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 [ ]

⌧	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 2020
◻	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 ofincorporation or organization)		44-0610086 (I.R.S. EmployerIdentification No.)

520 N. ROGERS ROAD, OLATHE, KANSAS(Address of principal executive offices)		66062(Zip Code)
MISSOURI(State or other jurisdiction ofincorporation or organization)		44-0610086(I.R.S. EmployerIdentification 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~~Indicate ~~aggregate~~by ~~market~~check ~~value~~mark ofwhether the ~~voting~~registrant ~~stock~~has ~~held~~filed bya ~~non-affiliates~~report ofon ~~the~~and ~~registrant,~~attestation ~~computed~~to ~~based~~its onmanagement’s assessment of the ~~closing~~effectiveness ~~sale~~of ~~price~~its ~~reported~~internal oncontrol ~~the~~over ~~OTC~~financial ~~Market-Pink~~reporting onunder ~~October~~Section ~~30,~~404(b) ~~2018,~~of ~~was~~the ~~$3,597,450~~Sarbanes-Oxley Act (15 U.S.C. As7262(b)) ofby ~~July~~the ~~23,~~registered ~~2019,~~public ~~there~~accounting ~~were~~firm ~~5,995,750~~that ~~shares~~prepared ofor ~~Common~~issued ~~Stock~~its ~~outstanding~~audit report. ◻

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, 2019, was $3,597,450. As of July 28, 2020, 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~~2020 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.

Table of Contents

TOROTEL, INC. FORM 10-K

~~Fiscal Year Ended April 30, 2019~~

Fiscal Year Ended April 30, 2020

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


PART I
	Item 1.	Business	4
	Item 2.	Properties	6
	Item 3.	Legal Proceedings	7
	Item 4.	Mine Safety Disclosures	7
PART II
	Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	8
	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	17
	Item 9.	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	42
	Item 9A.	Controls and Procedures	42
	Item 9B.	Other Information	42
PART III
	Item 10.	Directors, Executive Officers and Corporate Governance	42
	Item 11.	Executive Compensation	43
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	43
	Item 13.	Certain Relationships and Related Transactions, and Director Independence	43
	Item 14.	Principal Accounting Fees and Services	43
PART IV
	Item 15.	Exhibits, Financial Statement Schedules	44
	Item 16.	Form 10-K Summary	46
SIGNATURES			47

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Forward-Looking Information

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

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

·● disruption ~~continued~~in ~~production~~our ofbusiness, ~~the~~customers ~~Hellfire~~and IIsuppliers ~~missile~~in ~~system~~connection ~~for~~with ~~which we supply parts~~COVID-19;

·● economic, ~~loss~~political ofand ~~key~~legislative ~~customers~~factors ~~and~~that ~~our~~could ~~relatively~~impact ~~concentrated~~defense ~~customer base~~spending;

~~risks~~● incontinued ~~fulfilling~~production ~~military~~of ~~subcontracts~~the Hellfire II missile system for which we supply parts;

~~our~~● ~~ability~~loss toof ~~finance~~key ~~operations~~customers and our concentrated customer base;

~~our~~● risks ~~on-going analysis of the effect on our financial position and results of operations from changes~~ in ~~tax~~fulfilling ~~law~~military subcontracts;

● our ability to ~~adequately~~finance ~~pass through to customers unanticipated future increases in raw material and labor costs~~operations;

~~delays~~● our inon-going ~~developing~~analysis ~~new~~of ~~products~~the effect on our financial position and results of operations from changes in tax law;

~~markets~~● ability ~~for~~to ~~new~~adequately ~~products~~pass ~~and~~through ~~the~~to ~~cost~~customers ofunanticipated ~~developing~~future ~~new~~increases ~~markets~~in raw material and labor costs;

~~expected~~● delays ~~orders~~in ~~that~~developing donew ~~not occur~~products;

~~our~~● markets ~~ability~~for tonew ~~adequately~~products ~~protect~~ and ~~safeguard~~the ~~our~~cost ~~network~~of ~~infrastructure~~developing ~~from~~new ~~cyber security vulnerabilities~~markets;

~~our~~● expected ~~on-going~~orders ~~ability~~that todo ~~satisfy~~not ~~our debt covenant requirements and debt repayment obligations~~occur;

● our ability to ~~generate~~adequately ~~sufficient~~protect ~~taxable~~and ~~income~~safeguard toour ~~realize~~network ~~the~~infrastructure ~~amount~~from ofcyber ~~our~~security ~~deferred tax assets~~vulnerabilities; ~~and~~

~~the~~● our ~~impact~~on-going ofability ~~competition~~to ~~and~~satisfy ~~price~~our ~~erosion~~debt ascovenant ~~well~~requirements ~~as supply~~ and ~~manufacturing~~debt ~~constraints.~~ repayment obligations;

●

fluctuations in oil prices;

● 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.

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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~~Torotel ~~following~~provides ~~discussion~~end ~~includes~~products to the ~~business~~defense ~~operations~~industry and is considered part of ~~Torotel~~the Defense Industrial Base (“DIB”). The DIB is identified as a Critical Infrastructure Sector by the Department of Homeland Security and ~~for~~is defined as the ~~fiscal~~worldwide ~~year~~industrial ~~ended~~complex ~~April~~that 30enables research and development as well as design, ~~2019~~production, (delivery, and maintenance of military weapons systems/software systems, subsystems, and components or parts, as well as purchased services to meet U.S. Military requirements. Based on this identification, and guidance from the “~~fiscal~~Memorandum ~~year~~for ~~2019~~Defense Industrial Base”) dated March 20, 2020, Torotel is considered an essential business by the Department of Defense during the COVID-19 pandemic.

~~Principal~~The ~~Products~~ following discussion includes the business operations of Torotel as of and for the fiscal year ended April 30, 2020 (“fiscal year 2020”).

~~Torotel~~Principal 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~~Torotel specializes in the custom design and ~~Customers~~ 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 2020.

~~Torotel’s~~Marketing ~~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. Customers

Torotel’s ~~markets~~sales do not represent a significant portion of any particular market in which it provides its products. While ~~primarily~~approximately ~~through~~42% anof ~~internal~~annual sales ~~force~~in fiscal year 2020 came from select commercial markets, such as commercial aerospace, and ~~independent~~oil ~~manufacturers'~~drilling, ~~representatives~~historically ~~paid~~Torotel onhas aprimarily ~~commission~~focused ~~basis.~~its ~~These~~activities ~~commissions~~on ~~are~~the ~~earned~~defense ~~when~~industry. As a ~~product~~result, isthe ~~sold~~business ~~and/or~~of ~~shipped~~Torotel tois asubject ~~customer~~to ~~within~~various ~~the~~risks ~~representative's~~including, ~~assigned~~without ~~territory.~~limitation, ~~Torotel~~dependence ~~also~~on ~~utilizes~~government ~~its~~appropriations ~~engineering~~and ~~department~~program inallocations, ~~its~~potential ~~direct~~cutbacks ~~sales~~in ~~efforts~~military ~~for~~spending, the ~~purpose~~requirement ofthat ~~expanding~~some ~~its~~of ~~reach~~our ~~into~~products ~~new~~be ~~markets~~approved and~~/or~~ ~~customers.~~qualified ~~Other~~by ~~sales~~the ~~methods~~federal ~~may~~government ~~include~~before ~~visits~~we tocan ~~customers~~sell them, ~~lunch-~~and~~-learn~~ ~~presentations~~the tocompetition ~~customers'~~for ~~engineers~~available military business. Torotel pursues revenue opportunities in electro-mechanical assemblies, ~~catalog~~in ~~brochures~~larger and higher voltage transformers, ~~trade~~along ~~show~~with ~~exhibits~~products ~~and~~sourced ~~speaker~~from ~~presentations~~low-cost atmanufacturers ~~trade~~in ~~shows~~overseas markets who are compliant with aerospace standards.

Torotel ismarkets anits ~~approved~~products ~~source~~primarily ~~for~~through ~~magnetic~~an ~~components~~internal ~~used~~sales inforce ~~numerous~~and ~~military~~independent ~~and~~manufacturers' ~~commercial~~representatives ~~aerospace~~paid ~~systems,~~on ~~which~~a ~~means~~commission ~~Torotel~~basis. isThese ~~automatically~~commissions ~~solicited~~are ~~for~~earned ~~any~~when ~~procurement~~a ~~needs~~product ~~for~~is ~~such~~sold ~~applications.~~and/or ~~The~~shipped ~~magnetic~~to a

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~~components~~customer ~~manufactured~~within bythe representative's assigned territory. Torotel ~~are~~also ~~sold~~utilizes ~~primarily~~its engineering department in its direct sales efforts for the ~~United~~purpose ~~States,~~of expanding its reach into new markets and/or ~~most~~customers. Other sales ~~are~~methods ~~awarded~~may oninclude avisits ~~competitive~~to ~~bid~~customers, ~~basis~~lunch-and-learn presentations to customers' engineers, catalog brochures, trade show exhibits and speaker presentations at trade shows.

Torotel ~~currently~~is ~~has~~an aapproved ~~primary~~source ~~base~~for ofmagnetic ~~approximately~~components 15used ~~customers~~in ~~that~~numerous ~~together~~military ~~provide 91% of its annual sales volume. This customer base includes many large prime defense~~ and commercial aerospace ~~companies.~~systems, ~~Torotel’s~~which ~~primary~~means ~~strategy~~Torotel ~~focuses~~is onautomatically ~~providing~~solicited ~~superior~~for ~~service~~any toprocurement ~~this~~needs ~~core~~for ~~group~~such ~~of customers, including engineering support and new product design~~applications. The ~~objective~~magnetic iscomponents tomanufactured ~~achieve~~by ~~growth~~Torotel ~~with~~are ~~these~~sold ~~customers~~primarily orin ~~other targeted companies that possess~~ the ~~potential~~United ~~for inclusion into the core group. During fiscal year 2019~~States, ~~sales to a single customer accounted for 30%,~~ and ~~sales~~most ~~to another customer accounted for 21% of the net~~ sales ofare ~~Torotel.~~awarded Aon ~~loss of, or material reduction in orders from, these customers could have~~ a ~~material~~competitive ~~adverse~~bid ~~effect on sales~~basis.

~~Competition~~ Torotel currently has a primary base of approximately 10 customers that together provide 95% 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 this core group. During fiscal year 2020, sales to a single customer accounted for 31%, and sales to another customer accounted for 28% 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.

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. Competition

The ~~principal~~markets ~~methods of competition for electronic products~~ in ~~the~~which ~~markets served by~~ Torotel ~~include,~~competes ~~among~~are ~~other~~highly ~~factors,~~competitive. ~~price,~~A ~~on-time~~substantial ~~delivery~~number ~~performance,~~of ~~lead~~companies ~~times,~~utilizing ~~customized~~similar ~~product~~resources ~~engineering~~sell components and ~~technical~~assemblies ~~support,~~of ~~marketing~~the ~~capabilities,~~type ~~quality~~manufactured ~~assurance, manufacturing efficiency,~~ and ~~existing~~sold ~~relationships~~by ~~with customers' engineers~~Torotel. ~~While~~In ~~it is believed that magnetic components are not susceptible to rapid technological change~~addition, Torotel’s ~~sales,~~sells ~~which~~to ~~do not represent~~ a ~~significant~~number ~~share~~ of ~~the~~customers ~~industry's~~who ~~market,~~have ~~are~~the ~~susceptible~~capability toof ~~decline~~manufacturing ~~given~~their ~~the~~own ~~competitive~~electronic ~~nature of the market~~components.

~~Manufacturing~~ 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.

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. Manufacturing

~~Essential~~Nearly ~~materials~~all ~~used~~of by Torotel’s insales ~~the~~consist ~~manufacturing~~of ~~process~~electronic ~~include~~products ~~magnetic~~manufactured ~~materials,~~to ~~copper~~customers' ~~wire, plastic housings and epoxies~~specifications. WeAside ~~believe these materials are available~~ from ~~many~~contractually ~~sources.~~required ~~Major~~finished ~~suppliers~~goods ~~include Magnetics Inc.~~buffers, ~~Electrical~~only ~~Insulation~~a ~~Suppliers, Inc.,~~limited ~~Mod &~~amount ~~Fab, Magnetic~~of ~~Metals-Western~~finished ~~Division,~~goods ~~TTI,~~is ~~Inc.,~~maintained ~~Krayden~~in ~~Inc.,~~our ~~and Exxelia Dearborn, Inc~~inventory. ~~Special~~Although ~~contact~~special ~~plates~~wire-winding ~~purchased~~machines ~~from Fotofab, LLC~~ and ~~polycarbonate~~molding ~~materials~~machines ~~purchased from Florida Custom Mold and Spectrum Plastics~~ are used in ~~manufacturing~~ the ~~potted~~production ~~coil assembly. Fotofab~~process, ~~Florida~~the ~~Custom~~various ~~Mold,~~electronic ~~and~~products ~~Spectrum Plastics~~ are ~~the~~manually ~~only qualified approved sources for the materials they provide. As a result~~assembled, ~~Torotel~~with ~~maintains~~numerous ~~contingent~~employees ~~business~~and ~~interruption~~some ~~insurance~~subcontractors oncontributing ~~these~~to ~~three suppliers' facilities, as well as~~ the ~~customers'~~completion ~~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~~products.

Essential materials used by Torotel ~~has~~in ~~not~~the ~~experienced~~manufacturing ~~any~~process ~~significant~~include ~~curtailment~~magnetic ofmaterials, copper wire, plastic housings and epoxies. We believe these materials are available from many sources. Major suppliers include MK Magnetics, Magnetic Metals-Western Division, EIS, Inc., Parkway Products, API Technologies Corporation, 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 ~~because~~facility, to insure against loss of ~~material~~business ~~shortages,~~income ~~but~~associated ~~any~~with ~~long~~a ~~lead~~disruption ~~times~~in production by either supplier or ~~high~~at ~~dollar~~the ~~minimum~~customer ~~orders~~as ~~could~~a ~~have~~result anof ~~adverse~~a ~~impact~~fire, ontornado, ~~sales~~explosion ~~bookings~~or other similar type loss.

~~Governmental~~Torotel ~~Regulations~~ 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. Torotel does not experience seasonal variations in its business.

AGovernmental 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. Regulations

AsA asignificant ~~supplier~~portion of ~~products~~Torotel’s ~~for~~business ~~military~~is ~~applications,~~derived ~~Torotel~~from ~~must~~subcontracts ~~comply~~ with ~~laws~~prime ~~concerning~~contractors of the ~~export~~U.S. ofgovernment. ~~material~~As ~~used~~a ~~exclusively~~U.S. ~~for~~subcontractor, ~~military~~Torotel ~~purposes~~is subject to federal contracting regulations. ~~The~~These ~~export~~subcontracts ofmay ~~those~~be ~~types~~terminated ofat ~~materials~~any istime ~~covered~~at ~~under~~the convenience of the ~~International~~U.S. government. Upon such termination, adequate financial compensation

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~~Traffic~~is usually provided in ~~Arms~~such ~~Regulations~~instances ~~("ITAR")~~to ~~and~~protect ~~the~~Torotel ~~Arms~~from ~~Export~~suffering ~~Control~~a ~~Act~~loss ~~("AECA")~~on a subcontract. ~~Torotel~~These issubcontracts ~~licensed~~also ~~with~~may ~~the~~be Uterminated for default for failure to perform a material obligation.S. ~~Department~~In the event of ~~State~~a ~~making~~termination itfor ~~eligible~~default, tothe ~~provide~~customer ~~defense-related~~may ~~components~~have ~~pursuant~~the unilateral right at any time to ~~ITAR~~require ~~and~~Torotel ~~AECA~~to pay the excess, if any, of the cost of purchasing a substitute item from a third party. ~~This~~If ~~license~~the iscustomer ~~renewed~~has ~~annually~~suffered ~~each~~other ~~October~~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.

~~Intellectual~~As ~~Property~~ 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 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.

~~The~~Intellectual 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. Property

~~Environmental~~The ~~Laws~~ 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, 2029.

InEnvironmental 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. Laws

~~Employees~~ In fiscal year 2020, 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.

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. Employees

~~ITEM~~Torotel 1Apresently employs approximately 170 full-time employees. ~~Risk~~ ~~Factors~~ We believe an adequate supply of qualified personnel is available in our immediate vicinity. Torotel's employees are not affiliated with any union.

~~Not~~ITEM ~~Applicable~~ 1A. Risk Factors

~~ITEM~~Not 2applicable pursuant to Regulation S-K Item 101(h), but see “Forward Looking Information. ~~Properties~~ ”

~~Torotel~~ITEM ~~leases approximately 72,000 square feet of space located at 520 N~~2. 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. Properties

Torotel leases approximately 572,000 square feet ~~for~~of ~~manufacturing~~space ~~electro-mechanical~~located ~~assemblies~~at ~~and~~520 ~~other~~N. ~~transformers~~Rogers Road in Olathe, Kansas. This facility isserves ~~located~~as inour ~~Hatfield,~~corporate ~~Pennsylvania.~~executive ~~The~~office ~~lease~~and ~~for~~our ~~this~~primary manufacturing facility. ~~commenced~~The onlease ~~August 1,~~for ~~2014~~this ~~and~~property continues through ~~July~~December 31, ~~2019~~2026. ~~The~~ ~~monthly~~Through ~~base~~December ~~rent is $3~~31,~~450. During~~ ~~fiscal year 2019~~2020, the ~~lease~~monthly ~~was~~base ~~automatically~~rate ~~extended~~is $32,876, asand ~~stated~~subsequently ~~within~~through ~~the~~December ~~original~~31, ~~lease agreement~~2021, ~~for~~the anmonthly ~~additional~~base ~~one~~rate ~~year~~is ~~period~~$35,289, toescalating ~~July~~annually ~~31, 2020~~thereafter.

InTorotel ~~general,~~leases weapproximately ~~believe~~5,000 ~~that~~square ~~our~~feet ~~properties~~for ~~are~~manufacturing ~~suitable~~electro-mechanical assemblies and ~~adequate~~other ~~for~~transformers. This usfacility tois ~~operate~~located atin ~~present~~Hatfield, ~~levels~~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 ~~productive~~lease ~~capacity~~was ~~and~~automatically ~~extent~~extended, ofas ~~utilization~~stated ofwithin the ~~facilities~~original ~~are~~lease ~~appropriate~~agreement, for ~~our~~an ~~existing~~additional one year period to July 31, 2020. On June 17, 2020, Torotel entered into a new lease agreement adjusting the leased space to approximately 7,000 square feet and ~~reasonably~~the ~~anticipated~~monthly ~~manufacturing~~base ~~requirements~~rent to $4,241.

~~Torotel~~In ~~owns a 24~~general,~~000~~ ~~square~~we ~~foot~~believe ~~building~~that ~~located~~our atproperties ~~620~~are N.suitable ~~Lindenwood~~and ~~Drive~~adequate ~~in Olathe, Kansas. This facility was previously held~~ for ~~sale~~us ~~through~~to ~~February~~operate ~~2019. A~~at ~~lease~~present ~~between~~levels, ~~Torotel~~ and athe ~~tenant~~productive ~~commenced~~capacity ~~on September 25, 2018,~~ and ~~continues~~extent ~~through~~of ~~December~~utilization ~~31,~~of ~~2023. The tenant began occupying~~ the ~~building~~facilities inare ~~February~~appropriate ~~2019. Monthly~~for ~~base~~our ~~rent~~existing isand ~~$11,500~~reasonably ~~with~~anticipated ~~escalations~~manufacturing ~~each year~~requirements.

~~ITEM 3. Legal Proceedings~~ 6

~~None.~~ Table of Contents

~~ITEM 4~~Torotel owns a 24,000 square foot building located at 620 N. ~~Mine~~ ~~Safety~~Lindenwood ~~Disclosures~~ 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. Through December 31, 2020, the monthly base rate is $12,500, and subsequently through December 31, 2021, the monthly base rate is $13,500, escalating annually thereafter.

~~None~~ITEM 3. Legal Proceedings

6 None.

~~Table~~ITEM of4. ~~Contents~~ Mine Safety Disclosures

~~PART II~~ None.

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

~~(a)Market Information~~ 7

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

~~Price~~PART ~~Range of Common Stock~~ II

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

(a)

Market Information

~~(c)Dividends~~

~~Torotel~~Trading ~~has~~in ~~never~~Torotel's ~~paid a cash dividend on its~~ common stock ~~and~~is ~~has~~conducted noon ~~present intention of paying cash dividends in~~ the ~~foreseeable~~OTC ~~future.~~Market ~~Certain of Torotel'~~Group’s ~~current~~OTC ~~borrowing~~Pink ~~agreements~~Open ~~restrict~~Market ~~the~~platform ~~payment~~under ~~of cash dividends without~~ the ~~consent~~symbol ~~of the lender~~"TTLO. "

~~Table~~Price Range of ~~Contents~~ Common Stock

~~(d)Securities Authorized for Issuance under Equity Compensation Plans~~

~~Torotel~~The ~~has~~following ~~certain~~table ~~long-term~~sets ~~incentive~~forth ~~plans,~~the ~~including~~high aand ~~Stock~~low ~~Award~~sales ~~Plan~~prices ~~(see~~of ~~Note 7~~Torotel's ofcommon stock as obtained from the ~~Notes~~Yahoo toFinance ~~Consolidated~~website ~~Financial~~at ~~Statements)~~www.finance.yahoo.com. ~~The~~These ~~table~~prices ~~below~~reflect ~~includes~~inter-dealer ~~the~~prices, ~~number~~without ofretail ~~shares~~mark-up, ~~authorized~~markdown ~~for~~or ~~the~~commission ~~Stock~~and ~~Award~~may ~~Plan~~not represent actual transactions.

~~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.


		2020			2019
Fiscal Period		High		Low	High		Low
May to July	$	1.19	$	0.75	$	0.70	$	0.51
August to October		1.49		1.06		0.81		0.56
November to January		7.76		1.11		1.04		0.63
February to April		7.77		0.95		0.95		0.71

~~ITEM 6. Selected Financial Data~~

~~Information~~(b) ~~not~~Approximate ~~required.~~ Number of Equity Security Holders

~~Table of Contents~~

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


		Number of
		Record Holders as of
Title of Class		June 28, 2019
Common stock, $0.01 par value		398

~~Overview~~

~~Introduction~~ (c) Dividends

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

Torotel ~~specializes~~has innever ~~the~~paid ~~custom design and manufacture of~~ a ~~wide~~cash ~~variety~~dividend ofon ~~precision~~its ~~magnetic~~common ~~components~~stock and ~~electro-mechanical~~has ~~assemblies~~no ~~for~~present ~~use~~intention inof ~~military,~~paying ~~commercial~~cash ~~aerospace~~dividends ~~and~~in ~~industrial~~the ~~electronic~~foreseeable ~~applications~~future. ~~These~~Certain ~~products~~of ~~are used to modify and control electrical voltages and currents in electronic devices.~~ Torotel's ~~sells~~current ~~these~~borrowing ~~magnetic~~agreements ~~components~~restrict ~~and~~the ~~electro-mechanical~~payment ~~assemblies~~of tocash ~~original~~dividends ~~equipment~~without ~~manufacturers,~~the ~~which~~consent ~~use~~of ~~them~~the ~~in products such as:~~ lender.

~~aircraft navigational equipment;~~

~~digital~~ITEM ~~control~~6. ~~devices;~~ Selected Financial Data

~~airport runway lighting devices;~~

~~medical~~Information ~~equipment;~~not required.

~~avionics systems;~~

~~radar systems;~~ 8

~~down-hole~~Table ~~drilling;~~of Contents

~~conventional missile guidance systems; and~~

~~other~~ITEM ~~aerospace~~7. Management's Discussion and ~~defense~~Analysis ~~applications.~~ of Financial Condition and Results of Operations

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. Overview

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. Introduction

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

~~Business and Industry Considerations~~

~~Defense~~Torotel ~~Markets~~ 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:

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~~● aircraft ~~ongoing~~navigational ~~uncertainty~~equipment; 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~~● digital ~~Aerospace~~control ~~and Industrial Markets~~ devices;

We● airport ~~provide~~runway ~~magnetic~~lighting 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. devices;

~~Business~~● medical ~~Outlook~~ equipment;

~~Our~~● avionics ~~backlog~~systems; 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~~● radar ~~Results of Operations~~ systems;

~~The~~● down-hole ~~following~~drilling; ~~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~~● conventional ~~Sales~~ missile guidance systems; and

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

● other aerospace and defense applications.

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~~We believe the primary factors that drive our gross profit and net earnings are sales involume ~~fiscal~~and ~~year~~product ~~2019~~mix. ~~increased $2,159,000,~~The orgross ~~12%,~~profits ason ~~compared~~mature products/programs and complex transformer devices tend to ~~fiscal~~be ~~year~~higher ~~2018~~than those that are still in the prototyping or early production stages and simpler inductor devices. As a result, ~~primarily~~ ~~due~~in toany given accounting period the mix of product shipments between higher ~~demand~~and ~~for~~lower ~~magnetic~~margin ~~components~~products has a significant impact on our gross profit and ~~electro-mechanical~~net ~~assemblies~~earnings. ~~along~~Our ~~with~~operating plan continues to focus on expanding the ~~change~~product inbase beyond electronic components.

~~Table~~Torotel markets its components primarily through an internal sales force and independent manufacturers’ representatives paid on a commission basis. As a result of ~~Contents~~ the coronavirus (COVID-19) pandemic, we have implemented restrictions on travel, a reduction in sales conferences being attended and limitations on in-person meetings which is expected to decrease expenses relating to sales and may have an adverse effect on customer demand. 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.

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~~The industry mix of Torotel’s net sales in fiscal year ~~2018~~2020 ~~increased~~was 1358% defense, or39% ~~$2,094,000,~~commercial asaerospace and 3% industrial compared to 58% defense, 37% commercial aerospace and 5% industrial in the fiscal year ~~2017~~ended April 30, ~~primarily~~2019 ~~due~~(“fiscal toyear ~~higher~~2019”). ~~demand~~We ~~for~~believe ~~potted~~the ~~coil~~mix ~~and~~in ~~magnetic~~the ~~components~~fiscal year ended April 30, 2020 (“fiscal year 2020”) will remain weighted primarily towards defense. Approximately 96% of Torotel’s sales during fiscal year 2020 were derived from domestic customers.

~~Gross Profit~~

Years ended April 30,		2019		2018
Gross profit	$	6,964,000		$	4,781,000
Gross profit % of net sales		34	%		26	%

COVID-19 Impact

~~Gross~~The ~~profit~~COVID-19 aspandemic, afirst ~~percentage~~identified ofin ~~net~~Wuhan, ~~sales~~Hubei inProvince, ~~fiscal~~China, ~~year~~continues ~~2019 increased~~to 8%spread asworldwide, ~~compared~~causing toweakened ~~fiscal~~international ~~year~~economic ~~2018~~conditions. ~~The~~ Torotel ~~gross~~is ~~profit~~identified ~~percentage~~as ~~for~~an ~~fiscal~~essential ~~year~~business ~~2019 increased~~as ~~primarily~~previously ~~due~~discussed ~~to higher~~within ~~demand~~the ~~for~~“Business” ~~magnetic~~section ~~components~~ and ~~electro-mechanical~~we ~~assemblies,~~have ~~lower~~been ~~manufacturing~~fully ~~costs~~operating ~~and~~throughout ~~scrap,~~the ~~and~~pandemic. Due to the ~~change~~concerns inaround ~~revenue~~the ~~recognition~~outbreak ~~policy~~of ~~(described~~COVID-19, inwe ~~Note~~have 1)implemented several new policies and procedures based on CDC recommendations. ~~The~~All ~~change~~of inour employees who do not have critical functions requiring them to be on-site have been working remotely to lower the ~~revenue~~number ~~recognition~~of ~~policy~~people within the facilities. For those employees required to work on-site, we have implemented new measures including increased ~~gross~~distancing ~~profit~~of byworkstations, ~~$546~~closed access to common areas and meeting rooms,~~000~~ ~~from~~increased ~~fiscal~~cleaning ~~year~~efforts, ~~2018~~implemented face mask requirements, further restricted access to ~~fiscal~~our ~~year~~premises ~~2019.~~ by suppliers and customers, and

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. 9

~~Operating~~Table ~~Expenses~~ of Contents

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

other safety precautions. We expect to continue these changes for the foreseeable future. As a result of the pandemic, there is significant uncertainty around the U.S. and global economy, U.S. Department of Defense spending as a result of potential budget cuts, future customer demand, supply chain availability, oil price fluctuations, cash collections, and costs related to our changes to help ensure the safety and well-being of our employees. Late in the fourth quarter of fiscal 2020, we have experienced lower commercial aerospace sales as a result of COVID-19. Due to this change in sales and the significant uncertainties outlined above in April 2020, we applied for a loan under the Paycheck Protection Program (the “PPP”) of the 2020 Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) administered by the Small Business Association. On April 15, 2020, Torotel received $1.9 million in PPP funds. We intend to use these funds from this loan only for the purposes included in the PPP, including payroll, employee benefits, rent, utilities and interest on certain finance agreements (See Liquidity and Capital Resources).

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~~Business ~~expense~~and ~~increased~~Industry ~~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.~~ Considerations

~~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,~~Defense 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. Markets

~~Table~~During fiscal year 2020 and fiscal year 2019, the amount of ~~Contents~~ consolidated revenues derived from contracts with prime contractors of the U.S. Department of Defense (as previously defined, the “DoD”) was approximately 58% for both periods. 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.

~~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)

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, 2020, our consolidated order backlog for the defense market was $19.4 million, which included approximately $13.4 million for the potted coil assembly.

~~For~~Commercial ~~the~~Aerospace ~~reasons discussed in the Net Sales, Gross Profit,~~ and ~~Operating~~Industrial 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. Markets

~~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)

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 production orders, oil and gas drilling exploration activity, and general economic growth. Each of these could have an ongoing impact due to the effects of the pandemic on commercial aircraft production, oil prices and general economic turmoil and uncertainty. Producers of commercial aircraft have announced a decrease in the production of multiple models of aircraft. This reduction adversely impacted our commercial aerospace backlog and is expected to further impact our commercial aerospace business throughout fiscal year 2021. Other threats to our near-term and long-term market outlook in these markets include delays on the development and production of new commercial aircraft and competition from international suppliers. As of April 30, 2020, our consolidated order backlog for the aerospace and industrial markets was $3.7 million.

~~Interest~~Business 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. Outlook

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.

WeOur ~~evaluate~~backlog ~~the~~as ~~appropriateness~~ of ~~our~~April ~~deferred~~30, ~~income~~2020 ~~tax~~as ~~asset~~compared ~~valuation~~to ~~allowance~~April on30, a2019 ~~quarterly~~increased ~~basis~~to ~~and~~$23.0 ~~continue~~million tofrom ~~consider~~$14.7 ~~positive~~million, ~~and~~a ~~negative~~56% ~~trends~~increase. This increase was driven primarily by growth in ~~our~~new ~~industry~~programs. We anticipate that ~~affect~~net ~~our~~sales ~~determination. During~~for ~~the~~fiscal ~~fourth~~year ~~quarter~~2021 ofwill remain consistent with fiscal year ~~2018,~~2020. This weis ~~determined~~primarily wedue ~~were~~to noan ~~longer~~expectation inthat a ~~positive~~reduction ~~cumulative~~of ~~earnings~~net ~~position which~~sales iswithin ~~significant~~the ~~negative~~commercial ~~evidence~~aerospace ~~indicating~~industry, may be offset by growth within the ~~need~~defense ~~for~~industry aorders ~~valuation~~for ~~allowance~~our products. AsWe aanticipate ~~result~~that 22% and 47% of our $23.0 million backlog as of April 30, we2020 ~~concluded~~is itexpected ~~unlikely~~to ship and be converted to sales in the ~~full~~first ~~benefit~~quarter of fiscal 2021, and in the ensuing nine months of fiscal 2021, respectively. As noted previously, there are multiple uncertainties within our ~~deferred~~business ~~tax~~associated ~~assets~~with ~~will~~the ~~more~~COVID-~~likely-than-not~~19 bepandemic; ~~fully~~however, ~~realized~~we ~~and~~believe that our ~~valuation~~large ~~allowance has~~sales ~~been~~backlog ~~increased~~and ~~accordingly. See~~current ~~Note~~defense 5industry inopportunities ~~the~~will ~~consolidated~~help ~~financial~~maintain ~~statements~~a ~~for~~positive ~~further~~business ~~details~~outlook.

~~Table~~Consolidated Results of ~~Contents~~ Operations

~~Financial Condition and Liquidity~~

The following ~~table~~management ~~highlights~~comments regarding Torotel's results of operations and outlook should be read in conjunction with the ~~funds~~Consolidated ~~available~~Financial Statements included pursuant to usItem as8 of ~~April 30,~~this ~~2019~~Annual ~~and~~Report. ~~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~~ 10

		2019			2018
Net cash used in operating activities		$	(453,000)		$	(186,000)

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~~The~~Net 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. Sales

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



Years ended April 30,	2020		2019
Magnetic components	$	14,090,000	$	10,600,000
Potted coil assembly		5,655,000		5,751,000
Electro-mechanical assemblies		6,388,000		3,920,000
Large transformers		—		284,000
Total	$	26,133,000	$	20,555,000

		2019			2018
Net cash used in investing activities		$	(150,000)		$	(100,000)

Consolidated net sales in fiscal year 2020 increased $5,578,000, or 27%, as compared to fiscal year 2019, primarily due to higher demand for magnetic components and electro-mechanical assemblies. The increase was expected as there were increases in new commercial aerospace products and advances in production automation of our magnetic components.

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~~Consolidated ~~Activities~~ 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 revenue recognition policy (described in Note 1). The change in revenue recognition policy caused and 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.

		2019			2018
Net cash provided by financing activities		$	86,000		$	563,000

~~The~~Gross 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. Profit

~~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.



Years ended April 30,		2020		2019
Gross profit	$	9,009,000		$	6,964,000
Gross profit % of net sales		34	%		34	%

~~Table~~Gross profit as a percentage of ~~Contents~~ net sales in fiscal year 2020 remained consistent at 34% when compared to fiscal year 2019. The gross profit percentage for fiscal year 2020 increased primarily due to higher demand for magnetic components and electro-mechanical assemblies and lower manufacturing costs and scrap.

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~~Gross ~~Accounting~~profit ~~Policies~~ 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.

~~The~~Operating 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. Expenses

~~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



Years ended April 30,	2020		2019
Engineering	$	1,462,000	$	1,316,000
Selling, general and administrative		6,662,000		4,881,000
Total	$	8,124,000	$	6,197,000

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~~Engineering ~~ASC~~expense ~~606~~increased –11%, ~~For~~or ~~the~~$146,000, ~~Year~~in ~~ended~~fiscal ~~April~~year ~~30,~~2020 as compared to fiscal year 2019 . This increase primarily resulted from the hiring of additional engineers to provide expanded technical capabilities.

InEngineering ~~May~~expense ~~2014,~~increased ~~the FASB issued ASU No. 2014-09~~22%, ~~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$234, ~~amount~~000, ~~timing and uncertainty of revenue and cash flows arising from customer contracts. This ASU was amended by ASU No. 2015-14, issued~~ in ~~August~~fiscal ~~2015, which deferred the original effective date by one~~ year; ~~the~~2019 ~~effective~~as ~~date~~compared ofto ~~this ASU is for~~ fiscal ~~years,~~year 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~~. AsThis ~~part~~increase ofprimarily ~~the~~resulted ~~Company's~~from ~~implementation plan for this new standard,~~ the ~~Company~~hiring ~~assessed the impact~~ of ~~these~~additional ~~new~~engineers 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~~provide ~~opening~~expanded ~~balance~~technical ~~of accumulated deficit of $102,000 as of May 1, 2018~~capabilities. ~~See Note 3 – Revenue for further details. We determine revenue recognition through the following steps:~~

14 11

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~~1) Identification of the contract~~Selling, orgeneral 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~~administrative ~~the~~expenses ~~payment~~increased ~~terms related to these services~~36%, ~~(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$1, ~~which is based on a variety of factors including the customer’s historical payment experience or~~781, ~~in the case of a new customer~~000, ~~published credit and financial information pertaining to the customer. 2) Identification of the performance obligations~~ in ~~the~~fiscal ~~contract~~year ~~Performance~~2020 ~~obligations~~as ~~promised~~compared ~~in a contract are identified based on the goods or services that will be transferred~~ to ~~the~~fiscal ~~customer~~year 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 contract2019. 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~~increase ~~price is determined based on the consideration to which the Company will be entitled in exchange~~ for ~~transferring~~administrative ~~goods~~expenses ~~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~~fiscal ~~transaction~~year ~~price~~2020 ~~utilizing~~primarily ~~either~~resulted ~~the~~from ~~expected~~incurring ~~value~~transactional ~~method~~fees orrelating 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~~potential ~~obligations~~acquisition ~~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~~Torotel ~~goods or services that are substantially the same qualifies as a single performance obligation~~ in afiscal ~~contract~~year ~~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~~2020. No ~~Contracts~~transactional ~~that~~fees ~~contain~~were ~~multiple~~incurred 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~~fiscal asyear ~~discussed in further detail below~~2019. ~~Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised service to a customer.~~

~~Performance~~Selling, ~~Obligations~~general ~~Satisfied~~and ~~Over~~administrative ~~Time~~ 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.

15 Earnings (loss) from Operations

~~Table of Contents~~

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



Years ended April 30,	2020		2019
Torotel Products	$	2,414,000	$	1,296,000
Torotel		(1,529,000)		(529,000)
Total	$	885,000	$	767,000

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~~For ~~billing~~the ~~terms~~reasons ~~for~~discussed ~~these~~in ~~over-time~~the ~~contracts~~Net ~~vary~~Sales, ~~but~~Gross ~~are~~Profit, ~~generally~~and ~~based~~Operating onExpenses ~~ship~~above, ~~date. Control~~consolidated isearnings ~~transferred~~from operations increased by $118,000, in fiscal year 2020 as ~~products~~compared ~~are~~to ~~completed~~fiscal year 2019, and ~~closed~~increased by $2,035,000, in fiscal year 2019 as compared to ~~finished~~fiscal ~~goods~~year 2018.

~~Product~~Other ~~fees~~Earnings ~~and engineering and design services~~ Items

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.



Years ended April 30,	2020		2019
Income from operations	$	885,000	$	767,000
Interest expense		96,000		112,000
Income before income taxes		789,000		655,000
Income tax expense		75,000		13,000
Net income	$	714,000	$	642,000

~~Industrial and Commercial Parts~~

~~Performance~~Interest ~~obligations~~expense ~~under~~decreased ~~long-term~~by ~~agreements~~14%, ~~are considered~~or to$16,000, bein ~~under~~fiscal ~~contract~~year at2020 ~~the~~as ~~time~~compared ~~that authorization~~ to ~~ship~~fiscal ~~has~~year ~~been~~2019, ~~obtained~~primarily ~~from~~due ~~the customer. Performance obligations under standalone purchase orders are considered~~ to belower ~~under~~levels ~~contract~~of atoutstanding ~~the~~indebtedness ~~time~~for ~~that~~most ~~the purchase order is received. For our commercial customers, control~~ of the ~~underlying~~year. Income ~~product~~tax ~~design~~provision ~~is retained~~increased by ~~Torotel~~$62,000 ~~therefore the products are considered~~ in ~~our~~fiscal ~~control~~year ~~until~~2020 ~~the~~as ~~moment~~compared ~~of shipment. Also, upon shipment the customers have an obligation~~ to ~~pay~~fiscal ~~for~~year ~~the asset and we have an enforceable right to payment~~2019. ~~We provide for potential losses on any of these agreements when it is probable that we will incur the loss.~~

~~Our~~Interest ~~billing~~expense ~~terms~~increased ~~for~~by ~~these~~51%, ~~point~~or $38,000, in ~~time~~fiscal ~~sales~~year ~~are~~2019 ~~generally~~as ~~based~~compared onto ~~ship~~fiscal ~~date~~year 2018, primarily due to higher levels of outstanding indebtedness for most of the year. ~~Control~~Income istax ~~transferred~~provision decreased by $668,000 in fiscal year 2019 as ~~products~~compared ~~are~~to ~~shipped~~fiscal year 2018, with our income tax provision for fiscal year 2018 being related primarily to ~~the~~tax ~~customers~~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.

16 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. Our evaluation in fiscal years 2020 and 2019 were consistent with our 2018 conclusions. See Note 6 in the consolidated financial statements for further details.

~~Table of Contents~~

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. 12

~~Allowance~~Table ~~for~~of ~~Doubtful Accounts~~ Contents

~~Gross~~Financial ~~trade~~Condition 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. Liquidity

~~Inventories~~

~~Inventories~~The ~~are~~following ~~stated~~table athighlights the ~~lower~~funds ofavailable ~~cost~~to orus ~~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~~April 30, ~~quantities~~2020 ~~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. 2019:

~~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.



		2020		2019
Cash	$	2,263,000	$	58,000
Amount available under our equipment loan		-		196,000
Amount available under our 5.00% asset-based revolving line of credit		2,000,000		275,000
Total funds available	$	4,263,000	$	529,000

~~ITEM~~Operating ~~7A. Quantitative and Qualitative Disclosures About Market Risk~~ Activities

~~Information not required.~~

Table of Contents



	2020		2019
Net cash provided by (used in) operating activities	$	1,804,000	$	(453,000)

~~ITEM 8. Financial Statements and Supplementary Data~~

~~INDEX~~The TOincrease ~~CONSOLIDATED~~of ~~FINANCIAL~~$2,257,000 ~~STATEMENTS~~ of net cash provided by operating activities between fiscal year 2020 and fiscal year 2019 is primarily due to increases in operating ROU assets, inventories and trade accounts payable.

Report of Independent Registered Public Accounting Firm		19
Consolidated Balance Sheets as of April 30, 2019 and 2018		20
Consolidated Statements of Operations for the years ended April 30, 2019 and 2018		21
Consolidated Statements of Changes in Stockholders' Equity for the period May 1, 2017 through April 30, 2019		22
Consolidated Statements of Cash Flows for the years ended April 30, 2019 and 2018		23
Notes to Consolidated Financial Statements		24

Investing Activities

Table of Contents

~~Report Of Independent~~

~~Registered~~The ~~Public~~increase ~~Accounting~~of ~~Firm~~ $357,000 of net cash used in investing activities during fiscal year 2020 as compared to fiscal year 2019 was due to an increase in capital expenditures in fiscal year 2020 as compared to fiscal year 2019. We expect capital expenditure spending will continue to increase during fiscal year 2021 as compared to fiscal year 2020.

~~Shareholders~~Financing ~~and Board of Directors~~ Activities

~~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~~The increase of ~~New~~$822,000 ~~Accounting~~in ~~Pronouncements~~ net cash used in financing activities between fiscal year 2020 and fiscal year 2019 is due to an increase in loan proceeds during fiscal year 2020.

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~~Liquidity ~~For~~and ~~Opinion~~ Capital Resources

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.

WeDue ~~conducted~~to ~~our~~the ~~audits~~above-mentioned inpandemic-related ~~accordance~~challenges, ~~with~~we are proactively managing costs and finding new sources of revenue to offset the ~~standards~~impact of the ~~PCAOB.~~anticipated ~~Those~~commercial ~~standards~~aerospace ~~require~~downturn. We believe that wemaintaining ~~plan~~our skilled workforce of production employees and ~~perform~~engineers ~~the~~is ~~audit~~vital to ~~obtain~~our ~~reasonable~~continued ~~assurance~~success. Without ~~about~~the ~~whether~~combination of the ~~financial~~PPP ~~statements~~loan ~~are~~and ~~free~~the expansion of ~~material~~our ~~misstatement~~line of credit, ~~whether~~we ~~due~~would have had to ~~error~~make orsignificant ~~fraud.~~cost ~~Our~~structure ~~audits~~changes ~~included~~to ~~performing~~our ~~procedures~~operations tobeginning ~~assess~~near the ~~risks~~end of ~~material~~fiscal ~~misstatement~~year of2020. ~~the~~We ~~financial~~believe ~~statements,~~that ~~whether~~the ~~due~~projected tocash ~~error~~flow orfrom ~~fraud~~operations, additional proceeds from PPP funding and ~~performing~~available ~~procedures~~borrowings under existing financing arrangements that ~~respond~~supplement our working capital needs, will enable us to ~~those~~meet ~~risks.~~our ~~Such~~anticipated ~~procedures~~funding ~~included~~requirements ~~examining~~for the foreseeable future, based on ahistorical ~~test~~levels. ~~basis,~~Our ~~evidence~~asset-based ~~regarding~~revolving ~~the~~line ~~amounts~~of credit and ~~disclosures~~guidance inline ~~the~~of ~~financial~~credit ~~statements~~are scheduled to mature on October 19, 2020. We ~~Our~~expect ~~audits~~to ~~also~~renew ~~included~~each ~~evaluating~~of the ~~accounting~~financing ~~principles~~agreements, ~~used~~if ~~and~~deemed ~~significant~~necessary. The ~~estimates~~increase ~~made~~in byour ~~management,~~cash asposition ~~well~~from asthe ~~evaluating~~prior fiscal year is due to the ~~overall~~$1,985,000 ~~presentation~~PPP funding. As of April 30, 2020, we had no funds drawn on the ~~financial~~$2,000,000 ~~statements~~asset-based revolving line of credit. As Weof ~~believe~~April ~~that~~30, 2020 our ~~audits~~total ~~provide~~borrowing acapacity ~~reasonable~~is ~~basis~~approximately ~~for~~$2,000,000, under our ~~opinion~~existing financing arrangements, plus $2,263,000 of cash on hand.

~~/s/ RubinBrown LLP~~ 13

WeTable ~~have~~of ~~served as the Company's auditor since 2012.~~ Contents

~~Kansas City, Missouri~~

~~July 23,~~Off-Balance ~~2019~~ Sheet Arrangements

~~Table~~There ofare ~~Contents~~ no off-balance sheet arrangements.

~~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

Critical Accounting Policies

~~The accompanying notes are an integral part of these statements.~~

20 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. As previously described in the “Information” section, there are several risks and uncertainties which could impact our estimates. Management continues to monitor the pandemic and adjust estimates as deemed appropriate.

~~Table of Contents~~

~~CONSOLIDATED~~The ~~STATEMENTS~~following OFis ~~OPERATIONS~~ a summary of the most critical accounting policies used in the preparation of our consolidated financial statements.

~~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)

Leases

~~The accompanying notes are an integral part of these statements.~~

21 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 4—Leases for the required disclosures of the nature, amount, timing, and uncertainty of cash flows arising from leases.

~~Table of Contents~~

~~CONSOLIDATED~~Revenue ~~STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY~~ Recognition

								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~~We ~~accompanying~~determine ~~notes~~revenue ~~are~~recognition anthrough ~~integral~~the ~~part~~following ~~of these statements.~~ steps:

Table of Contents

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.

~~CONSOLIDATED STATEMENTS OF CASHFLOWS~~ 14

~~Years~~Table ~~ended~~of ~~April 30,~~ Contents

	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

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, 2020 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.

~~The accompanying notes are an integral part of these statements.~~

23 Performance Obligations Satisfied Over Time

~~Table of Contents~~

~~NOTES~~We TOrecognize ~~CONSOLIDATED~~revenue ~~FINANCIAL~~on ~~STATEMENTS~~ 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.

~~NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES~~

~~Torotel, Inc.~~Commercial ~~("Torotel")~~Aerospace ~~conducts business primarily through its wholly owned subsidiary, Torotel Products, Inc. ("Torotel Products"). The terms “we,” “us,” “our,”~~ and ~~the~~Defense “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. Parts

~~Principles of Consolidation~~

~~The~~Performance ~~consolidated~~obligations ~~financial~~under ~~statements~~long-term ~~include~~agreements are considered to be under contract at the ~~accounts~~time ofthat ~~Torotel~~authorization ~~and~~to ~~its~~ship ~~wholly~~has ~~owned~~been ~~subsidiary~~obtained from the customer, ~~Torotel~~except ~~Products~~for one long-term agreement which provides a contract for two specific parts if the ship date is within 21 days. Performance ~~All~~obligations ~~significant~~under ~~inter-company~~standalone ~~accounts~~purchase ~~and~~orders ~~transactions~~are ~~have~~considered ~~been~~to ~~eliminated~~be inunder ~~consolidation~~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

~~Use of Estimates~~ 15

~~The~~Table ~~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. Contents

~~Credit~~specifications ~~Risk~~ 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.

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

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~~Product ~~Recognition~~ fees and engineering and design services

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

~~Revenue~~For isproduct ~~recognized~~fees ~~when~~along awith ~~fixed~~engineering ~~price~~and ~~contract~~design orservices, ~~purchase~~transfer ~~order~~of ~~exists;~~control ~~delivery~~is ~~has~~determined ~~occurred;~~by ~~and~~the ~~collection~~revenue isstream ~~reasonably~~of ~~assured.~~the ~~Selling~~associated ~~terms~~product. ~~are~~Percentage-of-completion ~~generally~~revenue ~~FOB~~recognition ~~Shipping~~is ~~Point~~utilized sowhen werevenue ~~consider~~recognized ~~our~~exceeds ~~products~~the ~~delivered~~amount ~~once~~billed ~~they~~to ~~have~~the ~~been~~customer ~~shipped~~for ~~and~~any ~~title~~project-related ~~and~~services, ~~risk~~utilizing oflabor ~~loss~~as ~~have~~the ~~been~~input ~~transferred~~method.

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

InPerformance ~~May~~Obligations ~~2014,~~Satisfied ~~the~~at 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~~Point ~~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~~ Time

~~Table~~We recognize revenue on agreements for the sale of ~~Contents~~ 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.

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)Industrial 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~~Commercial 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.Parts

~~Table~~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 ~~Contents~~ 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.

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.

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

~~Commercial~~Taxes ~~Aerospace~~assessed by a governmental authority that are both imposed on and ~~Defense~~concurrent ~~Parts~~ 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 years 2020 and 2019 relating to receivables or contract assets arising from contracts with customers.

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

~~Product fees and engineering and design services~~

~~For~~Gross ~~product~~trade ~~fees~~accounts ~~along~~receivable are offset with ~~engineering~~an ~~and~~allowance ~~design~~for ~~services,~~doubtful ~~transfer~~accounts. ofThe ~~control~~allowance for doubtful accounts is ~~determined~~our bybest ~~the~~estimate ~~revenue~~of ~~stream~~the amount of probable credit losses in our existing accounts receivable. We review the ~~associated~~allowance ~~product~~for doubtful accounts on a regular basis, and all past due balances are reviewed individually for collectability. ~~Percentage-~~Account balances are charged against the allowance when placed for collection. Recoveries of~~-completion~~ ~~revenue~~receivables ~~recognition~~previously iswritten ~~utilized~~off are recorded when ~~revenue~~received. ~~recognized~~The ~~exceeds~~majority of the ~~amount~~customer ~~billed~~accounts toare 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 ~~any~~doubtful ~~project-related~~accounts ~~services~~was $41,000 ~~utilizing~~and ~~labor~~$12,000 asat the ~~input~~end ~~method~~of fiscal year 2020 and 2019, respectively.

~~Performance Obligations Satisfied at a Point in Time~~

26 16

Table of Contents

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. Inventories

~~Industrial and Commercial Parts~~

~~Performance~~Inventories ~~obligations~~are ~~under~~stated ~~long-term~~at ~~agreements~~the ~~are~~lower ~~considered~~of tocost beor ~~under~~net ~~contract~~realizable atvalue. ~~the~~Cost ~~time~~is ~~that~~determined ~~authorization~~using toa ~~ship~~FIFO ~~has~~approximated ~~been~~weighted ~~obtained~~average ~~from~~costing ~~the~~method ~~customer~~of valuation. ~~Performance~~Our ~~obligations~~industry ~~under~~is ~~standalone~~characterized ~~purchase~~by ~~orders~~short-term ~~are~~customer ~~considered~~commitments toand bechanges ~~under~~in ~~contract~~demand, atas ~~the~~well ~~time~~as ~~that~~other ~~the~~market ~~purchase~~considerations. ~~order~~Provisions isfor ~~received.~~obsolete ~~For~~and ~~our~~excess ~~commercial~~inventory ~~customers,~~are ~~control~~based on reviews of ~~the~~inventory ~~underlying~~usage, ~~product~~quantities ~~design~~on ishand ~~retained~~and bylatest ~~Torotel,~~product ~~therefore~~demand ~~the~~information ~~products~~from customers. Inventories are ~~considered~~reviewed in ~~our~~detail ~~control~~utilizing ~~until~~a ~~the~~12-month ~~moment~~time ~~of shipment~~horizon. ~~Also,~~ ~~upon~~Individual ~~shipment~~part ~~the~~numbers ~~customers~~that have annot ~~obligation~~had toany ~~pay~~usage ~~for~~or ~~the~~purchases ~~asset~~in a 12-month time period and wedo not have anany ~~enforceable~~known ~~right~~usage torequirements ~~payment. We~~are ~~provide~~categorized ~~for~~as ~~potential~~obsolete; ~~losses~~individual part numbers having more than a 12-month supply based on ~~any~~the current year's usage are categorized as excess. Once specific inventory has been identified as excess or obsolete, the cost of ~~these~~the ~~agreements~~identified ~~when~~inventory is fully reserved and the cost of the inventory is not recovered until it is ~~probable~~sold. ~~that~~The wereserve ~~will~~balance ~~incur~~is analyzed for adequacy as part of the ~~loss~~inventory review each quarter.

~~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~~Income 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. Taxes

~~Allowance for Doubtful Accounts~~

~~Gross~~Our ~~trade~~annual ~~accounts~~tax ~~receivable~~rate ~~are~~is ~~offset~~based ~~with~~on anour ~~allowance~~income, ~~for~~statutory ~~doubtful~~tax ~~accounts~~rates and tax planning opportunities available to us in the various jurisdictions in which we operate. ~~The~~Significant ~~allowance~~judgment is required in determining our annual tax rate and in evaluating our tax positions. An estimated effective tax rate for ~~doubtful~~a ~~accounts~~year is applied to our ~~best~~quarterly ~~estimate~~operating ofresults. In the ~~amount~~event ofthere ~~probable~~is ~~credit~~a ~~losses~~significant or unusual item recognized in our ~~existing~~quarterly ~~accounts~~operating ~~receivable.~~results, Wethe ~~review~~tax attributable to that item is separately calculated and recorded at the ~~allowance~~same ~~for~~time ~~doubtful~~as ~~accounts~~that onitem. aTax ~~regular~~law ~~basis,~~requires ~~and~~items ~~all~~to ~~past~~be ~~due~~included ~~balances~~in our tax returns at different times than the items are ~~reviewed~~reflected ~~individually~~in ~~for~~our ~~collectability~~financial statements. ~~Account~~As ~~balances~~a ~~are~~result, ~~charged~~our ~~against~~annual ~~the~~tax ~~allowance~~rate ~~when~~reflected ~~placed~~in ~~for~~our ~~collection~~financial statements is different than that reported in our tax returns (our cash tax rate). ~~Recoveries~~Some of ~~receivables~~these ~~previously~~differences ~~written~~are ~~off~~permanent, such as expenses that are ~~recorded~~not ~~when~~deductible ~~received~~in our tax return, and some differences reverse over time, such as depreciation expense. ~~The~~These ~~majority~~temporary ofdifferences 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 ~~customer~~tax ~~accounts~~benefit ~~are~~in ~~considered~~our ~~past~~income ~~due~~statement. ~~after~~We establish valuation allowances for our deferred tax assets if, based on the ~~invoice~~available ~~becomes~~evidence, ~~older~~it is more likely than not that some portion or all of the ~~customer's~~deferred ~~credit~~tax ~~terms~~assets will not be realized. ~~Interest~~Deferred istax 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 ~~charged~~yet onrecognized ~~past~~as ~~due~~expense ~~accounts.~~in our financial statements. The ~~allowance~~accounting for ~~doubtful~~uncertainty ~~accounts~~in asincome taxes requires a more-likely-than-not threshold for financial statement recognition and measurement of ~~both~~ ~~April 30~~tax positions taken or expected to be taken in a tax return. If necessary, ~~2019~~ we record a liability for the difference between the benefit recognized and ~~2018~~ ~~was~~measured ~~$12~~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,~~000~~ 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.

~~Inventories~~

~~Inventories~~ITEM ~~are stated at the lower of cost or net realizable value~~7A. ~~Cost~~Quantitative ~~is determined using a FIFO approximated weighted average cost method of valuation. Our industry is characterized by short-term customer commitments~~ and ~~changes~~Qualitative inDisclosures ~~demand,~~About asMarket 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. Risk

~~Property, Plant and Equipment~~

~~Property,~~Information ~~plant~~not ~~and equipment are carried at cost~~required. 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.

~~Table of Contents~~

~~Cash~~ ITEM 8. Financial Statements and Supplementary Data

~~For~~INDEX ~~purposes~~TO ofCONSOLIDATED ~~the~~FINANCIAL ~~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.~~ STATEMENTS

Income Taxes


Report of Independent Registered Public Accounting Firm		18
Consolidated Balance Sheets as of April 30, 2020 and 2019		19
Consolidated Statements of Operations for the years ended April 30, 2020 and 2019		20
Consolidated Statements of Changes in Stockholders' Equity for the period May 1, 2018 through April 30, 2020		21
Consolidated Statements of Cash Flows for the years ended April 30, 2020 and 2019		22
Notes to Consolidated Financial Statements		23

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~~ 17

WeTable ~~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. Contents

~~Share-Based~~Report ~~Compensation~~ Of Independent

WeRegistered ~~have~~Public aAccounting 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. Firm

~~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 Shareholders and Board of Directors

~~Table~~Torotel, ~~of Contents~~ Inc.

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~~Opinion ~~following~~On ~~table~~The ~~summarizes~~Financial ~~the components of inventories, as of April 30 of each year:~~ Statements

		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~~We ~~3—REVENUE~~ have audited the accompanying consolidated balance sheets of Torotel, Inc. and subsidiary (collectively, the Company) as of April 30, 2020 and 2019, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows, for each of the two years in the period ended April 30, 2020 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, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended April 30, 2020, in conformity with accounting principles generally accepted in the United States of America.

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~~Adoption onof ~~Consolidated~~New ~~Financial~~Accounting ~~Statements~~ Pronouncements

~~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)

As discussed in Notes 1 and 4 to the consolidated financial statements, the Company changed its method of accounting for leases beginning on May 1, 2019 due to the adoption of ASC Topic 842, Leases.

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 Basis For Opinion

~~Table of Contents~~

			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~~We conducted our audits in accordance with the standards of ~~Revenue~~ 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.

~~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

/s/ RubinBrown LLP

			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		657,000
Electro-mechanical assemblies		3,920,000		3,876,000		44,000
Large transformers		284,000		284,000		—
Total consolidated net sales	$	20,555,000	$	19,451,000	$	1,104,000

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

~~Table of Contents~~

			Balances Without Adoption
			of ASC 606 for the		Effect of Change
	As Reported		year ended April 30, 2019		Higher/(Lower)
Geography
Domestic	$	18,472,000	$	17,392,000	$	1,080,000
Foreign		2,083,000		2,059,000		24,000
Total consolidated net sales	$	20,555,000	$	19,451,000	$	1,104,000

Kansas City, Missouri

~~Contract~~July ~~balances~~ 28, 2020

All receivable balances relate to customer contracts entered into during the fiscal year 2019. 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 $4,301,000 with variable payment terms related to discounts in the amount of $32,000 in fiscal year 2019.

~~Remaining performance obligation~~ 18

AsTable of April 30, 2019, the aggregate amount of the contracted revenues allocated to our unsatisfied (or partially unsatisfied) performance obligations was $4,591,000. 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 fiscal year 2020 is expected to be $4,571,000. Total remaining performance obligation to be recognized in fiscal year 2021 is expected to be $20,000. Contents

~~NOTE~~TOROTEL, ~~4—FINANCING AGREEMENTS~~ INC.

~~Torotel~~CONSOLIDATED ~~Products~~BALANCE had a financing agreement (the “previous financing agreement”) with Commerce Bank, N.A. that provided for a revolving line of credit, a guidance line of credit, and a real estate term loan. Torotel was the guarantor to all promissory notes under the previous financing agreement. On October 19, 2018, the debt that was outstanding under the previous financing agreement was fully repaid and extinguished, with an aggregate payoff amount of approximately $1,625,000 and an immaterial early prepayment fee. SHEETS


	As of April 30,
	2020		2019
ASSETS
Current assets:
Cash	$	2,263,000	$	58,000
Trade receivables, net		2,104,000		2,590,000
Contract assets		960,000		1,104,000
Inventories		3,556,000		3,054,000
Prepaid expenses		285,000		152,000
		9,168,000		6,958,000

Land		265,000		265,000
Buildings and improvements		1,586,000		1,569,000
Equipment		4,520,000		4,045,000
		6,371,000		5,879,000
Less accumulated depreciation		4,388,000		4,056,000
Property, plant and equipment, net		1,983,000		1,823,000

Operating lease right-of-use assets		2,008,000		—
Deferred income taxes		—		34,000
Other assets		221,000		186,000

Total Assets	$	13,380,000	$	9,001,000

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt	$	795,000	$	1,121,000
Current maturities of operating lease liabilities		395,000		—
Current maturities of finance lease liabilities		27,000		—
Trade accounts payable		1,933,000		1,625,000
Accrued liabilities		899,000		824,000
Customer deposits		16,000		24,000
		4,065,000		3,594,000

Long-term debt, less current maturities		2,008,000		801,000
Operating lease liabilities, less current maturities		1,879,000		—
		3,887,000		801,000
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		12,653,000		12,545,000
Accumulated deficit		(7,285,000)		(7,999,000)
		5,428,000		4,606,000

Total Liabilities and Stockholders' Equity	$	13,380,000	$	9,001,000

~~Table~~The accompanying notes are an integral part of ~~Contents~~ these statements.

~~line of credit, and a real estate term loan. A summary of the notes issued under the financing agreements and debt outstanding as of April 30, 2018 and April 30, 2019 is provided below:~~

		2019		2018
6.25% asset-based revolving line of credit with a maturity date of October 19, 2019	$	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		795,000		-
Capital lease obligations (see Note 6)		98,000		170,000
4.05% mortgage note payable in monthly installments of $4,873, including interest, with final payment of $349,000 due January 27, 2019*		-		373,000
4.00% working capital line of credit with a maturity date of October 20, 2018*		-		751,000
4.00% building line of credit with a maturity date of October 20, 2018*		-		465,000
Borrowings under an equipment financing line of credit:
4.75% note payable in monthly installments of $2,269, including interest, with final payment made on May 27, 2018*		-		2,000
4.05% note payable in monthly installments of $3,680, including interest, with final payment due January 10, 2020*		-		75,000
Total long-term debt		1,922,000		1,836,000
Less current installments		1,121,000		1,706,000
Long-term debt, excluding current installments	$	801,000	$	130,000

*Table ~~Represents~~of ~~amounts previously due under the previous financing agreement that were repaid in full in October 2018.~~ Contents

~~The asset-based revolving line of credit is intended to be used for working capital purposes and has a capacity of $1~~TOROTEL,~~250,000. The~~ ~~asset-based revolving line of credit is renewable annually upon mutual agreement of Torotel and the Bank~~INC. The associated interest rate is equal to the greater of the floating Cornerstone Bank Corporate Base Rate (6.25% as of April 30, 2019) or a floor of 5%. 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 financing 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~~CONSOLIDATED ~~equipment~~STATEMENTS ~~note~~OF is a guidance line of credit to be used for equipment purchases and has a capacity of $250,000 with a 12-month term that is renewable annually upon mutual agreement of Torotel and the Bank. Monthly repayments of interest are required, with principal due at maturity. The associated advance rate is equal to the greater of the floating Cornerstone Bank Corporate Base Rate (currently 6.25%) or a floor of 5% (as listed above). Monthly repayments of interest only are required, with the principal due at maturity. This note is cross collateralized and cross defaulted with all other financing agreements of Torotel and is secured by a purchase money security interest in the assets purchased as well as a first lien on all business assets of Torotel. Upon execution of the agreement, Torotel received initial advances of $54,000 under the guidance line of credit. OPERATIONS

~~The~~Years ~~real~~ended ~~estate~~April ~~term loan is in the principal amount of $815~~30,000 and has 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



	2020		2019
Net sales	$	26,133,000	$	20,555,000
Cost of goods sold		17,124,000		13,591,000
Gross profit		9,009,000		6,964,000
Operating expenses:
Engineering		1,462,000		1,316,000
Selling, general and administrative		6,662,000		4,881,000
		8,124,000		6,197,000
Income from operations		885,000		767,000
Other expense:
Interest expense, net		96,000		112,000
Income before income tax expense		789,000		655,000
Income tax expense		75,000		13,000
Net income	$	714,000	$	642,000
Basic earnings per share	$	0.12	$	0.11

~~Table of Contents~~

~~with the other financing agreements.~~ The ~~real~~accompanying ~~estate~~notes ~~term~~are ~~loan~~an isintegral ~~secured~~part byof athese ~~first lien priority real estate mortgage on the property located at 620 North Lindenwood Drive in Olathe, Kansas pursuant to the Commercial Security Agreement~~statements.

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.

~~The amount of long-term debt maturities by year is as follows:~~ 20

Year Ending April 30,	Amount
2020	$	1,121,000
2021		47,000
2022		23,000
2023		25,000
2024		706,000
	$	1,922,000

Table of Contents

~~Irrevocable~~TOROTEL, ~~Standby Letter of Credit~~ INC.

~~Under~~CONSOLIDATED ~~the~~STATEMENTS ~~terms~~OF ofCHANGES aIN ~~lease~~STOCKHOLDERS' amendment for its manufacturing facility located in Olathe, Kansas (see Note 6), 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: EQUITY

Date of Reduction		Amount of Reduction		Balance of Letter of Credit
January 1, 2020	$	75,000	$	225,000
January 1, 2021		75,000		150,000
January 1, 2022		75,000		75,000
January 1, 2023		75,000		-

NOTE 5—INCOME TAXES


				Capital in				Total
		Common		Excess of		Accumulated		Stockholders'
	Shares	Stock		Par Value		Deficit		Equity
Balance, May 1, 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	—		—		—		102,000		102,000
Balance, April 30, 2019	5,995,750		60,000		12,545,000		(7,999,000)		4,606,000
Stock compensation earned	—		—		108,000		—		108,000
Net income	—		—		—		714,000		714,000
Balance, April 30, 2020	5,995,750	$	60,000	$	12,653,000	$	(7,285,000)	$	5,428,000

~~The components of the provision (benefit) for income taxes are as follows:~~

	2019		2018
Current tax expense (benefit)
Federal	$	(34,000)	$	—
State		13,000		2,000
		(21,000)		2,000
Deferred tax expense
Federal		34,000		612,000
State		—		67,000
		34,000		679,000
Total income tax provision	$	13,000	$	681,000

~~The provision for income taxes reflected in the consolidated statements of operations differs from the amounts computed at the federal statutory tax rates.~~

~~Table~~The accompanying notes are an integral part of ~~Contents~~ these statements.

~~The principal differences between our statutory income tax expense and the effective provision for income taxes are summarized as follows:~~

	2019		2018
Computed tax expense at statutory rates	$	137,000	$	(405,000)
Permanent differences		6,000		11,000
State tax and credits		56,000		(49,000)
Adjustments required by change in method of accounting as a result of adopting ASC 606		31,000		—
Return to provision		—		6,000
Impact of federal rate change		—		467,000
Increase (decrease) in valuation allowance		(217,000)		651,000
	$	13,000	$	681,000

WeTable ~~have~~of ~~available as benefits to reduce future income taxes, subject to applicable limitations, estimated federal net operating loss carryforward amounts as described below.~~ Contents

	Net Operating Loss
Year of Expiration	Carryforwards
2037	$	48,000
2038		909,000
	$	957,000

TOROTEL, INC.

~~The~~CONSOLIDATED ~~following~~STATEMENTS ~~table~~OF ~~summarizes the components of the net deferred income tax asset:~~ CASHFLOWS

	2019		2018
Net operating loss carryforwards	$	226,000	$	574,000
Inventory valuation reserve		89,000		98,000
Loss on equity and impairment in investee		301,000		301,000
Tax credit carryforward		34,000		68,000
Adjustments required by change in method of accounting as a result of adopting ASC 606		(31,000)		—
Cost of sales adjustment from ASC 606		163,000		—
Depreciation expense		(111,000)		(118,000)
Uniform capitalization		19,000		12,000
Bad debt reserve		3,000		3,000
Warranty reserve		9,000		80,000
Accrued vacation		7,000		12,000
Accrued bonuses		42,000		19,000
Accrued commissions		16,000		16,000
Claims reserve		7,000		7,000
Stock compensation		76,000		47,000
Deferred rent		55,000		36,000
Other		—		1,000
		905,000		1,156,000
Less: valuation allowance		(871,000)		(1,088,000)
	$	34,000	$	68,000

Years ended April 30,

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



	2020		2019
Cash flows from operating activities:
Net income	$	714,000	$	642,000
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Stock compensation cost amortized		108,000		108,000
Depreciation		367,000		353,000
Deferred income taxes		—		34,000
Changes in operating assets and liabilities:
Trade receivables		486,000		(397,000)
Contract assets		144,000		(1,002,000)
Inventories		(502,000)		(692,000)
Prepaid expenses and other assets		(134,000)		109,000
Operating lease right-of-use assets		259,000		—
Trade accounts payable		288,000		580,000
Accrued liabilities		281,000		7,000
Current and long-term operating lease liabilities		(199,000)		—
Customer deposits		(8,000)		(195,000)
Net cash provided by (used in) operating activities		1,804,000		(453,000)
Cash flows from investing activities:
Capital expenditures		(508,000)		(152,000)
Proceeds from disposal of equipment		1,000		2,000
Net cash used in investing activities		(507,000)		(150,000)
Cash flows from financing activities:
Principal payments on long-term debt		(33,000)		(1,677,000)
Principal payments under capital and financing lease obligations		(71,000)		(71,000)
Payments on line of credit		(13,399,000)		(4,581,000)
Proceeds from line of credit		12,426,000		5,556,000
Proceeds from long-term debt		1,985,000		859,000
Net cash provided by financing activities		908,000		86,000
Net increase (decrease) in cash		2,205,000		(517,000)
Cash, beginning of period		58,000		575,000
Cash, end of period	$	2,263,000	$	58,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	99,000	$	108,000
Income taxes	$	70,750	$	—
Non-cash investing and financing activities:
Tax credit reclassified from deferred tax asset to a receivable	$	34,000	$	—
Property held for sale reclassified as property, plant and equipment		—		694,000
Capital leases reclassified from long-term debt to finance lease liabilities		98,000		—
Deferred rent reclassified from accrued liabilities to operating lease right-of-use assets		206,000		—
Equipment financed through accounts payable		20,000		—

~~Table of Contents~~

~~corporate~~The ~~tax~~accompanying ~~rate~~notes ~~change~~are isan ~~administratively~~integral ~~effective~~part ~~at the beginning~~ of ~~our~~these ~~fiscal year, using a blended statutory rate of 30~~statements.~~4% for the annual period.~~

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

We record deferred income tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence. Positive evidence includes, but is not limited to the following: cumulative earnings in recent years, earnings expected in future years, excess appreciated asset value over the tax basis and positive industry trends. Negative evidence includes, but is not limited to the following: cumulative losses in recent years, earnings expected in future years, a history of operating losses or tax credit carryforwards expiring, and adverse industry trends. Cumulative losses in recent years are significant negative evidence when determining the need for a valuation allowance. During the fourth quarter of the fiscal year ending April 30, 2018 the Company determined that is was no longer in a positive cumulative earnings position for the three-year period ended April 30, 2018. 22

~~The~~Table ~~net change in the valuation allowance for the year ended April 30, 2019 was a decrease~~ of $217,000. Valuation allowances are reviewed on a quarterly basis and adjustments made as appropriate. The decrease in the valuation allowance in 2019 resulted from utilization of NOLs and credits. Contents

~~The Company's determination of the realizable deferred tax assets requires the exercise of significant judgment~~TOROTEL, ~~based in part on business plans and expectations about future outcomes~~INC. In the event the actual results differ from these estimates in future periods, the Company may need to adjust the valuation allowance, which could materially impact our financial position and results of operations. The Company will continue to assess the need for a valuation allowance in future periods. As of April 30, 2019 and 2018, the Company maintained a valuation allowance of $871,000 and $1,088,000, respectively, for its deferred tax assets.

AsNOTES ofTO ~~April 30,~~CONSOLIDATED ~~2019,~~FINANCIAL the federal tax returns for the fiscal years ended 2016 through 2018 remain subject to examination and assessment. Fiscal years ending before 2016 remain open solely for purposes of examination of our loss and credit carryforwards. As of April 30, 2019, the Company has no federal or state examinations ongoing. STATEMENTS

We recognize accrued interest and penalties related to unrecognized tax benefits, as well as interest received from favorable tax settlements, within income tax expense. As of April 30, 2019 and 2018, we recorded no accrued interest or penalties related to uncertain tax positions. We expect no significant change in the amount of unrecognized tax benefit, accrued interest or penalties within the next twelve months.

NOTE 61—~~COMMITMENTS~~SUMMARY ~~AND~~OF ~~CONTINGENCIES~~ SIGNIFICANT ACCOUNTING POLICIES

As part of our ongoing operations, we enter into arrangements that obligate us to make future payments to various parties. Some of these contractual obligations are not reflected on the accompanying consolidated balance sheets due to the nature of the obligations. Such obligations include operating leases for production space and for equipment.

~~On July~~Torotel, 10Inc. ("Torotel") conducts business primarily through its wholly owned subsidiary, ~~2014~~Torotel Products, Inc. ("Torotel Products"). The terms “we,” ~~entered~~“us,” ~~into~~“our,” aand ~~real~~the ~~estate~~“Company” ~~lease~~as ~~agreement~~used in ~~Hatfield,~~these ~~Pennsylvania~~notes toinclude ~~lease~~Torotel ~~approximately~~and ~~5,000~~all ~~square~~of ~~feet~~its ~~for~~subsidiaries, ~~manufacturing~~including ~~electromechanical~~Torotel ~~assemblies~~Products, ~~and~~unless ~~other~~the ~~transformers~~context otherwise requires. ~~This~~ Torotel ~~agreement~~specializes ~~commenced~~in onthe ~~August 1,~~custom ~~2014~~design and ~~continues~~manufacture ~~through~~of ~~July~~a ~~31,~~wide ~~2019. During~~variety ~~fiscal~~of ~~year~~precision ~~2019~~magnetic components, ~~the~~consisting ~~lease~~of ~~was~~transformers, ~~automatically~~inductors, ~~extended~~reactors, aschokes, ~~stated~~toroidal ~~within~~coils, ~~the~~high ~~original~~voltage ~~lease agreement~~transformers, ~~for~~dry-type antransformers ~~additional~~and ~~one~~electro-mechanical ~~year~~assemblies ~~period~~for touse ~~July~~in 31aerospace, ~~2020~~industrial and military electronics.

~~Table~~Principles of ~~Contents~~ Consolidation

On October 31, 2016, Torotel entered into the Second Amendment (“Second Amendment”) to the lease for its Rogers Road facility located in Olathe, Kansas. The Second Amendment became effective as of April 1, 2017, and served to extend the lease term through December 31, 2026 and expand the leased space from approximately 14,137 square feet to approximately 72,388 square feet. The Second Amendment provides that through December 31, 2018, the monthly base rate is $26,844, and subsequently through December 31, 2019 and 2020, the monthly base rate is $29,257 and $32,876, respectively, escalating annually thereafter as previously disclosed in our other public filings. The Second Amendment required Torotel to increase its security deposit from $12,750 to $55,000 and provide a letter of credit as additional security. Additionally, the Second Amendment addressed other terms and conditions by which Torotel is leasing the facility or may terminate the lease, and provided Torotel two separate options to extend the lease term for additional five year periods.

~~Future~~The ~~minimum~~consolidated ~~lease~~financial ~~payments~~statements oninclude ~~operating~~the ~~leases~~accounts ~~are~~of asTorotel ~~follows:~~ and its wholly owned subsidiary, Torotel Products. All significant inter-company accounts and transactions have been eliminated in consolidation.

	Capital		Operating
Fiscal Years Ending April 30,	Leases		Leases
2020	$	75,000	$	441,000
2021		27,000		418,000
2022		—		430,000
2023		—		442,000
2024		—		452,000
2025		—		456,000
2026		—		467,000
2027		—		350,000
		102,000		3,456,000
Less: Amounts representing interest		(4,000)		—
Total	$	98,000	$	3,456,000

~~The~~Use ~~gross amount~~ of ~~assets recorded under capital leases amounted to $225,000 of equipment.~~ Estimates

Minimum rent payments under operating leases are recognized on a straight-line basis over the term of the lease including any periods free of rent. Total rent expense for all operating leases for the fiscal years ended April 30, 2019 and 2018 was $650,000 and $596,000, respectively.

~~Torotel~~ The ispreparation ~~subject~~of tothe ~~legal~~consolidated ~~proceedings~~financial ~~and~~statements ~~claims~~in ~~that~~conformity ~~arise~~with accounting principles generally accepted in the ~~normal~~United ~~course~~States of ~~business~~America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. It isSignificant estimates used in preparing these consolidated financial statements include those assumed in computing the ~~opinion~~valuation allowance of ~~management~~inventory, ~~that~~the allowance for doubtful accounts receivable, the ~~disposition~~valuation orallowance ~~ultimate~~on ~~resolution~~deferred ofincome ~~such~~tax ~~claims~~assets, and ~~lawsuits~~the ~~will~~reserve ~~not~~for ~~have~~warranty acosts. ~~material~~Accordingly, ~~adverse~~actual ~~effect~~results oncould ~~the~~differ ~~financial~~from ~~position~~those orestimates. ~~results~~Any ofchanges ~~operations~~in ofestimates ~~Torotel~~are recorded in the period in which they become known.

~~NOTE 7—EMPLOYEE INCENTIVE PLANS~~

~~Short-term~~Credit ~~Cash Incentive Plan~~ Risk

The Short-term Cash Incentive Plan ("STIP") became effective for fiscal year 2008. The purpose of the STIP is to promote the long-term financial performance of Torotel by providing key employees with the opportunity to earn cash awards for accomplishing annual goals for Return on Capital Employed ("ROCE") as defined in the STIP. For the years ended April 30, 2019 and 2018, there were no short-term cash incentive plan expenses.

~~Long-term~~Financial ~~Incentive~~instruments ~~Plans~~ 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 exceed federally insured limits at April 30, 2020. At April 30, 2019, cash balances did not exceed 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.

The Long-term Incentive Plans ("LTIPs"), which consist of a Stock Award Plan and a Long-term Cash Incentive Plan, also became effective for fiscal year 2008. The purpose of the LTIPs is to provide incentives that will attract and retain highly competent persons as key employees to promote the long-term financial performance of Torotel by providing key employees an opportunity to earn stock and cash awards for accomplishing long-range goals for sales growth, earnings

36 Fair Value of Financial Instruments

~~Table of Contents~~

~~growth,~~The ~~ROCE~~carrying ~~and~~amounts ~~debt~~of tocertain ~~equity~~financial instruments, asincluding ~~defined~~cash, trade receivables and ~~measured~~trade inaccounts ~~each~~payable ofapproximate ~~the~~fair ~~Stock~~value ~~Award~~due ~~Plan~~to their short maturities. As of April 30, 2020 and 2019, the ~~Long~~amount of our long-term ~~Cash~~debt ~~Incentive~~approximates ~~Plan~~fair value based on the present value of estimated future cash flows using a discount rate commensurate with a borrowing rate available to us.

~~Stock Award Plan~~

~~The~~Revenue Stock Award Plan ("SAP"), which did not require shareholder approval, provides key employees the opportunity to acquire common stock of Torotel pursuant to awards earned for accomplishing goals that promote the long-term financial performance of Torotel. Under the terms of the SAP, stock awards are in the form of restricted stock having a 5-year restriction period, which shall lapse, based on certain conditions as outlined in the SAP. All stock awards are represented by a Restricted Stock Agreement, which 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. Recognition

~~Long-term Cash Incentive Plan~~

~~The~~We ~~Long-term~~determine ~~Cash~~revenue ~~Incentive~~recognition ~~Plan~~through ~~("LTCIP") provides key employees with~~ the ~~opportunity~~following to earn cash awards for accomplishing plan goals based on predetermined targets for average annual sales and earnings growth, ROCE and debt to equity. Under the terms of the LTCIP, awards will not be paid if Torotel's performance on any LTCIP metric is less than the threshold level of performance defined for that LTCIP metric. For the years ended April 30, 2019 and 2018, total long-term cash incentive plan expense was $0 for both years. steps:

~~Performance Bonus~~

We provided discretionary performance bonuses for employees. Total expense for these bonuses was $209,000 and $71,000 for the years ended April 30, 2019 and 2018.

Identification of the contract, or contracts, with a customer

~~401(k) Retirement Plan~~ 23

WeTable ~~have a 401(k) Retirement Plan for Torotel’s employees. Employer contributions to that plan are at the discretion~~ of ~~the Board of Directors. Employer contributions to the plan for the years ended April 30, 2019 and 2018 were $148,000 and $137,000, respectively.~~ Contents

~~NOTE~~of ~~8—RESTRICTED~~factors ~~STOCK~~including ~~AGREEMENTS~~ 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 contractPerformance 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 priceThe 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, 2020 and 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 contractIf 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 obligationThe 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.

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~~Performance ~~Stock~~Obligations ~~Grants~~ Satisfied Over Time

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 SAP. 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. In fiscal year 2017, 350,000 shares of restricted common stock granted under the SAP in 2013 were reverted to treasury shares because it was determined that it was unlikely that the requisite financial performance metrics for the restrictions on such shares to lapse would be achieved.

37 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.

~~Table of Contents~~

~~The~~Commercial ~~Shares~~Aerospace 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)~~Defense 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. For the years ended April 30, 2019 and 2018, there were no stock award plan expenses. Parts

~~Stock Compensation Costs and Restricted Stock Activity~~

~~Total~~Performance ~~stock~~obligations ~~compensation~~under ~~cost~~long-term ~~for~~agreements ~~both~~are ~~years~~considered ~~ended~~to ~~April 30,~~be ~~2019 and 2018, was~~under ~~$108~~contract at the time that authorization to ship has been obtained from the customer,~~000~~ 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

. 24

~~Restricted~~Table ~~stock~~of ~~activity for each year ended through April 30 is summarized as follows:~~ Contents

	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 April 30	730,000	$	0.740	730,000	$	0.740

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.

~~NOTE 9—STOCKHOLDERS' EQUITY~~

~~The~~Our ~~changes~~billing interms ~~shares~~for ofthese ~~common~~over-time ~~stock~~contracts ~~outstanding~~vary, asbut ofare ~~April 30~~generally ofbased ~~each~~on ~~year~~ship ~~are~~date. Control ~~summarized~~is transferred as ~~follows:~~ products are completed and closed to finished goods.

	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, April 30	5,995,750	5,995,750

~~NOTE~~Product ~~10—EARNINGS~~fees ~~(LOSS)~~and ~~PER~~engineering ~~SHARE~~ and design services

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.

38 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.

~~Table of Contents~~

~~The~~Performance ~~basic~~Obligations ~~earnings~~Satisfied ~~(loss)~~at ~~per~~a ~~common~~Point ~~share~~in ~~were computed as follows:~~ Time

	Year Ended
	2019		2018
Net income (loss)	$	642,000	$	(2,015,000)
Amounts allocated to participating securities (nonvested restricted shares)		(78,000)		—
Net income (loss) attributable to common shareholders	$	564,000	$	(2,015,000)
Basic weighted average common shares		5,265,750		5,265,750
Earnings (loss) per share attributable to common shareholders:
Basic earnings (loss) per share	$	0.11	$	(0.38)

~~ASC~~We ~~260, Earnings~~recognize ~~per~~revenue ~~Share,~~on ~~provides~~agreements ~~that~~for ~~unvested share-based payment awards that contain non-forfeitable rights to dividends are considered to be participating securities and must be included in~~ the ~~computation~~sale of ~~earnings~~customized ~~per~~goods ~~share~~for ~~pursuant~~use toin the ~~two-class~~industrial ~~method. Diluted~~and ~~earnings~~commercial ~~per~~market ~~share~~on ispoint ~~not~~in ~~presented~~time ~~as we do not have any shares considered incremental and dilutive~~basis.

~~NOTE 11—ACCRUED LIABILITIES~~

~~Accrued~~Industrial ~~liabilities~~and asCommercial ~~of April 30 of each year consist of the following:~~ Parts

	2019		2018
Employee related expenses:
Accrued payroll	$	286,000	$	167,000
Accrued payroll taxes		22,000		13,000
Accrued employee benefits		165,000		129,000
	$	473,000	$	309,000
Other, including interest:
Warranty reserve	$	22,000	$	300,000
Property taxes		20,000		18,000
Deferred rent		206,000		129,000
Other		103,000		61,000
	$	351,000	$	508,000
	$	824,000	$	817,000

~~The~~Performance ~~changes~~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 ~~warranty~~our ~~reserve~~control asuntil the moment of ~~April~~shipment. Also, 30upon 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 ~~each~~these ~~year~~agreements ~~are~~when ~~summarized~~it asis ~~follows:~~ probable that we will incur the loss.

	2019		2018
Balance, May 1	$	300,000	$	24,000
Credit memos issued		(212,000)		(52,000)
Provision for warranty accrual		(66,000)		328,000
Balance, April 30	$	22,000	$	300,000

~~NOTE~~Our ~~12—CUSTOMER~~billing ~~DEPOSITS~~ terms for these point in time sales are generally based on ship date. Control is transferred as products are shipped to the customers.

For certain customers, we collect payment at the time the order is placed. These deposits are classified as a liability and will be recognized as revenue at the time of shipment in accordance with our revenue recognition policy. As of April 30, 2019 and April 30, 2018 we had approximately $24,000 and $219,000, respectively in customer deposits related to this arrangement.

39 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 2020 relating to receivables or contract assets arising from contracts with customers.

~~Table of Contents~~

~~NOTE~~Allowance ~~13—SELF-INSURANCE~~for ~~CAPTIVE~~ Doubtful Accounts

We are a member of a limited liability company formed as an insurance association captive (the "captive") in order to provide partially self-insured health benefits to our employees that elect coverage under the plan. Our membership percentage in this captive is approximately 0.5% and represents an investment of $87,000. Therefore, our investment is accounted for utilizing the cost method of accounting. Our risk of loss is limited to our investment in the captive and we are not required to fund additional capital to the captive in the event of negative capital accounts. Our share of net income from the captive is based on our ratio of contribution to the captive. No income has been allocated in either fiscal year 2019 or 2018.

WeGross ~~maintain~~trade aaccounts ~~reserve~~receivable ~~for~~are ~~incurred~~offset ~~but~~with ~~not~~an ~~reported~~allowance ~~medical~~for ~~claims~~doubtful ~~and~~accounts. ~~claim~~The ~~development.~~allowance ~~Our~~for ~~reserve~~doubtful accounts is anour best estimate ~~based~~of onthe ~~historical~~amount ~~experience~~of ~~and~~probable ~~other~~credit ~~assumptions,~~losses ~~some~~in ofour ~~which~~existing ~~are~~accounts ~~subjective~~receivable. We ~~adjust~~review ~~our~~the ~~self-insured~~allowance ~~medical~~for ~~benefits~~doubtful ~~reserve~~accounts ason wea ~~experience~~regular ~~changes~~basis, and all past due tobalances ~~medical~~are ~~inflation,~~reviewed ~~changes~~individually infor collectability. Account balances are charged against the ~~number~~allowance when placed for collection. Recoveries of ~~plan~~receivables ~~participants~~previously ~~and~~written ~~changes~~off toare ~~specific~~recorded ~~cases~~when received. ~~Our~~ ~~total~~The ~~reserve~~majority ~~for~~of ~~these~~the ~~claims~~customer ~~for~~accounts ~~both~~are ~~fiscal~~considered ~~years~~past ~~ended~~due ~~April~~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 April 30, 2020 and 2019 ~~and~~was ~~2018~~$41,000 ~~was~~and $2512,000, respectively.

~~NOTE 14—NET SALES BY PRODUCT LINE AND GEOGRAPHY~~

~~Torotel’s net sales by market, product line and geography for the periods presented were as follows:~~ 25

Years ended April 30,	2019		2018
Commercial Aerospace	$	7,690,000		7,830,000
Defense		11,849,000		9,611,000
Industrial		1,016,000		955,000
Total consolidated net sales	$	20,555,000	$	18,396,000

Table of Contents

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

Inventories

Years ended April 30,	2019		2018
Domestic	$	18,472,000	$	16,237,000
Foreign		2,083,000		2,159,000
Total consolidated net sales	$	20,555,000	$	18,396,000

~~The~~Inventories ~~amounts~~are ~~presented~~stated ~~above~~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 ~~fiscal~~obsolete ~~year~~and ~~2018~~excess inventory are ~~recognized~~based ~~under~~on ~~ASC~~reviews ~~605~~of inventory usage, quantities on hand and latest product demand information from customers. ~~The~~ ~~amounts~~Inventories ~~presented~~are ~~for~~reviewed ~~fiscal~~in ~~year~~detail ~~2019~~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 ~~recognized~~categorized ~~under~~as ~~ASC~~obsolete; ~~606~~individual part numbers having more than a 12-month supply based on the current year's usage are categorized as excess. ~~See~~ Once specific inventory has been identified as excess or obsolete, the ~~policy~~cost onof ~~revenue~~the ~~recognition~~identified ~~within~~inventory ~~Note~~is 1fully reserved and ~~further~~the ~~disclosures~~cost of the ~~effects~~inventory ~~associated~~is ~~with~~not recovered until it is sold. The reserve balance is analyzed for adequacy as part of the ~~adoption~~inventory review each quarter. The reserve for inventory as of ~~ASC~~April ~~606~~30, ~~within~~2020 ~~Note~~and 32019 –was ~~Revenue~~$406,000 and $332,000, respectively.

Torotel currently has a primary base of approximately 15 customers that provide nearly 91% of its annual sales volume. Sales to two major customers as a percentage of consolidated net sales for the fiscal year ended April 30, 2019 was 30% and 21% respectively. Sales to two major customers as a percentage of consolidated net sales for the fiscal year ended April 30, 2018 was 34% and 18% respectively. Trade receivables from one major customer as a percentage of consolidated net trade receivables for the fiscal years ended April 30, 2019 and 2018 was 15% and 36%, respectively.

40 Property, Plant and Equipment

~~Table of Contents~~

~~NOTE~~ Property, ~~15—LEASED~~plant ~~PROPERTY~~ 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.

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.

~~Torotel’s leased property by asset category was as follows:~~ Cash

Year ended April 30,	2019
Land	$	265,000
Buildings and improvements		1,000,000
		1,265,000
Less accumulated depreciation		(659,000)
Net leased property	$	606,000

~~Depreciation~~For ~~resulting~~purposes ~~from~~of the ~~leased~~consolidated ~~property~~statements ~~amounted~~of tocash ~~$35~~flows,~~000~~ ~~during~~we ~~fiscal~~consider ~~year~~all ~~2019~~short-term investments and demand deposits purchased with original maturity dates of three months or less to be cash.

~~ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure~~

~~None.~~ Income Taxes

~~ITEM 9A. Controls and Procedures~~

~~Evaluation~~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 ~~Disclosure~~these ~~Controls~~differences are permanent, such as expenses that are not deductible in our tax return, and ~~Procedures~~ 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.

Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Exchange Act, as of April 30, 2019 and based on that evaluation have concluded that these disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

~~Management's Report on Internal Control over Financial Reporting~~

~~Our~~Advertising management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework contained in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of April 30, 2019. Costs

~~Table~~Advertising ofcosts ~~Contents~~ are expensed as incurred. For the year ended April 30, 2020 advertising costs were $9,000. For the year ended April 30, 2019 there were no advertising costs.

~~Changes in Internal Control over Financial Reporting~~

No change in our internal control over financial reporting occurred during the three-month period ending April 30, 2019, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 26

~~ITEM~~Table ~~9B. Other~~of ~~Information~~ Contents

~~None.~~ Warranty Costs

~~PART III~~

~~ITEM~~We 10maintain a reserve for estimated warranty costs associated with products returned from customers. ~~Directors,~~ ~~Executive~~A ~~Officers~~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 ~~Corporate~~reflects ~~Governance~~ management's best estimate of probable liability under the product warranties.

The information required by this item is incorporated herein by reference to the information contained in our definitive proxy statement to be filed with the SEC no later than 120 days after the end of our most recent fiscal year in connection with our 2019 Annual Meeting of Shareholders.

~~Code~~Share-Based ~~of Business Conduct and Ethics~~ Compensation

Torotel has adopted a Code of Business Conduct and Ethics (the "Code") for directors, executive officers, and significant employees. A copy of the Code is posted on Torotel's Internet website at www.torotelinc.com. If an amendment is made to, or a waiver granted of, a provision of the Code that applies to Torotel's principal executive officer or principal financial officer where such amendment or waiver is required to be disclosed under applicable SEC rules, Torotel intends to disclose such amendment or waiver and the reasons therefore on its Internet website at www.torotelinc.com within four business days following any such amendment or waiver and will keep the information available on the website for at least twelve months. Following the twelve-month posting period, the information will be retained for a minimum of five years.

~~ITEM~~We 11have 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. ~~Executive~~ ~~Compensation~~ 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.

~~ITEM~~Paycheck ~~12. Security~~Protection ~~Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters~~ Program

~~ITEM~~We 13received funding from the Small Business Administration relating to the Paycheck Protection Program in the amount of $1,985,000 through a promissory note. ~~Certain~~ The ~~Relationships~~loan and ~~Related~~the ~~Transactions~~related interest are recorded as a financial liability. As of April 30, 2020, we have not obtained sufficient reasonable assurance that forgiveness conditions have been satisfied. For subsequent reporting periods, we will reevaluate if there is reasonable assurance that forgiveness conditions have been satisfied. Upon obtaining reasonable assurance that the forgiveness conditions have been satisfied, the earnings will be recorded on a systematic basis over the periods in which we recognize the expenses for which the funds are intended to compensate. In April 2020, we incurred $440,000 of eligible Paycheck Protection Program expenses. These expenses are classified as nondeductible for income tax purposes and ~~Director~~are ~~Independence~~ recorded as permanent differences.

~~ITEM 14. Principal~~ Accounting ~~Fees~~Pronouncements ~~and~~Recently ~~Services~~ Adopted

42 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 4—Leases for the required disclosures of the nature, amount, timing, and uncertainty of cash flows arising from leases.

~~Table of Contents~~

~~PART~~Accounting IV Pronouncements Issued, Not Yet Adopted

~~ITEM 15. Exhibits, Financial Statement Schedules~~

(In June 2016, the FASB issued ASU No. 2016-13 Measurement of Credit Losses on Financial Instruments. Under this guidance, a) financial asset is required to be measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. The measurement of expected credit losses will be based on current, historical, and forecasted information that impacts the collectability of the reported amount. Additional disclosures will be required to provide information regarding significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization's portfolio. The original effective date for this guidance, including subsequently issued amendments, was for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. In November 2019, the FASB deferred the effective date of this guidance to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We are currently evaluating this guidance.

Report of Independent Registered Public Accounting Firm		19
Consolidated Balance Sheets as of April 30, 2019 and 2018		20
Consolidated Statements of Operations for the years ended April 30, 2019 and 2018		21
Consolidated Statements of Changes in Stockholders’ Equity for the years ended April 30, 2019 and 2018		22
Consolidated Statements of Cash Flows for the years ended April 30, 2019 and 2018		23
Notes to Consolidated Financial Statements		24

43 27

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(b) Exhibits (Electronic Filing Only)
Exhibit 3.1		Articles of Incorporation, as amended (incorporated by reference to Exhibit 3.1 of Form 8-K filed with the SEC on September 25, 2009, SEC File Number 001-08125)
Exhibit 3.2		Amended and Restated By-laws (incorporated by reference to Exhibit 3.2 of Form 10-Q filed with the SEC on March 13, 2018, SEC File Number 001-08125)
Exhibit 4.1*		Description of Capital Stock
Exhibit 10.1#		Form of Amended and Restated Employment Agreement (incorporated by reference to Exhibit 10.1 of Form 8-K filed with the SEC on July 7, 2006, SEC File Number 001-08125)
Exhibit 10.2#		Form of Restricted Stock Agreement, approved September 19, 2016 (incorporated by reference to Exhibit 10.1 of Form 8-K filed with the SEC on September 22, 2016, SEC File Number 001-08125)
Exhibit 10.3#		Short-term Cash Incentive Plan (incorporated by reference to Exhibit 10.8 of Form 10-KSB filed with the SEC on July 30, 2007, SEC File Number 001-08125)
Exhibit 10.4#		Stock Award Plan (incorporated by reference to Exhibit 10.9 of Form 10-KSB filed with the SEC on July 30, 2007, SEC File Number 001-08125)
Exhibit 10.5#		Long-term Cash Incentive Plan (incorporated by reference to Exhibit 10.10 of Form 10-KSB filed with the SEC on July 30, 2007, SEC File Number 001-08125)
Exhibit 10.6		Standard Industrial/Commercial Multi-Tenant Lease - Net dated July 30, 2010 by and between 96-OP Prop, LLC, and Torotel (Incorporated by reference to Exhibit 10.8 of Form 8-K filed with the SEC on August 4, 2010, SEC File Number 001-08125)
Exhibit 10.7		First Amendment to Lease dated December 20, 2013 by and between 96-OP Prop, L.L.C., and Torotel (incorporated by reference to Exhibit 10.1 of Form 8-K filed with the SEC on December 24, 2013, SEC File Number 001-08125)
Exhibit 10.8		Second Amendment to Lease, dated October 31, 2016 by and between 96-OP Prop. L.L.C. and Torotel (incorporated by reference to Exhibit 10.1 of Form 8-K filed with the SEC on November 4, 2016, SEC File Number 001-08125)
Exhibit 10.9		Lease Agreement dated July 10, 2014 by and between Bergey Road Industrial Associates, and Torotel, Inc., a Missouri corporation (incorporated by reference to Exhibit 10.1 of Form 8-K filed with the SEC on July 14, 2014, SEC File Number 001-08125)
Exhibit 10.10		Third Amendment to Lease, dated as of August 30, 2017, by and between 96-OP Prop, L.L.C. and Torotel, Inc. (incorporated by reference to Exhibit 10.1 of Form 8-K filed with the SEC on September 5, 2017, SEC File Number 001-08125)
Exhibit 10.11		Business Loan Agreement (asset based revolving line of credit) dated as of October 19, 2018, by and between Torotel, Inc. and Cornerstone Bank (incorporated by reference to Exhibit 10.1 of Form 8-K filed with the SEC on October 25, 2018, SEC File Number 001-08125)
Exhibit 10.12		Business Loan Agreement (real estate term loan) dated as of October 19, 2018, by and between Torotel, Inc. and Cornerstone Bank (incorporated by reference to Exhibit 10.3 of Form 8-K filed with the SEC on October 25, 2018, SEC File Number 001-08125)
Exhibit 10.13		Business Loan Agreement (guidance line of credit) dated as of October 19, 2018, by and between Torotel, Inc. and Cornerstone Bank (incorporated by reference to Exhibit 10.2 of Form 8-K filed with the SEC on October 25, 2018, SEC File Number 001-08125)

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This update removes certain exceptions and implements new requirements to help simplify the accounting for income taxes. This guidance is effective for fiscal years beginning after December 15, 2020. We are currently evaluating this guidance.

~~Table~~All other new accounting standards and updates of ~~Contents~~ existing standards issued through the date of this filing were considered by management and did not relate to accounting policies and procedures pertinent to us at this time or were not expected to have a material impact to the consolidated financial statements.

Exhibit 14		Code of Business Conduct and Ethics for Directors, Executive Officers, Significant Employees (incorporated by reference to Exhibit 14 of Form 10-KSB filed with the SEC on February 16, 2005, SEC File Number 001-08125)
Exhibit 21*		Subsidiaries of the Registrant
Exhibit 31.1*		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) promulgated under the Exchange Act
Exhibit 31.2*		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) promulgated under the Exchange Act
Exhibit 32.1*		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2*		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 101.INS		XBRL Instance Document
Exhibit 101.SCH		XBRL Taxonomy Extension Schema Document
Exhibit 101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
Exhibit 101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
Exhibit 101.LAB		XBRL Taxonomy Extension Label Linkbase Document
Exhibit 101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
*		Filed herewith
#		Designates a management contract, or compensatory plan or arrangement.

~~ITEM 16 Form 10-K Summary~~

~~None~~

~~Table~~NOTE ~~of Contents~~ 2—INVENTORIES

~~SIGNATURES~~

~~Pursuant~~The tofollowing ~~the~~table ~~requirements~~summarizes ~~of Section 13 or 15(d) of~~ the ~~Securities~~components ~~Exchange Act~~ of ~~1934~~inventories, ~~the~~as ~~registrant~~of ~~has~~April 30 ~~duly~~of ~~caused~~each ~~this report to be signed on its behalf by the undersigned, thereunto duly authorized.~~ year:

~~Torotel, Inc.~~

By:	/s/ HEATH C. HANCOCK

	Heath C. Hancock
			2020		2019
	Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
Raw materials		$	2,417,000	$	1,723,000
	Date:	July 23, 2019
Work in process			961,000		1,052,000
Finished goods			178,000		279,000
		$	3,556,000	$	3,054,000

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By:	/s/ DALE H. SIZEMORE, JR.			By:	/s/ ANTHONY L. LEWIS
	Dale H. Sizemore, Jr.				Anthony L. Lewis
	Chairman of the Board, President,				Director
	Chief Executive Officer (Principal Executive Officer) and Director
	Date:		July 23, 2019		Date:	July 23, 2019
By:	/s/ RICHARD A. SIZEMORE			By:	/s/ STEPHEN K. SWINSON
	Richard A. Sizemore				Stephen K. Swinson
	Director				Director
	Date:	July 23, 2019			Date:	July 23, 2019
By:	/s/ BARRY B. HENDRIX			By:	/s/ HEATH C. HANCOCK
	Barry B. Hendrix				Heath C. Hancock
	Director				Chief Financial Officer
					(Principal Financial Officer and Principal Accounting Officer)
	Date:	July 23, 2019			Date:	July 23, 2019
By:	/s/ S. SCOTT STILL
	S. SCOTT STILL
	Director
	Date:	July 23, 2019

46 NOTE 3—REVENUE

Disaggregation of Revenue

The following tables summarize revenue from contracts with customers for the fiscal years ended April 30 of each year:



	2020		2019
Markets
Commercial Aerospace	$	10,208,000	$	7,690,000
Defense		15,140,000		11,849,000
Industrial		785,000		1,016,000
Total consolidated net sales	$	26,133,000	$	20,555,000



	2020		2019
Product Line
Magnetic components	$	14,090,000	$	10,600,000
Potted coil assembly		5,655,000		5,751,000
Electro-mechanical assemblies		6,388,000		3,920,000
Large transformers		—		284,000
Total consolidated net sales	$	26,133,000	$	20,555,000



	2020		2019
Geography
Domestic	$	25,082,000	$	18,472,000
Foreign		1,051,000		2,083,000
Total consolidated net sales	$	26,133,000	$	20,555,000

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Torotel currently has a primary base of approximately 10 customers that historically provide nearly 95% of its annual sales volume. Sales to two major customers as a percentage of consolidated net sales for the fiscal year ended April 30, 2020 was 31% and 28% respectively. Sales to two major customers as a percentage of consolidated net sales for the fiscal year ended April 30, 2019 was 30% and 21% respectively. Trade receivables from three major customers as a percentage of consolidated net trade receivables for the fiscal year ended April 30, 2020 was 48%. Trade receivables from one major customer as a percentage of consolidated net trade receivables for the fiscal year ended April 30, 2019 was 15%.

Contract balances

All receivable balances relate to customer contracts entered into during the fiscal year 2020. We have no contract liabilities other than customer deposits which represent prepaid consideration for contracts with customers (see Note 13). There have been no significant adjustments to contract asset balances related to contract modifications. In fiscal year 2020 and 2019, we had certain customers totaling revenue of $7,973,000 and $4,301,000, respectively, with variable payment terms related to discounts in the amount of $59,000 and $32,000, respectively.

Remaining performance obligation

As of April 30, 2020, the aggregate amount of the contracted revenues allocated to our unsatisfied (or partially unsatisfied) performance obligations was $10,726,000. 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 fiscal year 2021 is expected to be $4,659,000. Total remaining performance obligation to be recognized in fiscal year 2022 is expected to be $6,067,000.

As of April 30, 2019, the aggregate amount of the contracted revenues allocated to our unsatisfied (or partially unsatisfied) performance obligations was $4,591,000. 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 fiscal year 2020 is expected to be $4,571,000. Total remaining performance obligation to be recognized in fiscal year 2021 is expected to be $20,000.

NOTE 4—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 year ended 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 less the balance of our ASC 840 deferred rent liability. The minimum lease payments include base rent payments. The Company’s leases have remaining lease terms of approximately 1 year to 7 years, with an option to extend the lease. 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.

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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 $2,008,000 and $2,274,000, respectively, at April 30, 2020. 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 at April 30:


	Balance Sheet Classification		2020
Assets
Operating lease right-of-use assets	Operating right-of-use assets	$	2,008,000
Finance lease right-of-use assets	Property, plant and equipment, net		27,000
Total leased assets		$	2,035,000

Liabilities
Current
Operating lease liabilities	Current maturities of operating lease liabilities	$	395,000
Finance lease liabilities	Current maturities of finance lease liabilities		27,000
Noncurrent
Operating lease liabilities	Operating lease liabilities, less current maturities		1,879,000
Total lease liabilities		$	2,301,000

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The components of lease expense were as follows at April 30:



		2020

Operating lease expense	$	532,000
Finance lease expense
Amortization of right-of-use assets		71,000
Interest on lease liabilities		7,000
Total finance lease expense		78,000
Total lease expense	$	610,000

The supplemental components of cash flows were as follows at April 30:



		2020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	472,000
Financing cash flows from finance leases		71,000
Total cash paid for amounts included in the measurement of lease liabilities	$	543,000

The following table represents the weighted-average remaining lease term and discount rate as of April 30, 2020:


	2020
	Weighted Average	Weighted Average
	Remaining	Discount
Lease Term and Discount Rate	Lease Term (years)	Rate
Operating leases	6.60	4.52%
Finance leases	0.42	5.43%

Future minimum lease payments on the amended operating lease and future minimum finance lease payments as of April 30, 2020 are as follows:


	Finance Lease		Operating Lease
Fiscal Years Ending April 30,	Payments		Payments
2021	$	27,000	$	436,000
2022		—		448,000
2023		—		452,000
2024		—		452,000
2025		—		456,000
2026		—		467,000
2027		—		350,000
	$	27,000	$	3,061,000

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NOTE 5—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. On October 19, 2019, Torotel renewed the asset-backed revolving line of credit. A summary of the notes issued under the financing agreements is provided below:


		2020		2019
5.00% asset-based revolving line of credit with a maturity date of October 19, 2020	$	-	$	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		773,000		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		45,000		-
1.00% Paycheck Protection Program loan note payable in monthly installments of $111,712 starting after the six month payment deferment period on October 30, 2020, with a final payment of $111,712 due April 29, 2022. Interest will accrue during the deferment period.		1,985,000		-
Capital lease obligations (see Note 4)		-		98,000
Total long-term debt		2,803,000		1,922,000
Less current installments		795,000		1,121,000
Long-term debt, excluding current installments	$	2,008,000	$	801,000

The asset-based revolving line of credit is intended to be used for working capital purposes and has a capacity of $2,000,000. The asset-based revolving line of credit is renewable annually upon mutual agreement of Torotel and the Bank. The associated interest rate is equal to the greater of the floating Cornerstone Bank Corporate Base Rate (5.00% as of April 30, 2020) or a floor of 5%. 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 financing 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 real estate term loan is in the principal amount of $815,000 and has 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 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.

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On April 15, 2020, Torotel entered into a promissory note with the Bank, which provides for a loan in the amount of $1,984,688 (the “PPP Loan”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan has a two-year term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments are deferred for six months after the date of disbursement. The PPP Loan may be prepaid at any time prior to maturity with no prepayment penalties. The Promissory Note contains events of default and other provisions customary for a loan of this type. The Paycheck Protection Program provides that the PPP Loan may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. Torotel Products intends to use the proceeds from the PPP Loan for qualifying expenses and to apply for forgiveness of the PPP Loan in accordance with the terms of the CARES Act. However, neither the Company nor Torotel Products can completely assure at this time that such forgiveness of the PPP Loan will occur.

The amount of long-term debt maturities by year is as follows:


Year Ending April 30,	Amount
2021	$	795,000
2022		1,251,000
2023		38,000
2024		719,000
	$	2,803,000

Irrevocable Standby Letter of Credit

Under the terms of a lease amendment for its manufacturing facility located in Olathe, Kansas (see Note 7), Torotel provided the landlord an irrevocable standby letter of credit in the original amount of $300,000 as additional security. On January 1, 2020, the letter of credit was reduced from $300,000 to $225,000. 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, 2021	$	75,000	$	150,000
January 1, 2022		75,000		75,000
January 1, 2023		75,000		-

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NOTE 6—INCOME TAXES

The components of the provision (benefit) for income taxes are as follows:


	2020		2019
Current tax expense (benefit)
Federal	$	—	$	(34,000)
State		75,000		13,000
		75,000		(21,000)
Deferred tax expense
Federal		—		34,000
State		—		—
		—		34,000
Total income tax provision	$	75,000	$	13,000

The effective tax rate as of April 30, 2020 and 2019 is 9.5% and 2.0%, respectively.

The provision for income taxes reflected in the consolidated statements of operations differs from the amounts computed at the federal statutory tax rates.

The principal differences between our statutory income tax expense and the effective provision for income taxes are summarized as follows:


	2020		2019
Computed tax expense at statutory rates	$	166,000	$	137,000
Permanent differences		98,000		6,000
State tax and credits		59,000		56,000
Adjustments required by change in method of accounting as a result of adopting ASC 606		(24,000)		31,000
Other		(4,000)		—
Use of net operating loss carryforward		(220,000)		(217,000)
	$	75,000	$	13,000

We have available as benefits to reduce future income taxes, subject to applicable limitations, estimated federal net operating loss carryforward amounts as described below.


	Net Operating Loss
Year of Expiration	Carryforwards
2038	$	92,000

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The following table summarizes the components of the net deferred income tax asset:


	2020		2019
Net operating loss carryforwards	$	19,000	$	226,000
Inventory valuation reserve		109,000		89,000
Loss on equity and impairment in investee		301,000		301,000
Tax credit carryforward		—		34,000
Adjustments required by change in method of accounting as a result of adopting ASC 606		—		(31,000)
Cost of sales adjustment from ASC 606		15,000		163,000
Depreciation expense		(171,000)		(111,000)
Uniform capitalization		—		19,000
Right-of-use asset		(538,000)		—
Lease liability		609,000		—
Bad debt reserve		11,000		3,000
Warranty reserve		5,000		9,000
Accrued vacation		35,000		7,000
Accrued bonuses		65,000		42,000
Accrued commissions		15,000		16,000
Claims reserve		7,000		7,000
Stock compensation		105,000		76,000
Deferred rent		—		55,000
Other		2,000		—
		589,000		905,000
Less: valuation allowance		(589,000)		(871,000)
	$	—	$	34,000

As of April 30, 2018, the Company had federal minimum tax credit carryforwards of $68,000. In 2019, 50% of the federal minimum tax credit carryforwards were refunded. In 2020, the remaining 50% of the federal minimum tax credit carryforwards were eligible for refund and applied towards future period tax due.

The net change in the valuation allowance for the year ended April 30, 2020 and 2019, was a decrease of $282,000 and $217,000, respectively. Valuation allowances are reviewed on a quarterly basis and adjustments made as appropriate. The decrease in the valuation allowance in 2020 and 2019 resulted primarily from utilization of NOLs and credits.

The Company's determination of the realizable deferred tax assets requires the exercise of significant judgment, based in part on business plans and expectations about future outcomes. In the event the actual results differ from these estimates in future periods, the Company may need to adjust the valuation allowance, which could materially impact our financial position and results of operations. The Company will continue to assess the need for a valuation allowance in future periods. As of April 30, 2020 and 2019, the Company maintained a valuation allowance of $589,000 and $871,000, respectively, for its deferred tax assets.

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As of April 30, 2020, the federal tax returns for the fiscal years ended 2017 through 2019 remain subject to examination and assessment. Fiscal years ending before 2017 remain open solely for purposes of examination of our loss and credit carryforwards. As of April 30, 2020, the Company has no federal or state examinations ongoing.

We recognize accrued interest and penalties related to unrecognized tax benefits, as well as interest received from favorable tax settlements, within income tax expense. As of April 30, 2020 and 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 7—COMMITMENTS AND CONTINGENCIES

On July 10, 2014, we entered into a real estate lease agreement in Hatfield, Pennsylvania to lease approximately 5,000 square feet for manufacturing electromechanical assemblies and other transformers. This agreement commenced on August 1, 2014 and continues through July 31, 2019. 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. On June 17, 2020, Torotel entered into a new lease agreement adjusting the leased space to approximately 7,000 square feet and the monthly base rent to $4,241.

The gross amount of assets recorded under capital leases amounted to $225,000 of equipment.

Minimum rent payments under operating leases are recognized on a straight-line basis over the term of the lease including any periods free of rent. Total rent expense for all operating leases for the fiscal years ended April 30, 2020 and 2019 was $532,000 and $650,000, respectively.

Torotel is subject to legal proceedings and claims that arise in the normal course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the financial position or results of operations of Torotel.

NOTE 8—EMPLOYEE INCENTIVE PLANS

Short-term Cash Incentive Plan

The Short-term Cash Incentive Plan ("STIP") became effective for fiscal year 2008. The purpose of the STIP is to promote the long-term financial performance of Torotel by providing key employees with the opportunity to earn cash awards for accomplishing annual goals for Return on Capital Employed ("ROCE") as defined in the STIP. For the years ended April 30, 2020 and 2019 there were no short-term cash incentive plan expenses.

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Long-term Incentive Plans

Stock Award Plan

The Stock Award Plan ("SAP"), which did not require shareholder approval, provides key employees the opportunity to acquire common stock of Torotel pursuant to awards earned for accomplishing goals that promote the long-term financial performance of Torotel. Under the terms of the SAP, stock awards are in the form of restricted stock having a 5-year restriction period, which shall lapse, based on certain conditions as outlined in the SAP. All stock awards are represented by a Restricted Stock Agreement, which 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.

Long-term Cash Incentive Plan

The Long-term Cash Incentive Plan ("LTCIP") provides key employees with the opportunity to earn cash awards for accomplishing plan goals based on predetermined targets for average annual sales and earnings growth, ROCE and debt to equity. Under the terms of the LTCIP, awards will not be paid if Torotel's performance on any LTCIP metric is less than the threshold level of performance defined for that LTCIP metric. For the years ended April 30, 2020 and 2020, there were no long-term cash incentive plan expenses for both years.

Performance Bonus

We provided discretionary performance bonuses for employees. Total expense for these bonuses was $226,000 and $209,000 for the years ended April 30, 2020 and 2019.

401(k) Retirement Plan

We have a 401(k) Retirement Plan for Torotel’s employees. Employer contributions to that plan are at the discretion of the Board of Directors. Employer contributions to the plan for the years ended April 30, 2020 and 2019 were $169,000 and $148,000, respectively.

NOTE 9—RESTRICTED STOCK AGREEMENTS

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Restricted Stock Grants

The Shares were granted subject to restrictions that prohibit them from being sold, assigned, pledged or otherwise disposed of until the restrictions lapse. The restrictions will lapse on the fifth anniversary of the date of grant if during the five year restriction period, (1) the Company's cumulative annual growth in revenue is at least 10%, and (2) the average economic value added as a percentage of revenue is at least 2%. The economic value added, which attempts to capture the true economic profit, will be calculated as the operating profit less the cost of capital with adjustments made for taxes. The restrictions will also lapse, if prior to the fifth anniversary of the date of grant, (1) the grantee's employment with the Company is terminated by reason of disability, (2) the grantee dies, or (3) the Committee, in its sole discretion, terminates the restrictions. If the restrictions on the Shares have not lapsed by the fifth anniversary of the date of grant, the Shares will be forfeited to the Company. For the years ended April 30, 2020 and 2019, there were no stock award plan expenses.

Stock Compensation Costs and Restricted Stock Activity

Total stock compensation cost for both years ended April 30, 2020 and 2019, was $108,000.

Restricted stock activity for each year ended through April 30 is summarized as follows:


	2020			2019
	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 April 30	730,000	$	0.740	730,000	$	0.740

NOTE 10—STOCKHOLDERS' EQUITY

The changes in shares of common stock outstanding as of April 30 of each year are summarized as follows:


	2020	2019
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, April 30	5,995,750	5,995,750

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NOTE 11—EARNINGS PER SHARE

The basic earnings per common share were computed as follows for the year ended April 30:



	2020		2019
Net income	$	714,000	$	642,000
Amounts allocated to participating securities (nonvested restricted shares)		(87,000)		(78,000)
Net income attributable to common shareholders	$	627,000	$	564,000
Basic weighted average common shares		5,265,750		5,265,750
Earnings per share attributable to common shareholders:
Basic earnings per share	$	0.12	$	0.11

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 included 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 12—ACCRUED LIABILITIES

Accrued liabilities as of April 30 of each year consist of the following:


	2020		2019
Employee related expenses:
Accrued payroll	$	454,000	$	286,000
Accrued payroll taxes		36,000		22,000
Accrued employee benefits		252,000		165,000
	$	742,000	$	473,000
Other, including interest:
Warranty reserve	$	20,000	$	22,000
Property taxes		38,000		20,000
Deferred rent		—		206,000
Other		99,000		103,000
	$	157,000	$	351,000
	$	899,000	$	824,000

The changes in warranty reserve as of April 30 of each year are summarized as follows:


	2020		2019
Balance, May 1	$	22,000	$	300,000
Credit memos issued		(194,000)		(212,000)
Provision for warranty accrual		192,000		(66,000)
Balance, April 30	$	20,000	$	22,000

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NOTE 13—CUSTOMER DEPOSITS

For certain customers, we collect payment at the time the order is placed. These deposits are classified as a liability and will be recognized as revenue at the time of shipment in accordance with our revenue recognition policy. As of April 30, 2020 and April 30, 2019 we had $16,000 and $24,000, respectively in customer deposits related to this arrangement.

NOTE 14—SELF-INSURANCE CAPTIVE

We maintain a reserve for incurred but not reported medical claims and claim development. Our reserve is an estimate based on historical experience and other assumptions, some of which are subjective. We adjust our self-insured medical benefits reserve as we experience changes due to medical inflation, changes in the number of plan participants and changes to specific cases. Our total reserve for these claims for both fiscal years ended April 30, 2020 and 2019 was $25,000.

NOTE 15—LEASED PROPERTY

Torotel’s leased property by asset category was as follows:


	2020		2019
Land	$	265,000	$	265,000
Buildings and improvements		1,000,000		1,000,000
		1,265,000		1,265,000
Less accumulated depreciation		(707,000)		(659,000)
Net leased property	$	558,000	$	606,000

Depreciation resulting from the leased property amounted to $48,000 and $35,000 during fiscal year 2020 and 2019, respectively.

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NOTE 16 – COVID-19 Impact

The COVID-19 pandemic, first identified in Wuhan, Hubei Province, China, continues to spread worldwide, causing weakened international economic conditions. Torotel provides end products to the defense industry and is considered an essential business. We have been fully operating throughout the pandemic. Due to the concerns around the outbreak of COVID-19, we have implemented several new policies and procedures based on CDC recommendations. All of our employees who do not have critical functions requiring them to be on-site have been working remotely to lower the number of people within the facilities. For those employees required to work on-site, we have implemented new measures including increased distancing of workstations, closed access to common areas and meeting rooms, increased cleaning efforts, implemented face mask requirements, further restricted access to our premises by suppliers and customers, and other safety precautions. We expect to continue these changes for the foreseeable future. As a result of the pandemic, there is significant uncertainty around the U.S. and global economy, U.S. Department of Defense spending as a result of potential budget cuts, future customer demand, supply chain availability, oil price fluctuations, cash collections, and costs related to our changes to help ensure the safety and well-being of our employees. Late in the fourth quarter of fiscal 2020, we have experienced lower commercial aerospace sales as a result of COVID-19. Due to this change in sales and the significant uncertainties outlined above in April 2020, we applied for a loan under the Paycheck Protection Program (the “PPP”) of the 2020 Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) administered by the Small Business Association. On April 15, 2020, Torotel received $1.9 million in PPP funds. We intend to use these funds from this loan only for the purposes included in the PPP, including payroll, employee benefits, rent, utilities and interest on certain finance agreements (See Note 5). At the date of this filing, the full extent of which the COVID-19 pandemic may impact our financial condition or results of operations is uncertain.

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ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

ITEM 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Exchange Act, as of April 30, 2020 and based on that evaluation have concluded that these disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Management's Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework contained in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of April 30, 2020.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting occurred during the year ending April 30, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Additional internal controls were implemented to ensure proper custody and compliance with PPP funding.

ITEM 9B. Other Information

None.

PART III

ITEM 10. Directors, Executive Officers and Corporate Governance

Code of Business Conduct and Ethics

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business days following any such amendment or waiver and will keep the information available on the website for at least twelve months. Following the twelve-month posting period, the information will be retained for a minimum of five years.

ITEM 11. Executive Compensation

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Securities Authorized for Issuance under Equity Compensation Plans

Torotel has certain long-term incentive plans, including a Stock Award Plan (see Note 8 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 2020.

ITEM 14. Principal Accounting Fees and Services

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PART IV

ITEM 15. Exhibits, Financial Statement Schedules

(a)



Report of Independent Registered Public Accounting Firm		18
Consolidated Balance Sheets as of April 30, 2020 and 2019		19
Consolidated Statements of Operations for the years ended April 30, 2020 and 2019		20
Consolidated Statements of Changes in Stockholders’ Equity for the years ended April 30, 2020 and 2019		21
Consolidated Statements of Cash Flows for the years ended April 30, 2020 and 2019		22
Notes to Consolidated Financial Statements		23

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(b) Exhibits (Electronic Filing Only)

Exhibit 3.1		Articles of Incorporation, as amended (incorporated by reference to Exhibit 3.1 of Form 8-K filed with the SEC on September 25, 2009, SEC File Number 001-08125)
Exhibit 3.2		Amended and Restated By-laws (incorporated by reference to Exhibit 3.2 of Form 10-Q filed with the SEC on March 13, 2018, SEC File Number 001-08125)
Exhibit 4.1*		Description of Capital Stock
Exhibit 10.1#		Form of Amended and Restated Employment Agreement (incorporated by reference to Exhibit 10.1 of Form 8-K filed with the SEC on July 7, 2006, SEC File Number 001-08125)
Exhibit 10.2#		Form of Restricted Stock Agreement, approved September 19, 2016 (incorporated by reference to Exhibit 10.1 of Form 8-K filed with the SEC on September 22, 2016, SEC File Number 001-08125)
Exhibit 10.3#		Short-term Cash Incentive Plan (incorporated by reference to Exhibit 10.8 of Form 10-KSB filed with the SEC on July 30, 2007, SEC File Number 001-08125)
Exhibit 10.4#		Stock Award Plan (incorporated by reference to Exhibit 10.9 of Form 10-KSB filed with the SEC on July 30, 2007, SEC File Number 001-08125)
Exhibit 10.5#		Long-term Cash Incentive Plan (incorporated by reference to Exhibit 10.10 of Form 10-KSB filed with the SEC on July 30, 2007, SEC File Number 001-08125)
Exhibit 10.6		Standard Industrial/Commercial Multi-Tenant Lease - Net dated July 30, 2010 by and between 96-OP Prop, LLC, and Torotel (Incorporated by reference to Exhibit 10.8 of Form 8-K filed with the SEC on August 4, 2010, SEC File Number 001-08125)
Exhibit 10.7		First Amendment to Lease dated December 20, 2013 by and between 96-OP Prop, L.L.C., and Torotel (incorporated by reference to Exhibit 10.1 of Form 8-K filed with the SEC on December 24, 2013, SEC File Number 001-08125)
Exhibit 10.8		Second Amendment to Lease, dated October 31, 2016 by and between 96-OP Prop. L.L.C. and Torotel (incorporated by reference to Exhibit 10.1 of Form 8-K filed with the SEC on November 4, 2016, SEC File Number 001-08125)
Exhibit 10.9		Lease Agreement dated July 10, 2014 by and between Bergey Road Industrial Associates, and Torotel, Inc., a Missouri corporation (incorporated by reference to Exhibit 10.1 of Form 8-K filed with the SEC on July 14, 2014, SEC File Number 001-08125)
Exhibit 10.10		Third Amendment to Lease, dated as of August 30, 2017, by and between 96-OP Prop, L.L.C. and Torotel, Inc. (incorporated by reference to Exhibit 10.1 of Form 8-K filed with the SEC on September 5, 2017, SEC File Number 001-08125)
Exhibit 10.11		Business Loan Agreement (asset based revolving line of credit) dated as of October 19, 2018, by and between Torotel, Inc. and Cornerstone Bank (incorporated by reference to Exhibit 10.1 of Form 8-K filed with the SEC on October 25, 2018, SEC File Number 001-08125)
Exhibit 10.12		Business Loan Agreement (real estate term loan) dated as of October 19, 2018, by and between Torotel, Inc. and Cornerstone Bank (incorporated by reference to Exhibit 10.3 of Form 8-K filed with the SEC on October 25, 2018, SEC File Number 001-08125)
Exhibit 10.13		Business Loan Agreement (guidance line of credit) dated as of October 19, 2018, by and between Torotel, Inc. and Cornerstone Bank (incorporated by reference to Exhibit 10.2 of Form 8-K filed with the SEC on October 25, 2018, SEC File Number 001-08125)

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Exhibit 14		Code of Business Conduct and Ethics for Directors, Executive Officers, Significant Employees (incorporated by reference to Exhibit 14 of Form 10-KSB filed with the SEC on February 16, 2005, SEC File Number 001-08125)
Exhibit 21*		Subsidiaries of the Registrant
Exhibit 31.1*		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) promulgated under the Exchange Act
Exhibit 31.2*		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) promulgated under the Exchange Act
Exhibit 32.1*		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2*		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 101.INS		XBRL Instance Document
Exhibit 101.SCH		XBRL Taxonomy Extension Schema Document
Exhibit 101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
Exhibit 101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
Exhibit 101.LAB		XBRL Taxonomy Extension Label Linkbase Document
Exhibit 101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
*		Filed herewith
#		Designates a management contract, or compensatory plan or arrangement.

ITEM 16 Form 10-K Summary

None

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Torotel, Inc.


By:	/s/ HEATH C. HANCOCK
	Heath C. Hancock
	Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)


	Date:	July 28, 2020


By:	/s/ DALE H. SIZEMORE, JR.			By:	/s/ ANTHONY L. LEWIS
	Dale H. Sizemore, Jr.				Anthony L. Lewis
	Chairman of the Board, President,				Director
	Chief Executive Officer (Principal Executive Officer) and Director

	Date:		July 28, 2020		Date:	July 28, 2020


By:	/s/ RICHARD A. SIZEMORE			By:	/s/ STEPHEN K. SWINSON
	Richard A. Sizemore				Stephen K. Swinson
	Director				Director

	Date:	July 28, 2020			Date:	July 28, 2020




By:	/s/ BARRY B. HENDRIX			By:	/s/ HEATH C. HANCOCK
	Barry B. Hendrix

Net cash used in investing activities

Filing Compare · TOROTEL INC