Annual Report (10-k)

Date : 07/23/2019 @ 9:31PM
Source : Edgar (US Regulatory)
Stock : Torotel, Inc. (PC) (TTLO)
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Annual Report (10-k)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

 

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

For the fiscal year ended April 30, 2019

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

(State or other jurisdiction of
incorporation or organization)

    

44-0610086

(I.R.S. Employer
Identification No.)

 

 

 

520 N. ROGERS ROAD, OLATHE, KANSAS
(Address of principal executive offices)

 

66062
(Zip Code)

 

Registrant's telephone number, including area code (913) 747-6111

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

None

 

N/A

 

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.01 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ◻   No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ◻   No ☒

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 (§229.405 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 Exchange Act). Yes ◻    No ☒

The aggregate market value of the voting stock held by non-affiliates of the registrant, computed based on the closing sale price reported on the OTC Market-Pink on October 30, 2018, was $3,597,450. As of July 23, 2019, there were 5,995,750 shares of Common Stock outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement for its 2019 Annual Meeting of Shareholders to be filed within 120 days after the end of the registrant’s fiscal year, are incorporated by reference into Part III of this Annual Report.

 

 

 

TOROTEL, INC. FORM 10-K

 

Fiscal Year Ended April 30, 2019 

 

TABLE OF CONTENTS

 

 

    

    

    

    

 

PART I  

 

 

 

Item 1.

Business

 

4

 

Item 2.

Properties

 

6

 

Item 3.

Legal Proceedings

 

6

 

 

Item 4.

Mine Safety Disclosures

 

6

PART II  

 

 

 

 

Item 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

7

 

 

Item 6.

Selected Financial Data

 

8

 

 

Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

9

 

 

Item 8.

Financial Statements and Supplementary Data

 

18

 

 

Item 9.

Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

 

41

 

 

Item 9A.

Controls and Procedures

 

41

 

 

Item 9B.

Other Information

 

42

PART III  

 

 

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

 

42

 

 

Item 11.

Executive Compensation

 

42

 

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

42

 

 

Item 13.

Certain Relationships and Related Transactions, and Director Independence

 

42

 

 

Item 14.

Principal Accounting Fees and Services

 

42

PART IV  

 

 

 

 

Item 15.

Exhibits, Financial Statement Schedules

 

43

 

 

Item 16.

Form 10-K Summary

 

45

SIGNATURES  

 

46

 

 

 

2

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 risk 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;

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. Accordingly, our actual results may differ materially from these forward-looking statements. The reader should not place undue reliance on forward-looking statements, which speak only as of the date of this report. We assume no obligation to publicly update any forward-looking statements made herein to reflect events after the date of this report, including unforeseen events.

3

PART I

ITEM 1.  Business

Torotel, Inc. ("Torotel") conducts substantially all of its business through its wholly owned subsidiary, Torotel Products, Inc. ("Torotel Products").  Torotel was incorporated under the laws of the State of Missouri in 1956. Torotel's offices are located at 520 North Rogers Road, Olathe, Kansas 66062. Torotel maintains a website at www.torotelinc.com. In addition, Torotel Products maintains a website at www.torotelproducts.com. Information contained on or accessible through either such website is not part of this annual report on Form 10-K. Our telephone number is (913) 747-6111. 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. Torotel sells these products to original equipment manufacturers, which use them in products such as aircraft navigational equipment, digital control devices, medical equipment, avionics equipment, down-hole drilling, conventional missile guidance systems, and other defense and commercial aerospace applications.

The following discussion includes the business operations of Torotel as of and for the fiscal year ended April 30, 2019 (“fiscal year 2019”).

Principal Products

Torotel specializes in the custom design and manufacture of a wide variety of precision magnetic components, 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. For example, if equipment containing one of these components receives an electrical voltage or current which is too high, the component would modify and control the electrical voltage or current to allow proper operation of the equipment. While Torotel primarily manufactures these products in accordance with pre-developed mechanical and electrical requirements, in some cases Torotel will be responsible for both the overall design and manufacturing. These products are sold to manufacturers who incorporate them into an end-product. The major applications include aircraft navigational equipment, digital control devices, medical equipment, avionics systems, down-hole drilling, conventional missile guidance systems, and other defense related applications. Torotel has a line of 400 Hz miniature power transformers listed on the Qualified Products List ("QPL") of the Department of Defense ("DoD"), which requires re-qualification with the DoD every five years.  Sales of the QPL products represented approximately 2% of the net sales of Torotel for fiscal year 2019.

Marketing and Customers

Torotel’s sales do not represent a significant portion of any particular market.  While approximately 42% of annual sales in fiscal year 2019 came from select commercial markets, such as commercial aerospace, and oil drilling, historically Torotel has primarily focused its activities on the military market.  As a result, the business of Torotel is subject to various risks including, without limitation, dependence on government appropriations and program allocations, potential cutbacks in military spending, the requirement that some of our products be approved and qualified by the federal government before we can sell them, and the competition for available military business. Torotel pursues revenue opportunities in electro-mechanical assemblies, which we expect to continue as a major focus for Torotel.  Torotel also pursues revenue opportunities in larger and higher voltage transformers, plus products sourced from low-cost manufacturers in overseas markets who are compliant with aerospace standards.

Torotel markets its products 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. Other sales methods may include visits to customers, lunch-and-learn presentations to customers' engineers, catalog brochures, trade show exhibits and speaker presentations at trade shows.

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

4

components manufactured by Torotel are sold primarily in the United States, and most sales are awarded on a competitive bid basis.

Torotel currently has a primary base of approximately 15 customers that together provide 91% of its annual sales volume. This customer base includes many large prime defense and commercial aerospace companies. Torotel’s primary strategy focuses on providing superior service to this core group of customers, including engineering support and new product design. The objective is to achieve growth with these customers or other targeted companies that possess the potential for inclusion into the core group. During fiscal year 2019, sales to a single customer accounted for 30%, and sales to another customer accounted for 21% of the net sales of Torotel. A loss of, or material reduction in orders from, these customers could have a material adverse effect on sales.

Competition

The markets in which Torotel competes are highly competitive. A substantial number of companies utilizing similar resources sell components and assemblies 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 it is believed that magnetic components are 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.

Manufacturing

Nearly all of Torotel’s sales consist of electronic products manufactured to customers' specifications. Aside from contractually required finished goods buffers, only a limited amount of finished goods is maintained in our inventory. Although special wire-winding machines and molding machines are used in the production process, the various electronic products are manually assembled, with numerous employees and some subcontractors contributing to the completion of the products.

Essential materials used by Torotel in the manufacturing process include magnetic materials, copper wire, plastic housings and epoxies. We believe these materials are available from many sources. Major suppliers include Magnetics Inc., Electrical Insulation Suppliers, Inc., Mod & Fab,  Magnetic Metals-Western Division, TTI, Inc., Krayden Inc., and Exxelia Dearborn, Inc. Special contact plates purchased from Fotofab, LLC and polycarbonate materials purchased from Florida Custom Mold and Spectrum Plastics are used in manufacturing the potted coil assembly. Fotofab, Florida Custom Mold, and Spectrum Plastics are the only qualified approved sources for the materials they provide. As a result, Torotel maintains contingent business interruption insurance on these three suppliers' facilities, as well as the customers' production facility, to insure against loss of business income associated with a disruption in production by either supplier or at the customer as a result of a fire, tornado, explosion or other similar type loss.

Torotel has not experienced any significant curtailment of production because of material shortages, but any long lead times or high dollar minimum orders could have an adverse impact on sales bookings.

Governmental Regulations

A significant portion of Torotel’s business is derived from subcontracts with prime contractors of the U.S. government. As a U.S. subcontractor, Torotel is subject to federal contracting regulations. These subcontracts may be terminated at any time at the convenience of the U.S. government. Upon such termination, adequate financial compensation is usually provided in such instances to protect Torotel from suffering a loss on a subcontract. These subcontracts also may be terminated for default for failure to perform a material obligation. In the event of a termination for default, the customer may have the unilateral right at any time to require Torotel to pay the excess, if any, of the cost of purchasing a substitute item from a third party. If the customer has suffered other ascertainable damages as a result of a sustained default, the customer could demand payment of such damages. Torotel has never experienced any terminations for default.

As a supplier of products for military applications, Torotel must comply with laws concerning the export of material used exclusively for military purposes. The export of those types of materials is covered under the International

5

Traffic in Arms Regulations ("ITAR") and the Arms Export Control Act ("AECA"). Torotel is licensed with the U.S. Department of State making it eligible to provide defense-related components pursuant to ITAR and AECA. This license is renewed annually each October.

Intellectual Property

The products sold by Torotel are not protected by patents or licenses. Torotel relies on the expertise of its employees in both the design and manufacture of its products. Because of the highly competitive nature of the industry, it is possible that a competitor may also learn to design and produce products with similar performance characteristics. Torotel has been issued U.S. Trademark Registration #1,123,071 for "TOROTEL". This trademark registration expires July 24, 2019.  Torotel is currently in the process of renewing the trademark.

Environmental Laws

In fiscal year 2019, Torotel incurred costs of approximately $42,000 to ensure compliance with federal, state and local regulations on the proper handling, storage, disposal, and discharge of hazardous materials into the environment, or otherwise relating to the protection of employees, the community, and the environment. Torotel anticipates similar costs to be incurred in the fiscal year ending April 30, 2020.

Employees

Torotel presently employs approximately 155 full-time and 18 part-time employees. We believe an adequate supply of qualified personnel is available in our immediate vicinity. Torotel's employees are not affiliated with any union.

ITEM 1A.    Risk Factors

Not Applicable

ITEM 2.    Properties

Torotel leases approximately 72,000 square feet of space located at 520 N. Rogers Road in Olathe, Kansas.  This facility serves as our corporate executive office and our primary manufacturing facility. The lease for this property continues through December 31, 2026. Through December 31, 2019, the monthly base rate is $29,257, and subsequently through December 31, 2020, the monthly base rate is $32,876, escalating annually thereafter.

Torotel leases approximately 5,000 square feet for manufacturing electro-mechanical assemblies and other transformers. This facility is located in Hatfield, Pennsylvania. The lease for this facility commenced on August 1, 2014 and continues through July 31, 2019.  The monthly base rent is $3,450.  During fiscal year 2019, the lease was automatically extended, as stated within the original lease agreement, for an additional one year period to July 31, 2020.

In general, we believe that our properties are suitable and adequate for us to operate at present levels, and the productive capacity and extent of utilization of the facilities are appropriate for our existing and reasonably anticipated manufacturing requirements.

Torotel owns a 24,000 square foot building located at 620 N. Lindenwood Drive in Olathe, Kansas. This facility was previously held for sale through February 2019.  A lease between Torotel and a tenant commenced on September 25, 2018, and continues through December 31, 2023.  The tenant began occupying the building in February 2019.  Monthly base rent is $11,500 with escalations each year. 

ITEM 3.    Legal Proceedings

None.

ITEM 4.    Mine Safety Disclosures

None.

6

PART II

 

ITEM 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

(a) Market Information

 

Trading in Torotel's common stock is conducted on the OTC Market Group’s OTC Pink platform under the symbol "TTLO."

 

Price Range of Common Stock

 

The following table sets forth the high and low sales prices of Torotel's common stock as obtained from the Yahoo Finance website at www.finance.yahoo.com. These prices reflect inter-dealer prices, without retail mark-up, markdown or commission and may not represent actual transactions.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2019

2018

 

Fiscal Period

 

High

Low

High

Low

 

May to July

$

0.70

$

0.51

    

$

0.86

    

$

0.60

 

August to October

 

0.81

 

0.56

 

 

0.70

 

 

0.43

 

November to January

 

1.04

 

0.63

 

 

0.74

 

 

0.46

 

February to April

 

0.95

 

0.71

 

 

0.72

 

 

0.52

 

 

(b) Approximate Number of Equity Security Holders

 

 

 

 

 

 

 

    

Number of

 

 

 

Record Holders as of

 

Title of Class 

 

July 23, 2019

 

Common stock, $0.01 par value

 

416

 

 

(c) Dividends

 

Torotel has never paid a cash dividend on its common stock and has no present intention of paying cash dividends in the foreseeable future. Certain of Torotel's current borrowing agreements restrict the payment of cash dividends without the consent of the lender.

7

 (d) Securities Authorized for Issuance under Equity Compensation Plans

 

Torotel has certain long-term incentive plans, including a Stock Award Plan (see Note 7 of the Notes to Consolidated Financial Statements). The table below includes the number of shares authorized for the Stock Award Plan.

 

Equity Compensation Plan Information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

 

 

 

Number of

 

 

 

Securities

 

 

 

Securities to be

 

 

 

Remaining

 

 

 

Issued upon

 

Weighted Average

 

Available for

 

 

 

Exercise of

 

Exercise Price of

 

Future Issuance

 

 

 

Outstanding

 

Outstanding

 

under Equity

 

 

 

Options,

 

Options,

 

Compensation

 

 

 

Warrants, and

 

Warrants, and

 

Plans (excluding

 

 

 

Rights

 

Rights

 

securities reflected in Column A)

 

Plan Category

 

A

 

B

 

C

 

Equity Compensation Plans approved by shareholders

    

    

    

 

Equity Compensation Plans not approved by shareholders

 

 

 

4,250

 

Total

 

 

 

4,250

 

 

There were no unregistered sales of securities by Torotel, or any share repurchases by Torotel, during the fourth quarter of fiscal year 2019.

 

ITEM 6.    Selected Financial Data

 

Information not required.

8

 

ITEM 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

 

Overview

 

Introduction

 

Torotel conducts substantially all of its business through its wholly owned subsidiary, Torotel Products.

 

Torotel specializes in the custom design and manufacture of a wide variety of precision magnetic components 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 magnetic components and electro-mechanical assemblies to original equipment manufacturers, which use them in products 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.

 

We believe the primary factors that drive our gross profit and net earnings are sales volume and product mix. The gross profits on mature products/programs and complex transformer devices tend to be higher than those that are still in the prototyping or early production stages and simpler inductor devices. As a result, in any given accounting period the mix of product shipments between higher and lower margin products has a significant impact on our gross profit and net earnings. Our operating plan continues to focus on expanding the product base beyond electronic components.

 

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 Torotel’s net sales in fiscal year 2019  was 58% defense, 37% commercial aerospace and 5% industrial compared to 52% defense, 43% commercial aerospace and 5% industrial in the fiscal year ended April 30, 2018 (“fiscal year 2018”). We believe the mix in the fiscal year ended April 30, 2019 (“fiscal year 2019”) will remain weighted primarily towards defense.    Approximately 90% of Torotel’s sales during fiscal year 2019 were 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.

 

9

Business and Industry Considerations

 

Defense Markets

 

During fiscal year 2019 and fiscal year 2018, the amount of consolidated revenues derived from contracts with prime contractors of the U.S. Department of Defense (as previously defined, the “DoD”) was approximately 47% and 52%, respectively. Our financial results in any period could be impacted substantially by spending cuts in the DoD budget and the funds appropriated for certain military programs.   

 

Despite ongoing uncertainty and potential constraints 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 April 30, 2019, our consolidated order backlog for the defense market was $11.2 million, which included approximately $4.3 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.  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 April 30, 2019, our consolidated order backlog for the aerospace and industrial markets was $3.5 million.

 

Business Outlook

 

Our backlog as of April 30, 2019 as compared to April 30, 2018 increased to $14.7 million from $5.2 million, a 181% increase.  This increase was driven primarily by growth in new programs.  We anticipate that net sales for fiscal year 2020 will improve from fiscal year 2019.  This is primarily due to the timing of newer program revenue that is projected to positively impact fiscal year 2020.    We anticipate that 33% and 64% of our $14.7 million backlog as of April 30, 2019 is expected to ship and be converted to sales in the first quarter of fiscal 2020, and in the ensuing nine 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 Financial Statements included pursuant to Item 8 of this Annual Report.

 

Net Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

Years ended April 30,

    

2019

    

2018

 

Magnetic components

 

$

10,600,000

 

$

9,251,000

 

Potted coil assembly

 

 

5,751,000

 

 

5,962,000

 

Electro-mechanical assemblies

 

 

3,920,000

 

 

3,060,000

 

Large transformers

 

 

284,000

 

 

123,000

 

Total consolidated net sales

 

$

20,555,000

 

$

18,396,000

 

The amounts presented above for fiscal year 2018 are recognized under ASC 605.  The amounts presented for fiscal year 2019 are recognized under ASC 606.  See the policy on revenue recognition within Note 1 and further disclosures of the effects associated with the adoption of ASC 606 within Note 3 – Revenue.

Consolidated net sales in fiscal year 2019 increased  $2,159,000, or 12%, as compared to fiscal year 2018,  primarily due to higher demand for magnetic components and electro-mechanical assemblies along with the change in

10

revenue recognition policy (described in Note 1).    The change in revenue recognition policy caused an impact of $1,104,000 increase from fiscal year 2018 to fiscal year 2019.  The increase was expected as a number of products had an increase in demand from customers.

 

Consolidated net sales in fiscal year 2018 increased 13%, or $2,094,000, as compared to fiscal year 2017, primarily due to higher demand for potted coil and magnetic components.  

 

Gross Profit

 

 

 

 

 

 

 

 

 

 

 

 

 

Years ended April 30,

 

    

2019

    

2018

 

Gross profit

 

$

6,964,000

 

$

4,781,000

 

Gross profit % of net sales

 

 

34

%  

 

26

%  

 

The amounts presented above for fiscal year 2018 are recognized under ASC 605.  The amounts presented for fiscal year 2019 are recognized under ASC 606.  See the policy on revenue recognition within Note 1 and further disclosures of the effects associated with the adoption of ASC 606 within Note 3 – Revenue.

 

Gross profit as a percentage of net sales in fiscal year 2019 increased 8% as compared to fiscal year 2018.  The gross profit percentage for fiscal year 2019 increased primarily due to higher demand for magnetic components and electro-mechanical assemblies, lower manufacturing costs and scrap, and the change in revenue recognition policy (described in Note 1).  The change in the revenue recognition policy increased gross profit by $546,000 from fiscal year 2018 to fiscal year 2019.

Gross profit as a percentage of net sales in fiscal year 2018 decreased 6% as compared to fiscal year 2017. The gross profit percentage for fiscal year 2018 decreased primarily due to higher manufacturing costs, changing product mix, higher scrap, and an increase in inventory obsolescence.  

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Years ended April 30,

    

2019

    

2018

Engineering

 

$

1,316,000

 

$

1,082,000

Selling, general and administrative

 

 

4,881,000

 

 

4,967,000

Total

 

$

6,197,000

 

$

6,049,000

 

Engineering expense increased 22%, or $234,000, in fiscal year 2019 as compared to fiscal year 2018.   This increase primarily resulted from the hiring of additional engineers to provide expanded technical capabilities.

Engineering expense increased 19%, or $176,000, in fiscal year 2018 as compared to fiscal year 2017.   This increase also primarily resulted from the hiring of additional engineers to provide expanded technical capabilities.

Selling, general and administrative expenses decreased 2%, or $86,000, in fiscal year 2019 as compared to fiscal year 2018. The decrease resulted from a decrease in income tax expense. 

Selling, general and administrative expenses increased 5%, or $230,000, in fiscal year 2018 as compared to fiscal year 2017.   The increase resulted from an increase in headcount and an increase in occupancy costs related to the new facility.  These additional costs were incurred as part of our overall growth strategy, as evidenced by our stronger backlog year-over-year.

11

Earnings (loss) from Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years ended April 30,

    

2019

    

2018

 

Torotel Products

 

$

1,296,000

 

$

(701,000)

 

Torotel

 

 

(529,000)

 

 

(567,000)

 

Total

 

$

767,000

 

$

(1,268,000)

 

 

The amounts presented above for fiscal year 2018 are recognized under ASC 605.  The amounts presented for fiscal year 2019 are recognized under ASC 606.  See the policy on revenue recognition within Note 1 and further disclosures of the effects associated with the adoption of ASC 606 within Note 3 – Revenue.

For the reasons discussed in the Net Sales, Gross Profit, and Operating Expenses above, consolidated earnings from operations increased by $2,035,000, in fiscal year 2019 as compared to fiscal year 2018, and decreased by $880,000, in fiscal year 2018 as compared to fiscal year 2017.

Other Earnings Items

 

 

 

 

 

 

 

 

 

 

 

 

Years ended April 30,

    

2019

    

2018

Earnings (loss) from operations

 

$

767,000

 

$

(1,268,000)

Interest expense

 

 

112,000

 

 

74,000

Gain on asset disposal

 

 

 —

 

 

(8,000)

Earnings (loss) before income taxes

 

 

655,000

 

 

(1,334,000)

Income tax expense

 

 

13,000

 

 

681,000

Net earnings (loss)

 

$

642,000

 

$

(2,015,000)

 

The amounts presented above for fiscal year 2018 are recognized under ASC 605.  The amounts presented for fiscal year 2019 are recognized under ASC 606.  See the policy on revenue recognition within Note 1 and further disclosures of the effects associated with the adoption of ASC 606 within Note 3 – Revenue.

Interest expense increased by 51%, or $38,000, in fiscal year 2019 as compared to fiscal year 2018, primarily due to higher levels of outstanding indebtedness for most of the year.  Income tax provision decreased by $668,000 in fiscal year 2019 as compared to fiscal year 2018,  with our income tax provision for fiscal year 2018 being related primarily to tax reform that became effective in January 2018 and an increase in deferred tax asset valuation allowance in fiscal year 2018, with no corresponding tax provisions for fiscal year 2019.

Interest expense increased by 160%, or $50,000, in fiscal year 2018, as compared to fiscal year 2017, primarily due to higher obligations under capital leases and outstanding indebtedness for most of the 2018 fiscal year. Income tax provision increased by $833,000 in fiscal year 2018 as compared to fiscal year 2017, which was related primarily to tax reform, and an increase in deferred tax asset valuation allowance.  

We evaluate the appropriateness of our deferred income tax asset valuation allowance on a quarterly basis and continue to consider positive and negative trends in our industry that affect our determination.  During the fourth quarter of fiscal year 2018, we determined we were no longer in a positive cumulative earnings position which is significant negative evidence indicating the need for a valuation allowance.  As a result, we concluded it unlikely the full benefit of our deferred tax assets will more-likely-than-not be fully realized and our valuation allowance has been increased accordingly.   See Note 5 in the consolidated financial statements for further details.

 

12

Financial Condition and Liquidity

 

The following table highlights the funds available to us as of April 30, 2019 and 2018 :

 

 

 

 

 

 

 

 

 

    

2019

    

 

2018

 

Cash

$

58,000

 

$

575,000

 

Amount available under our building line of credit

 

 -

 

 

35,000

 

Amount available under our equipment loan

 

196,000

 

 

423,000

 

Amount available under our working capital line of credit

 

275,000

 

 

100,000

 

Total funds available

$

529,000

 

$

1,133,000

 

Operating Activities

 

 

 

 

 

 

 

 

 

 

 

    

2019

    

2018

 

Net cash used in operating activities

 

$

(453,000)

 

$

(186,000)

 

 

The amounts presented above for fiscal year 2018 are recognized under ASC 605.  The amounts presented for fiscal year 2019 are recognized under ASC 606.  See the policy on revenue recognition within Note 1 and further disclosures of the effects associated with the adoption of ASC 606 within Note 3 – Revenue.

The increase of $267,000 of net cash used in operating activities between fiscal year 2019 and fiscal year 2018 is primarily due to a increases in net income, contract assets, inventory and accounts payable along with a decrease in customer deposits in fiscal year 2019. 

Investing Activities

 

 

 

 

 

 

 

 

 

 

 

    

2019

    

2018

 

Net cash used in investing activities

 

$

(150,000)

 

$

(100,000)

 

 

The increase of $50,000 of net cash used in investing activities during fiscal year 2019 as compared to fiscal year 2018 was due to an increase in capital expenditures in fiscal year 2019 as compared to fiscal year 2018 .  We expect capital expenditure spending will continue to increase during fiscal year 2020 as compared to fiscal year 2019 .

Financing Activities

 

 

 

 

 

 

 

 

 

 

 

    

2019

    

2018

 

Net cash provided by financing activities

 

$

86,000

 

$

563,000

 

The decrease of $477,000 in net cash provided by financing activities between fiscal year 2019 and fiscal year 2018 is due to an increase in payments on outstanding debt obligations during fiscal year 2019. 

 

Liquidity and 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 April 30, 2019, we had $975,000 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 April 30, 2019 our total borrowing capacity is approximately $1,500,000, of which approximately $1,029,000 has been drawn, under our existing financing arrangements, plus $58,000 of cash on hand.

 

13

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

 

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect certain reported amounts and disclosures. Such judgments affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continuously evaluate our estimates and assumptions including those related to computing the carrying value of equipment, allowance for doubtful accounts receivable, the valuation allowance on deferred tax assets and the reserve for warranty costs. Accordingly, actual results could differ from those estimates, and such differences may be material. Any changes in estimates are recorded in the period in which they become known.

 

The following is a summary of the most critical accounting policies used in the preparation of our consolidated financial statements.

 

Revenue Recognition

 

Under ASC 605 – For the Year ended April 30, 2018

 

Revenue is recognized when a fixed price contract or purchase order exists; delivery has occurred; and collection is reasonably assured. Selling terms are generally FOB Shipping Point so we consider our products delivered once they have been shipped and title and risk of loss have been transferred.

 

Under ASC 606 – For the Year ended April 30, 2019

 

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 a decrease to the opening balance of accumulated deficit of $102,000 as of May 1, 2018.  See Note 3 – Revenue for further details.  We determine revenue recognition through the following steps:

 

14

 

 

1)

Identification of the contract, or contracts, with a customer

A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the services to be transferred and identifies the payment terms related to these services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for goods or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.

2)

Identification of the performance obligations in the contract

Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the goods or services are separately identifiable from other promises in the contract. To the extent a contract includes multiple promised goods or services, the Company must apply judgment to determine whether promised goods or services are capable of being distinct and distinct in the context of the contract. If these criteria are not met the promised goods or services are accounted for as a combined performance obligation.

3)

Determination of the transaction price

The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods or services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. None of the Company's contracts as of April 30, 2019 contained a significant financing component. Determining the transaction price requires significant judgment, which is discussed by revenue category in further detail below.

4)

Allocation of the transaction price to the performance obligations in the contract

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. However, if a series of distinct goods or services that are substantially the same qualifies as a single performance obligation in a contract with variable consideration, the Company must determine if the variable consideration is attributable to the entire contract or to a specific part of the contract. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performance obligation. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.

5)

Recognition of revenue when, or as, we satisfy a performance obligation

The Company satisfies performance obligations either over time or at a point in time as discussed in further detail below. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised service to a customer.

 

Performance Obligations Satisfied Over Time

 

15

We recognize revenue on agreements for the sale of customized goods including magnetic components, consisting of transformers, inductors, reactors, chokes, toroidal coils, high voltage transformers, dry-type transformers and electro-mechanical assemblies for use in commercial aerospace and military electronics on an over time basis.

 

Commercial Aerospace and Defense Parts

 

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.  Goods within this revenue stream do not provide simultaneous receipt and benefit to the customer.  The goods are controlled by our customers once the finished parts are created.  The customers prevent any alternative use of the asset and an enforceable right to payment does exist.  We provide for potential losses on any of these agreements when it is probable that we will incur the loss.

 

Our billing terms for these over-time contracts vary, but are generally based on ship date.  Control is transferred as products are completed and closed to finished goods.

 

Product fees and engineering and design services

 

For product fees along with engineering and design services, transfer of control 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.

 

Performance Obligations Satisfied at a Point in Time

 

We recognize revenue on agreements for the sale of customized goods including magnetic components, consisting of transformers, inductors, reactors, chokes, toroidal coils, high voltage transformers, dry-type transformers and electro-mechanical assemblies for use in the industrial and commercial market on point in time basis.

 

Industrial and Commercial Parts

 

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. 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.  Also, upon shipment the customers have an obligation to pay for the asset and we have an enforceable right to payment.  We provide for potential losses on any of these agreements when it is probable that we will incur the loss.

 

Our billing terms for these point in time sales are generally based on ship date.  Control is transferred as products are shipped to the customers.

 

16

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue.  Shipping and handling costs do not have a material impact to the financial statements.  No impairment losses were recognized in fiscal year 2019 relating to receivables or contract assets arising from contracts with customers.

 

Allowance for Doubtful Accounts

 

Gross trade accounts receivable are offset with an allowance for doubtful accounts. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable. We review the allowance for doubtful accounts on a regular basis, and all past due balances are reviewed individually for collectability. Account balances are charged against the allowance when placed for collection. Recoveries of receivables previously written off are recorded when received. The majority of the customer accounts are considered past due after the invoice becomes older than the customer's normal credit terms. Interest is not charged on past due accounts. The allowance for doubtful accounts was $12,000 at the end of each fiscal year 2019 and 2018.

 

Inventories

 

Inventories are stated at the lower of cost or net realizable value. Cost is determined using a FIFO approximated weighted average costing method of valuation. Our industry is characterized by short-term customer commitments and changes in demand, as well as other market considerations. Provisions for obsolete and excess inventory are based on reviews of inventory usage, quantities on hand and latest product demand information from customers. Inventories are reviewed in detail utilizing a 12-month time horizon. Individual part numbers that have not had any usage or purchases in a 12-month time period and do not have any known usage requirements are categorized as obsolete; individual part numbers having more than a 12-month supply based on the current year's usage are categorized as excess. Once specific inventory has been identified as excess or obsolete, the cost of the identified inventory is fully reserved and the cost of the inventory is not recovered until it is sold. The reserve balance is analyzed for adequacy as part of the inventory review each quarter.

 

Income Taxes

 

Our annual tax rate is based on our income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate. Significant judgment is required in determining our annual tax rate and in evaluating our tax positions. An estimated effective tax rate for a year is applied to our quarterly operating results. In the event there is a significant or unusual item recognized in our quarterly operating results, the tax attributable to that item is separately calculated and recorded at the same time as that item. Tax law requires items to be included in our tax returns at different times than the items are reflected in our financial statements. As a result, our annual tax rate reflected in our financial statements is different than that reported in our tax returns (our cash tax rate). Some of these differences are permanent, such as expenses that are not deductible in our tax return, and some differences reverse over time, such as depreciation expense. These temporary differences create deferred tax assets and liabilities. Deferred tax assets generally represent items that can be used as a tax deduction or credit in our tax returns in future years for which we have already recorded the tax benefit in our income statement. We establish valuation allowances for our deferred tax assets if, based on the available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax liabilities generally represent tax expense recognized in our financial statements for which payment has been deferred, or expense for which we have already taken a deduction in our tax return but have not yet recognized as expense in our financial statements. The accounting for uncertainty in income taxes requires a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. If necessary, we record a liability for the difference between the benefit recognized and measured for financial statement purposes and the tax position taken or expected to be taken on our tax return. To the extent that our assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made. If applicable in a given year, tax-related interest and penalties are classified as a component of income tax expense.

 

ITEM 7A.    Quantitative and Qualitative Disclosures About Market Risk

 

Information not required.

17

18

Report Of Independent

Registered Public Accounting Firm

 

 

Shareholders and Board of Directors

Torotel, Inc.

 

 

Opinion On The Financial Statements

 

We have audited the accompanying consolidated balance sheets of Torotel, Inc. and subsidiary (collectively, the Company) as of April 30, 2019 and 2018, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows, for the years then ended and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of April 30, 2019 and 2018, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Adoption of New Accounting Pronouncements

 

As discussed in Notes 1 and 3 to the consolidated financial statements, the Company changed its method of accounting for revenue beginning on May 1, 2018 due to the adoption of ASC Topic 606, Revenue from Contracts with Customers .

 

Basis For Opinion

 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ RubinBrown LLP

 

We have served as the Company's auditor since 2012.

 

Kansas City, Missouri

July 23, 2019

19

CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

    

As of April 30,

 

 

 

2019

 

2018

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash

 

$

58,000

 

$

575,000

 

Trade receivables, net

 

 

2,590,000

 

 

2,193,000

 

Contract assets

 

 

1,104,000

 

 

 —

 

Inventories

 

 

3,054,000

 

 

2,362,000

 

Prepaid expenses

 

 

152,000

 

 

238,000

 

Property held for sale

 

 

 —

 

 

694,000

 

 

 

 

6,958,000

 

 

6,062,000

 

 

 

 

 

 

 

 

 

Land

 

 

265,000

 

 

 —

 

Buildings and improvements

 

 

1,569,000

 

 

616,000

 

Equipment

 

 

4,045,000

 

 

3,951,000

 

 

 

 

5,879,000

 

 

4,567,000

 

Less accumulated depreciation

 

 

4,056,000

 

 

3,235,000

 

Property, plant and equipment, net

 

 

1,823,000

 

 

1,332,000

 

 

 

 

 

 

 

 

 

Deferred income taxes

 

 

34,000

 

 

68,000

 

Other assets

 

 

186,000

 

 

209,000

 

 

 

 

 

 

 

 

 

Total Assets

 

$

9,001,000

 

$

7,671,000

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Current maturities of long-term debt

 

$

1,121,000

 

$

1,706,000

 

Trade accounts payable

 

 

1,625,000

 

 

1,045,000

 

Accrued liabilities

 

 

824,000

 

 

817,000

 

Customer deposits

 

 

24,000

 

 

219,000

 

 

 

 

3,594,000

 

 

3,787,000

 

Long-term debt, less current maturities

 

 

801,000

 

 

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

 

 

12,545,000

 

 

12,437,000

 

Accumulated deficit

 

 

(7,999,000)

 

 

(8,743,000)

 

 

 

 

4,606,000

 

 

3,754,000

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders' Equity

 

$

9,001,000

 

$

7,671,000

 

The accompanying notes are an integral part of these statements.

20

CONSOLIDATED STATEMENTS OF OPERATIONS

Years ended April 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2019

    

2018

 

Net sales

 

$

20,555,000

 

$

18,396,000

 

Cost of goods sold

 

 

13,591,000

 

 

13,615,000

 

Gross profit

 

 

6,964,000

 

 

4,781,000

 

Operating expenses:

 

 

 

 

 

 

 

Engineering

 

 

1,316,000

 

 

1,082,000

 

Selling, general and administrative

 

 

4,881,000

 

 

4,967,000

 

 

 

 

6,197,000

 

 

6,049,000

 

Income (loss) from operations

 

 

767,000

 

 

(1,268,000)

 

Other expense:

 

 

 

 

 

 

 

Interest expense, net

 

 

112,000

 

 

74,000

 

Gain on asset disposal

 

 

 —

 

 

(8,000)

 

Income (loss) before income tax expense

 

 

655,000

 

 

(1,334,000)

 

Income tax expense

 

 

13,000

 

 

681,000

 

Net income (loss)

 

$

642,000

 

$

(2,015,000)

 

Basic earnings (loss) per share

 

$

0.11

 

$

(0.38)

 

 

The accompanying notes are an integral part of these statements.

21

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

 

 

    

 

 

    

Total

 

 

 

 

Common

Excess of

Accumulated

Stockholders' 

 

 

Shares

Stock

Par Value

Deficit

Equity

Balance, April 30, 2017

 

5,995,750

 

$

60,000

 

$

12,329,000

 

$

(6,728,000)

 

$

5,661,000

Stock compensation earned

 

 —

 

 

 —

 

 

108,000

 

 

 —

 

 

108,000

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(2,015,000)

 

 

(2,015,000)

Balance, April 30, 2018

 

5,995,750

 

 

60,000

 

 

12,437,000

 

 

(8,743,000)

 

 

3,754,000

Stock compensation earned

 

 —

 

 

 —

 

 

108,000

 

 

 —

 

 

108,000

Net income

 

 —

 

 

 —

 

 

 —

 

 

642,000

 

 

642,000

Cumulative effect of adoption of new accounting principle (see Note 1)

 

 —

 

 

 —

 

 

 —

 

 

102,000

 

 

102,000

Balance, April 30, 2019

 

5,995,750

 

$

60,000

 

$

12,545,000

 

$

(7,999,000)

 

$

4,606,000

 

 

 

 

The accompanying notes are an integral part of these statements.

22

CONSOLIDATED STATEMENTS OF CASHFLOWS

Years ended April 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2019

    

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income (loss)

 

$

642,000

 

$

(2,015,000)

 

Adjustments to reconcile net income (loss) to net cash used in operating activities:

 

 

 

 

 

 

 

Stock compensation cost amortized

 

 

108,000

 

 

108,000

 

Depreciation

 

 

353,000

 

 

314,000

 

Gain on disposal of equipment

 

 

 —

 

 

(8,000)

 

Deferred income taxes

 

 

34,000

 

 

679,000

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Trade receivables

 

 

(397,000)

 

 

(186,000)

 

Contract assets

 

 

(1,002,000)

 

 

 —

 

Inventories

 

 

(692,000)

 

 

377,000

 

Prepaid expenses and other assets

 

 

109,000

 

 

20,000

 

Trade accounts payable

 

 

580,000

 

 

(159,000)

 

Accrued liabilities

 

 

7,000

 

 

498,000

 

Customer deposits

 

 

(195,000)

 

 

186,000

 

Net cash used in operating activities

 

 

(453,000)

 

 

(186,000)

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Capital expenditures

 

 

(152,000)

 

 

(122,000)

 

Proceeds from disposal of equipment

 

 

2,000

 

 

22,000

 

Net cash used in investing activities

 

 

(150,000)

 

 

(100,000)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Principal payments on long-term debt

 

 

(1,677,000)

 

 

(132,000)

 

Payments on capital lease obligations

 

 

(71,000)

 

 

(55,000)

 

Payments on line of credit

 

 

(4,581,000)

 

 

 —

 

Proceeds from long-term debt

 

 

859,000

 

 

 —

 

Proceeds from line of credit

 

 

5,556,000

 

 

750,000

 

Net cash provided by financing activities

 

 

86,000

 

 

563,000

 

Net increase (decrease) in cash

 

 

(517,000)

 

 

277,000

 

Cash, beginning of period

 

 

575,000

 

 

298,000

 

Cash, end of period

 

$

58,000

 

$

575,000

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

Interest

 

$

108,000

 

$

74,000

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

Property, plant and equipment reclassified as held for sale

 

$

 —

 

$

6,000

 

Property held for sale reclassified as property, plant and equipment

 

$

694,000

 

$

 —

 

Equipment financed with proceeds from capital lease

 

$

 —

 

$

225,000

 

 

The accompanying notes are an integral part of these statements.

 

 

23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Torotel, Inc. ("Torotel") conducts business primarily through its wholly owned subsidiary, Torotel Products, Inc. ("Torotel Products").  The terms “we,” “us,” “our,” and the “Company” as used in these notes 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 aerospace, industrial and military electronics.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Torotel and its wholly owned subsidiary, Torotel Products. All significant inter-company accounts and transactions have been eliminated in consolidation.

 

Use of Estimates

 

               The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Significant estimates used in preparing these consolidated financial statements include those assumed in computing the valuation allowance of inventory, the allowance for doubtful accounts receivable, the valuation allowance on deferred income tax assets, and the reserve for warranty costs. Accordingly, actual results could differ from those estimates. Any changes in estimates are recorded in the period in which they become known.

 

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. Cash balances did not exceed federally insured limits at April 30, 2019.  At other various times and at April 30, 2018, cash balances exceeded federally insured limits. We have not experienced any losses in the cash accounts and we do not believe we are exposed to any significant credit risk with respect to our cash.

 

Fair Value of Financial Instruments

 

The carrying amounts of certain financial instruments, including cash, trade receivables and trade accounts payable approximate fair value due to their short maturities. As of April 30, 2019 and 2018, the amount of our long-term debt approximates fair value based on the present value of estimated future cash flows using a discount rate commensurate with a borrowing rate available to us.

 

Revenue Recognition

 

Under ASC 605 – For the Year ended April 30, 2018

 

Revenue is recognized when a fixed price contract or purchase order exists; delivery has occurred; and collection is reasonably assured. Selling terms are generally FOB Shipping Point so we consider our products delivered once they have been shipped and title and risk of loss have been transferred.

 

Under ASC 606 – For the Year ended April 30, 2019

 

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

24

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 a decrease to the opening balance of accumulated deficit of $102,000 as of May 1, 2018.  See Note 3 – Revenue for further details.  We determine revenue recognition through the following steps:

 

 

 

1)

Identification of the contract, or contracts, with a customer

A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the services to be transferred and identifies the payment terms related to these services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for goods or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.

2)

Identification of the performance obligations in the contract

Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the goods or services are separately identifiable from other promises in the contract. To the extent a contract includes multiple promised goods or services, the Company must apply judgment to determine whether promised goods or services are capable of being distinct and distinct in the context of the contract. If these criteria are not met the promised goods or services are accounted for as a combined performance obligation.

3)

Determination of the transaction price

The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods or services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. None of the Company's contracts as of April 30, 2019 contained a significant financing component. Determining the transaction price requires significant judgment, which is discussed by revenue category in further detail below.

25

4)

Allocation of the transaction price to the performance obligations in the contract

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. However, if a series of distinct goods or services that are substantially the same qualifies as a single performance obligation in a contract with variable consideration, the Company must determine if the variable consideration is attributable to the entire contract or to a specific part of the contract. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performance obligation. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.

5)

Recognition of revenue when, or as, we satisfy a performance obligation

The Company satisfies performance obligations either over time or at a point in time as discussed in further detail below. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised service to a customer.

 

Performance Obligations Satisfied Over Time

 

We recognize revenue on agreements for the sale of customized goods including magnetic components, consisting of transformers, inductors, reactors, chokes, toroidal coils, high voltage transformers, dry-type transformers and electro-mechanical assemblies for use in commercial aerospace and military electronics on an over time basis.

 

Commercial Aerospace and Defense Parts

 

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.  Goods within this revenue stream do not provide simultaneous receipt and benefit to the customer.  The goods are controlled by our customers once the finished parts are created.  The customers prevent any alternative use of the asset and an enforceable right to payment does exist.  We provide for potential losses on any of these agreements when it is probable that we will incur the loss.

 

Our billing terms for these over-time contracts vary, but are generally based on ship date.  Control is transferred as products are completed and closed to finished goods.

 

Product fees and engineering and design services

 

For product fees along with engineering and design services, transfer of control 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.

 

Performance Obligations Satisfied at a Point in Time

 

26

We recognize revenue on agreements for the sale of customized goods including magnetic components, consisting of transformers, inductors, reactors, chokes, toroidal coils, high voltage transformers, dry-type transformers and electro-mechanical assemblies for use in the industrial and commercial market on point in time basis.

 

Industrial and Commercial Parts

 

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. 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.  Also, upon shipment the customers have an obligation to pay for the asset and we have an enforceable right to payment.  We provide for potential losses on any of these agreements when it is probable that we will incur the loss.

 

Our billing terms for these point in time sales are generally based on ship date.  Control is transferred as products are shipped to the customers.

 

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue.  Shipping and handling costs do not have a material impact to the financial statements.  No impairment losses were recognized in fiscal year 2019 relating to receivables or contract assets arising from contracts with customers.

 

Allowance for Doubtful Accounts

 

Gross trade accounts receivable are offset with an allowance for doubtful accounts. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable. We review the allowance for doubtful accounts on a regular basis, and all past due balances are reviewed individually for collectability. Account balances are charged against the allowance when placed for collection. Recoveries of receivables previously written off are recorded when received. The majority of the customer accounts are considered past due after the invoice becomes older than the customer's credit terms. Interest is not charged on past due accounts. The allowance for doubtful accounts as of both April 30, 2019 and 2018 was $12,000.

 

Inventories

 

Inventories are stated at the lower of cost or net realizable value. Cost is determined using a FIFO approximated weighted average cost method of valuation. Our industry is characterized by short-term customer commitments and changes in demand, as well as other market considerations. Provisions for obsolete and excess inventory are based on reviews of inventory usage, quantities on hand and latest product demand information from customers. Inventories are reviewed in detail utilizing a 12-month time horizon. Individual part numbers that have not had any usage or purchases in a 12-month time period and do not have any known usage requirements are categorized as obsolete; individual part numbers having more than a 12-month supply based on the current year's usage are categorized as excess. Once specific inventory has been identified as excess or obsolete, the cost of the identified inventory is fully reserved and the cost of the inventory is not recovered until it is sold. The reserve balance is analyzed for adequacy as part of the inventory review each quarter.  The reserve for inventory as of April 30, 2019 and 2018 was $332,000 and $364,000, respectively.

 

Property, Plant and Equipment

 

               Property, plant and equipment are carried at cost. Depreciation and amortization are provided in amounts sufficient to relate the costs of depreciable assets to operations primarily using the straight-line method over estimated useful lives of three to ten years for equipment and three and a half to twenty years for buildings and improvements.

 

27

Cash

 

For purposes of the consolidated statements of cash flows, we consider all short-term investments and demand deposits purchased with original maturity dates of three months or less to be cash.

 

Income Taxes

 

Our annual tax rate is based on our income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate. Significant judgment is required in determining our annual tax rate and in evaluating our tax positions. An estimated effective tax rate for a year is applied to our quarterly operating results. In the event there is a significant or unusual item recognized in our quarterly operating results, the tax attributable to that item is separately calculated and recorded at the same time as that item. Tax law requires items to be included in our tax returns at different times than the items are reflected in our financial statements. As a result, our annual tax rate reflected in our financial statements is different than that reported in our tax returns (our cash tax rate). Some of these differences are permanent, such as expenses that are not deductible in our tax return, and some differences reverse over time, such as depreciation expense. These temporary differences create deferred tax assets and liabilities. Deferred tax assets generally represent items that can be used as a tax deduction or credit in our tax returns in future years for which we have already recorded the tax benefit in our statement of operations. We establish valuation allowances for our deferred tax assets if, based on the available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax liabilities generally represent tax expense recognized in our financial statements for which payment has been deferred, or expense for which we have already taken a deduction in our tax return but have not yet recognized as expense in our financial statements. The accounting for uncertainty in income taxes requires a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. If necessary, we record a liability for the difference between the benefit recognized and measured for financial statement purposes and the tax position taken or expected to be taken on our tax return. To the extent that our assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made. If applicable in a given year, tax-related interest and penalties are classified as a component of income tax expense.

 

Advertising Costs

 

Advertising costs are expensed as incurred. For the year ended April 30, 2019 there were no advertising costs.  For the year ended April 30, 2018 advertising costs were $22,000.

 

Warranty Costs

 

We maintain a reserve for estimated warranty costs associated with products returned from customers. A limited warranty is provided for a period of one year which requires us to repair or replace defective products at no cost to the customer. The warranty reserve is based on historical experience and reflects management's best estimate of probable liability under the product warranties.

 

Share-Based Compensation

 

We have a share-based compensation plan that provides for awards of restricted stock, which is described more fully in Note 8 of the Notes to the Consolidated Financial Statements. We account for the share-based compensation plan in accordance with authoritative guidance under which the estimated fair value of share-based awards granted under our share-based compensation plan is recognized as compensation expense over the vesting period of the award.

 

Recently Issued Accounting Pronouncements

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , which replaced or superseded 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

28

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 adopted the standard effective May 1, 2019. The Company elected 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 potential impact on our consolidated financial statements is largely based on the present value of future minimum lease payments, the amount of which will depend upon the population of leases in effect at the date of adoption.  Future minimum lease payments totaled $3,456,000 as of April 30, 2019, as disclosed in Note 6 – Commitments and Contingencies. Torotel believes the impact to the financial statements will result in recognition of additional right of use assets and lease liabilities between $2,183,000 and $2,683,000.  Any differences between the recognition of the right of use asset and the lease liability will be recorded as an adjustment to retained earnings. 

 

 

 

 

NOTE 2—INVENTORIES

 

The following table summarizes the components of inventories, as of April 30 of each year:

 

 

 

 

 

 

 

 

 

 

    

 

2019

    

 

2018

 

Raw materials

 

$

1,723,000

 

$

1,278,000

 

Work in process

 

 

1,052,000

 

 

635,000

 

Finished goods

 

 

279,000

 

 

449,000

 

 

 

$

3,054,000

 

$

2,362,000

 

 

 

 

NOTE 3—REVENUE

 

As described in Note 1, Torotel adopted Topic 606 on May 1, 2018.  The adoption of ASC 606 represents a change in accounting principle that will more closely align revenue recognition with the delivery of the Company's goods and services and will provide financial statement readers with enhanced disclosures as shown below.

 

Impacts on Consolidated Financial Statements

 

The following table summarizes the cumulative effect of the changes to our consolidated 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 balance sheet, consolidated statement of operations, and consolidated statement of cash flows as of and for the year ended April 30, 2019 was as follows:

29

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Balances Without Adoption

 

 

 

 

 

 

 

of ASC 606

 

Effect of Change

 

 

As Reported

 

as of April 30, 2019

 

Higher/(Lower)

Balance Sheet

 

 

 

 

 

 

 

 

 

Contract assets

 

$

1,104,000

 

$

 —

 

$

1,104,000

Inventories

 

 

3,054,000

 

 

3,612,000

 

 

(558,000)

Accumulated deficit

 

 

(7,999,000)

 

 

(7,453,000)

 

 

(546,000)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances Without Adoption

 

 

 

 

 

 

 

 

of ASC 606 for the

 

Effect of Change

 

 

As Reported

 

year ended April 30, 2019

 

Higher/(Lower)

Statement of Operations

 

 

 

 

 

 

 

 

 

Net sales

 

$

20,555,000

 

$

19,451,000

 

$

1,104,000

Cost of goods sold

 

 

13,591,000

 

 

13,033,000

 

 

558,000

Gross profit

 

 

6,964,000

 

 

6,418,000

 

 

546,000

Income from operations

 

 

767,000

 

 

221,000

 

 

546,000

Income before income tax expense

 

 

655,000

 

 

109,000

 

 

546,000

Net income

 

 

642,000

 

 

96,000

 

 

546,000

 

 

 

 

 

 

 

 

 

 

Statement of Cash Flows

 

 

 

 

 

 

 

 

 

Net income

 

$

642,000

 

$

96,000

 

$

546,000

Contract assets

 

 

(1,002,000)

 

 

 —

 

 

(1,002,000)

Inventories

 

 

(692,000)

 

 

(1,250,000)

 

 

558,000

Net cash used in operating activities

 

 

(453,000)

 

 

(453,000)

 

 

 —

 

Disaggregation of Revenue

The following tables summarize revenue from contracts with customers for the fiscal year ended April 30, 2019.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances Without Adoption

 

 

 

 

 

 

 

 

of ASC 606 for the

 

Effect of Change

 

 

As Reported

 

year ended April 30, 2019

 

Higher/(Lower)

Markets

 

 

 

 

 

 

 

 

 

Commercial Aerospace

 

$

7,690,000

 

$

7,616,000

 

$

74,000

Defense

 

 

11,849,000

 

 

10,822,000

 

 

1,027,000

Industrial

 

 

1,016,000

 

 

1,013,000

 

 

3,000

Total consolidated net sales

 

$

20,555,000

 

$

19,451,000

 

$

1,104,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances Without Adoption

 

 

 

 

 

 

 

 

of ASC 606 for the

 

Effect of Change

 

 

As Reported

 

year ended April 30, 2019

 

Higher/(Lower)

Product Line

 

 

 

 

 

 

 

 

 

Magnetic components

 

$

10,600,000

 

$

10,197,000

 

$

403,000

Potted coil assembly

 

 

5,751,000

 

 

5,094,000