**FORM 10-QSB**

 

**Quarterly Report Under Section 13or 15(d) of the Securities Exchange Act of 1934**

 

**For the quarterly period ended January 31, 2003**

 

**Commission File No. 1-8125**

 

**TOROTEL, INC.**

(Exactname of small business issuer as specified in its charter)

 

| **MISSOURI**                                                                        |   | **44-0610086**                       |
|-------------------------------------------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction of  incorporation or organization)                     |   | (I.R.S. Employer Identification No.) |
|                                                                                |   |                                 |
| **13402 SOUTH 71 HIGHWAY, GRANDVIEW, MISSOURI  64030**                         |
| (Address of principal executive offices)                                            |
|                                                                                |   |                                 |
| **(816) 761-6314**                                                                  |
| (Issuer’s telephone number)                                                    |
|                                                                                |   |                                 |
| **NONE**                                                                            |
| (Former name, former address and former fiscal year, if changed since  last report) |

 

Check whether the issuer (1) filed allreports required to be filed by Section 13 or 15(d) of the Exchange Act duringthe past 12 months and (2) has been subject to such filing requirements for thepast 90 days.

 

Yes  ý   No  o

 

As of March 13, 2003, 5,111,590 shares ofCommon Stock, $.01 Par Value, were outstanding.

 

 

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TOROTEL,INC. AND SUBSIDIARIES

 

INDEX

 
| PART I.    |  FINANCIAL INFORMATION                                                                   |
|------------|-----------------------------------------------------------------------------------------------|
|       |                                                                                          |   |
|       | Item 1.                                                                                       | Financial Statements |
|       |                                                                                          |
|       | Consolidated Balance Sheet as of January  31, 2003                                            |
|       |                                                                                          |
|       | Consolidated Statements of  Operations for the nine months   ended January 31, 2003 and 2002  |
|       |                                                                                          |
|       | Consolidated  Statements of Operations for the three months   ended January 31, 2003 and 2002 |
|       |                                                                                          |
|       | Consolidated  Statements of Cash Flows for the nine months   ended January 31, 2003 and 2002  |
|       |                                                                                          |
|       | Notes to Consolidated Financial Statements                                                    |
|       |                                                                                          |   |
|       | Item 2.                                                                                       | Management’s Discussion and Analysis or Plan of  Operation |
|       |                                                                                          |   |
|       | Item 3.                                                                                       | Controls and Procedures |
|       |                                                                                          |   |
| PART II.   |  OTHER INFORMATION                                                                       |
|       |                                                                                          |   |
|       | Item 1.                                                                                       | Legal  Proceedings |
|       |                                                                                          |   |
|       | Item  4.                                                                                      | Submission  of Matters to a Vote of Security Holders |
|       |                                                                                          |   |
|       | Item 6.                                                                                       | Exhibits and Reports  on Form 8-K |
|       |                                                                                          |
| SIGNATURES |                                                                                          |
|            |                                                                                               |  |  |  |  |

 

----

 

PARTI.   FINANCIALINFORMATION

 

Item1.   FinancialStatements

 

CONSOLIDATED BALANCE SHEET (Unaudited)

As of January 31, 2003

 
| ASSETS                                    |   |       |      |
|-------------------------------------------|--------|------------|-----------|
|                                      |   |       |      |
| Current assets                            |   |       |      |
| Cash                                      |   | $          | 608,000   |   |
| Accounts receivable, net                  |   | 450,000    |      |
| Current maturity of note receivable       |   | 42,000     |      |
| Inventories                               |   | 247,000    |      |
| Prepaid expenses and other current assets |   | 38,000     |      |
|                                      |   | 1,385,000  |      |
|                                      |   |       |      |
| Property, plant and equipment, net        |   | 293,000    |      |
|                                      |   |       |      |
| Other assets                              |   | 7,000      |      |
| Intangible assets, net                    |   | 1,913,000  |      |
| Equity investment                         |   | 1,002,000  |      |
|                                      |   |       |      |
|                                      |   | $          | 4,600,000 |   |
|                                      |   |       |      |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |   |       |      |
|                                      |   |       |      |
| Current liabilities                       |   |       |      |
| Current maturities of long-term debt      |   | $          | 80,000    |   |
| Trade accounts payable                    |   | 761,000    |      |
| Accrued liabilities                       |   | 169,000    |      |
|                                      |   | 1,010,000  |      |
|                                      |   |       |      |
| Long-term debt, less current maturities   |   | 344,000    |      |
|                                      |   |       |      |
| Note payable to stockholders              |   | 750,000    |      |
|                                      |   |       |      |
| Stockholders’ equity                 |   |       |      |
| Common stock, at par value                |   | 52,000     |      |
| Capital in excess of par value            |   | 12,362,000 |      |
| Accumulated deficit                       |   | (9,713,000 | )         |
|                                      |   | 2,701,000  |      |
| Less treasury stock, at cost              |   | 205,000    |      |
|                                      |   | 2,496,000  |      |
|                                      |   |       |      |
|                                      |   | $          | 4,600,000 |   |

 

Theaccompanying notes are an integral part of this statement.

 

1

----

 

CONSOLIDATEDSTATEMENTS OF OPERATIONS (Unaudited)

Nine Months Ended January 31,

 
|                                                                                                  |   | **2003**  |      | **2002**  |   |
|-------------------------------------------------------------------------------------------------------|--------|-----------|-----------|-----------|--------|
| Net sales                                                                                             |   | $         | 3,214,000 |      | $      | 2,879,000 |   |
| Cost of goods sold                                                                                    |   | 1,955,000 |      | 1,666,000 |   |
|                                                                                                  |   |      |      |      |   |
| Gross profit                                                                                          |   | 1,259,000 |      | 1,213,000 |   |
|                                                                                                  |   |      |      |      |   |
| Operating expenses                                                                                    |   |      |      |      |   |
| Engineering                                                                                           |   | 144,000   |      | 139,000   |   |
| Selling, general and administrative                                                                   |   | 727,000   |      | 613,000   |   |
| Amortization of intangible assets                                                                     |   | 250,000   |      | —    |   |
| Impairment of intangible assets                                                                       |   | 219,000   |      | —    |   |
|                                                                                                  |   | 1,340,000 |      | 752,000   |   |
|                                                                                                  |   |      |      |      |   |
| Earnings (loss) from operations                                                                       |   | (81,000   | )         | 461,000   |   |
|                                                                                                  |   |      |      |      |   |
| Other expense (income)                                                                                |   |      |      |      |   |
| Interest expense                                                                                      |   | 61,000    |      | 38,000    |   |
| Interest income                                                                                       |   | (7,000    | )         | (16,000   | )      |
| Other, net                                                                                            |   | (1,000    | )         | —    |   |
|                                                                                                  |   | 53,000    |      | 22,000    |   |
|                                                                                                  |   |      |      |      |   |
| Earnings (loss) before provision for income taxes, equity in loss of  investee and extraordinary item |   | (134,000  | )         | 439,000   |   |
|                                                                                                  |   |      |      |      |   |
| Provision for income taxes                                                                            |   | —    |      | —    |   |
|                                                                                                  |   |      |      |      |   |
| Earnings (loss) before equity in loss of investee and extraordinary  item                             |   | (134,000  | )         | 439,000   |   |
|                                                                                                  |   |      |      |      |   |
| Equity in loss of investee                                                                            |   | (33,000   | )         | —    |   |
|                                                                                                  |   |      |      |      |   |
| Earnings (loss) before extraordinary item                                                             |   | (167,000  | )         | 439,000   |   |
|                                                                                                  |   |      |      |      |   |
| Extraordinary item                                                                                    |   |      |      |      |   |
| Gain on settlements of debt                                                                           |   | —    |      | 466,000   |   |
|                                                                                                  |   |      |      |      |   |
| Net earnings (loss)                                                                                   |   | $         | (167,000  | )         | $      | 905,000 |   |
|                                                                                                  |   |      |      |      |   |
| Basic earnings (loss) per share                                                                       |   |      |      |      |   |
| Earnings (loss) before extraordinary item                                                             |   | $         | (.03      | )         | $      | .16 |   |
| Extraordinary item                                                                                    |   | —    |      | .16       |   |
|                                                                                                  |   | $         | (.03      | )         | $      | .32 |   |
|                                                                                                  |   |      |      |      |   |
| Diluted earnings (loss) per share                                                                     |   |      |      |      |   |
| Earnings (loss) before extraordinary item                                                             |   | $         | (.03      | )         | $      | .16 |   |
| Extraordinary item                                                                                    |   | —    |      | .16       |   |
|                                                                                                  |   | $         | (.03      | )         | $      | .32 |   |

 

Theaccompanying notes are an integral part of these statements.

 

2

----

 

CONSOLIDATEDSTATEMENTS OF OPERATIONS (Unaudited)

Three Months Ended January 31,

 
|                                                                                                  |   | **2003** |     | **2002** |   |
|-------------------------------------------------------------------------------------------------------|--------|----------|----------|----------|--------|
| Net sales                                                                                             |   | $        | 786,000  |     | $      | 917,000 |   |
| Cost of goods sold                                                                                    |   | 573,000  |     | 559,000  |   |
|                                                                                                  |   |     |     |     |   |
| Gross profit                                                                                          |   | 213,000  |     | 358,000  |   |
|                                                                                                  |   |     |     |     |   |
| Operating expenses                                                                                    |   |     |     |     |   |
| Engineering                                                                                           |   | 47,000   |     | 47,000   |   |
| Selling, general and administrative                                                                   |   | 240,000  |     | 200,000  |   |
| Amortization of intangible assets                                                                     |   | 84,000   |     | —   |   |
| Impairment of intangible assets                                                                       |   | 219,000  |     | —   |   |
|                                                                                                  |   | 590,000  |     | 247,000  |   |
|                                                                                                  |   |     |     |     |   |
| Earnings (loss) from operations                                                                       |   | (377,000 | )        | 111,000  |   |
|                                                                                                  |   |     |     |     |   |
| Other expense (income)                                                                                |   |     |     |     |   |
| Interest expense                                                                                      |   | 20,000   |     | 13,000   |   |
| Interest income                                                                                       |   | (2,000   | )        | (5,000   | )      |
| Other, net                                                                                            |   | —   |     | —   |   |
|                                                                                                  |   | 18,000   |     | 8,000    |   |
|                                                                                                  |   |     |     |     |   |
| Earnings (loss) before provision for income taxes, equity in loss of  investee and extraordinary item |   | (395,000 | )        | 103,000  |   |
|                                                                                                  |   |     |     |     |   |
| Provision for income taxes                                                                            |   | —   |     | —   |   |
|                                                                                                  |   |     |     |     |   |
| Earnings (loss) before equity in loss of investee and extraordinary  item                             |   | (395,000 | )        | 103,000  |   |
|                                                                                                  |   |     |     |     |   |
| Equity in loss of investee                                                                            |   | (34,000  | )        | —   |   |
|                                                                                                  |   |     |     |     |   |
| Earnings (loss) before extraordinary item                                                             |   | (429,000 | )        | 103,000  |   |
|                                                                                                  |   |     |     |     |   |
| Extraordinary item                                                                                    |   |     |     |     |   |
| Gain on settlements of debt                                                                           |   | —   |     | 28,000   |   |
|                                                                                                  |   |     |     |     |   |
| Net earnings (loss)                                                                                   |   | $        | (429,000 | )        | $      | 131,000 |   |
|                                                                                                  |   |     |     |     |   |
| Basic earnings (loss) per share                                                                       |   |     |     |     |   |
| Earnings (loss) before extraordinary item                                                             |   | $        | (.08     | )        | $      | .04 |   |
| Extraordinary item                                                                                    |   | —   |     | .01      |   |
|                                                                                                  |   | $        | (.08)    |     | $      | .05 |   |
|                                                                                                  |   |     |     |     |   |
| Diluted earnings (loss) per share                                                                     |   |     |     |     |   |
| Earnings (loss) before extraordinary item                                                             |   | $        | (.08     | )        | $      | .04 |   |
| Extraordinary item                                                                                    |   | —   |     | .01      |   |
|                                                                                                  |   | $        | (.08     | )        | $      | .05 |   |

 

Theaccompanying notes are an integral part of these statements.

 

3

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CONSOLIDATEDSTATEMENTS OF CASH FLOWS (Unaudited)

Nine Months Ended January 31,

 
|                                                                                       |   | **2003** |     | **2002** |   |
|--------------------------------------------------------------------------------------------|--------|----------|----------|----------|--------|
|                                                                                       |   |     |     |     |   |
| Cash flows from operating activities                                                       |   |     |     |     |   |
| Net earnings (loss)                                                                        |   | $        | (167,000 | )        | $      | 905,000 |   |
| Adjustments to reconcile net earnings (loss) to net cash provided by  operating activities |   |     |     |     |   |
| Loss on equity in loss of investee                                                         |   | 33,000   |     | —   |   |
| Impairment of intangible assets                                                            |   | 219,000  |     | —   |   |
| Gain on settlements of debt                                                                |   | —   |     | (466,000 | )      |
| Depreciation and amortization                                                              |   | 276,000  |     | 39,000   |   |
| Increase (decrease) in cash flows from operations resulting from  changes in               |   |     |     |     |   |
| Accounts receivable                                                                        |   | 170,000  |     | (14,000  | )      |
| Inventories                                                                                |   | (81,000  | )        | 50,000   |   |
| Prepaid expenses and other assets                                                          |   | (25,000  | )        | (22,000  | )      |
| Trade accounts payable                                                                     |   | 25,000   |     | (73,000  | )      |
| Accrued liabilities                                                                        |   | (66,000  | )        | (68,000  | )      |
| Income taxes payable                                                                       |   | (8,000   | )        | —   |   |
|                                                                                       |   |     |     |     |   |
| Net cash provided by operating activities                                                  |   | 376,000  |     | 351,000  |   |
|                                                                                       |   |     |     |     |   |
| Cash flows from investing activities                                                       |   |     |     |     |   |
| Capital expenditures                                                                       |   | (24,000  | )        | (21,000  | )      |
| Proceeds from note receivable                                                              |   | 119,000  |     | 110,000  |   |
| Electronika acquisition costs                                                              |   | (53,000  | )        | —   |   |
| Apex acquisition costs                                                                     |   | (35,000  | )        | —   |   |
|                                                                                       |   |     |     |     |   |
| Net cash provided by investing activities                                                  |   | 7,000    |     | 89,000   |   |
|                                                                                       |   |     |     |     |   |
| Cash flows from financing activities                                                       |   |     |     |     |   |
| Principal payments on long-term debt                                                       |   | (113,000 | )        | (168,000 | )      |
| Payments on capital lease obligations                                                      |   | —   |     | (5,000   | )      |
| Proceeds from long-term debt                                                               |   | —   |     | 75,000   |   |
| Note and interest payable to former officer                                                |   | —   |     | (150,000 | )      |
|                                                                                       |   |     |     |     |   |
| Net cash used in financing activities                                                      |   | (113,000 | )        | (248,000 | )      |
|                                                                                       |   |     |     |     |   |
| Net increase in cash                                                                       |   | 270,000  |     | 192,000  |   |
| Cash, beginning of period                                                                  |   | 338,000  |     | 321,000  |   |
|                                                                                       |   |     |     |     |   |
| Cash, end of period                                                                        |   | $        | 608,000  |     | $      | 513,000 |   |
|                                                                                       |   |     |     |     |   |
| Supplemental disclosures of cash flow Information Cash paid during the  period for         |   |     |     |     |   |
| Interest                                                                                   |   | $        | 61,000   |     | $      | 38,000 |   |
| Income taxes                                                                               |   | $        | 8,000    |     | $      | 3,000 |   |

 

Theaccompanying notes are an integral part of these statements.

 

4

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)

 

Note 1 - Basis of Presentation

 

Torotel, Inc. (Torotel)specializes in the custom design and manufacture of a wide variety of precisionmagnetic components, consisting of transformers, inductors, reactors, chokesand toroidal coils, for use in commercial, industrial and militaryelectronics.  Torotel also designs anddistributes ballast transformers for the airline industry.  Approximately 98% of Torotel’s sales arederived from domestic customers.  Theaccompanying unaudited consolidated financial statements reflect the normalrecurring adjustments which are, in the opinion of management, necessary topresent fairly Torotel’s financial position at January 31, 2003, and theresults of operations for the nine months ended January 31, 2003.

 

The financial statementscontained herein should be read in conjunction with Torotel’s financialstatements and related notes filed on Form 10-KSB for the year ended April 30,2002.

 

Note 2 - Inventories

 

The components ofinventories are summarized as follows:

 

| Raw Materials   |   | $       | 20,000  |   |
|-----------------|--------|---------|---------|--------|
| Work in process |   | 202,000 |    |
| Finished goods  |   | 25,000  |    |
|            |   |    |    |
|            |   | $       | 247,000 |   |

 

Note 3 - Income Taxes

 

Torotel has net operatingloss carryforwards available as benefits to reduce future income taxes, subjectto applicable limitations.  Theseoperating loss carryforwards expire in various amounts in the years 2003 through2014.

 

The difference between the financial statement and taxbases of assets and liabilities is determined annually.  Deferred income taxes and liabilities arecomputed for those differences that have future tax consequences using thecurrently enacted tax laws and rates that apply to the periods in which theyare expected to affect taxable income. Valuation allowances are established, if necessary, to reduce thedeferred tax asset to the amount that will, more likely than not, berealized.  Income tax expense is thecurrent tax payable or refundable for the period plus or minus the net changein the deferred tax assets or liabilities.

 

The following tablesummarizes the components of the net deferred tax asset:

 

| Net operating loss carryforwards |   | $         | 2,186,000 |   |
|----------------------------------|--------|-----------|-----------|--------|
| Inventory valuation              |   | 190,000   |      |
| Tax credit carryforwards         |   | 20,000    |      |
| Other                            |   | 48,000    |      |
|                             |   | 2,444,000 |      |
| Less valuation allowance         |   | 2,444,000 |      |
|                             |   |      |      |
|                             |   | $         | —    |   |

 

5

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Note 4 - Earnings Per Share

 

Statement of Financial AccountingStandards (SFAS) No. 128, *Earnings per Share*,requires dual presentation of basic and diluted EPS on the face of thestatement of earnings regardless of whether basic and diluted EPS are the same;and requires a reconciliation of the numerator and denominator used incomputing basic and diluted EPS.  BasicEPS excludes dilution and is computed by dividing earnings available to holdersof common stock by the weighted average number of common shares outstanding forthe period.  Diluted EPS is computed similarlyto fully diluted EPS pursuant to APB Opinion 15.  Diluted EPS reflects the potential dilution that could occur ifsecurities or other contracts to issue common stock were exercised or convertedinto common stock or resulted in the issuance of common stock that then sharedin the earnings of the entity.  Pursuantto SFAS No. 128, the basic and diluted earnings per common share are computedas follows:

 
| **Year-to-Date EPS  Calculations**          |   | **2003**  |     | **2002**  |   |
|---------------------------------------------|--------|-----------|----------|-----------|--------|
|                                        |   |      |     |      |   |
| Net earnings  (loss)                        |   | $         | (167,000 | )         | $      | 439,000 |   |
| Weighted average  common shares outstanding |   | 5,111,590 |     | 2,811,590 |   |
| Incremental  shares                         |   | —    |     | 1,517     |   |
|                                        |   |      |     |      |   |
| Basic earnings (loss) per share             |   | $         | (.03     | )         | $      | .16 |   |
| Diluted earnings (loss) per share           |   | $         | (.03     | )         | $      | .16 |   |

 

No incremental shares are included in the EPS calculations for 2003because of the net loss.

 
| **Quarterly EPS  Calculations**             |   | **2003**  |     | **2002**  |   |
|---------------------------------------------|--------|-----------|----------|-----------|--------|
|                                        |   |      |     |      |   |
| Net earnings  (loss)                        |   | $         | (429,000 | )         | $      | 103,000 |   |
| Weighted average  common shares outstanding |   | 5,111,590 |     | 2,811,590 |   |
| Incremental  shares                         |   | —    |     | 17,934    |   |
|                                        |   |      |     |      |   |
| Basic earnings (loss) per share             |   | $         | (.08     | )         | $      | .04 |   |
| Diluted earnings (loss) per share           |   | $         | (.08     | )         | $      | .04 |   |

 

No incremental shares are included in the EPS calculations for 2003because of the net loss.

 

Note 5 - Financing Agreements

 

Under the terms of a loan with United Trust Bank(formerly Vista Bank, N.A.), Torotel is required to comply with certaincovenants including restrictions on the payment of cash dividends.  Torotel was in violation of a current ratiocovenant at April 30, 2002; however, the bank waived compliance with thesubject provision as of April 30, 2002. Torotel cured the default during the first quarter ended July 31, 2002,and continues to be in compliance with the current ratio covenant.

 

6

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Note 6 - Employee Stock Options

 

In accordance with theIncentive Compensation Plan approved by shareholders on September 19, 1994,Torotel has reserved 400,000 common shares for issuance to key employeespursuant to the exercise of incentive and non-qualified stock options grantedprior to June 20, 2004.  The options areaccounted for under APB Opinion 25, *Accountingfor Stock Issued to Employees*, and related interpretations.  The incentive stock options have a term offive years when issued and vest 50% per year at the end of each of the firsttwo years.  The non-qualified stockoptions have a term of ten years when issued and vest 25% per year at the endof each of the first four years.  Theexercise price of each option equals the market price of Torotel’s common stockon the date of grant.  Accordingly, nocompensation cost will be recognized upon the grant of any options.  Had compensation cost for the Plan been determinedbased on the fair values of the options at their grant dates consistent withthe method of SFAS No. 123, *Accounting forStock-Based Compensation,*Torotel’s operating results would havebeen reduced to the pro forma amounts indicated below.

 
| **Year-to-Date**                          |   |        |   | **2003** |     | **2002** |   |
|-------------------------------------------|--------|-------------|--------|----------|----------|----------|--------|
|                                      |   |        |   |     |     |     |   |
| Earnings (loss) before extraordinary item |   | As Reported |   | $        | (167,000 | )        | $      | 439,000 |   |
|                                      |   | Pro Forma   |   | $        | (174,000 | )        | $      | 435,000 |   |
|                                      |   |        |   |     |     |     |   |
| Basic earnings (loss) per share           |   | As Reported |   | $        | (.03     | )        | $      | .16 |   |
|                                      |   | Pro Forma   |   | $        | (.03     | )        | $      | .16 |   |
|                                      |   |        |   |     |     |     |   |
| Diluted earnings (loss) per share         |   | As Reported |   | $        | (.03     | )        | $      | .16 |   |
|                                      |   | Pro Forma   |   | $        | (.03     | )        | $      | .16 |   |
|                                      |   |        |   |     |     |     |   |
| **Quarterly**                             |   |        |   | **2003** |     | **2002** |   |
|                                      |   |        |   |     |     |     |   |
| Earnings (loss) before extraordinary item |   | As Reported |   | $        | (429,000 | )        | $      | 103,000 |   |
|                                      |   | Pro Forma   |   | $        | (429,000 | )        | $      | 99,000 |   |
|                                      |   |        |   |     |     |     |   |
| Basic earnings (loss) per share           |   | As Reported |   | $        | (.08     | )        | $      | .04 |   |
|                                      |   | Pro Forma   |   | $        | (.08     | )        | $      | .03 |   |
|                                      |   |        |   |     |     |     |   |
| Diluted earnings (loss) per share         |   | As Reported |   | $        | (.08     | )        | $      | .04 |   |
|                                      |   | Pro Forma   |   | $        | (.08     | )        | $      | .03 |   |

 

The fair value of theincentive stock options granted was estimated on the date of grant using theBlack-Scholes options-pricing model. The fair value of the options was determined using the followingweighted average assumptions: no dividend payments over the life of theoptions; expected volatility of 551.0%; risk-free interest rate of 3.50%; andexpected life of five years.

 

Stock option transactionsunder the 1994 Incentive Compensation Plan for each period are summarized asfollows:

 

7

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|                                                             |   | **2003**                            |   | **2002**                     |   |
|------------------------------------------------------------------|--------|-------------------------------------|--------|------------------------------|--------|
|                                                             |   | **Weighted  Shares  Under  Option** |   | **Average  Exercise  Price** |   | **Weighted  Shares  Under  Option** |   | **Average  Exercise  Price** |   |
| Outstanding at beginning of period                               |   | 40,000                              |   | $                            | .37    |   | — |   | — |   |
| Granted                                                          |   | —                              |   | —                       |   | 40,000 |   | $ | .37 |   |
| Exercised                                                        |   | —                              |   | —                       |   | — |   | — |   |
| Forfeited                                                        |   | —                              |   | —                       |   | — |   | — |   |
| Outstanding at end of period                                     |   | 40,000                              |   | $                            | .37    |   | 40,000 |   | $ | .37 |   |
|                                                             |   |                                |   |                         |   |   |   |   |   |
| Options exercisable at end of period                             |   | 20,000                              |   | $                            | .37    |   | — |   | — |   |
| Weighted average fair value of options granted during the period |   |                                |   | —                       |   |   |   | — |   |

 

The following information applies to optionsoutstanding at January 31, 2003:

 

| Number outstanding                          |   | 40,000    |   |
|---------------------------------------------|--------|-----------|--------|
| Range of exercise prices                    |   | $         | .37    |   |
| Weighted average exercise price             |   | $         | .37    |   |
| Weighted average remaining contractual life |   | 3.75 yrs. | .      |

 

Note 7 - Stock Warrants

 

Pursuant to a settlementthat ended a class action alleging racial discrimination in hiring by TorotelProducts, Inc., Torotel agreed to issue a warrant certificate to the TorotelSettlement Fund to purchase 100,000 shares of Torotel, Inc.’s common stock at$.75 per share.  The warrant is 100%vested upon issuance and cannot be exercised until the market price ofTorotel’s common stock reaches $2.00 per share.  The warrant expires on May 4, 2003.

 

The $33,000 fair value ofthe warrant was estimated on the date of grant using the Black-Scholes options-pricingmodel using the following weighted average assumptions: no dividend paymentsover the life of the warrant; expected volatility of 75.9%; risk-free interestrate of 5.8%; and expected life of two years.

 

Stock warrant transactionsfor each period are summarized as follows:

 
|                                                              |   | **2003**                            |       | **2002**                     |       |
|-------------------------------------------------------------------|--------|-------------------------------------|------------|------------------------------|------------|
|                                                              |   | **Weighted  Shares  Under  Option** | ** ** | **Average  Exercise  Price** | ** ** | **Weighted  Shares  Under  Option** | ** ** | **Average  Exercise  Price** | ** ** |
| Outstanding at beginning of period                                |   | 100,000                             |       | $                            | .75        |   | 100,000 |   | $ | .75 |   |
| Granted                                                           |   | —                              |       | —                       |       | — |   | — |   |
| Exercised                                                         |   | —                              |       | —                       |       | — |   | — |   |
| Forfeited                                                         |   | —                              |       | —                       |       | — |   | — |   |
| Outstanding at end of period                                      |   | 100,000                             |       | $                            | .75        |   | 100,000 |   | $ | .75 |   |
|                                                              |   |                                |       |                         |       |   |   |   |   |
| Warrants exercisable at end of period                             |   | —                              |       | —                       |       | — |   | — |   |
| Weighted average fair value of warrants granted during the period |   |                                |       | —                       |       |   |   | — |   |

 

8

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The following information applies towarrants outstanding at January 31, 2003:

 

| Number outstanding                          |   | 100,000 |       |
|---------------------------------------------|--------|---------|------------|
| Range of exercise prices                    |   | $       | .75        |   |
| Weighted average exercise price             |   | $       | .75        |   |
| Weighted average remaining contractual life |   | .25     |  yrs. |

 

Note 8 - Extraordinary Item

 

For the nine months ended January 31, 2002, theextraordinary item as presented in the accompanying consolidated statements ofoperations includes a gain of $466,000 resulting from the settlement of oldliabilities at amounts lower than originally recorded.

 

For the three months ended January 31, 2002, theextraordinary item as presented in the accompanying consolidated statements ofoperations includes a gain of $28,000 resulting from the settlement of an oldliability at an amount lower than originally recorded.

 

Note 9 - Impairment and Amortization of Intangibles

 

In the third quarter endedJanuary 31, 2003, Torotel recognized an impairment loss of $219,000 relating tocertain technology-based intangible assets recognized in the acquisition ofElectronika in April 2002 (see Note 12 of Notes to Consolidated FinancialStatements).  The impairment is a resultof the economic condition of the airline industry and the lower thananticipated sales volume for ballast transformers designed for certainaircraft.  As a result, projected futurecash flows from Electronika were determined to be less than the carrying valueof these intangible assets. The revised carrying value of the intangible assetswas calculated using discounted estimated future cash flows.  Management also determined that the usefullife of the technology-based intangible assets should be reduced.  As a result, the residual balance of$1,862,000 for these intangible assets will be amortized over a weightedaverage period of twelve years instead of the original period of seventeenyears.

 

The following table provides the adjusted grosscarrying value and accumulated amortization for each major class of intangibleasset based on Torotel’s reassessment of previously recognized intangibleassets and their remaining amortization lives in accordance with the adoptionof Statement of Financial Accounting Standards No. 142, *Goodwill and Other Intangible Assets*:

 
|          |   |                           |   | **2003**                    |      | **2002**                      |   |
|---------------|--------|--------------------------------|--------|-----------------------------|-----------|-------------------------------|--------|
|          |   | **Average  Amortizable  Life** |   | **Gross  Carrying  Amount** |      | **Accumulated  Amortization** |   | **Gross  Carrying  Amount** |   | **Accumulated  Amortization** |   |
| Order backlog |   | 1                              |   | $                           | 205,000   |                          | $      | 154,000 |   | $ | — |   | $ | — |   |
| Aircraft      |   | 12                             |   | 1,958,000                   |      | 96,000                        |   | — |   | — |   |
|          |   |                           |   |                        |      |                          |   |   |   |   |   |
|          |   |                           |   | $                           | 2,163,000 |                          | $      | 250,000 |   | $ | — |   | $ | — |   |

 

The total intangible amortization expensefor the nine months ended January 31, 2003 was $250,000.  The estimated aggregate amortization expensefor each of the next five years is as follows:

 

9

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| **Year  Ending  April 30,** |   | **Amount** |    |
|-----------------------------|--------|------------|---------|
| 2003                        |   | $          | 339,000 |   |
| 2004                        |   | 153,000    |    |
| 2005                        |   | 153,000    |    |
| 2006                        |   | 153,000    |    |
| 2007                        |   | 153,000    |    |
|                        |   |       |    |
|                        |   | $          | 951,000 |   |

Note 10 - Equity Investment

 

On March 29, 2002, Torotel acquired a 17% equityinterest in Apex Innovations, Inc. (Apex). The investment is accounted for using the equity method ofaccounting.  The accompanyingconsolidated statements of operations include a loss of $34,000 and $33,000 forthe three and nine months ended January 31, 2003, respectively, resulting fromApex’s operating results for the three and nine months ended November 30,2002.  Condensed financial statementsfor Torotel’s investment in Apex are as follows:

 

Condensed Balance Sheet

 
|                      |   | **November  30,****2002** |      |
|---------------------------|--------|---------------------------|-----------|
| Current assets            |   | $                         | 963,000   |   |
| Other assets              |   | 5,393,000                 |      |
|                      |   | $                         | 6,356,000 |   |
|                      |   |                      |      |
| Current liabilities       |   | $                         | 436,000   |   |
| Other liabilities         |   | 2,684,000                 |      |
| Stockholders’ equity |   | 3,236,000                 |      |
|                      |   | $                         | 6,356,000 |   |

 

Condensed Statements ofOperations

 
|                |   | **9-Mos  Ended  November 30,****2002** |      | **3-Mos.  Ended  November 30,****2002** |   | **2-Mos.  Ended  February 28,****2002** |   |
|---------------------|--------|----------------------------------------|-----------|-----------------------------------------|--------|-----------------------------------------|--------|
| Net sales           |   | $                                      | 4,161,000 |                                    | $      | 1,412,000                               |   | $ | 534,000 |   |
| Gross profit        |   | $                                      | 2,001,000 |                                    | $      | 587,000                                 |   | $ | 315,000 |   |
| Net earnings (loss) |   | $                                      | (187,000  | )                                       | $      | (190,000                                | )      | $ | 8,000 |   |

 

Note 11 - Discontinued Subsidiary

 

The operations of East Coast Holdings, Inc. (formerlynamed OPT Industries, Inc.), a wholly-owned subsidiary of Torotel, werediscontinued in April 1999, and the assets sold to Shared Information GroupManagement Associates, L.L.C (SIGMA). The remaining assets and liabilities related to this subsidiary as ofJanuary 31, 2003, are included in the accompanying consolidated balance sheetunder the following captions and in the amounts shown:

 

10

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| Current maturity of note receivable  |   | $ | 42,000  |   |
|--------------------------------------|--------|---|---------|--------|
| Current maturities of long-term debt |   | $ | 26,000  |   |
| Trade accounts payable               |   | $ | 395,000 |   |
| Accrued liabilities                  |   | $ | 49,000  |   |

 

Note 12 - Acquisition

 

On April 2, 2002, Torotel acquired 100% of the commonstock of Electronika, a custom design, marketing and licensing company sellingballast transformers to the airline industry for use as spare and replacementparts in DC-8, DC-9, and the MD-80 series aircraft.  The total purchase price of $2,382,000 consisted of 2,300,000 unregisteredshares of Torotel’s common stock and $82,000 in acquisition costs.  For accounting purposes, April 1 isconsidered the effective date of the acquisition.

 

The accompanying consolidated statements of operationsinclude the operating results of Electronika for the three and nine monthsended January 31, 2003.  The followingunaudited pro forma summaries present the consolidated results of operations asif the acquisition had occurred at the beginning of the periods presented.  The pro forma results include the effects ofamortizing intangible assets and exclude compensation in excess of amountspayable after the acquisition.

 
|                                                 |   | **Pro Forma  Information  Nine Months Ended  January 31,** |      |
|------------------------------------------------------|--------|------------------------------------------------------------|-----------|
|                                                 |   | **2003**                                                   |      | **2002** |   |
| Net sales                                            |   | $                                                          | 3,214,000 |   | $ | 4,023,000 |   |
| Earnings (loss) before extraordinary item            |   | $                                                          | (13,000   | ) | $ | 1,008,000 |   |
| Net earnings (loss)                                  |   | $                                                          | (13,000   | ) | $ | 1,474,000 |   |
|                                                 |   |                                                       |      |   |   |   |   |
| Basic earnings per share before extraordinary item   |   | $                                                          | .00       |   | $ | .20 |   |
| Basic earnings per share                             |   | $                                                          | .00       |   | $ | .29 |   |
|                                                 |   |                                                       |      |   |   |   |   |
| Diluted earnings per share before extraordinary item |   | $                                                          | .00       |   | $ | .20 |   |
| Diluted earnings per share                           |   | $                                                          | .00       |   | $ | .29 |   |

 
|                                                        |   | **Pro Forma  Information  Three Months Ended  January 31,** |     |
|-------------------------------------------------------------|--------|-------------------------------------------------------------|----------|
|                                                        |   | **2003**                                                    |     | **2002** |   |
| Net sales                                                   |   | $                                                           | 786,000  |   | $ | 1,296,000 |   |
| Earnings (loss) before extraordinary item                   |   | $                                                           | (345,000 | ) | $ | 394,000 |   |
| Net earnings (loss)                                         |   | $                                                           | (345,000 | ) | $ | 422,000 |   |
|                                                        |   |                                                        |     |   |   |   |   |
| Basic earnings (loss) per share before extraordinary item   |   | $                                                           | (.07     | ) | $ | .08 |   |
| Basic earnings (loss) per share                             |   | $                                                           | (.07     | ) | $ | .09 |   |
|                                                        |   |                                                        |     |   |   |   |   |
| Diluted earnings (loss) per share before extraordinary item |   | $                                                           | (.07     | ) | $ | .08 |   |
| Diluted earnings (loss) per share                           |   | $                                                           | (.07     | ) | $ | .09 |   |

 

The pro forma informationdoes not purport to be indicative of the results of operations that would haveoccurred had the acquisition taken place at the beginning of the periodspresented or of future results of operations.

 

11

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Item2.    MANAGEMENT’SDISCUSSION AND ANALYSIS OR PLAN OF OPERATION

 

The following managementcomments regarding Torotel’s results of operations and outlook should be readin conjunction with the Consolidated Financial Statements included pursuant toItem 1 of this Quarterly Report.

 

The discussion and analysisof the results of operations include the operations of Torotel, Inc. and itssubsidiaries, Torotel Products, Inc. and Electronika, Inc. (see Note 12 ofNotes to Consolidated Financial Statements).

 

NINE MONTHS ENDED JANUARY 31, 2003 VERSUSNINE MONTHS ENDED JANUARY 31, 2002

 

Net sales increased nearly 12%.  The net sales of Torotel Products decreased7% from $2,879,000 to $2,682,000.  Thisdecrease was attributable to very soft conditions in Torotel’s aerospacemarkets, specifically the components used in retrofitting and upgradinginstrumentation and communication systems in existing aircraft.  Feedback from major customers indicates thecurrent conditions are expected to continue into the 2004 calendar year.  The rate of new order bookings has decreased6% compared with last year.  It’santicipated that the soft conditions in the aerospace market will also affectElectronika.  The net sales ofElectronika were $532,000; however, Electronika has received only $308,000 innew order bookings for the first nine months of the fiscal year.  As a result of the lower order rate at bothTorotel Products and Electronika, management anticipates consolidated sales ofapproximately $4,200,000 for fiscal 2003.

 

Gross profit as apercentage of net sales decreased 3%. The gross profit percentage of Torotel Products decreased 5% because oflower sales volume without a comparable decrease in direct labor and fixedproduction costs.  Electronika’s grossprofit as a percentage of net sales was 48%. Electronika’s gross profit was reduced by $65,000, or 12% of its netsales, for labor and overhead costs associated with setting up its ownmanufacturing facility in Olathe, Kansas.

 

Engineering expenses, applicable only to TorotelProducts, increased nearly 4% from $139,000 to $144,000 because of higherpayroll costs associated with more hours worked by part-time personnel andhigher travel costs associated with visits to a subcontracting facility inMexico.  Management does not anticipatean increase in the present level of engineering expenses during the next fewquarters.

 

Selling, general and administrative (SG&A)expenses increased nearly 19%.  TheSG&A expenses of Torotel, Inc. increased 70% from $117,000 to $199,000because of higher compensation costs of $56,000 associated with Torotel’schairman and CEO (whose earned compensation was $19,000 in last year’s period),a $16,000 increase in professional fees, a $5,000 increase in travel costs, a$3,000 increase associated with the annual shareholders’ meeting, and a $2,000increase associated with license registration fees with the Office of DefenseTrade Controls pursuant to the Arms Export Control Act and the InternationalTraffic in Arms Regulations.  TheSG&A expenses of Torotel Products increased 2% from $496,000 to $505,000primarily because of higher insurance costs. The SG&A expenses of Electronika were $23,000.  Management does not anticipate a significantincrease in the present level of SG&A expenses during the next fewquarters.

 

Amortization costs, entirely attributable toElectronika, were $250,000 (see Note 9 of Notes to Consolidated FinancialStatements).

 

12

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Impairment costs, entirely attributable toElectronika, were $219,000 (see Note 9 of Notes to Consolidated FinancialStatements).

 

Interest expense increased nearly 61%.  The interest expense of Torotel, Inc.increased 318% from $11,000 to $46,000 because of the higher debt resultingfrom the equity investment in Apex.  Theinterest expense of Torotel Products decreased 44% from $27,000 to $15,000because of lower debt balances and a lower annual interest rate on the mortgagepayable to United Trust Bank (formerly Vista Bank, N.A.).

 

Interest income decreased 56% from $16,000 to $7,000due to a lower principal balance on the note receivable from SIGMA.

 

For the reasons discussed above, the consolidatedpretax earnings decreased from a profit of $439,000 to a loss of $134,000.  The pretax loss of Torotel, Inc. increasedfrom $112,000 to $237,000.  The pretaxearnings of Torotel Products decreased from $551,000 to $341,000.  The pretax loss of Electronika was $238,000.

 

THREE MONTHS ENDED JANUARY 31, 2003 VERSUSTHREE MONTHS ENDED JANUARY 31, 2002

 

Net sales decreased 14%.  The net sales of Torotel Products decreased 26% from $917,000 to$678,000.  This decrease wasattributable to a lower shippable backlog for Torotel’s magnetics products anda $100,000 decrease in sales of the potted coil assembly for the Hellfire IImissile system.  While the rate of neworder bookings in the recent quarter increased 14% compared with the sameperiod last year, customers are scheduling more of the deliveries for futureperiods which results in a lower shippable backlog in the near term.  The net sales of Electronika were $108,000.

 

Gross profit as apercentage of net sales decreased 12%. The gross profit percentage of Torotel Products decreased nearly 8%because of lower sales volume without a comparable decrease in direct labor andfixed production costs.  Electronika’sgross profit as a percentage of net sales was at breakeven.  Electronika’s gross profit was reduced by$65,000, or 60% of its net sales, for labor and overhead costs associated withsetting up its own manufacturing facility in Olathe, Kansas.

 

Engineering expenses, applicable only to TorotelProducts, remained unchanged at $47,000.  Management does not anticipate an increase in the present level ofengineering expenses during the next few quarters.

 

Selling, general and administrative (SG&A)expenses increased 20%.  The SG&Aexpenses of Torotel, Inc. increased 35% from $46,000 to $62,000 because of highercompensation costs of $15,000 associated with Torotel’s chairman and CEO (whoseearned compensation was $8,000 in last year’s period) and a $1,000 increase inprofessional fees.  The SG&Aexpenses of Torotel Products increased 11% from $154,000 to $171,000 because ofa $9,000 increase in insurance costs and an $8,000 increase in professionalfees.  The SG&A expenses ofElectronika were $7,000.  Managementdoes not anticipate an increase in the present level of SG&A expensesduring the next few quarters.

 

Amortization costs, entirely attributable toElectronika, were $84,000 (see Note 9 of Notes to Consolidated FinancialStatements).

 

Impairment costs, entirely attributable toElectronika, were $219,000 (see Note 9 of Notes to Consolidated Financial Statements).

 

13

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Interest expense increased 54%.  The interest expense of Torotel, Inc.increased 275% from $4,000 to $15,000 because of the higher debt resulting fromthe equity investment in Apex.  Theinterest expense of Torotel Products decreased 44% from $9,000 to $5,000because of lower debt balances and a lower annual interest rate on the mortgagepayable to United Trust Bank (formerly Vista Bank, N.A.).

 

Interest income decreased 60% from $5,000 to $2,000due to a lower principal balance on the note receivable from SIGMA.

 

For the reasons discussed above, the consolidatedpretax earnings decreased from a profit of $103,000 to a loss of $395,000.  The pretax loss of Torotel, Inc. increasedfrom $45,000 to $75,000.  The pretaxearnings of Torotel Products decreased from a profit of $148,000 to a loss of$9,000.  The pretax loss of Electronikawas $311,000.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Torotel relies on funds generated internally to meetits normal operating requirements and to service bank indebtedness.  Management continues to evaluate ways ofimproving Torotel’s liquidity position and funding future investments.

 

During the nine months ended January 31, 2003,Torotel’s operations provided $376,000 in cash flow because of higher earningsbefore depreciation and amortization and other non-cash charges.  Cash flow has been adversely impacted byslower payment practices of major customers.

 

Investing activitiesprovided $7,000 in cash flow because of the $119,000 in proceeds from the notereceivable from SIGMA.  These proceedswere offset partially by cash outlays of $88,000 for the acquisition costsassociated with Electronika and Apex (see Notes 10 and 12 of Notes toConsolidated Financial Statements).  Torotelhad capital expenditures of $24,000 during the nine months ended January 31,2003, and anticipates expenditures of approximately $5,000 for the balance offiscal 2003.

 

Financing activities used$113,000 in cash flow because of decreases in long-term debt.

 

Management believes thatinflation will have only a minimal effect on future operations since such aneffect will be offset by sales price increases which are not expected to have asignificant effect upon demand*.*

 

OTHER

 

Except for historical informationcontained herein, certain of the matters discussed above are forward-lookingstatements within the meaning of the Private Securities Litigation Reform Actof 1995 and are subject to the safe harbor created by that Act.  These statements are based on assumptionsabout a number of important factors and involve risks and uncertainties thatcould cause actual results to be different from what is stated here.  These risk factors are: impairment ofintangible assets, decreased demand for products, delays in developing newproducts, expected orders that do not materialize, loss of key customers, theimpact of competition and price erosion as well as supply and manufacturingconstraints, and other risks and uncertainties.

 

14

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Item3.    Controlsand Procedures

 

The Company’s ChiefExecutive Officer and Chief Financial Officer (collectively, the “CertifyingOfficers”) are responsible for establishing and maintaining disclosure controlsand procedures for the Company.  Suchofficers have concluded (based upon their evaluation of these controls andprocedures as of a date within 90 days of the filing of this report) that theCompany’s disclosure controls and procedures are effective to ensure thatinformation required to be disclosed by the Company in this report isaccumulated and communicated to the Company’s management, including itsprincipal executive officers as appropriate, to allow timely decisionsregarding required disclosure.  TheCertifying Officers also have indicated that there were no significant changesin the Company’s internal controls or other factors that could significantlyaffect such controls subsequent to the date of their evaluation, and there wereno corrective actions with regard to significant deficiencies and materialweaknesses.

 

15

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PARTII.    OTHERINFORMATION

 

Item1.    Legal Proceedings

 

The remaining liabilitiesrelated to the discontinued operations of ECH include trade accounts payable of$395,000 (see Note 11 of Notes to Consolidated Financial Statements).  Several claims have been filed by vendorsfor collection of amounts due, and more could be filed.  Since ECH’s remaining assets have beenassigned as collateral for the remaining bank debt, ECH has no other source ofincome to satisfy its trade debt obligations. This trade debt remains the sole responsibility of ECH.  Neither Torotel, Inc. or Torotel Products,Inc. has assumed these obligations. While some of the claims by ECH vendors have resulted in judgmentsagainst ECH, neither Torotel, Inc. or Torotel Products, Inc. intends to provideany funds to satisfy the judgments nor, in the opinion of legal counsel, arethey obligated to do so.

 

Item4.    Submissionof Matters to a Vote of Security Holders

 

The annual meeting ofstockholders was held in Grandview, Missouri, on Monday, September 16, 2002, toelect a Board of Directors.  At themeeting, there were 4,712,416 shares voting, with nominees needing 2,356,209 sharesto be elected.  Stockholders elected thefollowing individuals to a one-year term on the Board of Directors, with thenumber of shares voting “FOR” each nominee indicated.

 

| Dale H. Sizemore, Jr. |   | 4,692,939 |   |
|-----------------------|--------|-----------|--------|
| Richard A. Sizemore   |   | 4,692,939 |   |
| H. James Serrone      |   | 4,693,569 |   |

 

Item6.    Exhibits andReports on Form 8-K

 
| a)     |   | Exhibits            |
|--------|--------|---------------------|
|   |   |                |
|   |   | Exhibit 99.1        |   | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002 |
|   |   | Exhibit 99.2        |   | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002 |
|   |   |                |   |   |
| b)     |   | Reports on Form 8-K | There were no reports  filed on Form 8-K during the three months ended January 31, 2003. |
|        |        |                     |  |  |  |  |  |

 

16

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SIGNATURES

 

In accordance with therequirements of the Securities Exchange Act of 1934, the Registrant caused thisreport to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 

 

Torotel, Inc.(Registrant)

 

 

 
| Date:  | March 13, 2003 |   |   | /s/  H. James Serrone                              |   |   |
|--------|----------------|--------|--------|---------------------------------------------------------|--------|--------|
|   |           |   |   | H. James Serrone                                        |   |   |
|   |           |   |   | Vice President of Finance  and  Chief Financial Officer |   |

 

17

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CERTIFICATION

 

I, Dale H. Sizemore, Jr., certify that:

 

1.             Ihave reviewed this quarterly report on Form 10-QSB of Torotel, Inc.

 

2.             Based on myknowledge, this quarterly report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this quarterly report;

 

3.             Based on myknowledge, the financial statements, and other financial information includedin this quarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report;

 

4.             The registrant’sother certifying officers and I are responsible for establishing andmaintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

a)         designed such disclosure controls and procedures to ensurethat material information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularlyduring the period in which this quarterly report is being prepared;

 

b)         evaluated the effectiveness of the registrant’s disclosurecontrols and procedures as of a date within 90 days prior to the filing date ofthis quarterly report (the “Evaluation Date”); and

 

c)         presented in this quarterly report our conclusions about theeffectiveness of the disclosure controls and procedures based on our evaluationas of the Evaluation Date;

 

5.             The registrant’sother certifying officers and I have disclosed, based on our most recentevaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

 

a)         all significant deficiencies in the design or operation ofinternal controls which could adversely affect the registrant’s ability torecord, process, summarize and report financial data and have identified forthe registrant’s auditors any material weaknesses in internal controls; and

 

b)         any fraud, whether or not material, that involves managementor other employees who have a significant role in the registrant’s internalcontrols; and

 

6.             The registrant’sother certifying officers and I have indicated in this quarterly report whetheror not there were significant changes in internal controls or in other factorsthat could significantly affect internal controls subsequent to the date of ourmost recent evaluation, including any corrective actions with regard tosignificant deficiencies and material weaknesses.

 

 
| /s/  Dale H. Sizemore, Jr. |   |
|---------------------------------|--------|
|                            |   |
| Dale H. Sizemore, Jr.           |
| Chief Executive Officer         |   |
| March 13, 2003                  |   |
|                                 |        |  |

 

CERTIFICATION

 

I, H. James Serrone, certify that:

 

1.             Ihave reviewed this quarterly report on Form 10-QSB of Torotel, Inc.

 

2.             Based on myknowledge, this quarterly report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this quarterly report;

 

3.             Based on myknowledge, the financial statements, and other financial information includedin this quarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report;

 

4.             The registrant’sother certifying officers and I are responsible for establishing andmaintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

a)         designed such disclosure controls and procedures to ensurethat material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this quarterly report is beingprepared;

 

b)         evaluated the effectiveness of the registrant’s disclosurecontrols and procedures as of a date within 90 days prior to the filing date ofthis quarterly report (the “Evaluation Date”); and

 

c)         presented in this quarterly report our conclusions about theeffectiveness of the disclosure controls and procedures based on our evaluationas of the Evaluation Date;

 

5.             The registrant’sother certifying officers and I have disclosed, based on our most recentevaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

 

a)         all significant deficiencies in the design or operation ofinternal controls which could adversely affect the registrant’s ability torecord, process, summarize and report financial data and have identified forthe registrant’s auditors any material weaknesses in internal controls; and

 

b)         any fraud, whether or not material, that involves managementor other employees who have a significant role in the registrant’s internalcontrols; and

 

6.             The registrant’sother certifying officers and I have indicated in this quarterly report whetheror not there were significant changes in internal controls or in other factorsthat could significantly affect internal controls subsequent to the date of ourmost recent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 

 
| /s/  H. James Serrone |   |
|----------------------------|--------|
|                       |
| H. James Serrone           |
| Chief Financial Officer    |
| March 13, 2003             |

 

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