations 56,000 63,000 Accounts payable 5,915,000 6,631,000 Billings in excess of costs and estimated earnings on uncompleted contracts 1,582,000 2,911,000 Accrued expenses 2,155,000 1,441,000 Deferred gain - bldg 24,000 24,000 ------------ ------------ Total current liabilities 11,956,000 13,544,000 LONG-TERM DEBT, NET OF CURRENT PORTION: Financial institutions and other 4,859,000 6,231,000 Capital lease obligations 151,000 148,000 ------------ ------------ Total long-term debt 5,010,000 6,379,000 DEFERRED GAIN 45,000 36,000 STOCKHOLDERS' EQUITY Preferred stock, par value $1.00 per share; authorized 10,000,000 shares; no shares issued Common stock, par value $.0001 per share; authorized 200,000,000 shares; 6,639,403 and 9,556,189 issued and outstanding June 30 and December 31, 1996, respectively 1,000 1,000 Additional paid-in capital 7,774,000 11,977,000 Accumulated deficit (4,773,000) (4,777,000) ------------ ------------ Total stockholders' equity 3,002,000 7,201,000 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 20,013,000 $ 27,160,000 ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 3 4 TOPRO INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, 1995 1996 1995 1996 ------------ ------------ ------------ ------------ REVENUES: Control systems integration $ 2,927,000 $ 8,137,000 $ 5,377,000 $ 16,104,000 Distributorship 335,000 -- 608,000 -- ------------ ------------ ------------ ------------ 3,262,000 8,137,000 5,985,000 16,104,000 COST OF SALES: Control systems integration 2,099,000 5,598,000 3,701,000 10,680,000 Distributorship 250,000 -- 403,000 -- ------------ ------------ ------------ ------------ 2,349,000 5,598,000 4,104,000 10,680,000 GROSS PROFIT 913,000 2,539,000 1,881,000 5,424,000 EXPENSES Sales expense 147,000 475,000 286,000 1,073,000 General & administrative expense 629,000 1,871,000 1,236,000 3,819,000 Distributorship selling and other expenses 410,000 -- 624,000 -- ------------ ------------ ------------ ------------ 1,186,000 2,346,000 2,146,000 4,892,000 OTHER INCOME (EXPENSE): Gain (loss) on sale of assets 79,000 7,000 79,000 4,000 Interest expense (17,000) (206,000) (57,000) (378,000) Other 6,000 9,000 6,000 12,000 Goodwill amortization -- (87,000) -- (174,000) ------------ ------------ ------------ ------------ 68,000 (277,000) 28,000 (536,000) INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (205,000) (84,000) (237,000) (4,000) INCOME TAX BENEFIT (PROVISION): 0 0 0 0 DISCONTINUED OPERATIONS: Income (loss) from discontinued operations - 0 0 0 0 Sharp Loss on disposal - Sharp Electric (276,000) -- (385,000) -- ------------ ------------ ------------ ------------ NET INCOME (LOSS) ($ 481,000) ($ 84,000) ($ 622,000) ($ 4,000) ============ ============ ============ ============ PRIMARY EARNINGS PER SHARE: Continuing operations (0.05) (0.01) (0.06) 0.00 Discontinued operations (0.07) 0.00 (0.11) 0.00 ------------ ------------ ------------ ------------ Net income (Loss): $ (0.12) $ (0.01) $ (0.17) $ 0.00 ============ ============ ============ ============ WEIGHTED AVERAGE SHARES OUTSTANDING 3,891,354 7,796,321 3,703,898 7,221,023 ============ ============ ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 4 5 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED DECEMBER 31 1995 1996 ----------- ----------- CASH FLOW FROM OPERATING ACTIVITIES: Net Income (loss) from continuing operations $ (237,000) $ (4,000) Adjustments to reconcile to net cash provided by (used in) operating activities Depreciation & Software amortization 61,000 375,000 Amortization of note costs 52,000 Amortization of goodwill 174,000 Allowance for doubtful accounts 23,000 23,000 Gain on sale of assets (79,000) 4,000 Changes in operating assets and liabilities: (Increase) decrease in: Accounts receivable - trade (338,000) 2,346,000 Other receivables 113,000 93,000 Cost & estimated earnings in excess of billing 487,000 (5,000) Inventories 43,000 (83,000) Prepaid expenses (144,000) (96,000) Other assets 46,000 34,000 Increase (decrease) in: Accounts payable (130,000) (2,227,000) Accrued expenses (146,000) (1,108,000) Billings in excess of costs & estimated earnings (258,000) (95,000) Income (loss) from discontinued operations (385,000) -- Change in assets - from discontinued operations - Sharp Electric 109,000 288,000 ----------- ----------- Net cash used in operating activities (835,000) (229,000) CASH FLOW FROM INVESTING ACTIVITIES: Cash acquired in acquisition of ACS -- 3,000 Acquisition costs of Subsidiary -- (168,000) Purchase of equipment (54,000) (42,000) Capitalized software costs -- (627,000) Purchase of certificate of deposit (350,000) -- Proceeds from the sale of investment 350,000 -- Investment in notes receivable (83,000) 28,000 ----------- ----------- Net cash used in investing activities (137,000) (806,000) Continued next page
The accompanying notes are an integral part of the consolidated financial statements. 5 6 TOPRO, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED DECEMBER 31 1995 1996 ----------- ----------- Continued from previous page: CASH FLOW FROM FINANCING ACTIVITIES Principal (payments) increase on borrowings 501,000 (1,289,000) Deferred Note Costs (80,000) Proceeds from issuance of convertible debentures 1,200,000 Proceeds from issuance of notes payables 150,000 Proceeds from sale of stock 427,000 1,364,000 ----------- ----------- Net cash used in financing activities 928,000 1,345,000 INCREASE (DECREASE) IN CASH (44,000) 310,000 CASH: BEGINNING OF PERIOD 171,000 236,000 ----------- ----------- CASH: END OF PERIOD $ 127,000 $ 546,000 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 6 7 TOPRO, INC. AND SUBSIDIARIES CONSOLIDATED NOTES TO FINANCIAL STATEMENTS 1. Interim Financial Information In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position as of December 31, 1996 and June 30, 1996 and the results of operations and statement of cash flows for the periods presented. Management believes all such adjustments are of a normal and recurring nature. The statements presented reflect the acquisitions of Advanced Control Technology, Inc. (ACT) acquired as of January 1, 1996; Vision Engineering (VEC) acquired as of May 1, 1996 and All-Control Systems (ACS) acquired as of December 1, 1996 for the period subsequent to the acquisition dates. The acquisition of ACT, VEC and ACS were recorded on the purchase method of accounting and no results for previous years are recorded in the 1995 periods. The results of operations for the six month periods ending December 31, 1996 and 1995 are not necessarily indicative of results to be expected for the full year. The following unaudited pro forma summary combines the consolidated results of operations of the Company, ACT, Vision, and ACS as if the acquisitions had occurred at July 1, 1995 and 1996, with pro forma adjustments to give effect to amortization of goodwill, depreciation, and interest expense on debt incurred in connection with the acquisitions. The pro forma summary is not necessarily indicative of future operations or the results that would have occurred had the transactions been consummated at the beginning of the periods indicated.
FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 1996 ------------ ------------ (Unaudited) Net revenues $ 18,915,000 $ 23,417,000 Net income (loss) (2,286,000) 514,000 Income (loss) per share ($ 62.00) $ 0.07 - -----------------------------------------------------------------------
7 8 2.Trade Receivables The following information summarizes trade receivables:
JUNE 30, DECEMBER 31, 1996 1996 ----------- ----------- Contract receivables: Completed contracts $ 869,000 $ 2,393,000 Uncompleted contracts 5,812,000 6,053,000 Retainage 497,000 1,309,000 ----------- ----------- 7,178,000 9,755,000 Less allowance for doubtful accounts (377,000) (1,277,000) ----------- ----------- $ 6,801,000 $ 8,478,000 =========== ===========
3. Costs and Estimated Earnings on Uncompleted Contracts: The following information is applicable to uncompleted contracts:
JUNE 30, DECEMBER 31 1996 1996 ------------ ------------ Costs incurred on uncompleted contracts $ 32,071,000 $ 44,138,000 Estimated earnings 2,282,000 7,172,000 ------------ ------------ 34,353,000 51,310,000 Less billings to date (33,098,000) (50,390,000) ------------ ------------ $ 1,255,000 $ 920,000 ============ ============ These amounts are included in accompanying balance sheets under the following captions: Costs and estimated earnings in excess of billings on uncompleted contracts $ 2,837,000 $ 3,831,000 Billings in excess of costs and estimated earnings on uncompleted contracts (1,582,000) (2,911,000) ------------ ------------ $ 1,255,000 $ 920,000 ============ ============
8 9 4. Line-Of-Credit and Long-Term Debt:
JUNE 30, DECEMBER 31, 1996 1996 ---------- ---------- Lines-of-credit: VEC has a $650,000 line-of-credit pursuant to a loan agreement with a financial institution, collateralized by substantially all assets of VEC, with interest at prime plus 2% (total of 10.25% at June 30 and December 31, 1996). The line expires in June 1997 and requires monthly principal payments of $17,000. $ 583,000 $ 450,000 ACT has a $500,000 line-of-credit pursuant to a loan agreement with a financial institution collateralized by substantially all assets of ACT and a deed of trust on the real property, with interest at prime plus 2.5% (total of 10.75% at June 30, 1996 and December 31, 1996). The line expires in February 1997. A request has been made to extend the term until August 1997. 436,000 320,000 ACS has a $1,600,000 line of credit pursuant to a loan agreement with a financial institution collateralized by substantially all assets of ACS, and guaranteed by a stockholder, with interest at prime plus 1.5% (total of 9.75% at December 31, 1996). The debt at December 31, 1996 was due upon demand. On February 10, 1997, pursuant to the acquisition of ACS by the Company, the loan agreement was amended to a term loan of $1,000,000 with interest at prime plus 3%. -- 1,100,000 ---------- ---------- Total Lines-of-Credit 1,019,000 1,870,000 ========== ========== Related Party: Notes payable to an officer and a director of the Company at 10% interest payable semiannually, due on demand, unsecured. 80,000 80,000 Notes payable to a director and former majority stockholders of VEC, with interest at 8%, monthly payments of $10,000, unsecured. 130,000 93,000 Note payable to relatives of a director and former majority stockholders of VEC, interest payable quarterly at 10%, unsecured. 20,000 20,000 ---------- ---------- Total Related Party $ 230,000 $ 193,000 ========== ==========
9 10 4. Line-Of-Credit and Long-Term Debt - Continued:
JUNE 30, DECEMBER 31, 1996 1996 ----------- ----------- Long-term 9% convertible debentures dated February 21, March 7, June 1, 1996 and October 30, 1996 with a small business investment fund. Outstanding borrowings bear interest at 9% and interest is payable monthly. If the debenture is not sooner redeemed or converted, a mandatory principal redemption is due beginning March 1, 1999 in the amount of 1% of the then remaining principal amount outstanding. $4,700,000 of the debenture is convertible into the Company's common stock at $1.50 per share. The loan is collateralized by all the assets of Topro, ACT, MDCS and ACS. The loan has certain restrictive covenants described in the liquidity section below. 3,500,000 4,700,000 Term loan pursuant to a loan agreement with a financial institution collateralized by substantially all assets and a deed of trust on the real property of ACT. Monthly payments of $11,000 for principal and interest are due, interest at prime plus 2.5% (total of 10.75% at June 30, 1996 and December 31, 1996). The loan has a balloon payment on the unpaid balance due August 1997. 474,000 435,000 Mortgage note payable to a bank, due in monthly installments of $2,941 including interest at 11%, a balloon payment of remaining balance is due November 1, 2001, collateralized by a first deed of trust on ACT's land and building. 241,000 259,000 Four year promissory note bearing interest at 8% payable to ElectroCom Automation. Monthly payments of $6,103 are due beginning May 1, 1996. The promissory note is collateralized by a second position on the real estate of ACT. 262,000 214,000 Senior convertible notes, 10% interest payable semiannually on December 31 and March 31. Due March 2000. The notes are convertible into units consisting of one share of common stock and one warrant at the rate of $.67 per unit. The warrants are exercisable to purchase one share of common stock at $1.00, expiring the earlier of 3 years from date of conversion or December 31, 2001. 350,000 350,000
10 11 4. Line-Of-Credit and Long-Term Debt - Continued:
JUNE 30, DECEMBER 31, 1996 1996 -------------- -------------- Term loan payable to a bank, with a variable interest adjusted quarterly based on prime plus 2.75% (total of 11.0% at June 30 and December 31, 1996), collateralized by a second security interest on substantially all assets of VEC, guaranteed by the SBA and personally guaranteed by a stockholder, which personal guarantee is collateralized by a third deed on the stockholder's residence, payable in monthly principal payments of $7,000, adjusted quarterly, through September 2002. 324,000 283,000 Term loan payable to a bank, with a variable interest rate at prime plus 2% (total of 10.25% at June 30 and December 31, 1996), collateralized by equipment and leasehold improvements of VEC, due on demand or if no demand, payable in monthly installments of $7,000 plus interest through April 1998. 153,000 112,000 Non-interest bearing note payable to ACT's legal counsel payable over 30 months at $5,000 monthly beginning April 1, 1996. The note has been discounted using an effective interest rate of 10.25%. 121,000 108,000 Various notes payable and capital leases, due in maximum monthly installments totaling $1,526 through March 1998, collateralized by equipment and vehicles. 34,000 46,000 Capital lease obligations secured by equipment of VEC. The leases are of varying length and vary in imputed interest of 12% - 22%. The monthly installments total $ 10,000. 207,000 196,000 12% unsecured subordinated promissory notes series 1996-A is due along with accrued interest on March 8, 1997. The Company will pay the lender a fee of 2,500 shares of common stock per $50,000 of the principal sum. $100,000 of the notes were extended until March 8, 1997 in consideration for 10,000 shares of the Company's common stock. In January 1997 $50,000 was repaid. Upon the event of default, the shares will convert at one share per $.50 of principal and accrued interest. -- 150,000 -------------- -------------- Total $ 6,041,000 $ 8,916,000 -------------- -------------- Less current portion (1,031,000) (2,537,000) -------------- -------------- Long-term portion $ 5,010,000 $ 6,379,000 ============== ==============
11 12 TOPRO, INC. SUBSIDIARIES CONSOLIDATED NOTES TO FINANCIAL STATEMENTS 5. Discontinued Operations Sharp Electric Construction Co. Inc. - was discontinued in fiscal 1995, all remaining backlog has been executed. The remaining suppliers and subcontractors on these projects must be covered out of the remaining billings to be collected on these projects. The anticipated cash impact of the remaining negotiations will not be material. Tech Sales, Inc. - was discontinued in December 1995. The results of the distributorship operations are included on the statement of operations for the six months ended December 31, 1995. 6. Earnings per Share Earnings per share are computed on the basis of the weighted average number of common shares outstanding during the period. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES In September and October of 1996 the Company issued $150,000 12% unsecured subordinated promissory note Series 1996-A, and 7.500 shares of common stock as loan origination fees. The notes were due November 8, 1996 but could be extended for successive 30 days periods to February 8, 1997 upon payment of 7.500 shares of common stock. In January 1997 $50,000 of the notes were repaid. $100,000 of the notes were extended until March 8, 1997 in consideration of 10,000 shares of common stock. Upon event of default the notes were to convert at one share per $.50 of principal and accrued interest. In connection with the extension of $50,000 of the notes, the terms were renegotiated so that this note is convertible at $1.50 per share. A total of 32,500 shares of the Company's common stock has been issued to the note holders. On October 30, 1996 the Company issued $1,200,000, 9% convertible debentures to Renaissance Capital Growth & Income Trust, PLC to provide working capital funding. This indebtedness is collateralized by a security interest in the assets of the Company including assets of ACT, MDCS, TSI, VEC, and Topro, Inc. The Company also pledged the shares of its subsidiaries ACT and VEC to secure repayment of the debenture, and agreed to pledge the assets and shares of its subsidiary ACS when that company was acquired. Interest on the unpaid principal balance is due monthly beginning November 1, 1996. Mandatory monthly principal installments, if the debenture is not sooner redeemed or converted, are due commencing on March 1, 1999, in principal installments of $10 per $1,000 of the then remaining principal amount. The outstanding principal amount of this debenture is redeemable at 120% of par if the closing bid price for the Company's common stock 12 13 averages at least $5.00 for 20 consecutive trading days and is supported by a minimum of $0.25 in net earnings per share. The conversion price is $ 1.50 per share on $1,200,000 of the principal amount of the convertible debentures. Renaissance Capital Group, Inc. serves as investment adviser to Trust PLC and to Renaissance Capital Growth & Income Fund III, Inc. which previously purchased an aggregate of $3,500,000 principal amount of 9% convertible debentures from the Company. On $1,000,000 of the principal amount of debenture issued to Renaissance Capital Growth & Income Fund III, Inc. in June 1996 the original conversion price was renegotiated. The original issuance required a conversion price of $2.25 or 444,444 shares of the Company's common stock. This was renegotiated to a conversion price of $1.50 or 666,667 shares of the Company's common stock, consistent with the terms of the debentures issued to Trust PLC. The convertible debenture requires certain financial covenants. The Company has received a waiver through January 1, 1998. These covenants now consist of debt to equity ratio of less than 3 to 1, current ratio of no less than 1 to 1, minimum tangible net worth of not less than a negative $1,400,000, and times interest earned on the basis of EBITDA of at least 2.5 to 1. The Company is in compliance with the waived covenants at December 31, 1996. On November 27, 1996, the Company closed a private offering of 700,000 shares of its Common Stock to institutional and accredited investors. Net proceeds to the Company after legal and broker fees netted the Company approximately $970,000. Proceeds were used for working capital and repayment of short term debt. The purchasers of the Shares were granted certain registration rights with respect to the Shares. If the Company fails to have a registration statement registering the Shares effective by February 1, 1997 the holders of the shares will be issued warrants to purchase one share of common stock for every ten shares purchased in this offering. The penalty warrants will be exercisable for two years from the date of issuance at a price equal to the average closing bid price of the common stock for the five business days prior to the issuance dates. The Company was required to issued 70,000 warrants to purchase the Company's common stock due to the registration not yet being effective. In November 1996 the Company had a request from the 8% 270 Day convertible debentures to convert the notes to the Company's common stock. The debenture were converted at the rate of one share per $1.75 of principal. CASH FLOW For the six months ending December 31, 1996, the Company's cash increased $310,000. FUNDS WERE PROVIDED from profits from continuing operations inclusive of non cash charges totaling $624,000 for depreciation, amortization of note costs, goodwill, reserve for bad debts, and loss on sale of assets. Decreases in trade, other receivables, other assets and reduction in assets of the discontinued operations of Sharp Electric, added $2,761,000 for a source of funds totaling $3,385,000. FUNDS WERE USED to finance increases in costs and estimated earnings in excess of billings, inventories, prepaid expenses, and decreases in accounts payables, accrued expenses, billings in excess of costs and estimated earnings totaling $3,614,000. INVESTMENTS were made in capital equipment ($42,000), capitalized software development costs ($627,000), and cash expended (and acquired) in the 13 14 acquisition of a new subsidiary ($165,000) less the receipt of a note receivable for $28,000, for a total of $806,000. FINANCING ACTIVITIES from short and long term debt, required $89,000 and a private placement of a note, less deferred note costs generated $70,000 Proceeds from sale of common stock generated $1,364,000. The Company has no material commitments for external capital expenditures, however it will continue to capitalize software development costs consistent with its strategy of the development of discrete products for specific markets. RESULTS OF OPERATIONS FOR THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THE THREE MONTHS ENDED DECEMBER 31, 1995 The statement of operations contains 1995 detail on the distributing business that was discontinued on December 31, 1995. The following analysis discusses only the continuing operations of the Company. REVENUES increased by $5,210,000 or 178% to $8,137,000 in the 1996 period versus revenue of $2,927,000 in 1995. The increase is associated with the acquisition of three wholly-owned subsidiaries: Advanced Control Technology, Inc. ("ACT"), acquired as a purchase as of January 1, 1996, had revenue for the current quarter of $1,514,000; Vision Engineering Corp. ("VEC"), acquired also as a purchase as of May 1, 1996, added revenue of $2,259,000 during the quarter. and All Control Systems, Inc. (ACS), acquired also as a purchase as of December 1, 1996, added revenue of $1,565,000. Topro Systems Integration, Inc. ("TSI") had a decrease in revenue of $167,000, from $2,386,000 in 1995 to $2,219,000 in 1996. Management, Design and Consulting Services, Inc.'s ("MDCS") revenue for the three months ended December 31, 1996 was $580,000, an increase of $39,000 over the comparable period in 1995 ($541,000). GROSS PROFIT MARGIN in the current quarter was 31% of revenue ($2,537,000) compared to 28% ($828,000) for the three months ended December 31, 1995. The additions of ACT, VEC, and ACS contributed $1,988,000 to the increased gross margin $558,000 from ACT (37% of revenue), $917,000 from VEC.(41% of revenue), and $513,000 from ACS (32% of revenue). TSI's gross profit margin was 16% , a decrease from 25% in the previous year bringing $349,000 in dollar gross profit as compared to $595,000 in 1995. MDCS had a gross profit margin of 35% ($200,000) in the three months ended December 31, 1996 as compared to 43% ($233,000) in the 1995 period. The improvement of gross margin percentage of three points is attributable to the higher range ( 33% to 41%) of margins in each of the Company's new subsidiaries. The margin, however, is lower than the six months ended December 31, 1996 (see below) primarily because of losses on a number of waste water projects, now substantially completed, included in TSI's results for the second quarter. MDCS's gross margin decreased due to two large jobs with lower than normal levels of earnings due to higher material content. One project is substantially completed while the other will affect the margins in the third and fourth quarter. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A) increased $1,570,000 from $776,000 in the 1995's second quarter to $2,346,000 in the 1996 period. The acquisitions accounted for $1,770,000 of the increase,( $547,000 from ACT, $849,000 from VEC and $374,000 from ACS). TSI's SG&A decreased 35% ($221,000) from $623,000 in 1995's second quarter to $402,000 14 15 currently. MDCS increased $22,000 from $152,000 to $174,000 currently. SALES EXPENSES increased $328,000 from $147,000 in 1995 to $475,000 in 1996. Significant increases are associated with the ACT acquisition resulting in $190,000 additional costs, with the VEC acquisition adding $42,000 currently, and with the ACS acquisition adding $95,000. The selling expense for Topro decreased by $24,000 for the period. MDCS's sales expense was $25,000 for the three months ended December 31, 1996. MDCS did not allocate sales expense in the 1995 quarter. GENERAL AND ADMINISTRATIVE EXPENSE increased $1,242,000, from $629,000 in the 1995 period compared to $1,871,000 currently. Of this increase $357,000 is associated with the ACT purchase, $807,000 is from the acquisition of VEC and $279,000 from the acquisitions of ACS.. TSI's expense in the three months ended December 31, 1996 deceased $197,000 to $279,000 from $476,000 in the 1995 period. MDCS G&A decreased $4,000 in the current quarter compared to $153,000 in 1995. It should be noted that the decrease in TSI expense is attributable to allocations to the other subsidiaries. On the other hand the assimilation of three new subsidiaries in less than a year has added, in the short run, to the overall expenses of the Company. GOODWILL AMORTIZATION resulting from the acquisitions totaled $87,000. INTEREST EXPENSE increased $189,000 in the three months ended December 31, 1996 from $17,000 in 1995 to $206,000 in 1996. $123,000 of the increase is attributable to the inclusion of the acquired subsidiaries, ACT ($64,000), VEC ($45,000), and ACS ($14,000). TSI accounted for $66,000 of the increase from $17,000 in 1995 to $83,000 in 1996. As of December 31, 1996 there is $1,324,000 of short and long term debt carried by ACT, $1,154,000 by VEC, $1,145,000 by ACS and $5,293,000 by the parent company, for a total of $8,916,000. MDCS has no short or long term debt. OTHER INCOME decreased $69,000 in the three months ended December 31, 1996 over the same period in 1995. There was a $79,000 gain from the sale of assets in the 1995 period. LOSS OF THE CONTROL SYSTEMS OPERATIONS was $84,000 for the three months ended December 31, 1996, compared to $120,000 profit in the 1995 period, a decrease of $204,000. The net income from the acquired subsidiaries ACT, VEC and ACS total $14,000 ($93,000 loss from ACT, $18,000 loss from VEC and $125,000 profit from ACS) while TSI had a decrease of $165,000 from the $39,000 earned in 1995 (a net loss of $126,000 in the current quarter). The losses during the quarter at TSI can be attributed to the sharp decrease in gross margin discussed above. MDCS earned $26,000 in the current period, a net decrease of $55,000 from the $81,000 earned in the three months ended December 30, 1995. LOSS FROM CONTINUING OPERATIONS inclusive of the distribution business (Tech Sales, Inc.), which was discontinued in 1995, resulted in a loss of $204,000 for 1995. This compares with a loss of $84,000 for the three months ended December 31, 1996 or an improvement of $118,000. The distribution business contributed a net loss in the period ended December 31, 1995 of $325,000. 15 16 RESULTS OF OPERATIONS FOR SIX MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THE SIX MONTHS ENDED DECEMBER 31, 1995 The statement of operations contains 1995 detail on the distributing business that was discontinued on December 31, 1995. The following analysis discusses only the continuing operations of the Company. REVENUES increased by $10,727,000 or 200% to $16,104,000 in the six months ended December 31,1996 as compared to revenue of $5,377,000 in 1995. The increase is associated with the acquisition of three wholly-owned subsidiaries: Advanced Control Technology, Inc. ("ACT"), acquired as a purchase as of January 1, 1996, had revenue for the current six month period of $3,875,000; Vision Engineering Corp. ("VEC"), acquired also as a purchase as of May 1, 1996, had revenue of $4,740,000 during the six month period and All-Control Systems, Inc. (ACS), acquired also as a purchase as of December 1, 1996, added revenue in 1996 of $1,565,000. Topro Systems Integration, Inc. ("TSI") had an increase in revenue of $472,000, from $4,517,000 in 1995 to $4,989,000 in 1996. Management, Design and Consulting Services, Inc.'s ("MDCS") revenue for the six months ended December 31, 1996 was $935,000, an increase of $75,000 over the comparable period in 1995 ($860,000). The Company's order backlog at December 31, 1996 was $13,986,000 ($4,271,000 in TSI, $4,070,000 in ACT, $443,000 in VEC, $4,898,000 in ACS and $304,000 in MDCS). This compares to a total backlog of $ 8,837,000 as of June 30, 1996. GROSS PROFIT MARGIN in the current period was 34% of revenue ($5,424,000) compared to 31% ($1,676,000) for the six months ended December 31, 1995. The additions of ACT, VEC, and ACS contributed $4,013,000 to the increased gross margin: $1,228,000 from ACT ( 32% of revenue), $2,271,000 from VEC (48% of revenue), and $515,000 from ACS (33% of revenue ). TSI's gross profit margin was 22% ($1,078,000), a decrease from 29% in the previous year ($1,297,000). MDCS had a gross profit margin of 36% ($332,000) in the six months ended December 31, 1996 as compared to 44% ($379,000) in the 1995 six month period. The improvement of gross margin percentage of two points in attributable to the higher range (32% to 48%) of margins in each of the Company's subsidiaries. TSI's gross margin decrease is attributed to a number of waste-water projects that have not performed well. They are substantially completed at the end of the second quarter. MDCS's gross margin decreased due to two large jobs with lower than normal levels of earnings. One project is substantially completed while the other will affect the margins in the third and fourth quarter. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A) increased $3,370,000 from $1,522,000 in the 1995 period to $4,892,000 in the six months ended December 31, 1996. The acquisitions accounted for $3,338,000 of the increase,($ 1,045,000 from ACT, $1,918,000 from VEC and $375,000 from ACS). TSI's SG&A decreased $51,000 from $1,271,000 in the 1995 period to $1,220,000 currently. MDCS increased $83,000 from $251,000 to $334,000. SALES EXPENSES increased $786,000 from $286,000 in 1995 to $1,073,000 in 1996. Significant increases are associated with the ACT acquisition resulting in $393,000 additional costs, with the VEC acquisition adding $249,000 currently, and with the ACS acquisition adding $95,000. The selling expense for Topro increased by $3,000 to $289,000 as compared to $286,000 in 1995. MDCS's sales expense was $47,000 in the six month period ending December 31, 1996. There was no selling expense allocated by MDCS in the 1995 period. GENERAL AND ADMINISTRATIVE EXPENSE increased $2,584,000, from $1,235,000 in the 1995 period compared to $3,819,000 currently. Of this increase $652,000 is associated with the ACT purchase, $1,669,000 is from the acquisition of VEC and $279,000 from the acquisition of ACS. TSI's expense in the six months ended December 31, 1996 decreased $53,000 to $931,000 from $984,000 in the 1995 period. MDCS operations accounted for $37,000 of the increase as its G&A was $288,000 in the current period compared to $250,000 in 1995. It should be noted that the decrease in TSI expense is attributable to allocations to the other subsidiaries. On the other hand the assimilation of three new subsidiaries in less than a year has added, in the short run, to the overall expenses of the Company 16 17 GOODWILL AMORTIZATION resulting from the acquisitions totaled $174,000. INTEREST EXPENSE increased $322,000 in the six months ended December 31, 1996 from $57,000 in 1995 to $379,000 in 1996. $254,000 of the increase is attributable to the inclusion of the acquired subsidiaries, ACT ($153,000), VEC ($87,000), and ACS ($14,000). TSI accounted for $68,000 of the increase from $57,000 in 1995 to $125,000 in 1996. As of December 31, 1996 there is $1,324,000 of short and long term debt carried by ACT, $1,154,000 by VEC, $785,000 by ACS and $5,293,000 by the parent company. MDCS has no short or long term debt. OTHER INCOME decreased $69,000 in the six months ended December 31, 1996 over the same period in 1995. There was a $79,000 gain from the sale of assets in the 1995 period. LOSSES OF THE CONTROL SYSTEMS OPERATIONS was $4,000 for the six months ended December 31, 1996, compared to a profit of $183,000 in the 1995 period, a decrease of $187,000. The net income from ACT, VEC and ACS total $253,000 ( a loss of $52,000 from ACT, $178,000 profit from VEC and $127,000 profit from ACS) while TSI had an earnings decrease of $310,000 from the $55,000 profit earned in 1995 (to a net loss of $255,000 in the current six months ended December 31, 1996). MDCS lost $2,000 in the current period, a net decrease of $130,000 from the $128,000 earned in the six months ended December 30, 1995. LOSS FROM CONTINUING OPERATIONS inclusive of the distribution business(Tech Sales, Inc., which was discontinued in 1995), resulted in a loss of $237,000 for 1995. This compares with a loss of $4,000 for the six months ended December 31, 1996 an improvement of $233,000. The distribution business contributed a net loss in the period ended December 31, 1995 of $419,000. 17 18 PART II - OTHER INFORMATION Item 1. Legal Proceedings Not applicable Item 2. Changes in Securities Not applicable Item 3. Defaults Upon Senior Securities Not applicable Item 4. Submission of Matters to a Vote of Security Holders Not applicable Item 5. Other Information Kevin Fallon, formerly president and CEO of ACS closed by the Company on February 7, 1997, has been elected Vice President and Chief Operating Officer of Topro, Inc. and will be employed for an initial term expiring February 6, 1999. Item 6. Exhibits and Reports on Form 8-K a) Exhibits 10.1 Employment Agreement with Kevin Fallon. Filed herewith 10.2 Press release dated February 19, 1997. Filed herewith 10.3 Press release dated February 19,1997. Filed herewith 11.1 Computation of Earnings per Share. 27 Financial Data Schedule. b) Reports on From 8-K. During the quarter covered by this report, the Company filed the following reports on Form 8-K. Form 8-K dated November 27, 1996 reporting information pursuant to Item 5 was filed on December 13, 1996. No financial statements were required. Form 8-K dated December 18, 1996 reporting information pursuant to Item 5 was filed on December 18, 1996. No financial statements were required. 18 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TOPRO, INC. (Registrant) Date: February 19, 1997 /s/ John Jenkins -------------------- --------------------------------------- John Jenkins President, Chief Executive Officer And Principal Financial and Accounting Officer 19 20 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.1 Employment Agreement with Kevin Fallon. Filed herewith 10.2 Press release dated February 19, 1997. Filed herewith 10.3 Press release dated February 19,1997. Filed herewith 11.1 Computation of Earnings per Share. 27 Financial Data Schedule.
EX-10.1 2 EMPLOYMENT AGREEMENT 1 EXHIBIT 10.1 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is entered into as of December 31, 1996, to become effective as set forth below, by and between Topro, Inc., a Colorado corporation (the "Employer" or "Company") and Kevin Fallon (the "Employee"). In consideration of the mutual covenants contained in this Agreement, the Employer agrees to employ the Employee, and the Employee agrees to be employed by the Employer, upon the terms and conditions hereinafter set forth. WHEREAS, pursuant to an Agreement of Merger ("Merger Agreement") dated December 31, 1996, All Control Systems, Inc. ("ACS"), a Pennsylvania corporation of which Employee is the Chief Executive Officer, will become and will operate as a subsidiary of the Company; WHEREAS, since December 1, 1996, ACS and its operations effectively have been controlled by and for the benefit of Employer; WHEREAS, the Company believes Employee has particular knowledge and expertise concerning the industry and business in which the Company and ACS are engaged, desires to employ Employee to serve as the Chief Operating Officer of the Company following the Company's acquisition of ACS, and Employee desires to be so employed; WHEREAS, In the event the Merger Agreement is not consummated, the Employer and the Employee desire to provide compensation to ACS for the services provided by Employee since December 1, 1996; THEREFORE, in consideration of the mutual covenants contained in this Agreement, the Employer agrees to employ the Employee and the Employee agrees to be employed by the Employer upon the terms and conditions hereinafter set forth. SECTION I TERM OF EMPLOYMENT 1.1 Initial Term. The initial term of this Agreement shall be two years (unless sooner terminated under Article V) and will commence on the Closing Date of the Merger Agreement (such date hereafter referred to as the "Commencement Date"). If the Merger Agreement is not consummated, this Agreement will be void ab initio, except for the provisions of Subsection 1.3, Section IV and Section VII hereof, which shall be effective upon execution of this Agreement. 1.2 Renewal; Notice of Non-Renewal. At the end of the initial term of this Agreement, and on each anniversary thereafter, the term of Employee's employment automatically will be extended for one additional year unless, at least 90 days before such anniversary, the Employer or the Employee shall have delivered to the other written notice that this Agreement will not be extended. 1.3 Services Prior to Commencement Date. As of December 1, 1996, with the knowledge and approval of ACS and in anticipation of the closing of the transaction contemplated by the Letter of Intent and the Merger Agreement, Employee has devoted substantial time and effort to activities which are for the common benefit of ACS and Employer. Recognizing that ACS and its operations effectively have been controlled by and for the benefit of Employer since that date, if for any reason the Merger Agreement is not consummated, Employer will reimburse ACS for salary and benefits paid to Employee from December 1, 1996 through the date of termination of the Merger Agreement. SECTION II DUTIES OF THE EMPLOYEE 2.1 Duties. The Employee shall be employed as the Company's Vice President and Chief Operating Officer, and as the President of ACS, with the responsibilities and authority customary for such officers including, but not limited to, those duties as from time to time may be assigned to Employee by the Company's Chief Executive Officer ("CEO") and the Board of Directors. Employee shall have responsibility and authority for directing and managing all of the Company's operations, including the Company's sales, marketing and engineering operations, and 2 shall be responsible for operations of the Company within the strategic guidelines and budgets approved by the Board of Directors. Employee shall also manage the Company's Human Relations functions, including benefit program administration and regulatory compliance, and will supervise the Company's accounting and human relations staff. Employee shall not be responsible for finance and accounting functions. Employee shall report directly to the CEO of the Company. 2.2 Full Time Employment. Employee shall devote all of his working time, efforts, attention and energies to the business of the Employer. SECTION III COMPENSATION OF THE EMPLOYEE 3.1 Base Compensation. As compensation for services rendered under this Agreement, the Employee will be paid an annual base salary of not less than $150,000, to be paid in accordance with Employer's normal payroll practices. The annual base salary specified herein may be increased from time to time at the discretion of the Employer's Board of Directors. If increased, the Employee's annual base salary shall not thereafter be decreased without the Employee's consent. The Employee's annual base salary shall not be deemed exclusive compensation and shall not prevent Employee from participating in any other compensation or benefit plan of Employer. 3.2 Short-Term Incentive Compensation Program. Employee shall be eligible to participate in any performance bonus program which may be established by the Company for its officers. The program currently contemplated would provide the opportunity for officers, including Employee, to earn annual bonuses which would average 50% of base salary over a five year term. As of the date of this Agreement, such program has not been fully designed and adopted. Participation in any such program, if adopted, shall not preclude Employee from receiving additional bonus or incentive compensation granted in accordance with Company programs or in the discretion of the Board of Directors. During the term of this Agreement, Employee shall be guaranteed a minimum annual bonus of $18,000 in year one of this Agreement and $15,000 in year two of this Agreement, which bonuses shall become part of the performance bonus program once established. Such bonuses shall be paid on a quarterly basis. 3.3 Long-Term Incentive Compensation Program. Employee shall receive incentive compensation for his services hereunder through the grant of stock purchase options (the "Options") as set forth herein. Employee understands that the Options and underlying Shares are "restricted securities" under the Securities Act of 1933 and applicable state statutes. Employee agrees to execute an investment representation letter to acknowledge his understanding of the terms of the grant and the characteristics of this investment in securities. Employee further understands and agrees that the provisions of the "lock-up" agreement entered into by Employee in connection with the Merger Agreement shall apply to the shares of Common Stock underlying the Options. On the Commencement Date, the Company shall grant to Employee Options exercisable as set forth herein to purchase 200,000 shares of the Company's Common Stock at a per share price of $2.25. The Options shall be exercisable commencing on the Commencement Date and thereafter for a period -2- 3 of ten years provided that no Option shall become exercisable if the Employee's employment has been terminated, or if Notice of Termination (hereafter defined) has been given by Employee or Employer, before the initial exercise dates specified below: a. on the day following the Commencement Date, Options shall become exercisable to purchase an aggregate of 66,667 shares of Common Stock; b. on the day following the first anniversary of the Commencement Date, Options shall become exercisable to purchase an aggregate of 66,667 shares of Common Stock; and c. on the day following the second anniversary of the Commencement Date, Options shall become exercisable to purchase an aggregate of 66,666 shares of Common Stock. 3.4 Benefits. a. Employee shall be entitled to paid vacation and all paid holidays customarily extended to executive employees, and shall be entitled to a minimum of four weeks paid vacation during the first year of this Agreement. Employee shall be entitled to participate in all of Employer's employee benefit plans and employee benefits, including any retirement, 401(k), pension, profit-sharing, stock option, insurance, hospital or other plans and benefits which now may be in effect or which may hereafter be adopted, it being understood that Employee shall have the same rights and privileges to participate in such plans and benefits as any other executive employee. Participation in any benefit plans shall be in addition to the compensation otherwise provided for in this Agreement. b. Employer shall provide an automobile allowance of $500 per month to Employee, plus reimbursement for business related auto expenses. c. Employer will reimburse Employee for fees and reasonable expenses associated with Employee's membership in the Young Presidents Organization and associated with Employee's continuing education. 3.5 Expenses. Employee shall be reimbursed promptly for all reasonable expenses incurred by Employee in the performance of his duties hereunder following Employer's customary practice. 3.6 Term Life Insurance. Employer will pay the premiums on a term life insurance policy on Employee's life with a death benefit of at least $250,000. Employer shall be the owner of such policy. However, Employee shall have right to designate the beneficiary under such policy. 3.7 Relocation Expenses. Employer shall pay Employee's reasonable expenses for relocating one residence. Such expenses shall include, but not be limited to, sales commissions, moving expenses, temporary living expenses, house-hunting travel and closing costs on a new home. All expenses are subject to the prior approval of Employer's CEO. -3- 4 3.8 Non-Exclusive Provisions. None of the provisions of this Section III shall be deemed to limit additional compensation which the Employer's Board of Directors may grant to Employee. SECTION IV NON-COMPETITION; CONFIDENTIALITY 4.1 The Employee will offer to the Employer any investment or other opportunity of which he becomes aware in the process control and systems integration industries (including, without limitation, software product development) or in the other areas of business in which the Company operates. If the Board of Directors of the Employer takes no action for 30 days from the date of receipt of the offer, or refuses the opportunity during such 30 day period, to participate in such investment or other opportunity, the Employee may do so as permitted by Section 4.2 hereof and otherwise only if the Employer's Board of Directors consents thereto. 4.2 Notwithstanding the above, the Employee may make passive investments in companies involved in the process control and systems integration industries or other industries in which the Company operates, provided any such investment does not exceed a 5% equity interest. Employee may acquire an equity interest exceeding 5% only if a majority of the Employer's Board of Directors consents thereto. 4.3 Except as provided in Sections 4.1 and 4.2 hereof, during the term of this Agreement the Employee may not participate in the process control or systems integration industries or other areas of business in which the Company is engaged except through and on behalf of the Company. 4.4 a. The Employee recognizes and acknowledges that the information, business, customer list and any other trade secret or other secret or confidential information relating to Employer's business as they may exist from time to time are valuable, special and unique assets of Employer's business. Therefore, Employee agrees as follows: (i) that Employee will hold in strictest confidence and not disclose, reproduce, publish or use in any manner, whether during or subsequent to this employment, without the express authorization of the Board of Directors of the Employer, any information, business, customer lists of other employees of Employer, or any other secret or confidential matter relating to any aspect of the Employer's business, except as such disclosure or use may be required in connection with Employee's work for the Employer; (ii) that upon request or at the time of leaving the employ of the Employer the Employee will deliver to the Employer, and not keep or deliver to anyone else, any notes, memoranda, documents and, in general, any and all material relating to the Employer's business; and -4- 5 (iii) that the Board of Directors of Employer may from time to time designate other subject matters requiring confidentiality and secrecy that shall be covered by the terms of this Agreement. b. The restrictions imposed by this Section 4.4 shall not apply to information which is publicly disclosed by the Company or otherwise within the public domain through no fault or action or failure to act of Employee or rightfully received by Employee from a third party without restrictions on disclosure or use. c. In the event of Employee's breach or threatened breach of the provisions of this paragraph 4.4, the Employer shall be entitled to an injunction (i) restraining the Employee from disclosing, in whole or in part, any information as described above or from rendering any services to any person, firm, corporation, association or other entity to whom such information, in whole or in part, has been disclosed or is threatened to be disclosed, and/or (ii) requiring that Employee deliver to Employer all information, documents, notes, memoranda and any other material as described above upon Employee's leave of the employ of the Employer. Nothing herein shall prohibit the Employer from pursuing other remedies available to the Employer for such breach or threatened breach, including the recovery of damages from the Employee. d. In addition to the confidential information described above, Employee agrees that prior to the Commencement Date, the existence of this Agreement is considered by the Company to be confidential and Employee agrees not to disclose this Agreement or Employee's contemplated employment by the Company to any party prior to the Company's announcement of these matters. SECTION V TERMINATION OF EMPLOYMENT 5.1 Termination. The Employee's employment hereunder may be terminated without any breach of this Agreement only under the following circumstances: a. By Employee. Upon the occurrence of any of the following events, this Agreement may be terminated by the Employee by written notice to Employer: (i) if Employer makes a general assignment for the benefit of creditors, files a voluntary bankruptcy petition, files a petition or answer seeking a reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any law, or any petition or application for the involuntary bankruptcy of Employer, or other similar proceeding, has been filed in which an order for relief is entered or which remains undismissed for a period of thirty days or more, or Employer seeks, consents to, or acquiesces in the appointment of a trustee, receiver, or liquidator of Employer or any material part of its assets; -5- 6 (ii) the sale by Employer of substantially all of its assets; (iii) the merger or consolidation of Employer with another entity or an agreement to such a merger or consolidation or any other type of reorganization; (iv) there are material changes in Employee's duties and responsibilities without his written consent; (v) a decision by Employer to terminate its business and liquidate its assets; (vi) a Change in Control of Employer, if Employee makes an election to terminate this Agreement within 90 days thereof. "Change in Control" shall mean a change in at least 30% of voting control of Employer, or a change in a majority of the Employer's Board members after May 1997; or (vii) Employer's breach of any of the terms of this Agreement which breach is not cured by Employer after notice from Employee. b. Death. This Agreement shall terminate upon the death of Employee. c. Disability. The Employer may terminate this Agreement due to Employee's permanent disability only in accordance with Employer's policy applicable to other employees. d. Cause. The Employer may terminate the Employee's employment hereunder immediately for Cause. For purposes of this Agreement, the Employer shall have "Cause" to terminate the Employee's employment hereunder only upon the following: (i) the continued failure by the Employee substantially to perform his duties hereunder (other than any such failure resulting from the Employee's incapacity due to physical or mental illness), after demand for substantial performance is delivered by the Employer; or (ii) misconduct by the Employee that is deemed by the Board of Directors to be harmful to the Employer, monetarily or otherwise; or (iii) the violation by the Employee of the provisions of this Agreement. e. By Employer Other than for Cause. The Company shall have the right to terminate Employee's employment hereunder other than for Cause upon not less than 30 days' prior written notification to Employee. 5.2 Delivery of Notice of Termination. Any termination of the Employee's employment by the Employer or by the Employee (other than termination pursuant to subsection 5.1 (b) above) shall be communicated by written notice ("Notice of Termination") delivered to the other party in accordance with Section 7.5 hereof. -6- 7 5.3 Date of Termination. "Date of Termination" shall mean (i) if the Employee's employment is terminated by his death, the date of his death; (ii) if the Employee's employment is terminated for any other reason, the date specified in a Notice of Termination by Employer or Employee; and (iii) if the Employee's employment is effectively terminated due to notice of non-renewal delivered by the Employer in accordance with Section 1.2, the last day of the initial term of this Agreement. 5.4 Payments Following Termination or Non-renewal. a. Following the termination of this Agreement by Employee pursuant to Sections 5.1 (a) or by Employer for Cause pursuant to Section 5.1 (d), the Employee shall be entitled to compensation only through the Date of Termination. b. Following the termination of this Agreement due to Employee's death pursuant to Section 5.1(b), Employer shall pay to Employee's estate the compensation that would otherwise be payable through the end of the month in which his death occurs. In addition, in the event no life insurance policy is in force at the time of Employer's death as required by Section 3.6, Employee's estate shall receive compensation for 12 months following Employee's death. c. Upon temporary or permanent disability of the Employee as described in Section 5.1 (c) hereof, whether or not the Employer elects to terminate this Agreement, Employee shall receive such compensation and benefits, if any, as are payable to employees generally in accordance with the policy of Employer. d. If this Agreement is terminated by Employer other than for Cause pursuant to Section 5.1(e), Employer shall continue to pay to the Employee his base salary as then in effect for a period of 12 months following the date on which Notice of Termination is delivered to Employee; provided, however, that if the Notice of Termination is received within six months following a Change in Control (as defined below) of Employer, then Employer shall continue to pay to the Employee his base salary as then in effect for a period of 18 months following the date on which Notice of Termination is delivered to Employee. Change in Control is defined as a change in at least 30% of voting control of Employer, or a change in a majority of the Employers Board members after May 1997. Payments under this Section 5.4(d) shall constitute severance pay. e. In the event this Agreement is not renewed by Employer at the end of the initial term, Employer shall continue to pay to the Employee his base salary as then in effect for a period of nine months following the Date of Termination. 5.5 Remedies. Any termination of this Agreement shall not prejudice any other remedy to which the Employer or Employee may be entitled, either at law, equity, or under this Agreement. -7- 8 SECTION VI INDEMNIFICATION 6.1 Indemnification. To the fullest extent permitted by applicable law, Employer agrees to indemnify, defend and hold Employee harmless from any and all claims, actions, costs, expenses, damages and liabilities, including, without limitation, reasonable attorneys' fees, hereafter or heretofore arising out of or in connection with activities of Employer or its employees, including Employee, or other agents in connection with and within the scope of this Agreement or by reason of the fact that he is or was a director or officer of Employer or any affiliate of Employer. To the fullest extent allowed by applicable law, Employer shall advance to Employee expenses of defending any such action, claim or proceeding. However, Employer shall not indemnify Employee or defend Employee against, or hold him harmless from any claims, damages, expenses or liabilities, including attorneys' fees, resulting from the gross negligence or willful misconduct of Employee. The duty to indemnify shall survive the expiration or early termination of this Agreement as to any claims based on facts or conditions which occurred or are alleged to have occurred prior to expiration or termination. SECTION VII GENERAL PROVISIONS 7.1 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado. 7.2 Arbitration. Any controversy or claim arising out of or relating to this Agreement or the breach thereof shall be settled by arbitration in the City and County of Denver, Colorado in accordance with the rules then existing of the American Arbitration Association and judgment upon the award may be entered in any court having jurisdiction thereof. 7.3 Entire Agreement. This Agreement supersedes any and all other Agreements, whether oral or in writing, between the parties with respect to the employment of the Employee by the Employer. Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, orally or otherwise, have been made by either party, or anyone acting on behalf of any party, that are not embodied in this Agreement, and that no agreement, statement, or promise not contained in this Agreement shall be valid or binding. 7.4 Successors and Assigns. This Agreement, all terms and conditions hereunder, and all remedies arising herefrom, shall inure to the benefit of and be binding upon Employer, any successor in interest to all or substantially all of the business and/or assets of Employer (whether by merger, consolidation or otherwise), and the heirs, administrators, successors and assigns of Employee. Except as provided in the preceding sentence, the rights and obligations of the parties hereto may not be assigned or transferred by either party without the prior written consent of the other party. -8- 9 7.5 Notices. For purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed given if delivered by hand or overnight courier or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other addresses for a party as shall be specified by like notice), and shall be deemed given on the date on which so hand-delivered, or on the business day following the day on which sent by overnight courier, or on the third business day following the date on which so mailed: If to Employee: Kevin Fallon c/o Jay Starr, Esq. 6 South Bryn Mawr Ave. Suite 101 Bryn Mawr, PA 19010 If to Employer: Topro, Inc. Attn: John Jenkins, President and CEO 2626 West Evans Avenue Denver, CO 80219 7.6 Severability. If any provision of this Agreement is prohibited by or is unlawful or unenforceable under any applicable law of any jurisdiction as to such jurisdiction, such provision shall be ineffective to the extent of such prohibition without invalidating the remaining provisions hereof. 7.7 Section Headings. The section headings used in this Agreement are for convenience only and shall not affect the construction of any terms of this Agreement. 7.8 Survival of Obligations. Termination of this Agreement for any reason shall not relieve Employer or Employee of any obligation accruing or arising prior to such termination. 7.9 Amendments. This Agreement may be amended only by written agreement of both Employer and Employee. 7.10 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original but all of which, when taken together, shall constitute only one legal instrument. This Agreement shall become effective when copies hereof, when taken together, shall bear the signatures of both parties hereto. It shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. 7.11 Fees and Costs. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys fees, costs and necessary disbursements in addition to any other relief to which that party may be entitled. IN WITNESS WHEREOF, the Employer and the Employee have executed this Agreement to be effective as set forth above. -9- 10 "EMPLOYER" TOPRO, INC. By /s/ John Jenkins ------------------------------- John Jenkins, President and CEO "EMPLOYEE" By /s/ Kevin Fallon ------------------------------- Kevin Fallon -10- EX-10.2 3 PRESS RELEASE DATED FEBRUARY 19, 1997 1 Exhibit 10.2 FOR IMMEDIATE RELEASE NEWS February 19, 1997 Nasdaq Small Cap-TPRO TOPRO ANNOUNCES APPOINTMENT OF CHIEF OPERATING OFFICER DENVER, Colorado - Topro, Inc. (Nasdaq-TPRO), a leading provider of automation and information, technology solutions to industry, today announced the appointment of Kevin Fallon as chief operating officer. Fallon was the founder and president of All-Control Systems (ACS), a West Chester, Pennsylvania-based provider of factory control and information system integration that was recently acquired by Topro. Fallon's primary responsibility will be to guide Topro in the effective consolidation and operations of the three major acquisitions made by the Company in the past year. During his tenure at ACS, the company became ISO-9001 qualified, a first for the independent control system integrator industry. The Company twice won the Philadelphia Top 100 Fastest Growing Companies award. John Jenkins, president of Topro, said Fallon's industry specific general management experience will be critical to his work at Topro. "We believe Kevin's experience will help us accelerate the process of effectively assimilating our new business units and help assure the efficient operations of the overall Company." Prior to ACS, Fallon was with General Electric. He has undergraduate and graduate degrees from Drexel and Wharton, respectively. Jenkins noted that as part of the acquisition and consolidation process, Topro has initiated a search for a Chief Financial Officer. Statements made in this news release that are not historical facts may be forwarded looking statements. Actual events may differ materially from those projected in any forward looking statement. There are a number of important factors beyond the control of the Company that could cause actual events to differ materially from those anticipated by any forward looking information. A description of risks and uncertainties attendant to Topro and its industry and other factors which could affect the Company's financial results are included in the Company's Securities and Exchange Commission Filings. / / / CONTACTS: TOPRO, Inc. Pacific Consulting Group John Jenkins, CEO Scott Liolios 303/935-1221 714/574-3860 EX-10.3 4 PRESS RELEASE DATED FEBRUARY 19, 1997 1 EXHIBIT 10.3 Draft 3 FOR IMMEDIATE RELEASE NEWS - --------------------- February 19, 1997 Nasdaq Small Cap - TPRO TOPRO, INC. REPORTS SECOND QUARTER AND SIX-MONTH RESULTS ACQUISITIONS LEAD TO STRONG REVENUE GAINS DENVER, Colorado - Topro, Inc. (Nasdaq-TPRO), a leading provider of automation and information technology solutions to industry, today announced results for its second quarter and six-month period ended December 31, 1996. Second quarter revenue advanced 178% to $8,137,000 from $2,927,000 in the second quarter last year. The Company reduced its net loss to $84,000 or 1 cent per share, compared with a net loss of $481,000, of 12 cents per share, in the prior year period. Through six months, Topro reported a 200% increase in revenue to $16,104,000 versus revenue of $5,377,000 in the prior year period. Net loss through six months was $4,000, or less than 1 cent per share, versus a net loss of $622,000, or 17 cents per share, in the comparable six month period. "We are pleased with the sharp increase in revenue, however, these results do not yet reflect the full impact of our acquisition program," said John Jenkins, CEO. He explained that only one month of contributions from recently acquired Advanced Control Systems (ACS) is included in the Company's second quarter results. ACS, a major provider of factory control and information system integration, reported approximately $10 million in revenue in 1995. Jenkins said gross margin as a percent of sales was off slightly from recent levels due to an unfavorable product mix. "One of our business units recently completed two low-margin water treatment projects that were started nearly two years ago," Jenkins said. "Additionally, we experienced a delayed ramp-up on a large project for Matsushita. The combination of these factors contributed significantly to our loss in the quarter." Jenkins also noted that the December ended quarter is typically a lower performing period due to the impact of the holiday season. He said management expects margins to move higher in the balance of the year, as the Company's $14 million December backlog reflects a more favorable product mix. "Demand for our products and services remains strong," Jenkins said. "Additionally, the assimilation of the companies we have acquired in the past 12 months is progressing very well. We are already executing a number of large projects on a shared resource basis across a number of our new locations." Topro has acquired three systems integrators since August of 1995 -- MDCS of Atlanta, Ga.; ACT of Albany, Ore.; Vision Engineering of Cyprus, Calif.; and ACS, which is based in West Chester, Pa. Continued on page 2 2 Page 2 of 2 Statements made in this news release that are not historical facts may be forward looking statements. Actual events may differ materially from those projected in any forward looking statement. There are a number of important factors beyong the control of the Company that could cause actual events to differ materially from those anticipated by any forward looking information. A description of risks and uncertainties attendant to Topro and its industry and other factors which could affect the Company's financial results are included in the Company's Securities and Exchange Commission Filings.
EARNINGS RECAP THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, 1996 1995 1996 1995 Revenue: Control Systems Integration $ 8,137,000 $ 2,927,000 $ 16,104,000 $ 5,377,000 Distributorship -- 335,000 -- 608,000 Totals 8,137,000 3,262,000 16,104,000 5,985,000 Cost of Sales Control Systems Integration 5,598,000 2,099,000 10,680,000 3,701,000 Distributorship -- 250,000 -- 403,000 Totals 5,598,000 2,349,000 10,680,000 4,104,000 Gross Profit 2,539,000 913,000 5,424,000 1,881,000 Expenses: Sales expenses 475,000 147,000 1,073,000 286,000 G&A expense 1,871,000 629,000 3,819,000 1,236,000 Distributership Selling and Other Expenses -- 410,000 -- 624,000 Totals 2,346,000 1,186,000 4,892,000 2,146,000 Other income (expense): Gain on sales of assets 7,000 79,000 4,000 79,000 Interest expense (206,000) (17,000) (378,000) (57,000) Other 9,000 6,000 12,000 6,000 Goodwill Amortization (87,000) -- (174,000) -- Totals (277,000) 68,000 (536,000) 28,000 Income (Loss) From Continuing Operations Before Income Taxes (84,000) (205,000) (4,000) (237,000) Discontinued Operations: Income (Loss) From Discontinued Operations - Sharp -- -- -- -- Loss On Disposal - Sharp -- (276,000) -- (385,000) Net Income (Loss) $ (84,000) $ (481,000) $ (4,000) $ (622,000) Primary Earnings (Loss) Per Share: Continuing operations $ (.01) $ (.05) $ 0 $ (.06) Discontinued operations $ 0 $ (.07) $ 0 $ (.11) Net income (loss) $ (.01) $ (0.12) $ 0 $ (.17) Weighted avg. shs. outst 7,796,321 3,891,354 7,221,023 3,703,898
CONTACTS: Topro, Inc. Pacific Consulting Group John Jenkins, CEO Scott Liolios 303/935-1221 714/719-6494 EX-11.1 5 COMPUTATION OF EARNINGS 1 EXHIBIT 11.1 TOPRO, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE
FOR THE SIX MONTHS ENDED DECEMBER 31 ---------------------------- 1995 1996 ------------ ------------ Primary: Income (loss): Continuing operations $ (236,545) $ (4,381) Discontinued operations (385,380) -- ------------ ------------ $ (21,925) $ (4,381) ============ ============ Shares: Weighted number of common shares outstanding 3,703,898 7,221,023 Add - Dilutive effect of outstanding options and warrants determined by the application of the treasury stock -- -- ------------ ------------ 3,703,898 7,221,023 ============ ============ Primary earnings per share: Continuing operations $ (0.05) $ 0.00 Discontinued operations $ (0.07) $ 0.00 ------------ ------------ $ (0.12) $ 0.00 ============ ============ * Less than $.01 per share Reconciliation of net income (loss) to amount used for fully diluted computation Income (loss) per primary computation above Continuing operations $ (236,545) $ (4,381) Discontinued operations (385,380) -- ------------ ------------ $ (621,925) $ (4,381) Add: Interest on 9% Convertible Debenture -- 157,500 Interest on 10% Senior Convertible Debenture -- 17,500 ------------ ------------ $ (621,925) $ 170,619 ============ ============ Reconciliation of weighted average number of shares outstanding to amount used for fully diluted computation: Weighted number of common shares outstanding 3,703,898 7,221,023 Add: Dilutive effect of outstanding options and warrants (as determined by the application of the treasury stock -- 1,342,455 Shares issuable from assumed exercise of convertible -- 3,655,721 ------------ ------------ 3,703,898 12,219,199 ============ ============ Fully diluted earnings per share: Continuing operations $ (0.05) $ 0.01 Discontinued operations $ (0.07) $ 0.00 ------------ ------------ $ (0.12) $ 0.01(a) ============ ============
* Less than $.01 per share (a) Effect is antidilutive, therefore not presented in statement of operations 20 EX-27 6 FINANCIAL DATA SCHEDULE
5 6-MOS JUN-30-1997 JUL-01-1996 DEC-31-1996 545,963 0 8,660,719 0 4,118,397 13,869,692 4,367,700 1,509,910 27,159,674 13,544,202 0 0 0 955 7,199,771 27,159,674 16,104,219 16,104,219 10,680,235 4,891,658 158,212 23,140 378,495 (4,381) 0 (4,381) 0 0 0 (4,381) 0 0
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