Torotel (TTLO) 10-Q 2019 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE

COMMISSION

Washington, D.C.  20549

FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 31,  2019 

or

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File No. 001-8125

TOROTEL, INC.

(Exact name of registrant as specified in its charter)

MISSOURI	44-0610086
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
520 N. ROGERS ROAD, OLATHE, KANSAS	66062
(Address of principal executive offices)	(Zip Code)

(913) 747-6111

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ◻ Accelerated filer ◻ Non-accelerated filer ◻
Smaller reporting company ☒ Emerging growth company ◻

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).  Yes ☐  No ☒

As of  March  13, 2019, there were 5,995,750 shares of Common Stock, $0.01 par value, outstanding.

TOROTEL, INC. AND SUBSIDIARIES

INDEX

Part I.    Financial Information (Unaudited)		3
Item 1	Financial Statements	3
	Consolidated Condensed Balance Sheets	3
	Consolidated Condensed Statements of Operations	4
	Consolidated Condensed Statements of Changes in Stockholders’ Equity	5
	Consolidated Condensed Statements of Cash Flows	6
	Note 1 - Basis of Presentation	7
	Note 2 - Nature of Operations	9
	Note 3 - Inventories	9
	Note 4 - Financing Agreements	9
	Note 5 - Income Taxes	11
	Note 6 - Restricted Stock Agreements	12
	Note 7 - Stockholders' Equity	13
	Note 8 - Earnings per Share	13
	Note 9 - Contract Assets	13
	Note 10 - Customer Deposits	14
	Note 11 - Concentrations of Credit Risk	14
	Note 12 - Commitments and Contingencies	15
	Note 13 - Subsequent Event	15
Forward-Looking Information		16
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
	Overview	17
	Business and Industry Considerations	17
	Results of Operations	18
	Financial Condition and Liquidity	20
	Critical Accounting Policies	21
Item 3	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4	Controls and Procedures	21
Part II.  Other Information		23
Item 6	Exhibits	23
Signatures		24

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PART I.   FINANCIAL INFORMATION

Item 1.   Financial Statements

CONSOLIDATED CONDENSED BALANCE SHEETS

	(Unaudited)
	January 31, 2019		April 30, 2018
ASSETS
Current assets:
Cash	$	40,000	$	575,000
Trade receivables, net		1,451,000		2,193,000
Contract assets		1,003,000		—
Inventories		2,897,000		2,362,000
Prepaid expenses		178,000		238,000
Property held for sale		734,000		694,000
		6,303,000		6,062,000
Leasehold improvements		458,000		616,000
Equipment		4,009,000		3,951,000
		4,467,000		4,567,000
Less accumulated depreciation		3,320,000		3,235,000
Property, plant and equipment, net		1,147,000		1,332,000
Deferred income taxes		68,000		68,000
Other assets		153,000		209,000
Total Assets	$	7,671,000	$	7,671,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt	$	1,173,000	$	1,706,000
Trade accounts payable		1,457,000		1,045,000
Accrued liabilities		670,000		817,000
Customer deposits		25,000		219,000
		3,325,000		3,787,000
Long-term debt, less current maturities		826,000		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		12,518,000		12,437,000
Accumulated deficit		(9,058,000)		(8,743,000)
		3,520,000		3,754,000
Total Liabilities and Stockholders' Equity	$	7,671,000	$	7,671,000

The accompanying notes are an integral part of these statements.

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CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)

	Three Months Ended				Nine Months Ended
	January 31, 2019		January 31, 2018		January 31, 2019		January 31, 2018
Net sales	$	4,750,000	$	4,529,000	$	14,097,000	$	13,742,000
Cost of goods sold		3,680,000		3,091,000		9,874,000		9,686,000
Gross profit		1,070,000		1,438,000		4,223,000		4,056,000
Operating expenses:
Engineering		351,000		267,000		966,000		806,000
Selling, general and administrative		1,089,000		1,140,000		3,590,000		3,783,000
		1,440,000		1,407,000		4,556,000		4,589,000
Income (loss) from operations		(370,000)		31,000		(333,000)		(533,000)
Other expense:
Interest expense, net		36,000		28,000		84,000		53,000
Income (loss) before income tax expense		(406,000)		3,000		(417,000)		(586,000)
Income tax expense		—		310,000		—		85,000
Net loss	$	(406,000)	$	(307,000)	$	(417,000)	$	(671,000)
Basic loss per share	$	(0.08)	$	(0.06)	$	(0.08)	$	(0.13)

The accompanying notes are an integral part of these statements.

4

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)

								Total
		Common		Excess of		Accumulated		Stockholders'
	Shares	Stock		Par Value		Deficit		Equity
For The Three Months Ended January 31, 2018:
Balance, October 31, 2017	5,995,750	$	60,000	$	12,383,000	$	(7,093,000)	$	5,350,000
Stock compensation earned	—		—		27,000		—		27,000
Net loss	—		—		—		(307,000)		(307,000)
Balance, January 31, 2018	5,995,750		60,000		12,410,000		(7,400,000)		5,070,000
For The Nine Months Ended January 31, 2018:
Balance, April 30, 2017	5,995,750	$	60,000	$	12,329,000	$	(6,729,000)	$	5,660,000
Stock compensation earned	—		—		81,000		—		81,000
Net loss	—		—		—		(671,000)		(671,000)
Balance, January 31, 2018	5,995,750		60,000		12,410,000		(7,400,000)		5,070,000
For The Three Months Ended January 31, 2019:
Balance, October 31, 2018	5,995,750	$	60,000	$	12,491,000	$	(8,652,000)	$	3,899,000
Stock compensation earned	—		—		27,000		—		27,000
Net loss	—		—		—		(406,000)		(406,000)
Balance, January 31, 2019	5,995,750		60,000		12,518,000		(9,058,000)		3,520,000
For The Nine Months Ended January 31, 2019:
Balance, April 30, 2018	5,995,750	$	60,000	$	12,437,000	$	(8,743,000)	$	3,754,000
Stock compensation earned	—		—		81,000		—		81,000
Net loss	—		—		—		(417,000)		(417,000)
Cumulative effect of adoption of new accounting principle (see Note 1)	—		—		—		102,000		102,000
Balance, January 31, 2019	5,995,750		60,000		12,518,000		(9,058,000)		3,520,000

The accompanying notes are an integral part of these statements.

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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)

	Nine Months Ended
	January 31, 2019		January 31, 2018
Cash flows from operating activities:
Net loss	$	(417,000)	$	(671,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock compensation cost amortized		81,000		81,000
Depreciation		253,000		233,000
Deferred income taxes		—		103,000
Changes in operating assets and liabilities:
Trade receivables		742,000		94,000
Contract assets		(901,000)		—
Inventories		(535,000)		(214,000)
Prepaid expenses and other assets		116,000		13,000
Trade accounts payable		412,000		(415,000)
Accrued liabilities		(147,000)		324,000
Customer deposits		(194,000)		(10,000)
Net cash used in operating activities		(590,000)		(462,000)
Cash flows from investing activities:
Capital expenditures		(108,000)		(52,000)
Net cash used in investing activities		(108,000)		(52,000)
Cash flows from financing activities:
Principal payments on long-term debt		(1,671,000)		(99,000)
Payments on capital lease obligations		(53,000)		(26,000)
Payments on line of credit		(1,258,000)		—
Proceeds from long-term debt		859,000		—
Proceeds from line of credit		2,286,000		750,000
Net cash provided by financing activities		163,000		625,000
Net increase (decrease) in cash		(535,000)		111,000
Cash, beginning of period		575,000		298,000
Cash, end of period	$	40,000	$	409,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	81,298	$	53,000
Non-cash investing and financing activities:
Equipment financed with proceeds from capital lease	$	—	$	225,000

The accompanying notes are an integral part of these statements.

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE 1 — BASIS OF PRESENTATION

The consolidated condensed balance sheet as of April 30, 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 January 31,  2019, and the consolidated results of operations and cash flows for the three and nine months ended January 31,  2019, and 2018, 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),  which replaces or supersedes ASC Topic 840, Leases, and is intended to increase the transparency and comparability of accounting for lease transactions. ASU 2016-02 requires most leases to be recognized on the balance sheet as lessees will need to recognize a right-of-use asset and a lease liability for virtually all leases with a term longer than twelve months. The liability will be equal to the present value of lease payments. The asset will be based on the liability, subject to adjustment, such as for initial direct costs. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Lessor accounting remains similar to the current model. Targeted improvements were made to lessor accounting to align, where necessary, with certain changes to the lessee model and the new revenue recognition standard. The ASU will require both quantitative and qualitative disclosures regarding key information about leasing arrangements. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, and the Company expects to adopt the standard on May 1, 2019. The Company plans to elect the optional transition method that applies the new lease requirements through a cumulative-effect adjustment in the period of adoption. Based on the results of our preliminary evaluation, the most significant impact is expected to relate to the recognition of right-of-use assets and lease liabilities on the Company's condensed consolidated balance sheets for long-term operating leases and is expected to be material in the first quarter of fiscal year 2020.  We have implemented a project plan where contracts and assets are being reviewed for identifying leases under the new standard, evaluating the components of the lease, determining the initial recognition of each lease liability and right-of-use asset, and presentation based on the classification of the lease as an operating or finance lease.    The Company's assessment and implementation plan will be ongoing and will include evaluating the impact of this standard on the consolidated financial statements and footnotes.

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-

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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 increase 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 nine months ended January 31, 2019 was as follows:

			Balances Without Adoption
			of ASC 606		Effect of Change
	As Reported		as of January 31, 2019		Higher/(Lower)
Balance Sheet
Assets
Contract assets	$	1,003,000	$	—	$	1,003,000
Inventories		2,897,000		3,404,000		(507,000)
Accumulated deficit		(9,058,000)		(8,562,000)		(496,000)

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	Three Months Ended January 31, 2019
			Balances Without Adoption		Effect of Change
	As Reported		of ASC 606		Higher/(Lower)
Statement of Operations
Net sales	$	4,750,000	$	4,214,000	$	536,000
Cost of goods sold		3,680,000		3,377,000		303,000
Gross profit		1,070,000		837,000		233,000
Loss from operations		(370,000)		(603,000)		233,000
Loss before income tax expense		(406,000)		(639,000)		233,000
Net loss		(406,000)		(639,000)		233,000

	Nine Months Ended January 31, 2019
			Balances Without Adoption		Effect of Change
	As Reported		of ASC 606		Higher/(Lower)
Statement of Operations
Net sales	$	14,097,000	$	13,094,000	$	1,003,000
Cost of goods sold		9,874,000		9,367,000		507,000
Gross profit		4,223,000		3,727,000		496,000
Loss from operations		(333,000)		(829,000)		496,000
Loss before income tax expense		(417,000)		(913,000)		496,000
Net loss		(417,000)		(913,000)		496,000
Statement of Cash Flows
Net loss	$	(417,000)	$	(913,000)	$	496,000
Contract assets		(901,000)		—		(901,000)
Inventories		(535,000)		(1,042,000)		507,000
Net cash used in operating activities		(590,000)		(590,000)		—

NOTE 2 — NATURE OF OPERATIONS

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.

NOTE 3—INVENTORIES

The following table summarizes the components of inventories:

		January 31, 2019		April 30, 2018
Raw materials	$	1,580,000	$	1,278,000
Work in process		1,107,000		635,000
Finished goods		210,000		449,000
	$	2,897,000	$	2,362,000

NOTE 4—FINANCING AGREEMENTS

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

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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:

		January 31, 2019		April 30, 2018
6.25% asset-based line of credit with a maturity date of October 19, 2019	$	1,028,000	$	-
6.25% 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		800,000		-
Capital lease obligations (see Note 12)		117,000		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		1,999,000		1,836,000
Less current installments		1,173,000		1,706,000
Long-term debt, excluding current installments	$	826,000	$	130,000

The asset-based revolving line of credit is intended to be used for working capital purposes and has a capacity of $1,250,000.  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 (6.25%  as of January 31, 2019) 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.  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 financiang agreements, the asset-based revolving line of credit is secured by a first lien on all business assets of Torotel. 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 6.25%) 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 term 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

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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.  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 pursuant to the Commercial Security Agreement.

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 12), 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		-

NOTE 5—INCOME TAXES

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act made broad and complex changes to the U.S. tax code, including, but not limited to: (1) reducing the maximum U.S. federal corporate tax rate from 35%  to a flat 21% effective for tax years beginning after January 1, 2018; (2) extending bonus depreciation that will allow for full expensing of qualified property; and (3) eliminating the corporate alternative minimum tax (“AMT”) and changing how existing AMT credits can be realized.

The SEC issued Staff Accounting Bulletin No. 118 (‘SAB 118’) to address the application of accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements.

The Company’s financial statements for the year ended April 30, 2018, reflect certain effects of the Tax Act, which includes a reduction in the corporate tax rate from 34% to 21%, as well as other changes. As a result of the changes to tax laws and tax rates under the Tax Act, the Company incurred incremental income tax expense of $467,000 during the year ended April 30, 2018, which consisted primarily of the remeasurement of deferred tax assets and liabilities from a 34% to a 21% tax rate.

As of January 31, 2019, 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 January 31, 2019, 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.

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NOTE 6—RESTRICTED STOCK AGREEMENTS

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

 On September 21, 2016, we entered into Restricted Stock Agreements (“2016 Agreements”) with three key employees for the grant of an aggregate total of 730,000 restricted shares of the Company's common stock (the “Shares”).  The Shares were granted, and the 2016 Agreements were entered into, pursuant to the Company’s Stock Award Plan (the “Plan”).  The award of the Shares was authorized by both the Committee and the Board as a whole on September 19, 2016.   Except for the number of shares granted to each recipient, the terms of each of the 2016 Agreements are identical.

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 was $81,000 for each of the nine months ended January 31,  2019 and 2018.  

Restricted stock activity for each nine month period through January 31 is summarized as follows:

	2019			2018
	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 January 31	730,000	$	0.740	730,000	$	0.740

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NOTE 7—STOCKHOLDERS' EQUITY

The shares of common stock outstanding as each nine month period ended as of January 31 are summarized as follows:

	2019	2018
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, January 31	5,995,750	5,995,750

NOTE 8—EARNINGS PER SHARE

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				Nine Months Ended
	January 31, 2019		January 31, 2018		January 31, 2019		January 31, 2018
Net loss	$	(406,000)	$	(307,000)	$	(417,000)	$	(671,000)
Amounts allocated to participating securities (nonvested restricted shares)		—		—		—		—
Net loss attributable to common shareholders	$	(406,000)	$	(307,000)	$	(417,000)	$	(671,000)
Basic weighted average common shares		5,265,750		5,265,750		5,265,750		5,265,750
Loss per share attributable to common shareholders:
Basic loss per share	$	(0.08)	$	(0.06)	$	(0.08)	$	(0.13)

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.

NOTE 9—CONTRACT ASSETS

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.

	January 31, 2019		April 30, 2018
Contract assets	$	1,003,000	$	—

Contract assets increased $1,003,000 between April 30, 2018 and January 31, 2019 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.

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NOTE 10 — CUSTOMER DEPOSITS

For certain customers, we collect payment at the time the order is placed.  These deposits are classified as a liability and will be recognized as revenue at the time of shipment in accordance with our revenue recognition policy.  As of January 31, 2019 and April 30, 2018, we had approximately $25,000 and $219,000, respectively, in customer deposits related to these arrangements.

NOTE 11 — 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.

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NOTE 12 — COMMITMENTS AND CONTINGENCIES

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 January 31, 2019 and April 30, 2018, the gross amount of equipment under capital lease was $225,000.  Related accumulated depreciation recorded under capital lease were $65,000 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 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 January 31, 2019 are as follows:

	Capital		Operating
Fiscal Years Ending April 30,	Leases		Leases
2019	$	15,000	$	110,000
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
		117,000		3,532,000
Less: Amounts representing interest		(5,000)		—
Total	$	112,000	$	3,532,000

NOTE 13 – SUBSEQUENT EVENT

We evaluated events that occurred subsequent to January 31, 2019 and have identified the following subsequent event.

On February 15, 2019, a lease agreement became effective for tenant occupancy of the 23,924 square foot building owned by Torotel.  Monthly installment payments  of $11,500 began to be paid to us on March 1, 2019.  The lease is for a  sixty-two month term with monthly payments escalating periodically from $11,500 to $15,500.  The tenant has the right to elect to purchase the building.  The election to purchase must be made within the lease term or Torotel is permitted to place the building up for public sale.  This event will result in current assets currently classified as property held for sale to be reclassified as noncurrent assets associated with property, plant and equipment.          

There have been no other subsequent events that occurred during such period that require disclosure in, or adjustment to, the consolidated financial statements as of and for the quarter and nine months ended January 31, 2019.

N

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Forward-Looking Information

This report, as well as our other reports filed with or furnished to the Securities and Exchange Commission (the “SEC”), contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The words “believe,” “estimate,” “anticipate,” “project,” “intend,” “expect,” “plan,” “outlook,” “forecast,” “may,” “should,” “predict,” and similar expressions are intended to identify forward-looking statements. Statements regarding expectations, including performance assumptions and estimates relating to capital requirements, as well as other statements that are not historical facts, are forward-looking statements. This report contains forward-looking statements regarding, among other topics, our expected financial position, results of operations, cash flows, strategy, budgets and management's plans and objectives. Accordingly, these forward-looking statements are based on management’s judgments based on currently available information and assumptions about a number of important factors. While we believe that our assumptions about such factors are reasonable, such factors involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. These factors include,without limitation:

· economic, political and legislative factors that could impact defense spending;

· continued production of the Hellfire II missile system for which we supply parts;

· loss of key customers and our relatively concentrated customer base;

· risks in fulfilling military subcontracts;

· our ability to finance operations;

· our on-going analysis of the effect on our financial position and results of operations from changes in tax law;

· our ability to adequately pass through to customers unanticipated future increases in raw material and labor costs;

· delays in developing new products;

· markets for new products and the cost of developing new markets;

· expected orders that do not occur;

· our ability to adequately protect and safeguard our network infrastructure from cyber security vulnerabilities;

· our on-going ability to satisfy our debt covenant requirements and debt repayment obligations;

· our ability to generate sufficient taxable income to realize the amount of our deferred tax assets; and

· the impact of competition and price erosion as well as supply and manufacturing constraints;

In light of these risks and uncertainties, there can be no assurance that the forward-looking information contained in this report will prove accurate, and actual results may differ materially from these forward-looking statements. We assume no obligation to update any forward-looking statements made herein.

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Item 2.       Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Torotel, Inc. ("Torotel") conducts substantially all of its business primarily through its wholly owned subsidiary, Torotel Products, Inc. ("Torotel Products"). The terms “we,” “us,” “our,” and the “Company” as used herein include Torotel and all of its subsidiaries, including Torotel Products, unless the context otherwise requires. Torotel 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 military, commercial aerospace and industrial electronic applications. These products are used to modify and control electrical voltages and currents in electronic devices. Torotel sells these products to original equipment manufacturers, which use them in applications such as:

· aircraft navigational equipment;

· digital control devices;

· airport runway lighting devices;

· medical equipment;

· avionics systems;

· radar systems;

· down-hole drilling;

· conventional missile guidance systems; and

· other aerospace and defense applications.

Torotel markets its components primarily through an internal sales force and independent manufacturers’ representatives paid on a commission basis.  These commissions are earned when a product is sold and/or shipped to a customer within the representative’s assigned territory.  Torotel also utilizes its engineering department in its direct sales efforts for the purpose of expanding its reach into new markets and/or customers.

The industry mix of the customers that accounted for Torotel’s net sales for the first nine months of the fiscal year ending April 30, 2019 (“fiscal year 2019”) was 47%  defense, 48% commercial aerospace, and 5% industrial compared to 51% defense, 44% commercial aerospace, and 5% industrial for the same period in the fiscal year ending April 30, 2018 (“fiscal year 2018”).  Approximately 91% of Torotel’s sales during the first nine months of fiscal year 2019 have been derived from domestic customers.

Torotel is an approved source for magnetic components used in numerous military and commercial aerospace systems, which means Torotel is automatically solicited for any procurement needs for such applications.  The magnetic components manufactured by Torotel are sold primarily in the United States, and most sales are awarded on a competitive bid basis.  The markets in which Torotel competes are highly competitive.  A substantial number of companies sell components of the type manufactured and sold by Torotel.  In addition, Torotel sells to a number of customers who have the capability of manufacturing their own electronic components.  The principal methods of competition for electronic products in the markets served by Torotel include, among other factors, price, on-time delivery performance, lead times, customized product engineering and technical support, marketing capabilities, quality assurance, manufacturing efficiency, and existing relationships with customers’ engineers.  While we believe magnetic components are generally not susceptible to rapid technological change, Torotel’s sales, which do not represent a significant share of the industry’s market, are susceptible to decline given the competitive nature of the market.

Business and Industry Considerations

Defense Markets

During the first nine months of fiscal years 2019 and 2018 the amount of consolidated revenues derived from contracts with prime contractors of the U.S. Department of Defense (“DoD”) was approximately 47% and 51%  

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respectively. As a result, our financial results in any period could be impacted substantially by spending cuts or increases in the DoD budget and the funds appropriated for certain military programs.

Despite ongoing uncertainty associated with the DoD budget, we believe our overall defense business outlook remains favorable due to the present demand for the potted coil assembly and other existing orders from major defense contractors. As of January 31,  2019, our consolidated order backlog for the defense market was nearly $12.2 million, which included $5.9 million for the potted coil assembly.

Commercial Aerospace and Industrial Markets

We provide magnetic components and electro-mechanical assemblies for a variety of applications in the commercial aerospace and industrial markets. The primary demand drivers for these markets include commercial aircraft orders, oil and gas drilling exploration activity, and general economic growth. While domestic economic growth remains positive, the above demand drivers could be impacted by short-term changes in the economy such as spikes or declines in the price of oil, war, terrorism, or changes in regulation. Other threats to our anticipated positive near-term and long-term market outlook include delays on the development and production of new commercial aircraft and competition from international suppliers. As of January 31,  2019, our consolidated order backlog for the aerospace and industrial markets was $4.3 million. However, a material portion of our business has been converted to long-term agreements.

Business Outlook

Our backlog as of January 31, 2019 as compared to January 31, 2018 increased from $10.1 million to $16.5 million, a 63% increase. This was due primarily to an increase in magnetics and assembly orders.  We anticipate that net sales for fiscal year 2019 will improve from net sales for fiscal year 2018. This is primarily due to the timing of newer program revenue that is projected to ship in fiscal year 2019.  We anticipate that 34% and 62% of our $16.5 million backlog as of January 31, 2019 is expected to ship and be converted to sales in the fourth quarter of fiscal 2019, and in the ensuing twelve months of fiscal 2020, respectively.

Consolidated Results of Operations

The following management comments regarding Torotel’s results of operations and outlook should be read in conjunction with the Consolidated Condensed Financial Statements and Notes to the Consolidated Condensed Financial Statements included in Part I, Item 1 of this Quarterly Report.

This discussion and analysis of the results of operations include the operations of Torotel and its subsidiary Torotel Products as of January 31, 2019.  

Net Sales

	Three Months Ended				Nine Months Ended
	January 31, 2019		January 31, 2018		January 31, 2019		January 31, 2018
Magnetic components	$	2,440,000	$	2,428,000	$	6,983,000	$	7,070,000
Potted coil assembly		1,321,000		1,465,000		4,186,000		4,278,000
Electro-mechanical assemblies		972,000		617,000		2,631,000		2,310,000
Large transformers		17,000		19,000		297,000		84,000
Total	$	4,750,000	$	4,529,000	$	14,097,000	$	13,742,000

Consolidated net sales in the three and nine months ended January 31,  2019 increased 5% or $221,000 and 3% or $355,000, respectively compared to the three and nine months ended January 31, 2018.    Consolidated net sales increased primarily because of  increased demand in electro-mechanical assemblies in the third quarter of fiscal year 2019.  Increased demand in electro-mechanical assemblies combined with increased demand in large transformers resulted in an increase in consolidated net sales for both the three months and the nine months ended January 31, 2019.  Net sales for the three

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month period and nine month period ending January 31, 2019 were impacted favorably by the new revenue recognition standard under ASC 606 in the amounts of $536,000 and $1,003,000, respectively.

Gross Profit

	Three Months Ended						Nine Months Ended
		January 31, 2019		January 31, 2018				January 31, 2019		January 31, 2018
Gross profit	$	1,070,000		$	1,438,000		$	4,223,000		$	4,056,000
Gross profit % of net sales		23	%		32	%		30	%		30	%

Consolidated gross profit decreased by 26% or $368,000 and increased by 4% or $167,000, in the three and nine months ended January 31,  2019 compared to the three and nine months ended January 31, 2018.  Consolidated gross profit decreased for the three months ended January 31, 2019 compared to the three months ended January 31, 2018 primarily due to the approximate $487,000 increase in costs of goods sold during the third quarter of fiscal year 2019 when compared to the third quarter of fiscal year 2018, which increased costs associated with the sale of products with a higher material content and increased direct labor costs in the third quarter of fiscal year 2019.  Consolidated gross profit increased for the nine months ended January 31, 2019 compared to the nine months ended January 31, 2018 primarily due to increased net sales arising from increased demand in electro-mechanical assemblies combined with increased demand in large transformers during the nine months ended Janaury 31, 2019 when compared to the nine months ended January 31, 2018.  Gross profit for the three month period and nine month period ending January 31, 2019 was impacted favorably by the new revenue recognition standard under ASC 606 in the amounts of $233,000 and $496,000, respectively. 

Operating Expenses

	Three Months Ended				Nine Months Ended
	January 31, 2019		January 31, 2018		January 31, 2019		January 31, 2018
Engineering	$	351,000	$	267,000	$	966,000	$	806,000
Selling, general and administrative		1,089,000		1,140,000		3,590,000		3,783,000
Total	$	1,440,000	$	1,407,000	$	4,556,000	$	4,589,000

Engineering expenses increased 31%, or $84,000 and 20%, or $160,000 in the three and nine months ended January 31,  2019 compared to the three and nine months ended January 31, 2018.  The increase primarily resulted from an increase in headcount during the third quarter of fiscal year 2019.  

Selling, general and administrative expenses decreased 4%, or $51,000 and 5%, or $193,000 in the three and nine months ended January 31,  2019 compared to the three and nine months ended January 31, 2018.  The decrease resulted primarily from a decrease in advertising expenses, as well as a decrease in building repair and maintenance costs.

Earnings (loss) from Operations

	Three Months Ended				Nine Months Ended
	January 31, 2019		January 31, 2018		January 31, 2019		January 31, 2018
Torotel Products	$	(294,000)	$	142,000	$	69,000	$	(117,000)
Torotel		(76,000)		(111,000)		(402,000)		(416,000)
Total	$	(370,000)	$	31,000	$	(333,000)	$	(533,000)

For the reasons discussed under each of the Gross Profit and Operating Expenses headings above, consolidated earnings from operations decreased by 1,294%, or $401,000 and changed to a loss position, for the three months ended January 31, 2019 when compared to the three months ended January 31, 2018.  Consolidated loss from operations decreased 38%, or $200,000 for the three months ended January 31,  2019 when compared to the nine months ended January 31, 2018.  

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Other Earnings Items

	Three Months Ended				Nine Months Ended
	January 31, 2019		January 31, 2018		January 31, 2019		January 31, 2018
Earnings (loss) from operations	$	(370,000)	$	31,000	$	(333,000)	$	(533,000)
Interest expense		36,000		28,000		84,000		53,000
Earnings (loss) before income taxes		(406,000)		3,000		(417,000)		(586,000)
Income tax expense		—		310,000		—		85,000
Net loss	$	(406,000)	$	(307,000)	$	(417,000)	$	(671,000)

We anticipate that our effective income tax rate for fiscal year 2019 will be 0.0%. For additional discussion related to Income Taxes, see Note 5 of Notes to the Consolidated Financial Statements.

Financial Condition and Liquidity

Cash generated by operations together with the borrowing under our lines of credit are our primary sources of liquidity. The following table highlights the sources of liquidity available to us as of January 31,  2019 compared to January 31, 2018.

		2019		2018
Cash	$	40,000	$	409,000
Amount available under our building line of credit		-		35,000
Amount available under our equipment loan		196,000		400,000
Amount available under our working capital line of credit		222,000		655,000
Total funds available	$	458,000	$	1,499,000

Operating Activities

The following table compares net cash used in operating activities during the three and nine months ended January 31, 2019 compared to the three and nine months ended January 31, 2018.

	2019		2018
Net cash used in operating activities	$	(590,000)	$	(462,000)

Net cash used in operating activities decreased $128,000 during the nine months ended January 31, 2019 versus the comparable period of the 2018 fiscal year primarily due to increases in inventories, contract assets, and accounts payable and decreases in accounts receivable and operating losses.

Investing Activities

	2019		2018
Net cash used in investing activities	$	(108,000)	$	(52,000)

The increase of $56,000 in net cash used in investing activities during the nine months ended January 31, 2019 compared to the comparable period of fiscal year 2018 was due to higher capital expenditures.  Capital expenditures during the nine months ended January 31, 2019 were primarily related to the purchase of design engineering software.  We expect capital expenditure spending to rise moderately during the remainder of fiscal year 2019 which is consistent with the anticipated needs of our business.

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Financing Activities

	2019		2018
Net cash provided by financing activities	$	163,000	$	625,000

The change of $462,000 for the nine month period of fiscal year 2019 from the comparable period in fiscal year 2018 is due primarily to proceeds from the long-term debt in fiscal year 2018.  

Capital Resources

We believe that the projected cash flow from operations, and available borrowings under our existing financing arrangements to supplement our working capital needs, will be sufficient to meet our anticipated funding requirements for the foreseeable future, based on historical levels. Our asset-based revolving line of credit and guidance line of credit are scheduled to mature on October 19, 2019.  We expect to renew each of the financing agreements, if deemed necessary.  As of January 31, 2019,  we had $1,028,000 drawn on the $1,250,000 asset-based revolving line of credit and $54,000 drawn on the $250,000 guidance line of credit, primarily utilized to finance equipment.   As of January 31, 2019  our total borrowing capacity is approximately $1,500,000, of which approximately $1,082,000 has been drawn, under our existing financing arrangements, plus $40,000 of cash on hand.    

We believe that inflation will have only a minimal effect on future operations since such effects are expected to be offset by sales price increases, which are not expected to have a significant effect upon demand.

Critical Accounting Policies

We discuss our critical accounting policies and estimates in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K/A for the year ended April 30, 2018 filed with the SEC on July 12, 2018. We have made no significant change in our critical accounting policies since April 30, 2018.

Item 3.            Quantitative and Qualitative Disclosures About Market Risk

Not Applicable

Item 4.            Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Torotel’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of Torotel’s disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report.  Effective May 1, 2018, we adopted Accounting Standards Codification 606, Revenue from Contracts with Customers.  As part of the adoption and evaluation, we implemented internal controls to ensure we adequately evaluated our contracts and properly assessed the impact of the new accounting standard. There were no significant changes to our internal control over financial reporting due to the adoption of the new standard. Based on such evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that Torotel’s disclosure controls and procedures are effective as of the end of the period covered by this report.

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Changes in Internal Control

There were no significant changes in Torotel’s internal control over financial reporting or in other factors that in management’s estimates have materially affected, or are reasonably likely to materially affect, Torotel’s internal control over financial reporting during the fiscal quarter covered by this Quarterly Report on Form 10-Q.

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PART II.   OTHER INFORMATION

Item 6.   Exhibits

a)  Exhibits

Exhibit 3.1	Articles of Incorporation, as amended (incorporated by reference to Exhibit 3.1 of Form 8-K filed with the SEC on September 25, 2009)
Exhibit 3.2	Amended and Restated By-laws (incorporated by reference to Exhibit 3.2 of Form 10-Q filed with the SEC on March 13, 2018)
Exhibit 31.1*	Officer Certification
Exhibit 31.2*	Officer Certification
Exhibit 32.1*	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2*	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 101.INS	XBRL Instance Document
Exhibit 101.SCH	XBRL Taxonomy Extension Schema Document
Exhibit 101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
Exhibit 101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
Exhibit 101.LAB	XBRL Taxonomy Extension Label Linkbase Document
Exhibit 101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Torotel, Inc.
March  13, 2019	/s/ Heath C. Hancock
Date	Heath C. Hancock
	Chief Financial Officer
	Principal Financial Officer

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