Torotel (TTLO) 10-Q 13 Dec 18 2019 Q2 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	6 Months Ended
	Oct. 31, 2018	Dec. 13, 2018
Document and Entity Information [Abstract]
Entity Registrant Name	TOROTEL INC
Entity Central Index Key	98,752
Current Fiscal Year End Date	--04-30
Entity Filer Category	Non-accelerated Filer
Document Type	10-Q
Document Period End Date	Oct. 31, 2018
Document Fiscal Year Focus	2,019
Document Fiscal Period Focus	Q2
Amendment Flag	false
Entity Current Reporting Status	Yes
Entity Common Stock, Shares Outstanding		5,995,750

CONSOLIDATED CONDENSED BALANCE

CONSOLIDATED CONDENSED BALANCE SHEETS - USD ($)	Oct. 31, 2018	Apr. 30, 2018
Current assets:
Cash	$ 147,000	$ 575,000
Trade receivables, net	2,158,000	2,193,000
Inventories	3,289,000	2,362,000
Prepaid expenses	245,000	238,000
Contract assets	365,000
Property held for sale	694,000	694,000
Total Current Assets	6,898,000	6,062,000
Buildings and improvements	1,114,000	616,000
Equipment	4,008,000	3,951,000
Property, Plant and Equipment, Gross, Total	5,122,000	4,567,000
Less accumulated depreciation	3,878,000	3,235,000
Property, plant and equipment, net	1,244,000	1,332,000
Deferred income taxes	68,000	68,000
Other assets	153,000	209,000
Total Assets	8,363,000	7,671,000
Current liabilities:
Current maturities of long-term debt	925,000	1,706,000
Trade accounts payable	1,594,000	1,045,000
Accrued liabilities	1,077,000	817,000
Contract liabilities	27,000	219,000
Liabilities, Current	3,623,000	3,787,000
Long-term debt, less current maturities	841,000	130,000
Stockholders' equity:
Common stock; par value $0.01; 6,000,000 shares authorized; 5,995,750 shares issued and outstanding	60,000	60,000
Capital in excess of par value	12,491,000	12,437,000
Accumulated deficit	(8,652,000)	(8,743,000)
Stockholders' Equity	3,899,000	3,754,000
Total Liabilities and Stockholders' Equity	$ 8,363,000	$ 7,671,000

CONSOLIDATED CONDENSED BALANC_2

CONSOLIDATED CONDENSED BALANCE SHEETS (PARENTHETICAL) - $ / shares	Oct. 31, 2018	Apr. 30, 2018
Stockholders' equity:
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	6,000,000	6,000,000
Common stock, shares issued	5,995,750	5,995,750
Common stock, shares outstanding	5,995,750	5,995,750

CONSOLIDATED CONDENSED STATEMEN

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS - USD ($)	3 Months Ended		6 Months Ended
	Oct. 31, 2018	Oct. 31, 2017	Oct. 31, 2018	Oct. 31, 2017
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Net sales	$ 4,874,000	$ 4,684,000	$ 9,347,000	$ 9,214,000
Cost of goods sold	3,200,000	3,322,000	6,194,000	6,596,000
Gross profit	1,674,000	1,362,000	3,153,000	2,618,000
Operating expenses:
Engineering	313,000	273,000	615,000	539,000
Selling, general and administrative	1,290,000	1,358,000	2,501,000	2,644,000
Operating expenses	1,603,000	1,631,000	3,116,000	3,183,000
Income (loss) from operations	71,000	(269,000)	37,000	(565,000)
Other expense:
Interest expense, net	24,000	13,000	48,000	25,000
Income (loss) before income tax expense (benefit)	47,000	(282,000)	(11,000)	(590,000)
Income tax expense (benefit)	15,000	(111,000)		(226,000)
Net income (loss)	$ 32,000	$ (171,000)	$ (11,000)	$ (364,000)
Basic income (loss) per share	$ 0.01	$ (0.03)	$ 0	$ (0.07)

CONSOLIDATED CONDENSED STATEM_2

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - USD ($)	6 Months Ended
	Oct. 31, 2018	Oct. 31, 2017
Cash flows from operating activities:
Net loss	$ (11,000)	$ (364,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock compensation cost amortized	54,000	54,000
Depreciation	169,000	149,000
Deferred income taxes		(226,000)
Changes in operating assets and liabilities:
Trade receivables	35,000	(115,000)
Inventories	(927,000)	(202,000)
Prepaid expenses and other assets	49,000	54,000
Trade accounts payable	549,000	(201,000)
Accrued liabilities	260,000	200,000
Contract assets and liabilities	(455,000)	(22,000)
Net cash provided (used) in operating activities	(277,000)	(673,000)
Cash flows from investing activities:
Capital expenditures	(81,000)	(51,000)
Net cash used in investing activities	(81,000)	(51,000)
Cash flows from financing activities:
Principal payments on long-term debt	(1,625,000)	(66,000)
Payments on capital lease obligations	(85,000)	(11,000)
Proceeds from long-term debt	815,000
Proceeds from line of credit	825,000	750,000
Net cash provided by (used in) financing activities	(70,000)	673,000
Net decrease in cash	(428,000)	(51,000)
Cash, beginning of period	575,000	298,000
Cash, end of period	147,000	247,000
Cash paid during the period for:
Interest	$ 44,626	25,000
Non-cash investing and financing activities:
Equipment financed with proceeds from capital lease		$ 225,000

BASIS OF PRESENTATION

BASIS OF PRESENTATION	6 Months Ended
	Oct. 31, 2018
BASIS OF PRESENTATION
BASIS OF PRESENTATION	NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS NOTE The consolidated condensed balance sheet as of October 31, 2018, which has been derived from the audited financial statements of Torotel, Inc. ("Torotel" or the “Company”), is accompanied by the unaudited interim consolidated condensed financial statements, which reflect the normal recurring adjustments that in the opinion of management are necessary to present fairly Torotel’s consolidated financial position at October 31, 2018, and the consolidated results of operations and cash flows for the three and six months ended October 31, 2018, and 2017, respectively. The unaudited interim consolidated condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and note disclosures normally included in the annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although management believes the disclosures made are adequate to make the information not misleading. The financial statements contained herein should be read in conjunction with Torotel’s consolidated financial statements and related notes filed on Torotel's Form 10-K/A for the year ended April 30, 2018 as filed with the SEC on July 12, 2018. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous GAAP. ASU 2016-02 requires that a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet. ASU 2016-02 requires expanded disclosures about the nature and terms of lease agreements and is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted. Torotel is currently evaluating the potential impact of this standard on its consolidated financial statements. Torotel anticipates the impact will be material to the consolidated financial statements for reporting periods beginning after December 15, 2018, due to the amendment to the lease for Torotel’s manufacturing facility that was executed on October 31, 2016. The status of the implementation effort is in the preliminary stage. No significant implementation matters have been identified as needing to be addressed. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASC 606) . ASU 2014-09 supersedes the revenue recognition requirements in Revenue Recognition (Topic 605) , and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new revenue recognition standard also requires disclosures that sufficiently describe the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. This ASU was amended by ASU No. 2015-14, issued in August 2015, which deferred the original effective date by one year; the effective date of this ASU is for fiscal years, and interim reporting periods within those years, beginning after December 15, 2017, using one of two retrospective application methods. In addition, the FASB issued other amendments during 2016 to ASC 606, which include implementation guidance to principal versus agent considerations, guidance to identifying performance obligations and licensing guidance and other narrow scope improvements. The Company adopted this new guidance on May 1, 2018 using the modified retrospective application method. As part of the Company's implementation plan for this new standard, the Company assessed the impact of these new standards on its business processes, business and accounting systems, and consolidated financial statements and related disclosures by evaluating the terms and conditions of samples of both standard and non-standard contracts across the Company's in-scope business segments in light of the new standards. Specifically, the Company recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings of $102,000 as of May 1, 2018. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. Torotel has two primary product revenue streams. Over 90% of our revenue is derived from product revenue in the aerospace and defense industries. Under this revenue stream, control is transferred as products are completed and closed to finished goods. Torotel’s industrial and commercial product revenue makes up less than 7% of total revenue. Under this revenue stream, control is transferred as the products are shipped. The remainder of Torotel revenue consists of product fees and engineering and design services. With product fees, control transfer is determined by the revenue stream of the associated product. Percentage-of-completion revenue recognition is utilized when revenue recognized exceeds the amount billed to the customer for any project-related services, utilizing labor as the input method. Torotel recognizes revenue when control has been transferred to the customer. Under the previous revenue recognition accounting standard, Torotel product revenue was recognized upon shipment or delivery of goods. Over 90% of Torotel revenue is derived from contracts with performance obligations satisfied over time. Performance obligations under long-term agreements are considered to be under contract at the time that authorization to ship has been obtained from the customer. Performance obligations under standalone purchase orders are considered to be under contract at the time that the purchase order is received. Parts manufactured for customers in our aerospace and defense product revenue stream must be built to certain specifications that are then qualified by the customer. Due to the proprietary nature of our custom-built products designed for a specific use by our aerospace and defense customers, control is considered to be with the customer as the products are finalized and placed into finished goods. For our commercial customers, control of the underlying product design is retained by Torotel, therefore the products are considered in our control until the moment of shipment. Torotel’s warranty obligations fall under Topic 460, and are not considered to be within the scope of Topic 606. The following table summarizes the cumulative effect of the changes to our consolidated condensed balance sheet as of May 1, 2018 from the adoption of ASC 606: Adjustments due to April 30, 2018 ASC 606 May 1, 2018 Assets Contract assets $ — $ 102,000 $ 102,000 Equity Accumulated deficit $ (8,743,000) $ 102,000 $ (8,641,000) In accordance with the new revenue recognition requirements relative to the revenue recognition requirements under ASC 605, the disclosure of the impact of adoption on our consolidated condensed balance sheet, consolidated condensed statement of operations, and consolidated condensed statement of cash flows as of and for the six months ended October 31, 2018 was as follows: Balances Without Adoption of ASC 606 Effect of Change As Reported as of October 31, 2018 Higher/(Lower) Balance Sheet Assets Contract assets $ 365,000 $ — $ 365,000 Our contract liabilities, previously reported as customer deposits, represent customer prepayments and are recognized in the same manner under both ASC 606 and ASC 605. Therefore, contract liabilities are not included in the adoption table above. Three Months Ended Balances Without Adoption of ASC 606 Effect of Change As Reported October 31, 2018 Higher/(Lower) Statement of Operations Net sales 4,874,000 4,406,000 468,000 Cost of goods sold 3,200,000 2,995,000 205,000 Gross profit 1,674,000 1,411,000 263,000 Income (loss) from operations 71,000 (192,000) 263,000 Income (loss) before benefit for income taxes 47,000 (216,000) 263,000 Benefit for income taxes 15,000 15,000 — Net income (loss) 32,000 (231,000) 263,000 Six Months Ended Balances Without Adoption of ASC 606 Effect of Change As Reported October 31, 2018 Higher/(Lower) Statement of Operations Net sales 9,347,000 8,879,000 468,000 Cost of goods sold 6,194,000 5,989,000 205,000 Gross profit 3,153,000 2,890,000 263,000 Income (loss) from operations 37,000 (226,000) 263,000 Loss before benefit for income taxes (11,000) (274,000) 263,000 Income tax expense — — — Net loss (11,000) (274,000) 263,000 Statement of Cash Flows Net loss (11,000) (274,000) 263,000 Contract assets and liabilities (455,000) (192,000) (263,000) Net cash provided (used) in operating activities (277,000) (277,000) —

NATURE OF OPERATIONS

NATURE OF OPERATIONS	6 Months Ended
	Oct. 31, 2018
NATURE OF OPERATIONS
NATURE OF OPERATIONS	NOTE Torotel conducts business primarily through its wholly owned subsidiary, Torotel Products, Inc. (“Torotel Products”). Torotel Products specializes in the custom design and manufacture of a wide variety of precision magnetic components, consisting of transformers, inductors, reactors, chokes, toroidal coils, high voltage transformers, dry-type transformers and electro-mechanical assemblies, for use in commercial, industrial and military electronics.

INVENTORIES

INVENTORIES	6 Months Ended
	Oct. 31, 2018
INVENTORIES
INVENTORIES	NOTE The following table summarizes the components of inventories: October 31, 2018 April 30, 2018 Raw materials $ 1,800,000 $ 1,278,000 Work in process 1,023,000 635,000 Finished goods 466,000 449,000 $ 3,289,000 $ 2,362,000

FINANCING AGREEMENTS

FINANCING AGREEMENTS	6 Months Ended
	Oct. 31, 2018
FINANCING AGREEMENTS
FINANCING AGREEMENTS	NOTE Torotel Products had a financing agreement (the “previous financing agreement”) with Commerce Bank, N.A. that provided for a revolving line of credit, a guidance line of credit, and a real estate term loan. Torotel was the guarantor to all promissory notes under the previous financing agreement. On October 19, 2018, the debt that was outstanding under the previous financing agreement was fully repaid and extinguished, with an aggregate payoff amount of approximately $1,625,000 and an immaterial early prepayment fee. On October 19, 2018, Torotel entered into three new business loan agreements (the “financing agreements”) with Cornerstone Bank (the “Bank”). The financing agreements provide for an asset-backed revolving line of credit, a guidance line of credit, and a real estate term loan. A summary of the notes issued under the financing agreements is provided below: October 31, 2018 April 30, 2018 6.00% asset-based line of credit with a maturity date of October 19, 2019 $ 781,000 $ - 6.00% guidance line of credit with a maturity date of October 19, 2019 54,000 - 5.35% mortgage note payable in monthly installments of $5,573, including interest, with final payment of $690,829 due October 19, 2023 806,000 Capital lease obligations (see Note 11) 125,000 170,000 4.05% mortgage note payable in monthly installments of $4,873, including interest, with final payment of $349,000 due January 27, 2019 - 373,000 4.00% working capital line of credit with a maturity date of October 20, 2018 - 751,000 4.00% building line of credit with a maturity date of October 20, 2018 - 465,000 Borrowings under an equipment financing line of credit: 4.75% note payable in monthly installments of $2,269, including interest, with final payment made on May 27, 2018 - 2,000 4.05% note payable in monthly installments of $3,680, including interest, with final payment due January 10, 2020 - 75,000 Total long-term debt 1,766,000 1,836,000 Less current installments 925,000 1,706,000 Long-term debt, excluding current installments $ 841,000 $ 130,000 The asset-based revolving line of credit is intended to be used for working capital purposes and has a capacity of $1,000,000. The asset-based revolving line of credit is renewable annually upon mutual agreement of Torotel and the Bank. The associated interest rate is equal to the greater of the floating Cornerstone Bank Corporate Base Rate (currently 6%) or a floor of 5% (as listed above). Monthly repayments of interest only are required under the asset-based revolving line of credit promissory note with the principal due at maturity. The borrowing base of the revolving line of credit is limited to 80% of eligible accounts receivable, plus 50% of eligible inventory, plus 80% of eligible equipment. This asset-based revolving line of credit is cross collateralized and cross defaulted with all other financing agreements of Torotel with the Bank and is secured by a first lien on all business assets of Torotel pursuant to the Commercial Security Agreement. Under the revolving line of credit, if the aggregate principal amount of the outstanding advances exceeds the applicable borrowing base, Torotel must pay the Bank an amount equal to the difference between the outstanding principal balance of the revolving line of credit and the borrowing base. The equipment note is a guidance line of credit to be used for equipment purchases and has a capacity of $250,000 with a 12-month term that is renewable annually upon mutual agreement of Torotel and the Bank. Monthly repayments of interest are required, with principal due at maturity. The associated advance rate is equal to the greater of the floating Cornerstone Bank Corporate Base Rate (currently 6%) or a floor of 5% (as listed above). Monthly repayments of interest only are required, with the principal due at maturity. This note is cross collateralized and cross defaulted with all other financing agreements of Torotel and is secured by a purchase money security interest in the assets purchased as well as a first lien on all business assets of Torotel. Upon execution of the agreement, Torotel received initial advances of $54,000 under the guidance line of credit. The real estate term loan is in the principal amount of $815,000 and contains a 5-year with a 20-year amortization period, with the balance at maturity on October 19, 2023. The associated interest rate is fixed at 5.35%. Monthly repayments of approximately $5,573, consisting of both interest and principal, are required. The final payment of approximately $690,829 is due on the maturity date. This real estate term loan is cross collateralized and cross defaulted with the other financing agreements. Pursuant to a Commercial Security Agreement dated October 19, 2018, between Torotel and the Bank (the “Commercial Security Agreement”), which was entered into in connection with the financing agreements, the real estate term loan is secured by a first lien priority real estate mortgage on the property located at 620 North Lindenwood Drive in Olathe, Kansas. The financing agreements contain customary representations, warranties, and covenants of Torotel for the benefit of the Bank, as well as customary default provisions. Other than the borrowing base limitations under the asset-based revolving line of credit, none of the financing agreements requires Torotel to comply with any financial covenants. Prepayments are allowed without penalty under all of the financing agreements. Irrevocable Standby Letter of Credit Under the terms of a lease amendment for its manufacturing facility located in Olathe, Kansas (see Note 11), Torotel provided the landlord an irrevocable standby letter of credit in the original amount of $300,000 as additional security. The balance under the letter of credit will automatically reduce in accordance with the below schedule if not drawn upon: Date of Reduction Amount of Reduction Balance of Letter of Credit January 1, 2020 $ 75,000 $ 225,000 January 1, 2021 75,000 150,000 January 1, 2022 75,000 75,000 January 1, 2023 75,000 -

INCOME TAXES

INCOME TAXES	6 Months Ended
	Oct. 31, 2018
INCOME TAXES
INCOME TAXES	NOTE As of October 31, 2018, the federal tax returns for the fiscal years ended 2016 through 2018 are open to audit until the statute of limitations closes for the years in which our net operating losses are utilized. We would recognize interest and penalties accrued on unrecognized tax benefits as well as interest received from favorable tax settlements within income tax expense. As of October 31, 2018, we recorded no accrued interest or penalties related to uncertain tax positions. We expect no significant change in the amount of unrecognized tax benefit, accrued interest or penalties within the next twelve months.

RESTRICTED STOCK AGREEMENTS

RESTRICTED STOCK AGREEMENTS	6 Months Ended
	Oct. 31, 2018
RESTRICTED STOCK AGREEMENTS
RESTRICTED STOCK AGREEMENTS	NOTE Restricted Stock Agreements, and stock awards thereunder, are authorized by the Compensation and Nominating Committee (the "Committee") and the Board of Directors of Torotel (the "Board"). The terms of the Restricted Stock Agreements afford the grantees all of the rights of a stockholder with respect to the award shares, including the right to vote such shares and to receive dividends and other distributions payable with respect to such shares since the date of award. Under the terms of each agreement, the non-vested shares are restricted as to disposition and subject to forfeiture under certain circumstances. The Restricted Stock Agreements further provide, subject to certain conditions, that if prior to all of the restricted shares having vested, we undergo a change in control, then all of the restricted shares shall be vested and no longer subject to restrictions under the Restricted Stock Agreements. The restricted shares are treated as non-vested stock; accordingly, the fair value of the restricted stock at the date of award is offset against capital in excess of par value in the accompanying consolidated balance sheets under stockholders' equity. Restricted Stock Grants The Shares were granted subject to restrictions that prohibit them from being sold, assigned, pledged or otherwise disposed of until the restrictions lapse. The restrictions will lapse on the fifth anniversary of the date of grant if during the five year restriction period, (1) the Company's cumulative annual growth in revenue is at least 10%, and (2) the average economic value added as a percentage of revenue is at least 2%. The economic value added, which attempts to capture the true economic profit, will be calculated as the operating profit less the cost of capital with adjustments made for taxes. The restrictions will also lapse, if prior to the fifth anniversary of the date of grant, (1) the grantee's employment with the Company is terminated by reason of disability, (2) the grantee dies, or (3) the Committee, in its sole discretion, terminates the restrictions. If the restrictions on the Shares have not lapsed by the fifth anniversary of the date of grant, the Shares will be forfeited to the Company. Stock Compensation Costs and Restricted Stock Activity Total stock compensation cost for the six months ended October 31, 2018 and 2017 was $54,000 and $54,000, respectively. Restricted stock activity for each six month period through October 31 is summarized as follows: 2018 2017 Restricted Weighted Restricted Weighted Shares Average Shares Average Under Grant Under Grant Option Price Option Price Outstanding at May 1 730,000 $ 0.740 730,000 $ 0.740 Granted — — — — Forfeited — — — — Outstanding at October 31 730,000 $ 0.740 730,000 $ 0.740

STOCKHOLDERS' EQUITY

STOCKHOLDERS' EQUITY	6 Months Ended
	Oct. 31, 2018
STOCKHOLDERS' EQUITY
STOCKHOLDERS' EQUITY	NOTE The shares of common stock outstanding as of October 31 of each year are summarized as follows: 2018 2017 Balance, May 1 5,995,750 5,995,750 Shares released from treasury for restricted stock grants — — Newly issued shares for restricted stock grants — — Shares reverted to treasury for restricted stock forfeitures — — Balance, October 31 5,995,750 5,995,750

EARNINGS PER SHARE

EARNINGS PER SHARE	6 Months Ended
	Oct. 31, 2018
EARNINGS PER SHARE
EARNINGS PER SHARE	NOTE Basic and diluted earnings per share are computed using the two-class method. The two-class method is an earnings allocation formula that determines net income per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings. Per share amounts are computed by dividing net income attributable to common shareholders by the weighted average shares outstanding during each period. The basic earnings per common share were computed as follows: Three Months Ended Six Months Ended October 31, 2018 October 31, 2017 October 31, 2018 October 31, 2017 Net earnings (loss) $ 32,000 $ (171,000) $ (11,000) $ (364,000) Amounts allocated to participating securities (nonvested restricted shares) (2,000) — — — Net income (loss) attributable to common shareholders $ 30,000 $ (171,000) $ (11,000) $ (364,000) Basic weighted average common shares 5,265,750 5,265,750 5,265,750 5,265,750 Earnings (loss) per share attributable to common shareholders: Basic earnings (loss) per share $ 0.01 $ (0.03) $ (0.00) $ (0.07) ASC 260, Earnings per Share, provides that unvested share-based payment awards that contain non-forfeitable rights to dividends are considered to be participating securities and must be considered in the computation of earnings per share pursuant to the two-class method. Diluted earnings per share is not presented as we do not have any shares considered incremental and dilutive.

CONTRACT ASSETS AND LIABILITIES

CONTRACT ASSETS AND LIABILITIES	6 Months Ended
	Oct. 31, 2018
CONTRACT ASSETS AND LIABILITIES
CONTRACT ASSETS AND LIABILITIES	NOTE 9— For each of our contracts, the timing of revenue recognition, customer billings, and cash collections results in a net contract asset or liability at the end of each reporting period. Contract assets consist of unbilled receivables typically resulting from revenue recognition under contracts when either control has passed to the customer but the product has not yet shipped or the percentage-of-completion of revenue recognition is utilized when revenue recognized exceeds the amount billed to the customer for any project-related services, utilizing labor as the input method. Contract liabilities (formerly referred to on the balance sheet as customer deposits) include advance payments and billings in excess of revenue recognized. Contract assets and contract liabilities were as follows: October 31, 2018 April 30, 2018 Contract assets $ 365,000 $ — Contract liabilities $ 27,000 $ 219,000 Contract assets increased $365,000 between April 30, 2018 and October 31, 2018 due to the adoption of the new revenue standard, and relates to the recognition of revenue related to the satisfaction or partial satisfaction of performance obligations for which we have not yet billed. Contract liabilities decreased $192,000 between April 30, 2018 and October 31, 2018 due to the recognition of revenue on advance payments exceeding additional advance payment receipts.

CONCENTRATIONS OF CREDIT RISK

CONCENTRATIONS OF CREDIT RISK	6 Months Ended
	Oct. 31, 2018
CONCENTRATIONS OF CREDIT RISK
CONCENTRATIONS OF CREDIT RISK	NOTE 10 — CONCENTRATIONS OF CREDIT RISK Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and accounts receivable. We grant unsecured credit to most of our customers. We do not believe that we are exposed to any extraordinary credit risk as a result of this policy. At various times cash balances exceeded federally insured limits. However, we have incurred no losses in the cash accounts and we do not believe we are exposed to any significant credit risk with respect to our cash.

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES	6 Months Ended
	Oct. 31, 2018
COMMITMENTS AND CONTINGENCIES.
COMMITMENTS AND CONTINGENCIES	NOTE 11 — Torotel is obligated under several capital leases for the lease of various information technology equipment that expire at various dates during the next three years. All of these leases are non-cancellable and are presented in the accompanying consolidated financial statements as long-term debt. At October 31, 2018 and April 30, 2018, the gross amount of equipment under capital lease was $225,000. Related accumulated depreciation recorded under capital lease were $54,000 and $48,000, respectively. Amortization of assets held under capital lease is included with depreciation expense. On August 30, 2017, Torotel entered into a Third Amendment (“Amendment”) to the lease for its manufacturing facility located in Olathe, Kansas. The Amendment reconfigured the Suite 520 entry design, and granted Torotel a $37,500 lump sum net base rent abatement, applied at $18,750 per month from September 1, 2017 through October 31, 2017. The Amendment also reduced the current letter of credit requirement from $350,000 to $300,000. The Amendment did not change the term of the lease, which continues through December 31, 2026 (subject to early termination options and two separate options to extend the lease term for additional five year periods). Future minimum lease payments on the amended operating lease and future minimum capital lease payments as of October 31, 2018 are as follows: Capital Operating Fiscal Years Ending April 30, Leases Leases 2019 $ 30,000 $ 212,000 2020 75,000 415,000 2021 27,000 410,000 2022 — 430,000 2023 — 442,000 2024 — 452,000 2025 — 456,000 2026 — 467,000 2027 — 350,000 132,000 3,634,000 Less: Amounts representing interest (7,000) — Total $ 125,000 $ 3,634,000

BASIS OF PRESENTATION (Tables)

BASIS OF PRESENTATION (Tables)	6 Months Ended
	Oct. 31, 2018
BASIS OF PRESENTATION
Schedule of New Accounting Pronouncements and Changes in Accounting Principles	Adjustments due to April 30, 2018 ASC 606 May 1, 2018 Assets Contract assets $ — $ 102,000 $ 102,000 Equity Accumulated deficit $ (8,743,000) $ 102,000 $ (8,641,000) Balances Without Adoption of ASC 606 Effect of Change As Reported as of October 31, 2018 Higher/(Lower) Balance Sheet Assets Contract assets $ 365,000 $ — $ 365,000 Three Months Ended Balances Without Adoption of ASC 606 Effect of Change As Reported October 31, 2018 Higher/(Lower) Statement of Operations Net sales 4,874,000 4,406,000 468,000 Cost of goods sold 3,200,000 2,995,000 205,000 Gross profit 1,674,000 1,411,000 263,000 Income (loss) from operations 71,000 (192,000) 263,000 Income (loss) before benefit for income taxes 47,000 (216,000) 263,000 Benefit for income taxes 15,000 15,000 — Net income (loss) 32,000 (231,000) 263,000 Six Months Ended Balances Without Adoption of ASC 606 Effect of Change As Reported October 31, 2018 Higher/(Lower) Statement of Operations Net sales 9,347,000 8,879,000 468,000 Cost of goods sold 6,194,000 5,989,000 205,000 Gross profit 3,153,000 2,890,000 263,000 Income (loss) from operations 37,000 (226,000) 263,000 Loss before benefit for income taxes (11,000) (274,000) 263,000 Income tax expense — — — Net loss (11,000) (274,000) 263,000 Statement of Cash Flows Net loss (11,000) (274,000) 263,000 Contract assets and liabilities (455,000) (192,000) (263,000) Net cash provided (used) in operating activities (277,000) (277,000) —

INVENTORIES (Tables)

INVENTORIES (Tables)	6 Months Ended
	Oct. 31, 2018
INVENTORIES
Table summarizing the components of inventories	October 31, 2018 April 30, 2018 Raw materials $ 1,800,000 $ 1,278,000 Work in process 1,023,000 635,000 Finished goods 466,000 449,000 $ 3,289,000 $ 2,362,000

FINANCING AGREEMENTS (Tables)

FINANCING AGREEMENTS (Tables)	6 Months Ended
	Oct. 31, 2018
FINANCING AGREEMENTS
Summary of the notes within the financing agreement	October 31, 2018 April 30, 2018 6.00% asset-based line of credit with a maturity date of October 19, 2019 $ 781,000 $ - 6.00% guidance line of credit with a maturity date of October 19, 2019 54,000 - 5.35% mortgage note payable in monthly installments of $5,573, including interest, with final payment of $690,829 due October 19, 2023 806,000 Capital lease obligations (see Note 11) 125,000 170,000 4.05% mortgage note payable in monthly installments of $4,873, including interest, with final payment of $349,000 due January 27, 2019 - 373,000 4.00% working capital line of credit with a maturity date of October 20, 2018 - 751,000 4.00% building line of credit with a maturity date of October 20, 2018 - 465,000 Borrowings under an equipment financing line of credit: 4.75% note payable in monthly installments of $2,269, including interest, with final payment made on May 27, 2018 - 2,000 4.05% note payable in monthly installments of $3,680, including interest, with final payment due January 10, 2020 - 75,000 Total long-term debt 1,766,000 1,836,000 Less current installments 925,000 1,706,000 Long-term debt, excluding current installments $ 841,000 $ 130,000
Schedule of letter of credit outstanding balance	Date of Reduction Amount of Reduction Balance of Letter of Credit January 1, 2020 $ 75,000 $ 225,000 January 1, 2021 75,000 150,000 January 1, 2022 75,000 75,000 January 1, 2023 75,000 -

RESTRICTED STOCK AGREEMENTS (Ta

RESTRICTED STOCK AGREEMENTS (Tables)	6 Months Ended
	Oct. 31, 2018
RESTRICTED STOCK AGREEMENTS
Summary of restricted stock activity	2018 2017 Restricted Weighted Restricted Weighted Shares Average Shares Average Under Grant Under Grant Option Price Option Price Outstanding at May 1 730,000 $ 0.740 730,000 $ 0.740 Granted — — — — Forfeited — — — — Outstanding at October 31 730,000 $ 0.740 730,000 $ 0.740

STOCKHOLDERS' EQUITY (Tables)

STOCKHOLDERS' EQUITY (Tables)	6 Months Ended
	Oct. 31, 2018
STOCKHOLDERS' EQUITY
Summary of changes in shares of common stock outstanding	2018 2017 Balance, May 1 5,995,750 5,995,750 Shares released from treasury for restricted stock grants — — Newly issued shares for restricted stock grants — — Shares reverted to treasury for restricted stock forfeitures — — Balance, October 31 5,995,750 5,995,750

EARNINGS PER SHARE (Tables)

EARNINGS PER SHARE (Tables)	6 Months Ended
	Oct. 31, 2018
EARNINGS PER SHARE
Schedule of basic earnings per common share	Three Months Ended Six Months Ended October 31, 2018 October 31, 2017 October 31, 2018 October 31, 2017 Net earnings (loss) $ 32,000 $ (171,000) $ (11,000) $ (364,000) Amounts allocated to participating securities (nonvested restricted shares) (2,000) — — — Net income (loss) attributable to common shareholders $ 30,000 $ (171,000) $ (11,000) $ (364,000) Basic weighted average common shares 5,265,750 5,265,750 5,265,750 5,265,750 Earnings (loss) per share attributable to common shareholders: Basic earnings (loss) per share $ 0.01 $ (0.03) $ (0.00) $ (0.07)

CONTRACT ASSETS AND LIABILITI_2

CONTRACT ASSETS AND LIABILITIES (Tables)	6 Months Ended
	Oct. 31, 2018
CONTRACT ASSETS AND LIABILITIES
Schedule of contract assets and contract liabilities	October 31, 2018 April 30, 2018 Contract assets $ 365,000 $ — Contract liabilities $ 27,000 $ 219,000

COMMITMENTS AND CONTINGENCIES (

COMMITMENTS AND CONTINGENCIES (Tables)	6 Months Ended
	Oct. 31, 2018
COMMITMENTS AND CONTINGENCIES.
Future minimum lease payments under non-cancellable operating leases	Capital Operating Fiscal Years Ending April 30, Leases Leases 2019 $ 30,000 $ 212,000 2020 75,000 415,000 2021 27,000 410,000 2022 — 430,000 2023 — 442,000 2024 — 452,000 2025 — 456,000 2026 — 467,000 2027 — 350,000 132,000 3,634,000 Less: Amounts representing interest (7,000) — Total $ 125,000 $ 3,634,000

BASIS OF PRESENTATION (Details)

BASIS OF PRESENTATION (Details)	3 Months Ended		6 Months Ended
	Oct. 31, 2018USD ($)item	Oct. 31, 2017USD ($)	Oct. 31, 2018USD ($)item	Oct. 31, 2017USD ($)	May 01, 2018USD ($)	Apr. 30, 2018USD ($)
Revenue from Contracts with Customers
Number of primary product revenue streams | item	2		2
Revenue from contracts with performance obligations satisfied over time	90.00%		90.00%
Assets
Contract assets	$ 365,000		$ 365,000		$ 102,000
Equity
Accumulated deficit	(8,652,000)		(8,652,000)		(8,641,000)	$ (8,743,000)
Net sales	4,874,000		9,347,000
Cost of goods sold	3,200,000	$ 3,322,000	6,194,000	$ 6,596,000
Gross profit	1,674,000	1,362,000	3,153,000	2,618,000
Income (loss) from operations	71,000	(269,000)	37,000	(565,000)
Income (loss) before benefit for income taxes	47,000	(282,000)	(11,000)	(590,000)
Benefit for income taxes	15,000	(111,000)		(226,000)
Net loss	$ 32,000	$ (171,000)	(11,000)	(364,000)
Contract assets and liabilities			(455,000)	(22,000)
Net cash provided (used) in operating activities			$ (277,000)	$ (673,000)
Aerospace and defense industries
Revenue from Contracts with Customers
Percentage of revenue	90.00%		90.00%
Industrial and commercial
Revenue from Contracts with Customers
Percentage of revenue	7.00%		7.00%
ASU 2014-09 | Balances Without Adoption of ASC 606
Equity
Net sales	$ 4,406,000		$ 8,879,000
Cost of goods sold	2,995,000		5,989,000
Gross profit	1,411,000		2,890,000
Income (loss) from operations	(192,000)		(226,000)
Income (loss) before benefit for income taxes	(216,000)		(274,000)
Benefit for income taxes	15,000
Net loss	(231,000)		(274,000)
Contract assets and liabilities			(192,000)
Net cash provided (used) in operating activities			(277,000)
ASU 2014-09 | Effect of Change Higher/(Lower)
Assets
Contract assets	365,000		365,000		102,000
Equity
Accumulated deficit					$ 102,000
Net sales	468,000		468,000
Cost of goods sold	205,000		205,000
Gross profit	263,000		263,000
Income (loss) from operations	263,000		263,000
Income (loss) before benefit for income taxes	263,000		263,000
Net loss	$ 263,000		263,000
Contract assets and liabilities			$ (263,000)

INVENTORIES (Details)

INVENTORIES (Details) - USD ($)	Oct. 31, 2018	Apr. 30, 2018
INVENTORIES
Raw materials	$ 1,800,000	$ 1,278,000
Work in process	1,023,000	635,000
Finished goods	466,000	449,000
Inventories	$ 3,289,000	$ 2,362,000

FINANCING AGREEMENTS (Details)

FINANCING AGREEMENTS (Details)	Oct. 19, 2018USD ($)agreement	Oct. 31, 2018USD ($)	Apr. 30, 2018USD ($)
FINANCING AGREEMENTS
Total debt repaid and extinguished | $	$ 1,625,000	$ 1,766,000	$ 1,836,000
Number of new business loan agreements | agreement	3

FINANCING AGREEMENTS - Debt Tab

FINANCING AGREEMENTS - Debt Table (Details) - USD ($)	6 Months Ended	12 Months Ended
	Oct. 31, 2018	Apr. 30, 2018	Oct. 19, 2018
Long-term indebtedness
Total long-term debt	$ 1,766,000	$ 1,836,000	$ 1,625,000
Less current installments	925,000	1,706,000
Long-term debt, excluding current installments	841,000	130,000
Capital Leases
Long-term indebtedness
Total long-term debt	125,000	170,000
Asset Based Line Of Credit 6.00 Percent Due October 2019 | Line of Credit
Long-term indebtedness
Total long-term debt	$ 781,000
Rate	6.00%
Maximum borrowing	$ 1,000,000
Asset Based Line Of Credit 6.00 Percent Due October 2019 | Line of Credit | Prime Rate
Long-term indebtedness
Rate	6.00%
Asset Based Line Of Credit 6.00 Percent Due October 2019 | Line of Credit | Prime Rate | Minimum
Long-term indebtedness
Rate	5.00%
Guidance Line Of Credit 6.00 Percent Due October 2019 | Line of Credit
Long-term indebtedness
Total long-term debt	$ 54,000
Rate	6.00%
Mortgage note payable 5.35 percent due October 2023 | Mortgage note payable
Long-term indebtedness
Total long-term debt	$ 806,000
Notes Payable	$ 815,000
Rate	5.35%
Monthly installments	$ 5,573
Final payment	$ 690,829
Real estate term loan period	5 years
Amortization period	20 years
Mortgage note payable 4.05 Percent Due January 2019 | Mortgage note payable
Long-term indebtedness
Total long-term debt		$ 373,000
Rate		4.05%
Monthly installments		$ 4,873
Final payment		349,000
Working line of credit 4.00 percent | Line of Credit
Long-term indebtedness
Total long-term debt		$ 751,000
Rate		4.00%
Building line of credit 4.00 percent | Line of Credit
Long-term indebtedness
Total long-term debt		$ 465,000
Rate		4.00%
Note payable 4.75 percent | Note Payable
Long-term indebtedness
Total long-term debt		$ 2,000
Rate		4.75%
Monthly installments		$ 2,269
Note payable 4.05 percent | Note Payable
Long-term indebtedness
Total long-term debt		$ 75,000
Rate		4.05%
Monthly installments		$ 3,680
Equipment line of credit
Long-term indebtedness
Equipment financing maximum borrowing	$ 250,000
Equipment line of credit | Line of Credit
Long-term indebtedness
Term	12 months
Initial advances, line of credit	$ 54,000

FINANCING AGREEMENTS - Irrevoca

FINANCING AGREEMENTS - Irrevocable Standby Letters of Credit (Details) - USD ($)	Jan. 01, 2023	Jan. 01, 2022	Jan. 01, 2021	Jan. 01, 2020	Oct. 31, 2018	Aug. 31, 2017	Aug. 30, 2017
Long-term indebtedness
Principal amount						$ 300,000	$ 350,000
Irrevocable Standby Letter of Credit
Long-term indebtedness
Principal amount					$ 300,000
Irrevocable Standby Letter of Credit | Forecast
Long-term indebtedness
Amount of Reduction	$ 75,000	$ 75,000	$ 75,000	$ 75,000
Balance of Letter of Credit		$ 75,000	$ 150,000	$ 225,000

INCOME TAXES (NARRATIVE) (Detai

INCOME TAXES (NARRATIVE) (Details)	Oct. 31, 2018USD ($)
INCOME TAXES
Accrued interest and penalties	$ 0

RESTRICTED STOCK AGREEMENTS (De

RESTRICTED STOCK AGREEMENTS (Details) - Restricted Stock	Sep. 21, 2016employeeshares	Oct. 31, 2018USD ($)$ / sharesshares	Oct. 31, 2017USD ($)$ / sharesshares
Share-based Compensation Arrangement by Share-based Payment Award
Stock compensation cost amortized | $		$ 54,000	$ 54,000
Restricted Shares Under Option
Outstanding at beginning of period		730,000	730,000
Outstanding at end of period		730,000	730,000
Weighted Average Grant Price
Outstanding at beginning of period, Weighted Average Grant Price (in dollars per share) | $ / shares		$ 0.740	$ 0.740
Outstanding at end of period, Weighted Average Grant Price (in dollars per share) | $ / shares		$ 0.740	$ 0.740
2016 Restricted Stock Grants | Minimum
Share-based Compensation Arrangement by Share-based Payment Award
Cumulative annual growth in revenue (as a percentage)	10.00%
Average economic value added as percentage of revenue (as a percentage)	2.00%
Stock Award Plan
Share-based Compensation Arrangement by Share-based Payment Award
Restriction period of awards	5 years
Stock Award Plan | Three Key Employees
Share-based Compensation Arrangement by Share-based Payment Award
Number of key employees receiving award under plan | employee	3
Aggregate amount of restricted stock awards authorized	730,000

STOCKHOLDERS' EQUITY (Details)

STOCKHOLDERS' EQUITY (Details) - shares	Oct. 31, 2018	Apr. 30, 2018	Oct. 31, 2017
Increase (Decrease) in Stockholders' Equity
Balance beginning of year (in shares)	5,995,750	5,995,750	5,995,750
Balance end of year (in shares)	5,995,750	5,995,750	5,995,750

EARNINGS PER SHARE (Details)

EARNINGS PER SHARE (Details) - USD ($)	3 Months Ended		6 Months Ended
	Oct. 31, 2018	Oct. 31, 2017	Oct. 31, 2018	Oct. 31, 2017
EARNINGS PER SHARE
Net earnings (loss)	$ 32,000	$ (171,000)	$ (11,000)	$ (364,000)
Amounts allocated to participating securities (nonvested restricted shares)	(2,000)
Net income (loss) attributable to common shareholders	$ 30,000	$ (171,000)	$ (11,000)	$ (364,000)
Basic weighted average common shares	5,265,750	5,265,750	5,265,750	5,265,750
Earnings (loss) per share attributable to common shareholders:
Basic earnings (loss) per share	$ 0.01	$ (0.03)	$ 0	$ (0.07)

CONTRACT ASSETS AND LIABILITI_3

CONTRACT ASSETS AND LIABILITIES (Details) - USD ($)	Oct. 31, 2018	May 01, 2018	Apr. 30, 2018	Oct. 31, 2017
CONTRACT ASSETS AND LIABILITIES
Contract assets	$ 365,000	$ 102,000
Contract liabilities	27,000		$ 219,000	$ 219,000
Increase in contract assets	365,000
Decrease in contract liabilities	$ 192,000

CONCENTRATIONS OF CREDIT RISK (

CONCENTRATIONS OF CREDIT RISK (Details)	6 Months Ended
	Oct. 31, 2018USD ($)
CONCENTRATIONS OF CREDIT RISK
Losses in the cash accounts	$ 0

COMMITMENTS AND CONTINGENCIES_2

COMMITMENTS AND CONTINGENCIES (Details)	Aug. 30, 2017USD ($)Option	Oct. 31, 2017USD ($)	Oct. 31, 2018USD ($)	Apr. 30, 2018USD ($)	Aug. 31, 2017USD ($)
COMMITMENTS AND CONTINGENCIES.
Capital Leased Assets, Gross			$ 225,000	$ 225,000
Accumulated depreciation			54,000	$ 48,000
Net base rent abatement	$ 37,500
Monthly rent payment		$ 18,750
Principal amount	$ 350,000				$ 300,000
Number Options To Extend Lease | Option	2
Extension of lease term	5 years
Future minimum lease payments under non-cancellable operating leases
2,019			212,000
2,020			415,000
2,021			410,000
2,022			430,000
2,023			442,000
2,024			452,000
2,025			456,000
2,026			467,000
2,027			350,000
Total			3,634,000
Capital Leases
2,019			30,000
2,020			75,000
2,021			27,000
Total			132,000
Interest Portion of Minimum Lease Payments			(7,000)
Presents value of minimum capital lease payments			$ 125,000