UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington,
D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended
July 31, 2019
or
☐TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____
to _____
Commission File
No. 001-8125
TOROTEL, INC.
(Exact name of registrant as
specified in its charter)
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MISSOURI
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44-0610086
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(State or other
jurisdiction of incorporation or
organization)
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(I.R.S.
Employer Identification No.)
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520 N.
ROGERS ROAD, OLATHE,
KANSAS
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66062
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(Address
of principal executive offices)
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(Zip
Code)
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(913)
747-6111
(Registrant’s telephone
number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
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Title
of each class
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Trading
Symbol
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Name
of each exchange on which registered
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None
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N/A
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N/A
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Indicate by check mark
whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90
days. Yes ☒ No ☐
Indicate by check mark
whether the registrant has submitted electronically every
Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the
registrant was required to submit such
files). Yes ☒ No ☐
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large
accelerated filer”, “accelerated filer”, “smaller reporting
company”, and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
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Large accelerated
filer ◻
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Accelerated
filer ◻
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Non-accelerated
filer ◻
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Smaller Reporting
Company ☒
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Emerging growth company
◻
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If an emerging growth
company, indicate by check mark if the registrant has elected not
to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section
13(a) of the Exchange Act. ◻
Indicate by check mark
whether the registrant is a shell company (as defined in
Rule 12b-2 of the Securities Exchange Act of
1934). Yes ☐ No ☒
As of September
13, 2019, there were 5,995,750 shares of Common Stock, $0.01
par value, outstanding.
TOROTEL, INC.
AND SUBSIDIARIES
INDEX
PART I. FINANCIAL
INFORMATION
Item 1. Financial
Statements
CONSOLIDATED
CONDENSED BALANCE SHEETS
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(Unaudited)
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July 31, 2019
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April 30, 2019
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ASSETS
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Current assets:
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Cash
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$
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353,000
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$
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58,000
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Trade receivables, net
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2,468,000
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2,590,000
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Contract
assets
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1,173,000
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1,104,000
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Inventories
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3,256,000
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3,054,000
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Prepaid expenses
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385,000
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152,000
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7,635,000
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6,958,000
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Land
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265,000
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265,000
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Buildings
and improvements
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1,578,000
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1,569,000
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Equipment
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4,152,000
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4,045,000
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5,995,000
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5,879,000
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Less
accumulated depreciation
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4,148,000
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4,056,000
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Property,
plant and equipment, net
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1,847,000
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1,823,000
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Operating
right-of-use assets
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2,214,000
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—
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Deferred
income taxes
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34,000
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34,000
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Other
assets
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152,000
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186,000
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Total
Assets
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$
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11,882,000
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$
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9,001,000
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LIABILITIES AND
STOCKHOLDERS' EQUITY
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Current
liabilities:
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Current
maturities of long-term debt
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$
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666,000
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$
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1,121,000
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Current
maturities of operating lease liabilities
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378,000
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—
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Current
maturities of finance lease liabilities
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73,000
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—
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Trade
accounts payable
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1,671,000
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1,625,000
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Accrued
liabilities
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1,129,000
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824,000
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Customer
deposits
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26,000
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24,000
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3,943,000
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3,594,000
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Long-term
debt, less current maturities
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811,000
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801,000
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Operating
lease liabilities, less current maturities
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2,042,000
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—
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Finance
lease liabilities, less current maturities
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9,000
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—
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2,862,000
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801,000
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Stockholders'
equity:
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Common
stock; par value $0.01; 6,000,000 shares authorized; 5,995,750
shares issued and outstanding
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60,000
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60,000
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Capital
in excess of par value
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12,572,000
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12,545,000
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Accumulated
deficit
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(7,555,000)
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(7,999,000)
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5,077,000
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4,606,000
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Total
Liabilities and Stockholders' Equity
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$
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11,882,000
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$
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9,001,000
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The accompanying notes
are an integral part of these statements.
CONSOLIDATED
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
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Three
Months Ended
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July 31, 2019
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July 31, 2018
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Net
sales
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$
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6,346,000
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$
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4,473,000
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Cost of
goods sold
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3,953,000
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2,994,000
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Gross
profit
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2,393,000
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1,479,000
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Operating
expenses:
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Engineering
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388,000
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302,000
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Selling,
general and administrative
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1,423,000
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1,211,000
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1,811,000
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1,513,000
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Income
(loss) from operations
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582,000
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(34,000)
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Other
expense:
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Interest
expense, net
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27,000
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24,000
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Income
(loss) before income tax expense
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555,000
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(58,000)
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Income
tax expense (benefit)
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111,000
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(15,000)
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Net
income (loss)
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$
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444,000
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$
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(43,000)
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Basic
earnings (loss) per share
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$
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0.07
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$
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(0.01)
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The accompanying notes
are an integral part of these statements.
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
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Capital
In
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Total
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Common
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Excess of
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Accumulated
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Stockholders'
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Shares
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Stock
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Par Value
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Deficit
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Equity
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For The
Three Months Ended July 31, 2018:
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Balance,
April 30, 2018
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5,995,750
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$
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60,000
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$
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12,437,000
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$
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(8,743,000)
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$
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3,754,000
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Stock
compensation earned
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—
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—
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27,000
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—
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27,000
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Net
loss
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—
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—
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—
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(43,000)
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(43,000)
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Cumulative effect of
adoption of new accounting principle
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—
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—
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—
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102,000
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102,000
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Balance,
July 31, 2018
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5,995,750
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60,000
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12,464,000
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(8,684,000)
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3,840,000
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For The
Three Months Ended July 31, 2019:
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Balance,
April 30, 2019
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5,995,750
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$
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60,000
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$
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12,545,000
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$
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(7,999,000)
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$
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4,606,000
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Stock
compensation earned
|
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—
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—
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27,000
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|
|
—
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27,000
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Net
income
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—
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|
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—
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—
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444,000
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|
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444,000
|
Balance,
July 31, 2019
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5,995,750
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60,000
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12,572,000
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(7,555,000)
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5,077,000
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The accompanying notes
are an integral part of these statements.
CONSOLIDATED
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
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Three
Months Ended
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|
July 31, 2019
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July 31, 2018
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Cash
flows from operating activities:
|
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|
|
|
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Net
income (loss)
|
|
$
|
444,000
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|
$
|
(43,000)
|
|
Adjustments to
reconcile net income (loss) to net cash provided by (used in)
operating activities:
|
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Stock
compensation cost amortized
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27,000
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27,000
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Depreciation
|
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92,000
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84,000
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Deferred
income taxes
|
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—
|
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(15,000)
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|
Changes
in operating assets and liabilities:
|
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Trade
receivables
|
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|
122,000
|
|
|
174,000
|
|
Contract
assets
|
|
|
(69,000)
|
|
|
(233,000)
|
|
Inventories
|
|
|
(202,000)
|
|
|
(539,000)
|
|
Prepaid
expenses and other assets
|
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|
(199,000)
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|
|
71,000
|
|
Operating
lease right-of-use assets
|
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|
53,000
|
|
|
—
|
|
Trade
accounts payable
|
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46,000
|
|
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59,000
|
|
Accrued
liabilities
|
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|
511,000
|
|
|
218,000
|
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Current
and long-term operating lease liabilities
|
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|
(53,000)
|
|
|
—
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Customer
deposits
|
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|
2,000
|
|
|
(61,000)
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|
Net cash
provided by (used in) operating activities
|
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|
774,000
|
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|
(258,000)
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
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Capital
expenditures
|
|
|
(116,000)
|
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|
(50,000)
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|
Net cash
used in investing activities
|
|
|
(116,000)
|
|
|
(50,000)
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Principal
payments on long-term debt
|
|
|
(7,000)
|
|
|
(19,000)
|
|
Principal
payments under capital and financing lease obligations
|
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|
(16,000)
|
|
|
(27,000)
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Payments
on line of credit
|
|
|
(3,777,000)
|
|
|
—
|
|
Proceeds
from line of credit
|
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|
3,437,000
|
|
|
—
|
|
Net cash
used in financing activities
|
|
|
(363,000)
|
|
|
(46,000)
|
|
Net
increase (decrease) in cash
|
|
|
295,000
|
|
|
(354,000)
|
|
Cash,
beginning of period
|
|
|
58,000
|
|
|
575,000
|
|
Cash, end
of period
|
|
$
|
353,000
|
|
$
|
221,000
|
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SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
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Cash paid
during the period for:
|
|
|
|
|
|
|
|
Interest
|
|
$
|
27,000
|
|
$
|
24,000
|
|
Capital
leases reclassified from long-term debt to finance lease
liabilities
|
|
|
98,000
|
|
|
—
|
|
Deferred
lease reclassified from accrued liabilities to operating
right-of-use assets
|
|
|
206,000
|
|
|
—
|
|
The accompanying notes
are an integral part of these statements.
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1 — BASIS OF
PRESENTATION
The consolidated condensed balance
sheet as of April 30, 2019, which has been derived from the
audited financial statements of Torotel, Inc. ("Torotel" or the
“Company”), is accompanied by the unaudited interim consolidated
condensed financial statements, which reflect the normal recurring
adjustments that in the opinion of management are necessary to
present fairly Torotel’s consolidated financial position at
July 31, 2019, and the consolidated results of
operations and cash flows for the three months ended July 31,
2019, and 2018, respectively.
The unaudited interim consolidated
condensed financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange
Commission ("SEC"). Certain information and note disclosures
normally included in the annual financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to those rules and regulations,
although management believes the disclosures made are adequate to
make the information not misleading. The financial statements
contained herein should be read in conjunction with Torotel’s
consolidated financial statements and related notes filed on
Torotel's Form 10-K for the year ended April 30, 2019 as
filed with the SEC on July 23, 2019.
Accounting
Pronouncements Recently Adopted
The Company adopted the
guidance of ASU No. 2016-02, Leases, (“ASC 842”) as of
May 1, 2019 using the modified retrospective transition
approach with the cumulative effect recognized at the date of
initial application. The comparative information in the prior year
has not been adjusted and continues to be reported under
ASC 840, Leases, which was the accounting standard in effect
for that period. ASC 842 requires lessees to recognize leases
on-balance sheet and disclose key information about leasing
arrangements. The new standard establishes a right-of-use model
(“ROU”) that requires a lessee to recognize a ROU asset and lease
liability on the balance sheet for all leases with a term longer
than 12 months. Leases are classified as finance or operating,
with classification affecting the pattern and classification of
expense recognition in the statement of operations and presentation
of cash flows. See Note 5—Leases
for the required disclosures of the nature, amount, timing,
and uncertainty of cash flows arising from leases.
NOTE 2 — NATURE OF
OPERATIONS
Torotel conducts business through its
wholly owned subsidiary, Torotel Products, Inc. (“Torotel
Products”). Torotel Products specializes in the custom design and
manufacture of a wide variety of precision magnetic components,
consisting of transformers, inductors, reactors, chokes, toroidal
coils, high voltage transformers, dry-type transformers and
electro-mechanical assemblies, for use in commercial, industrial
and military electronics.
NOTE
3—INVENTORIES
The following table summarizes the
components of inventories:
|
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|
|
|
|
|
|
|
|
|
July 31, 2019
|
|
|
April 30, 2019
|
|
Raw materials
|
|
$
|
1,786,000
|
|
$
|
1,723,000
|
|
Work in process
|
|
|
1,345,000
|
|
|
1,052,000
|
|
Finished goods
|
|
|
125,000
|
|
|
279,000
|
|
|
|
$
|
3,256,000
|
|
$
|
3,054,000
|
|
NOTE
4—REVENUE
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 July
31, 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
We recognize revenue on agreements
for the sale of customized goods 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, except for one long-term agreement which provides a
contract for two specific parts if the ship date is within 21
days. 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 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 the
three months ending July 31, 2019 and 2018, relating to receivables
or contract assets arising from contracts with
customers.
Disaggregation
of Revenue
The following tables
summarize revenue from contracts with customers for the three
months ended July 31, 2019 and 2018.
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
July 31, 2019
|
|
July 31, 2018
|
Markets
|
|
|
|
|
|
|
Commercial
Aerospace
|
|
$
|
2,410,000
|
|
$
|
1,760,000
|
Defense
|
|
|
3,823,000
|
|
|
2,277,000
|
Industrial
|
|
|
113,000
|
|
|
436,000
|
Total consolidated net
sales
|
|
$
|
6,346,000
|
|
$
|
4,473,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
July 31, 2019
|
|
July 31, 2018
|
Product
Line
|
|
|
|
|
|
|
Magnetic
components
|
|
$
|
3,254,000
|
|
$
|
2,157,000
|
Potted coil
assembly
|
|
|
1,519,000
|
|
|
1,279,000
|
Electro-mechanical
assemblies
|
|
|
1,573,000
|
|
|
757,000
|
Large
transformers
|
|
|
—
|
|
|
280,000
|
Total consolidated net
sales
|
|
$
|
6,346,000
|
|
$
|
4,473,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
July 31, 2019
|
|
July 31, 2018
|
Geography
|
|
|
|
|
|
|
Domestic
|
|
$
|
6,098,000
|
|
$
|
4,094,000
|
Foreign
|
|
|
248,000
|
|
|
379,000
|
Total consolidated net
sales
|
|
$
|
6,346,000
|
|
$
|
4,473,000
|
|
|
|
|
|
|
|
Contract
balances
All contract asset balances relate to
customer contracts entered into during the fiscal year ending April
30, 2020. We have no contract liabilities other than
customer deposits which represent prepaid consideration for
contracts with customers. There have been no significant
adjustments to contract asset balances related to contract
modifications. We have certain customers totaling
revenue of $1,592,000 with variable payment terms related to
discounts in the amount of $12,000 in the fiscal year ending April
30, 2020.
Remaining
performance obligation
As of July 31, 2019, the
aggregate amount of the contracted revenues allocated to our
unsatisfied (or partially unsatisfied) performance obligations was
$5,043,000. The balance of unsatisfied performance obligations
excludes contracts with original maturities of one year or
less. We expect to recognize revenue as we satisfy our
remaining performance obligations. Total remaining
performance obligation to be recognized in the fiscal year ending
April 30, 2020 is expected to be $4,298,000. Total
remaining performance obligation to be recognized in the fiscal
year ending April 30, 2021 is expected to be $745,000.
NOTE
5—LEASES
The
Company adopted ASC 842 on May 1, 2019 using the modified
retrospective transition method; and therefore, the comparative
information has not been adjusted for the three months ended
July 31, 2018 or as of April 30, 2019. Upon transition to
the new standard, the Company elected the package of practical
expedients, which permitted the Company not to reassess under the
new standard its prior conclusions about lease identification,
lease classification and initial direct costs.
The
Company leases buildings and equipment under operating and finance
leases. The majority of the Company’s operations are conducted in
premises occupied under lease agreements with initial base terms
ranging from 5 to 15 years, with certain leases containing
options to extend the leases for up to an additional 10 years.
The Company typically does not believe that exercise of the renewal
options is reasonably assured at the inception of the lease
agreements and, therefore, considers the initial base term as the
lease term. Lease terms vary but generally the leases provide for
fixed and escalating rentals or contingent escalating rentals based
on the Consumer Price Index.
Operating lease ROU
assets and lease liabilities were recognized at commencement date
based on the present value of minimum lease payments over the
remaining lease term. The minimum lease payments include base
rent payments. The Company’s leases have remaining lease
terms of approximately 1 year to 8 years, which may include
the option to extend the lease when it is reasonably certain the
Company will exercise that option. The present value of the lease
payments is calculated using the incremental borrowing rate for
operating leases, which was determined using a portfolio approach
based on the rate of interest that the Company would have to pay to
borrow an amount equal to the lease payments on a collateralized
basis over a similar term. Operating lease expense is recognized on
a straight-line basis over the lease term.
The
Company’s lease agreements do not contain any material residual
value guarantees. The Company elected the practical expedient to
not separate lease and non-lease components and also elected the
short-term practical expedient for all leases that qualify. As a
result, the Company will not recognize ROU assets or liabilities
for short-term leases that qualify for the short-term practical
expedient, but instead will recognize the lease payments as lease
cost on a straight-line basis over the lease term.
As a
result of adopting ASC 842, the Company’s consolidated balance
sheet includes additional operating ROU lease assets and total
operating lease liabilities of $2,214,000 and $2,420,000,
respectively, at July 31, 2019. The initial measurement
occurring on May 1, 2019, resulted in operating lease ROU assets of
$2,267,000, finance lease ROU assets of $98,000, current operating
lease liabilities of $380,000, current finance lease liabilities of
$73,000, noncurrent operating lease liabilities of $2,093,000,
and noncurrent finance lease liabilities of $25,000.
The difference of $206,000 between the ROU assets and the lease
liabilities results from a reclassification of deferred rent to the
operating lease ROU asset of $206,000.
The
following table provides the operating and finance ROU assets and
lease liabilities:
|
|
|
|
|
|
|
|
|
|
Balance Sheet
Classification
|
|
|
July 31, 2019
|
Assets
|
|
|
|
|
|
|
Operating lease
right-of-use assets
|
|
|
Operating right-of-use
assets
|
|
$
|
2,214,000
|
Finance lease
right-of-use assets
|
|
|
Property, plant and
equipment, net
|
|
|
82,000
|
Total leased
assets
|
|
|
|
|
$
|
2,296,000
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Operating lease
liabilities
|
|
|
Current maturities of
operating lease liabilities
|
|
$
|
378,000
|
Finance lease
liabilities
|
|
|
Current maturities of
finance lease liabilities
|
|
|
73,000
|
Noncurrent
|
|
|
|
|
|
|
Operating lease
liabilities
|
|
|
Operating lease
liabilities, less current maturities
|
|
|
2,042,000
|
Finance lease
liabilities
|
|
|
Finance lease
liabilities, less current maturities
|
|
|
9,000
|
Total lease
liabilities
|
|
|
|
|
$
|
2,502,000
|
|
|
|
|
|
|
|
The
components of lease expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2019
|
|
|
|
|
|
|
|
Operating lease
expense
|
|
|
|
|
$
|
112,000
|
Finance lease
expense
|
|
|
|
|
|
|
Amortization of
right-to-use assets
|
|
|
|
|
|
10,000
|
Interest on lease
liabilities
|
|
|
|
|
|
3,000
|
Total finance lease
expense
|
|
|
|
|
|
13,000
|
Total lease
expense
|
|
|
|
|
$
|
125,000
|
|
|
|
|
|
|
|
The
supplemental components of cash flows were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2019
|
Cash paid for amounts
included in the measurement of lease liabilities
|
|
|
|
|
|
|
Operating cash flows
from operating leases
|
|
|
|
|
$
|
112,000
|
Financing cash flows
from finance leases
|
|
|
|
|
|
16,000
|
Total cash paid for
amounts included in the measurement of lease liabilities
|
|
|
|
|
$
|
128,000
|
|
|
|
|
|
|
|
The
following table respresents the weighted-average remaining lease
term and discount rate as of July 31, 2019:
|
|
|
|
|
|
|
|
|
|
July 31, 2019
|
|
|
|
Weighted
Average
|
|
|
Weighted
Average
|
|
|
|
Remaining
|
|
|
Discount
|
Lease
Term and Discount Rate
|
|
|
Lease
Term (years)
|
|
|
Rate
|
Operating
leases
|
|
|
7.24
|
|
|
4.51% |
Finance
leases
|
|
|
1.12
|
|
|
5.45% |
|
|
|
|
|
|
|
Future minimum lease payments on the
amended operating lease and future minimum finance lease payments
as of July 31, 2019 are as follows:
|
|
|
|
|
|
Finance
Lease
|
Operating
Lease
|
Fiscal
Years Ending April 30,
|
Payments
|
Payments
|
2020
|
$
|
55,000
|
$
|
342,000
|
2021
|
|
27,000
|
|
418,000
|
2022
|
|
—
|
|
430,000
|
2023
|
|
—
|
|
442,000
|
2024
|
|
—
|
|
452,000
|
2025
|
|
—
|
|
456,000
|
2026
|
|
—
|
|
467,000
|
2027
|
|
—
|
|
350,000
|
|
|
82,000
|
|
3,357,000
|
NOTE 6—FINANCING
AGREEMENTS
On October 19, 2018, Torotel entered
into three new business loan agreements (the “financing
agreements”) with Cornerstone Bank (the “Bank”). The
financing agreements provide for an asset-backed revolving line of
credit, a guidance line of credit, and a real estate term
loan. A summary of the notes issued under the financing
agreements is provided below:
|
|
|
|
|
|
|
|
|
|
July 31, 2019
|
|
|
April 30, 2019
|
6.25% asset-based
revolving line of credit with a maturity date of October 19,
2019
|
|
$
|
636,000
|
|
$
|
975,000
|
6.25% guidance line of
credit with a maturity date of October 19, 2019
|
|
|
-
|
|
|
54,000
|
5.35% mortgage note
payable in monthly installments of $5,573, including interest, with
final payment of $690,829 due October 19, 2023
|
|
|
789,000
|
|
|
795,000
|
5.50% equipment term
loan note payable in monthly installments of $1,034, including
interest, with final payment of $1,034 due on May 13,
2024
|
|
|
52,000
|
|
|
-
|
Capital lease
obligations (see Note 5)
|
|
|
-
|
|
|
98,000
|
Total long-term
debt
|
|
|
1,477,000
|
|
|
1,922,000
|
Less current
installments
|
|
|
666,000
|
|
|
1,121,000
|
Long-term debt,
excluding current installments
|
|
$
|
811,000
|
|
$
|
801,000
|
The asset-based revolving line of
credit is intended to be used for working capital purposes and has
a capacity of $1,500,000. The asset-based revolving line
of credit is renewable annually upon mutual agreement of Torotel
and the Bank. The Company intends to renew the asset-based
revolving line of credit. The associated interest rate is
equal to the greater of the floating Cornerstone Bank Corporate
Base Rate (6.25% as of July 31, 2019) or a floor of 5% (as
listed above). Monthly repayments of interest only are
required under the asset-based revolving line of credit promissory
note with the principal due at maturity. The borrowing base
of the revolving line of credit is limited to 80% of eligible
accounts receivable, plus 50% of eligible inventory, plus 80% of
eligible equipment. This asset-based revolving line of
credit is cross collateralized and cross defaulted with all other
financing agreements of Torotel with the Bank. Pursuant
to a
Commercial Security Agreement dated
October 19, 2018, between Torotel and the Bank (the “Commercial
Security Agreement”), which was entered into in connection with the
financiang agreements, the asset-based revolving line of credit is
secured by a first lien on all business assets of
Torotel. Under the revolving line of credit, if the aggregate
principal amount of the outstanding advances exceeds the applicable
borrowing base, Torotel must pay the Bank an amount equal to the
difference between the outstanding principal balance of the
revolving line of credit and the borrowing base.
The equipment note was a guidance
line of credit to be used for equipment purchases and had a
capacity of $250,000. On May 13, 2019, Torotel converted the
guidance line of credit relating to the equipment note into an
equipment term loan. The equipment term loan is in the
principal amount of $54,000 and contains a 5-year term with a
5-year amortization period, with the balance at maturity on May 13,
2024. The associated interest rate is fixed at
5.50%. Monthly repayments of approximately $1,034,
consisting of both interest and principal, are
required. This final payment of approximately $1,034 is
due on the maturity date. This equipment term loan is
cross collateralized and cross defaulted with the other financing
agreements of Torotel and is secured by a purchase money security
interest in the assets purchased as well as a first lien on all
business assets of Torotel.
The real estate term loan is in the
principal amount of $815,000 and contains a 5-year term with a
20-year amortization period, with the balance at maturity on
October 19, 2023. The associated interest rate is fixed
at 5.35%. Monthly repayments of approximately $5,573,
consisting of both interest and principal, are
required. The final payment of approximately $690,829 is
due on the maturity date. This real estate term loan is
cross collateralized and cross defaulted with the other financing
agreements. The real estate term loan is secured by a first
lien priority real estate mortgage on the property located at 620
North Lindenwood Drive in Olathe, Kansas pursuant to the Commercial
Security Agreement.
The financing agreements contain
customary representations, warranties, and covenants of Torotel for
the benefit of the Bank, as well as customary default
provisions. Other than the borrowing base limitations
under the asset-based revolving line of credit, none of the
financing agreements requires Torotel to comply with any financial
covenants. Prepayments are allowed without penalty under
all of the financing agreements.
Irrevocable Standby
Letter of Credit
Under the terms of a lease amendment
for its manufacturing facility located in Olathe, Kansas, Torotel
provided the landlord an irrevocable standby letter of credit in
the original amount of $300,000 as additional security. The balance
under the letter of credit will automatically reduce in accordance
with the below schedule if not drawn upon:
|
|
|
|
|
Date
of Reduction
|
|
Amount
of Reduction
|
|
Balance of Letter
of Credit
|
January 1,
2020
|
$
|
75,000
|
$
|
225,000
|
January 1,
2021
|
|
75,000
|
|
150,000
|
January 1,
2022
|
|
75,000
|
|
75,000
|
January 1,
2023
|
|
75,000
|
|
-
|
NOTE 7—INCOME
TAXES
The Company incurred income tax
expense of $111,000 during the three months ended July
31, 2019 with an effective tax rate of 19.9%, compared to
income tax benefit of $15,000 during the three months ended July
31, 2018.
As of July 31, 2019, the federal
tax returns for the fiscal years ended 2017 through 2019 are open
to audit until the statute of limitations closes for the years in
which our net operating losses are utilized. We would recognize
interest and penalties accrued on unrecognized tax benefits as well
as interest received from favorable tax settlements within income
tax expense. As of July 31, 2019, we recorded no accrued interest
or penalties related to uncertain tax positions. We expect no
significant change in the amount of unrecognized tax benefit,
accrued interest or penalties within the next twelve
months.
NOTE 8—RESTRICTED
STOCK AGREEMENTS
Restricted Stock Agreements, and
stock awards thereunder, are authorized by the Compensation and
Nominating Committee (the "Committee") and the Board of Directors
of Torotel (the "Board"). The terms of the Restricted Stock
Agreements afford the grantees all of the rights of a stockholder
with respect to the award shares, including the right to vote such
shares and to receive dividends and other distributions payable
with respect to such shares since the date of award. Under the
terms of each agreement, the non-vested shares are restricted as to
disposition and subject to forfeiture under certain circumstances.
The Restricted Stock Agreements further provide, subject to certain
conditions, that if prior to all of the restricted shares having
vested, we undergo a change in control, then all of the restricted
shares shall be vested and no longer subject to restrictions under
the Restricted Stock Agreements. The restricted shares are treated
as non-vested stock; accordingly, the fair value of the restricted
stock at the date of award is offset against capital in excess of
par value in the accompanying consolidated balance sheets under
stockholders' equity.
Restricted Stock
Grants
On September 21, 2016, we
entered into Restricted Stock Agreements (“2016 Agreements”) with
three key employees for the grant of an aggregate total of 730,000
restricted shares of the Company's common stock (the
“Shares”). The Shares were granted, and the 2016
Agreements were entered into, pursuant to the Company’s Stock Award
Plan (the “Plan”). The award of the Shares was
authorized by both the Committee and the Board as a whole on
September 19, 2016. Except for the number of
shares granted to each recipient, the terms of each of the 2016
Agreements are identical.
The Shares were granted subject to
restrictions that prohibit them from being sold, assigned, pledged
or otherwise disposed of until the restrictions
lapse. The restrictions will lapse on the fifth
anniversary of the date of grant if during the five year
restriction period, (1) the Company's cumulative annual growth in
revenue is at least 10%, and (2) the average economic value added
as a percentage of revenue is at least 2%. The economic value
added, which attempts to capture the true economic profit, will be
calculated as the operating profit less the cost of capital with
adjustments made for taxes. The restrictions will also lapse, if
prior to the fifth anniversary of the date of grant, (1) the
grantee's employment with the Company is terminated by reason of
disability, (2) the grantee dies, or (3) the Committee, in its sole
discretion, terminates the restrictions. If the
restrictions on the Shares have not lapsed by the fifth anniversary
of the date of grant, the Shares will be forfeited to the
Company.
Stock Compensation
Costs and Restricted Stock Activity
Total stock compensation cost was
$27,000 for each of the three months ended July 31,
2019 and 2018.
Restricted stock activity for each
three month period through July 31 is summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
|
Restricted
|
|
Weighted
|
|
Restricted
|
|
Weighted
|
|
|
|
Shares
|
|
Average
|
|
Shares
|
|
Average
|
|
|
|
Under
|
|
Grant
|
|
Under
|
|
Grant
|
|
|
|
Option
|
|
Price
|
|
Option
|
|
Price
|
|
Outstanding at
May 1
|
|
730,000
|
|
$
|
0.740
|
|
730,000
|
|
$
|
0.740
|
|
Granted
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
Forfeited
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
Outstanding at July
31
|
|
730,000
|
|
$
|
0.740
|
|
730,000
|
|
$
|
0.740
|
|
NOTE 9—STOCKHOLDERS'
EQUITY
The shares of common stock
outstanding as each three month period ended as of July 31 are
summarized as follows:
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
Balance,
May 1
|
|
5,995,750
|
|
5,995,750
|
|
Shares released from
treasury for restricted stock grants
|
|
—
|
|
—
|
|
Newly issued shares for
restricted stock grants
|
|
—
|
|
—
|
|
Shares reverted to
treasury for restricted stock forfeitures
|
|
—
|
|
—
|
|
Balance, July
31
|
|
5,995,750
|
|
5,995,750
|
|
NOTE 10—EARNINGS PER
SHARE
Basic and diluted earnings per share
are computed using the two-class method. The two-class method is an
earnings allocation formula that determines net income per share
for each class of common stock and participating security according
to dividends declared and participation rights in undistributed
earnings. Per share amounts are computed by dividing net income
attributable to common shareholders by the weighted average shares
outstanding during each period.
The basic earnings (loss) per common
share were computed as follows:
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
|
July 31, 2019
|
|
July 31, 2018
|
|
Net income
(loss)
|
|
$
|
444,000
|
|
$
|
(43,000)
|
|
Amounts allocated to
participating securities (nonvested restricted shares)
|
|
|
(54,000)
|
|
|
—
|
|
Net income (loss)
attributable to common shareholders
|
|
$
|
390,000
|
|
$
|
(43,000)
|
|
Basic weighted average
common shares
|
|
|
5,265,750
|
|
|
5,265,750
|
|
Earnings (loss) per
share attributable to common shareholders:
|
|
|
|
|
|
|
|
Basic earnings (loss)
per share
|
|
$
|
0.07
|
|
$
|
(0.01)
|
|
|
|
|
|
|
|
|
|
ASC 260, Earnings per Share,
provides that unvested share-based payment awards that contain
non-forfeitable rights to dividends are considered to be
participating securities and must be considered in the computation
of earnings per share pursuant to the two-class method.
Diluted earnings per share is not presented as we do not have any
shares considered incremental and dilutive.
NOTE 11—CONTRACT
ASSETS
For each of our contracts, the timing
of revenue recognition, customer billings, and cash collections
results in a net contract asset or liability at the end of each
reporting period. Contract assets consist of unbilled receivables
typically resulting from revenue recognition under contracts when
either control has passed to the customer but the product has not
yet shipped or the percentage-of-completion of revenue recognition
is utilized when revenue recognized exceeds the amount billed to
the customer for any project-related services, utilizing labor as
the input method.
|
|
|
|
|
|
|
|
|
|
July 31, 2019
|
|
April 30, 2019
|
|
Contract
assets
|
|
$
|
1,173,000
|
|
$
|
1,104,000
|
|
Contract assets increased $69,000
between April 30, 2019 and July 31, 2019 due to increased customer
contracts, and relates to the recognition of revenue related to the
satisfaction or partial satisfaction of performance obligations for
which we have not yet billed.
NOTE 12
— CUSTOMER DEPOSITS
For certain customers, we collect
payment at the time the order is placed. These deposits
are classified as a liability and will be recognized as revenue at
the time performance obligations are satisfied in accordance with
our revenue recognition policy. As of July 31, 2019 and
April 30, 2019, we had approximately $26,000 and $24,000,
respectively, in customer deposits related to these
arrangements.
NOTE 13
— CONCENTRATIONS OF CREDIT RISK
Financial instruments that
potentially subject us to concentrations of credit risk consist
principally of cash and accounts receivable. We grant
unsecured credit to most of our customers. We do not believe
that we are exposed to any extraordinary credit risk as a result of
this policy. At various times cash balances exceeded
federally insured limits. However, we have incurred no losses
in the cash accounts and we do not believe we are exposed to any
significant credit risk with respect to our cash.
NOTE 14 – LEASED
PROPERTY
The Company adopted
ASC 842 on May 1, 2019 using the modified retrospective
transition method; and therefore, the comparative information has
not been adjusted for the three months ended July 31, 2018 or
as of April 30, 2019. Upon transition to the new standard, the
Company elected the package of practical expedients, which
permitted the Company not to reassess under the new standard its
prior conclusions about lease identification, lease classification
and initial direct costs.
On February 15, 2019, a lease
agreement became effective for tenant occupancy of the 23,924
square foot building owned by Torotel. Monthly installment payments
of $11,500 began to be paid to us on March 1, 2019. The lease is
for a sixty-two month term with monthly payments escalating
periodically from $11,500 to $15,500. The tenant has the right to
elect to purchase the building. The election to purchase must be
made within the lease term or Torotel is not prohibited from
placing the building up for public sale.
Future minimum lease payments on the
operating lease as of July 31, 2019 are as follows:
|
|
|
|
Operating
Lease
|
Fiscal
Years Ending April 30,
|
Payments
|
2020
|
$
|
107,500
|
2021
|
|
154,000
|
2022
|
|
166,000
|
2023
|
|
178,000
|
2024
|
|
124,000
|
Total
|
$
|
729,500
|
|
|
|
Torotel’s leased property (where
Torotel is the leesor) by asset category was as follows:
|
|
|
|
|
|
|
|
|
July 31, 2019
|
|
April 30, 2019
|
Land
|
|
$
|
265,000
|
|
$
|
265,000
|
Buildings and
improvements
|
|
|
1,000,000
|
|
|
1,000,000
|
|
|
|
1,265,000
|
|
|
1,265,000
|
Less accumulated
depreciation
|
|
|
(672,000)
|
|
|
(659,000)
|
Net leased
property
|
|
$
|
593,000
|
|
$
|
606,000
|
|
|
|
|
|
|
|
Depreciation resulting from the
leased property amounted to $13,000 during the three months ending
July 31, 2019.
Forward-Looking
Information
This report, as
well as our other reports filed with or furnished to the Securities
and Exchange Commission (the “SEC”), contains forward-looking
statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”). The words “believe,”
“estimate,” “anticipate,” “project,” “intend,” “expect,” “plan,”
“outlook,” “forecast,” “may,” “should,” “predict,” and similar
expressions are intended to identify forward-looking statements.
Statements regarding expectations, including performance
assumptions and estimates relating to capital requirements, as well
as other statements that are not historical facts, are
forward-looking statements. This report contains forward-looking
statements regarding, among other topics, our expected financial
position, results of operations, cash flows, strategy, budgets and
management's plans and objectives. Accordingly, these
forward-looking statements are based on management’s judgments
based on currently available information and assumptions about a
number of important factors. While we believe that our assumptions
about such factors are reasonable, such factors involve risks and
uncertainties that could cause actual results to differ materially
from those in the forward-looking statements. These factors
include,without limitation:
|
·
|
|
economic, political
and legislative factors that could impact defense
spending;
|
|
·
|
|
continued
production of the Hellfire II missile system for which we supply
parts;
|
|
·
|
|
loss of key
customers and our relatively concentrated customer base;
|
|
·
|
|
risks in fulfilling
military subcontracts;
|
|
·
|
|
our ability to
finance operations;
|
|
·
|
|
our 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 repayment obligations;
|
|
·
|
|
our ability to
generate sufficient taxable income to realize the amount of our
deferred tax assets; and
|
|
·
|
|
the impact of
competition and price erosion as well as supply and manufacturing
constraints;
|
In light of these
risks and uncertainties, there can be no assurance that the
forward-looking information contained in this report will prove
accurate, and actual results may differ materially from these
forward-looking statements. We assume no obligation to update any
forward-looking statements made herein.
Item 2.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Torotel, Inc. ("Torotel") conducts
substantially all of its business primarily through its wholly
owned subsidiary, Torotel Products, Inc. ("Torotel
Products"). The terms “we,” “us,” “our,” and the “Company” as
used herein include Torotel and all of its subsidiaries, including
Torotel Products, unless the context otherwise requires. Torotel
specializes in the custom design and manufacture of a wide variety
of precision magnetic components consisting of transformers,
inductors, reactors, chokes, toroidal coils, high voltage
transformers, dry-type transformers and electro-mechanical
assemblies for use in military, commercial aerospace and industrial
electronic applications. These products are used to modify and
control electrical voltages and currents in electronic devices.
Torotel sells these products to original equipment manufacturers,
which use them in applications such as:
|
·
|
|
aircraft navigational
equipment;
|
|
·
|
|
digital control
devices;
|
|
·
|
|
airport runway lighting
devices;
|
|
·
|
|
conventional missile
guidance systems; and
|
|
·
|
|
other aerospace and
defense applications.
|
Torotel markets its components
primarily through an internal sales force and independent
manufacturers’ representatives paid on a commission basis.
These commissions are earned when a product is sold and/or shipped
to a customer within the representative’s assigned territory.
Torotel also utilizes its engineering department in its direct
sales efforts for the purpose of expanding its reach into new
markets and/or customers.
The industry mix of the customers
that accounted for Torotel’s net sales for the first three months
of the fiscal year ending April 30, 2020 (“fiscal year 2020”) was
60% defense, 38% commercial aerospace, and 2% industrial
compared to 51% defense, 39% commercial aerospace, and 10%
industrial for the same period in the fiscal year ending April 30,
2019 (“fiscal year 2019”). Approximately 96% of Torotel’s
sales during the first three months of fiscal year 2020 have been
derived from domestic customers.
Torotel is an approved source for
magnetic components used in numerous military and commercial
aerospace systems, which means Torotel is automatically solicited
for any procurement needs for such applications. The magnetic
components manufactured by Torotel are sold primarily in the United
States, and most sales are awarded on a competitive bid
basis. The markets in which Torotel competes are highly
competitive. A substantial number of companies sell
components of the type manufactured and sold by Torotel. In
addition, Torotel sells to a number of customers who have the
capability of manufacturing their own electronic components.
The principal methods of competition for electronic products in the
markets served by Torotel include, among other factors, price,
on-time delivery performance, lead times, customized product
engineering and technical support, marketing capabilities, quality
assurance, manufacturing efficiency, and existing relationships
with customers’ engineers. While we believe magnetic
components are generally not susceptible to rapid technological
change, Torotel’s sales, which do not represent a significant share
of the industry’s market, are susceptible to decline given the
competitive nature of the market.
Business and
Industry Considerations
Defense
Markets
During the first three months of
fiscal years 2020 and 2019 the amount of consolidated revenues
derived from contracts with prime contractors of the U.S.
Department of Defense (“DoD”) was approximately 60% and
51%
respectively. As a result, our
financial results in any period could be impacted substantially by
spending cuts or increases in the DoD budget and the funds
appropriated for certain military programs.
Despite ongoing uncertainty
associated with the DoD budget, we believe our overall defense
business outlook remains favorable due to the present demand for
the potted coil assembly and other existing orders from major
defense contractors. As of July 31, 2019, our
consolidated order backlog for the defense market was nearly
$9.2 million, which included $2.8 million for the potted coil
assembly.
Commercial
Aerospace and Industrial Markets
We provide magnetic components and
electro-mechanical assemblies for a variety of applications in the
commercial aerospace and industrial markets. The primary demand
drivers for these markets include commercial aircraft orders, oil
and gas drilling exploration activity, and general economic growth.
While domestic economic growth remains positive, the above demand
drivers could be impacted by short-term changes in the economy such
as spikes or declines in the price of oil, war, terrorism, or
changes in regulation. Other threats to our anticipated positive
near-term and long-term market outlook include delays on the
development and production of new commercial aircraft and
competition from international suppliers. As of July 31,
2019, our consolidated order backlog for the aerospace and
industrial markets was $3.8 million. However, a material portion of
our business has been converted to long-term agreements.
Business
Outlook
Our backlog as
of July 31, 2019 as compared to July 31, 2018 increased from
$9.6 million to $12.9 million, a 35% increase. This was due
primarily to an increase in magnetics and assembly orders.
We anticipate that net sales for fiscal year 2020 will
improve from net sales for fiscal year 2019. This is
primarily due to the timing of newer program revenue that is
projected to ship in fiscal year 2020. We anticipate that
85% of our $12.9 million backlog as of July 31, 2019 is
expected to ship and be converted to sales in fiscal year
2020.
Consolidated Results
of Operations
The following management comments
regarding Torotel’s results of operations and outlook should be
read in conjunction with the Consolidated Condensed Financial
Statements and Notes to the Consolidated Condensed Financial
Statements included in Part I, Item 1 of this Quarterly
Report.
This discussion and analysis of the
results of operations include the operations of Torotel and its
subsidiary Torotel Products as of July 31, 2019.
Net
Sales
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
|
|
|
July 31, 2019
|
|
July 31, 2018
|
|
|
|
Magnetic
components
|
|
$
|
3,254,000
|
|
$
|
2,157,000
|
|
|
|
Potted coil
assembly
|
|
|
1,519,000
|
|
|
1,279,000
|
|
|
|
Electro-mechanical
assemblies
|
|
|
1,573,000
|
|
|
757,000
|
|
|
|
Large
transformers
|
|
|
—
|
|
|
280,000
|
|
|
|
Total
|
|
$
|
6,346,000
|
|
$
|
4,473,000
|
|
|
|
Consolidated net sales in the three
months ended July 31, 2019 increased 42%, or
$1,873,000, compared to the three months ended July 31, 2018.
Consolidated net sales increased primarily because of
increased demand in magnetic components and
electro-mechanical assemblies.
Gross
Profit
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
|
|
|
July 31, 2019
|
|
July 31, 2018
|
|
|
Gross profit
|
|
$
|
2,393,000
|
|
$
|
1,479,000
|
|
|
Gross profit % of net
sales
|
|
|
38
|
%
|
|
33
|
%
|
|
Consolidated gross profit
increased by 62%, or $914,000, in the three months ended
July 31, 2019 compared to the three months ended
July 31, 2018. Consolidated gross profit increased primarily
due to increased direct labor efficiencies during the first quarter
of fiscal year 2020, as well as change in product
mix.
Operating
Expenses
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
July 31, 2019
|
|
July 31, 2018
|
Engineering
|
|
$
|
388,000
|
|
$
|
302,000
|
Selling, general and
administrative
|
|
|
1,423,000
|
|
|
1,211,000
|
Total
|
|
$
|
1,811,000
|
|
$
|
1,513,000
|
Engineering expenses increased 28%,
or $86,000, in the three months ended July 31,
2019 compared to the three months ended July 31,
2018. The increase primarily resulted from an increase
in headcount during the first quarter of fiscal year 2020.
Selling, general and administrative
expenses increased 18%, or $212,000, in the three months
ended July 31, 2019 compared to the
three months ended July 31, 2018. The increase primarily
resulted from an increase in headcount during the first quarter of
fiscal year 2020.
Earnings (loss)
from Operations
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
|
July 31, 2019
|
|
July 31, 2018
|
|
Torotel
Products
|
|
$
|
765,000
|
|
$
|
104,000
|
|
Torotel
|
|
|
(183,000)
|
|
|
(138,000)
|
|
Total
|
|
$
|
582,000
|
|
$
|
(34,000)
|
|
For the reasons discussed under each
of the Gross Profit and Operating Expenses headings above,
consolidated earnings from operations increased by $616,000 and
changed to an income position, for the three months ended July 31,
2019 when compared to the three months ended July 31,
2018.
Other Earnings
Items
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
July 31, 2019
|
|
July 31, 2018
|
Income
(loss) from operations
|
|
$
|
582,000
|
|
$
|
(34,000)
|
Interest
expense
|
|
|
27,000
|
|