TOROTEL INC (Form: 10-Q, Received: 03/13/2018 13:01:55)

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UNITED STATES SECURITIES AND EXCHANGE

COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended January 31, 2018

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

For the transition period from _____ to _____

Commission File No. 001-8125

TOROTEL, INC.

(Exact name of registrant as specified in its charter)


MISSOURI		44-0610086
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

520 N. ROGERS ROAD, OLATHE, KANSAS		66062
(Address of principal executive offices)		(Zip Code)

(913) 747-6111

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post 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 ◻ (Do not check if a smaller reporting company)	Smaller reporting company ☒	Emerging growth company ◻

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

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

As of March 13, 2018, there were 5,995,750 shares of Common Stock, $0.01 par value, outstanding.

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TOROTEL, INC. AND SUBSIDIARIES

INDEX

Part I. Financial Information (Unaudited)		3

Item 1	Financial Statements	3
	Consolidated Condensed Balance Sheets	3
	Consolidated Condensed Statements of Operations	4
	Consolidated Condensed Statements of Cash Flows	5
	Note 1 - Basis of Presentation	6
	Note 2 - Nature of Operations	6
	Note 3 - Inventories	7
	Note 4 - Financing Agreements	7
	Note 5 - Income Taxes	8
	Note 6 - Restricted Stock Agreements	9
	Note 7 - Stockholders' Equity	10
	Note 8 - Earnings per Share	10
	Note 9 - Customer Deposits	11
	Note 10 - Concentrations of Credit Risk	11
	Note 11 - Commitments and Contingencies	12

Forward-Looking Information		13

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	14
	Overview	14
	Business and Industry Considerations	14
	Results of Operations	15
	Financial Condition and Liquidity	17
	Critical Accounting Policies	18

Item 3	Quantitative and Qualitative Disclosures About Market Risk	18

Item 4	Controls and Procedures	19

Item 5	Other Information	19

Part II. Other Information		20

Item 6	Exhibits	20

Signatures		21

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PA RT I . FINANCIAL INFORMATION

Item 1 . Financial Statements

CONSOLIDATED CONDENSED BALANCE SHEET S


	(Unaudited)
	January 31, 2018		April 30, 2017
ASSETS
Current assets:
Cash	$	409,000	$	298,000
Trade receivables, net		1,913,000		2,007,000
Inventories		2,953,000		2,739,000
Prepaid expenses and other current assets		204,000		217,000
Property held for sale		688,000		688,000
		6,167,000		5,949,000

Leasehold improvements		611,000		532,000
Equipment		3,916,000		3,718,000
		4,527,000		4,250,000
Less accumulated depreciation		3,170,000		2,937,000
Property, plant and equipment, net		1,357,000		1,313,000

Deferred income taxes		644,000		747,000
Other assets		256,000		256,000

Total Assets	$	8,424,000	$	8,265,000

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt	$	1,736,000	$	603,000
Trade accounts payable		790,000		1,205,000
Accrued liabilities		643,000		319,000
Customer deposits		23,000		33,000
		3,192,000		2,160,000
Long-term debt, less current maturities		162,000		445,000
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		12,410,000		12,329,000
Accumulated deficit		(7,400,000)		(6,729,000)
		5,070,000		5,660,000

Total Liabilities and Stockholders' Equity	$	8,424,000	$	8,265,000

The accompanying notes are an integral part of these statements.

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CONSOLIDATED CONDENSED STATEMENTS OF OPERATION S (Unaudited)


	Three Months Ended				Nine Months Ended
	January 31, 2018		January 31, 2017		January 31, 2018		January 31, 2017
Net sales	$	4,529,000	$	3,702,000	$	13,742,000	$	11,657,000
Cost of goods sold		3,091,000		2,657,000		9,686,000		7,920,000
Gross profit		1,438,000		1,045,000		4,056,000		3,737,000
Operating expenses:
Engineering		267,000		215,000		806,000		662,000
Selling, general and administrative		1,140,000		1,146,000		3,783,000		3,353,000
		1,407,000		1,361,000		4,589,000		4,015,000
Earnings (loss) from operations		31,000		(316,000)		(533,000)		(278,000)
Other expense:
Interest expense, net		28,000		5,000		53,000		16,000
Earnings (loss) before provision (credit) for income taxes		3,000		(321,000)		(586,000)		(294,000)
Provision (benefit) for income taxes		310,000		(130,000)		85,000		(118,000)
Net earnings (loss)	$	(307,000)	$	(191,000)	$	(671,000)	$	(176,000)
Basic earnings (loss) per share	$	(0.06)	$	(0.04)	$	(0.13)	$	(0.03)

The accompanying notes are an integral part of these statements.

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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)


	Nine Months Ended
	January 31, 2018		January 31, 2017
Cash flows from operating activities:
Net loss	$	(671,000)	$	(176,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock compensation cost amortized		81,000		33,000
Depreciation		233,000		194,000
Deferred income taxes		103,000		(118,000)
Increase (decrease) in cash flows from operations resulting from changes in:
Trade receivables		94,000		219,000
Inventories		(214,000)		(939,000)
Prepaid expenses and other assets		13,000		(75,000)
Trade accounts payable		(415,000)		140,000
Accrued liabilities		324,000		46,000
Customer deposits		(10,000)		(15,000)
Net cash used in operating activities		(462,000)		(691,000)
Cash flows from investing activities:
Capital expenditures		(52,000)		(338,000)
Net cash used in investing activities		(52,000)		(338,000)
Cash flows from financing activities:
Principal payments on long-term debt		(99,000)		(66,000)
Payments on capital lease obligations		(26,000)		—
Proceeds from line of credit		750,000		124,000
Net cash provided by financing activities		625,000		58,000
Net increase (decrease) in cash		111,000		(971,000)
Cash, beginning of period		298,000		1,846,000
Cash, end of period	$	409,000	$	875,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest	$	53,000	$	16,000
Income taxes	$	—	$	87,000
Non-cash investing and financing activities:
Equipment financed with proceeds from capital lease	$	225,000	$	—

The accompanying notes are an integral part of these statements.

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE 1 — BASIS OF PRESENTATION

The consolidated condensed balance sheet as of April 30, 2017, which has been derived from the audited financial statements of Torotel, Inc. ("Torotel"), is accompanied by the unaudited interim consolidated condensed financial statements, which reflect the normal recurring adjustments that in the opinion of management are necessary to present fairly Torotel’s consolidated financial position at January 31, 2018, and the consolidated results of operations and cash flows for the three and nine months ended January 31, 2018, and 2017, respectively.

The unaudited interim consolidated condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and note disclosures normally included in the annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although management believes the disclosures made are adequate to make the information not misleading. The financial statements contained herein should be read in conjunction with Torotel’s consolidated financial statements and related notes filed on Torotel's Form 10-K for the year ended April 30, 2017 as filed with the SEC on July 28, 2017.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). The standard is effective for annual reporting periods beginning after December 15, 2017 including interim periods within that reporting period and early adoption permitted for reporting periods beginning after December 15, 2016. The standard will supersede existing revenue recognition guidance, including industry-specific guidance, and will provide companies with a single revenue recognition model for recognizing revenue from contracts with customers. The standard requires revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. Adoption of the new rules could affect the timing of revenue recognition for certain transactions. The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. The provisions of this new guidance are effective as of the beginning of Torotel’s first quarter of fiscal year 2019. We commenced our evaluation of the impact of this standard this year, by evaluating its impact on selected sales orders. With this baseline understanding, we are developing a project plan and assessing any changes that may be needed in our internal control structure to adopt the standard on May 1, 2018. Based on the results of our preliminary evaluation, Torotel believes that this will have a material impact in our first quarter of fiscal 2019. At this time, Torotel is still assessing the adoption method to be utilized.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous GAAP. ASU 2016-02 requires that a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet. ASU 2016-02 requires expanded disclosures about the nature and terms of lease agreements and is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted. Torotel is currently evaluating the potential impact of this standard on its consolidated financial statements. Torotel anticipates the impact will be material to the consolidated financial statements for reporting periods beginning after December 15, 2018, due to the amendment to the lease for Torotel’s manufacturing facility that was executed on October 31, 2016. The status of the implementation effort is in the preliminary stage. No significant implementation matters have been identified as needing to be addressed.

NOTE 2 — NATURE OF OPERATIONS

Torotel conducts business primarily through its wholly owned subsidiary, Torotel Products, Inc. (“Torotel Products”). Torotel Products specializes in the custom design and manufacture of a wide variety of precision magnetic

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components, consisting of transformers, inductors, reactors, chokes, toroidal coils, high voltage transformers, dry-type transformers and electro-mechanical assemblies, for use in commercial, industrial and military electronics.

NOTE 3—INVENTORIES

The following table summarizes the components of inventories:


		January 31, 2018		April 30, 2017
Raw materials	$	1,258,000	$	1,305,000
Work in process		823,000		826,000
Finished goods		872,000		608,000
	$	2,953,000	$	2,739,000

NOTE 4—FINANCING AGREEMENTS

Torotel Products has a financing agreement (the “financing agreement”) with Commerce Bank, N.A. (the “Bank”). The financing agreement provides for a revolving line of credit, a guidance line of credit, and a real estate term loan. Torotel serves as the guarantor to all promissory notes described below. A summary of the notes outstanding under the financing agreement is provided below:


		January 31, 2018		April 30, 2017
4.05% mortgage note payable in monthly installments of $4,873, including interest, with final payment of $349,000 due January 27, 2019	$	384,000	$	415,000
4.00% working capital line of credit with a maturity date of October 20, 2018		750,000		465,000
4.00% building line of credit with a maturity date of March 31, 2018		465,000		-
Capital lease obligations (see Note 11)		199,000		-
Borrowings under an equipment financing line of credit:
4.75% note payable in monthly installments of $2,269, including interest, with final payment due May 27, 2018		6,000		28,000
3.75% note payable in monthly installments of $2,112, including interest, with final payment due April 10, 2018		9,000		25,000
4.05% note payable in monthly installments of $3,680, including interest, with final payment due January 10, 2020		85,000		115,000
Total long-term debt		1,898,000		1,048,000
Less current installments		1,736,000		603,000
Long-term debt, excluding current installments	$	162,000	$	445,000

Under the financing agreement with the Bank, prepayment of the mortgage note up to $100,000 per year is allowed without penalty so long as these funds are generated through internal cash flow and not borrowed from a separate financial institution. The mortgage note is cross collateralized and cross defaulted with all other credit facilities of Torotel Products and is secured by a first real estate mortgage on the property located at 620 North Lindenwood Drive in Olathe, Kansas.

Two separate promissory notes have been delivered by Torotel Products under the working capital line of credit, and amounts under this working capital revolving line of credit are available for working capital purposes. As of January 31, 2018 Torotel Products has only drawn upon the promissory note that matures on October 20, 2018 and no amounts had been borrowed under the promissory note scheduled to mature on April 30, 2018. The working capital revolving line of credit is renewable annually. The associated interest rate of both promissory notes is equal to the greater of the floating Commerce Bank Prime Rate (currently 4.25%) or a floor of 4% (as listed above). Monthly repayments of interest only are required under both promissory notes with the principal due at maturity. The maximum borrowing of this line of credit is $1,250,000. This revolving line of credit is cross collateralized and cross defaulted with all other credit facilities and arrangements of Torotel Products with the Bank and is secured by a first lien on all business assets of Torotel Products.

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On March 31, 2017, Torotel Products entered into a $500,000 building revolving line of credit, which is available for working capital purposes and is renewable annually. The associated interest rate is equal to the greater of the floating Commerce Bank Prime Rate (currently 4.25%) or a floor of 4% (as listed above). Monthly repayments of interest only are required with the principal due at maturity. The maximum borrowing of this line of credit is $500,000. This facility is cross collateralized and cross defaulted with all other facilities and is secured by a first lien on the building located at 620 North Lindenwood Drive in Olathe, Kansas. This revolving line of credit is scheduled to mature on March 31, 2018, and Torotel Products expects to negotiate an extension of that maturity date.

The equipment note is a guidance line of credit to be used for equipment purchases. Monthly repayments consisting of both interest and principal are required. This note is cross collateralized and cross defaulted with all other facilities of Torotel Products 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 Products. The maximum borrowing of this line of credit is $500,000.

Torotel Products is required to comply with specified financial covenants of the financing agreement with Commerce Bank. As of January 31, 2018, Torotel Products was not in compliance with the covenant in such financing agreement that requires a ratio of EBITDA (as defined in the financing agreement) to fixed charge coverage (as defined in the financing agreement) in excess of 1.100 to 1.000. A waiver for non-compliance with this covenant was received from Commerce Bank for the period ending January 31, 2018.

Irrevocable Standby Letter of Credit

Under the terms of a lease amendment for its manufacturing facility located in Olathe, Kansas (see Note 11), Torotel provided the landlord an irrevocable standby letter of credit in the original amount of $350,000 as additional security. The balance under the letter of credit will automatically reduce in accordance with the below schedule if not drawn upon:


Date of Reduction		Amount of Reduction		Balance of Letter of Credit

January 1, 2020	$	75,000	$	275,000
January 1, 2021		75,000		200,000
January 1, 2022		75,000		125,000
January 1, 2023		75,000		50,000
January 1, 2024		50,000		-

NOTE 5—INCOME TAXES

As of January 31, 2018, the federal tax returns for the fiscal years ended 2015 through 2017 are open to audit until the statute of limitations closes for the years in which our net operating losses are utilized. We would recognize interest and penalties accrued on unrecognized tax benefits as well as interest received from favorable tax settlements within income tax expense.

The Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017. The Tax Act makes 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% to 21% effective January 31, 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.

In the third quarter of the 2018 fiscal year, we revised our estimated annual effective rate to reflect a change in the federal statutory rate from 34% to 21%. The rate change is administratively effective at the beginning of our fiscal year,

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using a blended rate for the annual period. As a result, the blended statutory tax rate for the year is 30.40%, resulting in $198,000 of current income tax benefit.

In addition, we recognized tax expense in our tax provision for the period related to adjusting our existing deferred tax balance to reflect the new corporate tax rate, resulting in $283,000 of current income tax expense. As a result, our total income tax expense reported for the first nine months of the 2018 fiscal year was an overall increase in income tax expense of $85,000 during the third quarter.

We remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. However, we are still analyzing certain aspects of the Act and refining our calculations, which would potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts.

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

Pursuant to the guidance within SAB 118, at January 31, 2018, we recognized the provisional effects of the enactment of the Tax Act for which measurement could be reasonably determined. As we continue to analyze certain aspects of the Tax Act and refine our assessment, the ultimate impact of the Tax Act may differ from these estimates due to our continued analysis or further regulatory guidance that may be issued as a result of the Tax Act. Pursuant to SAB 118, adjustments to the provisional amounts recorded at December 31, 2017 that are identified within a subsequent measurement period of up to one year from the enactment date will be included as an adjustment to tax expense from continuing operations in the period the amounts are determined.

NOTE 6—RESTRICTED STOCK AGREEMENTS

Restricted Stock Agreements, and stock awards thereunder, are authorized by the Compensation and Nominating Committee (the "Committee") and the Board of Directors of Torotel (the "Board"). The terms of the Restricted Stock Agreements afford the grantees all of the rights of a stockholder with respect to the award shares, including the right to vote such shares and to receive dividends and other distributions payable with respect to such shares since the date of award. Under the terms of each agreement, the non-vested shares are restricted as to disposition and subject to forfeiture under certain circumstances. The Restricted Stock Agreements further provide, subject to certain conditions, that if prior to all of the restricted shares having vested, we undergo a change in control, then all of the restricted shares shall be vested and no longer subject to restrictions under the Restricted Stock Agreements. The restricted shares are treated as non-vested stock; accordingly, the fair value of the restricted stock at the date of award is offset against capital in excess of par value in the accompanying consolidated balance sheets under stockholders' equity.

Restricted Stock Grants

On September 21, 2016, we entered into Restricted Stock Agreements (“2016 Agreements”) with three key employees for the grant of an aggregate total of 730,000 restricted shares of the Company's common stock (the “Shares”). The Shares were granted, and the 2016 Agreements were entered into, pursuant to the Company’s Stock Award Plan (the “Plan”). The award of the Shares was authorized by both the Committee and the Board as a whole on September 19, 2016. Except for the number of shares granted to each recipient, the terms of each of the 2016 Agreements are identical. In fiscal year 2017, 350,000 shares of restricted common stock granted under the Plan 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.

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The Shares were granted subject to restrictions that prohibit them from being sold, assigned, pledged or otherwise disposed of until the restrictions lapse. The restrictions will lapse on the fifth anniversary of the date of grant if during the five year restriction period, (1) the Company's cumulative annual growth in revenue is at least 10%, and (2) the average economic value added as a percentage of revenue is at least 2%. The economic value added, which attempts to capture the true economic profit, will be calculated as the operating profit less the cost of capital with adjustments made for taxes. The restrictions will also lapse, if prior to the fifth anniversary of the date of grant, (1) the grantee's employment with the Company is terminated by reason of disability, (2) the grantee dies, or (3) the Committee, in its sole discretion, terminates the restrictions. If the restrictions on the Shares have not lapsed by the fifth anniversary of the date of grant, the Shares will be forfeited to the Company.

Stock Compensation Costs and Restricted Stock Activity

Total stock compensation cost for the nine months ended January 31, 2018 and 2017 was $81,000 and $33,000,

respectively.

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


	2018			2017
	Restricted	Weighted		Restricted	Weighted
	Shares	Average		Shares	Average
	Under	Grant		Under	Grant
	Option	Price		Option	Price
Outstanding at May 1	730,000	$	0.740	350,000	$	0.500
Granted	—		—	730,000		0.740
Vested	—		—	—		—
Forfeited	—		—	(350,000)		0.500
Outstanding at January 31	730,000	$	0.740	730,000	$	0.740

NOTE 7—STOCKHOLDERS' EQUITY

The shares of common stock outstanding as of January 31 of each year are summarized as follows:


	2018	2017
Balance, May 1	5,995,750	5,615,750
Shares released from treasury for restricted stock grants	—	717,795
Newly issued shares for restricted stock grants	—	12,205
Shares reverted to treasury for restricted stock forfeitures	—	(350,000)
Balance, January 31	5,995,750	5,995,750

NOTE 8—EARNINGS PER SHARE

Basic and diluted earnings per share are computed using the two-class method. The two-class method is an earnings allocation formula that determines net income per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings. Per share amounts are computed by dividing net income attributable to common shareholders by the weighted average shares outstanding during each period.

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The basic earnings per common share were computed as follows:


	Three Months Ended				Nine Months Ended
	January 31, 2018		January 31, 2017		January 31, 2018		January 31, 2017
Net earnings (loss)	$	(307,000)	$	(191,000)	$	(671,000)	$	(176,000)
Amounts allocated to participating securities (nonvested restricted shares)		—		—		—		—
Net earnings (loss) attributable to common shareholders	$	(307,000)	$	(191,000)	$	(671,000)	$	(176,000)
Basic weighted average common shares		5,265,750		4,915,750		5,265,750		5,077,171
Earnings per share attributable to common shareholders:
Basic earnings (loss) per share	$	(0.06)	$	(0.04)	$	(0.13)	$	(0.03)

ASC 260, Earnings per Share, provides that unvested share-based payment awards that contain non-forfeitable rights to dividends are considered to be participating securities and must be considered in the computation of earnings per share pursuant to the two-class method. Diluted earnings per share is not presented as we do not have any shares considered incremental and dilutive.

NOTE 9—CUSTOMER DEPOSITS

For certain customers, we collect payment at the time the order is placed. These deposits are classified as a liability and will be recognized as revenue at the time of shipment in accordance with our revenue recognition policy. As of January 31, 2018 we had approximately $23,000 in customer deposits related to these arrangements.

NOTE 10 — CONCENTRATIONS OF CREDIT RISK

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

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NOTE 11 — COMMITMENTS AND CONTINGENCIES

Torotel is obligated under several capital leases for the lease of various information technology and production equipment that expire at various dates during the next three years. All of these leases are non-cancellable and are presented in the accompanying consolidated financial statements as long-term debt. At January 31, 2018 and 2017, the gross amount of equipment under capital lease was $225,000 and $0, respectively. Related accumulated depreciation recorded under capital lease were $23,000 and $0, respectively.

Amortization of assets held under capital lease is included with depreciation expense.

On August 30, 2017, Torotel entered into a Third Amendment (“Amendment”) to the lease for its manufacturing facility located in Olathe, Kansas. The Amendment reconfigured the Suite 520 entry design, and granted Torotel a $37,500 lump sum net base rent abatement, to be applied at $18,750 per month from September 1, 2017 through October 31, 2017. The Amendment also reduced the current letter of credit requirement from $350,000 to $300,000. The Amendment did not change the term of the lease, which continues through December 31, 2026 (subject to early termination options and two separate options to extend the lease term for additional five year periods).

Future minimum lease payments on the amended operating lease and future minimum capital lease payments as of January 31, 2018 are as follows:


	Capital		Operating
Fiscal Years Ending April 30,	Leases		Leases
2018	$	27,000	$	81,000
2019		90,000		329,000
2020		75,000		362,000
2021		37,000		402,000
2022		—		427,000
2023		—		442,000
2024		—		452,000
2025		—		456,000
2026		—		467,000
2027		—		350,000
		229,000		3,768,000
Less: Amounts representing interest		(30,000)		—
Total	$	199,000	$	3,768,000

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Forward-Looking Information

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

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

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

loss of key customers and our relatively concentrated customer base;

risks in fulfilling military subcontracts;

our ability to finance operations;

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

delays in developing new products;

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

expected orders that do not occur;

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

our on-going ability to satisfy our debt covenant requirements;

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

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

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

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

Overview

Torotel, Inc. ("Torotel") conducts business primarily through its wholly owned subsidiary, Torotel Products, Inc. ("Torotel Products"). Torotel Products is engaged in the custom design and manufacture of a wide variety of precision magnetic components consisting of transformers, inductors, reactors, chokes, toroidal coils, high voltage transformers, dry-type transformers and electro-mechanical assemblies for use in military, commercial aerospace and industrial electronic applications. These products are used to modify and control electrical voltages and currents in electronic devices. Torotel Products sells these products to original equipment manufacturers, which use them in applications such as:

aircraft navigational equipment;

digital control devices;

airport runway lighting devices;

medical equipment;

avionics systems;

radar systems;

down-hole drilling;

conventional missile guidance systems; and

other commercial aerospace and defense applications.

Torotel Products 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 Products also utilizes its engineering department in its direct sales efforts for the purpose of expanding its reach into new markets and/or customers.

The industry mix of the customers that accounted for Torotel Products’ net sales for the first nine months of the fiscal year ending April 30, 2018 (“fiscal year 2018”) was 51% defense, 44% commercial aerospace, and 5% industrial compared to 52% defense, 42% commercial aerospace, and 6% industrial for the same period in the fiscal year ending April 30, 2017 (“fiscal year 2017”). Approximately 88% of Torotel Products’ sales during the first nine months of fiscal year 2018 have been derived from domestic customers.

Torotel Products is an approved source for magnetic components used in numerous military and commercial aerospace systems, which means Torotel Products is automatically solicited for any procurement needs for such applications. The magnetic components manufactured by Torotel Products are sold primarily in the United States, and most sales are awarded on a competitive bid basis. The markets in which Torotel Products competes are highly competitive. A substantial number of companies sell components of the type manufactured and sold by Torotel Products. In addition, Torotel Products 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 Products 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 Products’ sales, which do not represent a significant share of the industry’s market, are susceptible to decline given the competitive nature of the market.

Business and Industry Considerations

Defense Markets

During the first nine months of fiscal years 2018 and 2017, the amount of consolidated revenues derived from contracts with prime contractors of the U.S. Department of Defense (“DoD”) was approximately 51% and 52% respectively. As a result, our financial results in any period could be impacted substantially by spending cuts or increases in the DoD budget and the funds appropriated for certain military programs.

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Despite ongoing uncertainty associated with the DoD budget, we believe our overall defense business outlook remains favorable due to the present demand for the potted coil assembly and other existing orders from major defense contractors. As of January 31, 2018, our consolidated order backlog for the defense market was nearly $7.4 million, which included $5.6 million for the potted coil assembly.

Commercial Aerospace and Industrial Markets

We provide magnetic components and electro-mechanical assemblies for a variety of applications in the commercial aerospace and industrial markets. The primary demand drivers for these markets include commercial aircraft orders, oil and gas drilling exploration activity, and general economic growth. While domestic economic growth remains positive, the above demand drivers could be impacted by short-term changes in the economy such as spikes or declines in the price of oil, war, terrorism, or changes in regulation. Other threats to our anticipated positive near-term and long-term market outlook include delays on the development and production of new commercial aircraft and competition from international suppliers. As of January 31, 2018, our consolidated order backlog for the aerospace and industrial markets was $2.6 million.

Business Outlook

Our non-headcoil backlog as of January 31, 2018 as compared to January 31, 2017 increased from $3.2 million to $4.5 million, a 41% increase. This was due primarily to an increase in magnetics orders. We anticipate that net sales for fiscal year 2018 will improve from net sales for fiscal year 2017. This is primarily due to the timing of newer program revenue that is projected to ship in fiscal year 2018.

Consolidated Results of Operations

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

This discussion and analysis of the results of operations include the operations of Torotel and its subsidiary Torotel Products as of January 31, 2018.

Net Sales


	Three Months Ended				Nine Months Ended
	January 31, 2018		January 31, 2017		January 31, 2018		January 31, 2017
Torotel Products:
Magnetic components	$	2,428,000	$	1,621,000	$	7,070,000	$	5,465,000
Potted coil assembly		1,465,000		1,307,000		4,278,000		3,843,000
Electro-mechanical assemblies		617,000		774,000		2,310,000		2,349,000
Large transformers		19,000		—		84,000		—
Total Torotel Products	$	4,529,000	$	3,702,000	$	13,742,000	$	11,657,000

Consolidated net sales in the three and nine months ended January 31, 2018 increased 22% or $827,000 and 18% or $2,085,000, respectively compared to the three and nine months ended January 31, 2017. Torotel Products' net sales increased primarily because of increased demand in magnetics. The increase in magnetics was expected as a number of products had an increase in demand from customers.

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Gross Profit


	Three Months Ended						Nine Months Ended
		January 31, 2018		January 31, 2017				January 31, 2018		January 31, 2017
Torotel Products:
Gross profit	$	1,438,000		$	1,045,000		$	4,056,000		$	3,737,000
Gross profit % of net sales		32	%		28	%		30	%		32	%

Consolidated gross profit increased in the three and nine months ended January 31, 2018 by 38% or $393,000 and by 9% or $319,000 respectively, compared to the three and nine months ended January 31, 2017. The gross profit of Torotel Products increased during each of the three and nine month periods ended January 31, 2018 compared to the comparable periods in fiscal year 2017 primarily due to higher magnetics revenue volume during each period.

Operating Expenses


	Three Months Ended				Nine Months Ended
	January 31, 2018		January 31, 2017		January 31, 2018		January 31, 2017
Engineering	$	267,000	$	215,000	$	806,000	$	662,000
Selling, general and administrative		1,140,000		1,146,000		3,783,000		3,353,000
Total	$	1,407,000	$	1,361,000	$	4,589,000	$	4,015,000

Engineering expenses increased 24%, or $52,000 and 22%, or $144,000, respectively in the three and nine months ended January 31, 2018 compared to the three and nine months ended January 31, 2017. The increase primarily resulted from an increase in engineering headcount.

Selling, general and administrative expenses decreased 1%, or $6,000 and increased 13%, or $430,000 in the three and nine months ended January 31, 2018 compared to the three and nine months ended January 31, 2017. The three month decrease resulted primarily from a decrease in consulting and professional fees, and the nine month increase was primarily due to an increase in headcount and higher personnel costs, as well as an increase in occupancy costs associated with the facility located at 520 N. Rogers Road in Olathe, Kansas.

Earnings (loss) from Operations


	Three Months Ended				Nine Months Ended
	January 31, 2018		January 31, 2017		January 31, 2018		January 31, 2017
Torotel Products	$	142,000	$	(172,000)	$	(117,000)	$	289,000
Torotel		(111,000)		(144,000)		(416,000)		(567,000)
Total	$	31,000	$	(316,000)	$	(533,000)	$	(278,000)

For the reasons discussed under each of the Gross Profit, and Operating Expenses headings above, consolidated earnings from operations increased by 110%, or $347,000 and decreased by 92% or $255,000 for the three and nine months ended January 31, 2018 when compared to the three and nine months ended January 31, 2017.

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Other Earnings Items


	Three Months Ended				Nine Months Ended
	January 31, 2018		January 31, 2017		January 31, 2018		January 31, 2017
Earnings (loss) from operations	$	31,000	$	(316,000)	$	(533,000)	$	(278,000)
Interest expense		28,000		5,000		53,000		16,000
Earnings (loss) before income taxes		3,000		(321,000)		(586,000)		(294,000)
Provision (credit) for income taxes		310,000		(130,000)		85,000		(118,000)
Net earnings (loss)	$	(307,000)	$	(191,000)	$	(671,000)	$	(176,000)

For additional discussion related to Income Taxes, see Note 5 of Notes to Consolidated Financial Statements.

Financial Condition and Liquidity

Cash generated by operations together with the borrowing under our lines of credit are our primary sources of liquidity. The following table highlights the sources of liquidity available to us as of January 31, 2018 and 2017, and compares net cash provided by operating activities during the nine months ended January 31, 2018 compared to the nine months ended January 31, 2017.


		2018		2017
Cash	$	409,000	$	875,000
Amount available under our building line of credit		35,000		-
Amount available under our equipment loan		400,000		309,000
Amount available under our working capital line of credit		655,000		500,000
Total funds available	$	1,499,000	$	1,684,000

Operating Activities


	2018		2017
Net cash used in operating activities	$	(462,000)	$	(691,000)

Net cash used in operating activities decreased $229,000 during the nine months ended January 31, 2018 versus the comparable period of the 2017 fiscal year primarily due to decreases in inventory purchases, as well as an increase in accrued liabilities.

Investing Activities


	2018		2017
Net cash used in investing activities	$	(52,000)	$	(338,000)

The decrease of $286,000 in net cash used in investing activities during the nine months ended January 31, 2018 compared to the comparable period of fiscal year 2017 was due to lower capital expenditures, as well as financing capital expenditures through capital leases. Capital expenditures during each of the nine months ended January 31, 2018 and January 31, 2017 were primarily related to purchases of new information technology and production equipment. We expect capital expenditure spending to rise moderately during the remainder of fiscal year 2018 which is consistent with the anticipated needs of our business.

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Financing Activities


	2018		2017
Net cash provided by (used in) financing activities	$	625,000	$	58,000

The change of $567,000 for the nine month period of fiscal year 2018 from the comparable period in fiscal year 2017 is due primarily to additional borrowings under our working capital line of credit.

Capital Resources

We believe that the projected cash flow from operations, combined with existing cash balances 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. As of January 31, 2018, we had $750,000 drawn on the $1,250,000 working capital line of credit. During fiscal year 2017, we entered into a $500,000 building revolving line of credit with $465,000 drawn down as of January 31, 2018. As of January 31, 2018 our total borrowing capacity is approximately $935,000 under our existing financing arrangements, plus $409,000 of cash on hand. Torotel Products is required to comply with specified financial covenants of the financing agreement with Commerce Bank. As of January 31, 2018, Torotel Products was not in compliance with the covenant in such financing agreement, that requires a ratio of EBITDA (as defined in the financing agreement) to fixed charge coverage (as defined in the financing agreement) in excess of 1.100 to 1.000. A waiver for non-compliance with this covenant was received from Commerce Bank for the period ending January 31, 2018.

Our building revolving line of credit and the promissory note upon which we have borrowed funds under our working capital line of credit described in Note 4 of the Consolidated Financial Statements are scheduled to mature on March 31, 2018 and October 20, 2018, respectively. If our property located at 620 N. Lindenwood Drive in Olathe, Kansas is not sold prior to the maturity date of our building revolving line of credit, we expect to refinance this line of credit prior to the maturity date. Additionally, we expect to refinance our second working capital line of credit, if deemed necessary, prior to the maturity date.

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

Critical Accounting Policies

We discuss our critical accounting policies and estimates in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended April 30, 2017 filed with the SEC on July 28, 2017. We have made no significant change in our critical accounting policies since April 30, 2017.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not Applicable

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Torotel’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of Torotel’s disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based on such evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that Torotel’s disclosure controls and procedures are effective as of the end of the period covered by this report.

Changes in Internal Control

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

Item 5. Other Information

On February 26, 2018, the Board approved and adopted Amended and Restated By-Laws of Torotel (the “New Bylaws”). The adoption of the New Bylaws was reported in a Current Report on Form 8-K dated February 26, 2018 (and filed on March 2, 2018), and the New Bylaws were filed as Exhibit 3.1 to that report. The New Bylaws are being filed as Exhibit 3.2 to this Quarterly Report on form 10-Q to correct an immaterial clerical error in the form of the New Bylaws previously filed.

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PART II. OTHER INFORMATION

Item 6 . Exhibits

a) Exhibits


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

* Filed herewith

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SIGNATURES

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


	Torotel, Inc.
March 13, 2018	/s/ Heath C. Hancock
Date	Heath C. Hancock
	Chief Financial Officer
	Principal Financial Officer

Exhibit 3.2

AMENDED AND RESTATED
BY-LAWS
OF
TOROTEL, INC.
(Effective as of February 26, 2018)

ARTICLE i - OFFICES

The principal office of the Corporation shall be located in Olathe, Kansas. The Corporation may have such other offices either within or without the State of Missouri, as the business of the Corporation may require from time to time by the Board of Directors.

The registered office of the corporation required by The General and Business Corporation Law of Missouri (“GBCL”) to be maintained in the State of Missouri, may be, but need not be, identical with the principal office in the State of Missouri, and the address of the registered office may be changed from time to time by the Board of Directors.

ARTICLE ii- SHAREHOLDERS

Section 1. ANNUAL MEETING . The annual meeting of the Shareholders shall be held on such date and time as the Board of Directors may deem as appropriate, for the purpose of electing Directors and for the transaction of such other business as may come before the meeting. If the day fixed for the annual meeting shall be a legal holiday, such meeting shall be held on the next succeeding business day. If the election of Directors shall not be held on the day designated herein for any Annual Meeting, or at any adjournment thereof, the Board of Directors shall cause the election to be held at a special meeting of the Shareholders as soon thereafter as conveniently may be held.

Section 2. SPECIAL MEETINGS . Special meeting of the Shareholders may be called exclusively by the President or by the Board of Directors.

Section 3. PLACE OF MEETING . The Board of Directors may designate any place, either within or without the State of Missouri, as the place of meeting for any annual meeting of the Shareholders or for any special meeting of the Shareholders. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the registered office of the corporation in the State of Missouri, except as otherwise provided in Section 5 of this Article.

Section 4. NOTICE OF MEETINGS . Written or printed notice stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) nor more than seventy (70) days before the date of the meeting, either personally or by mail, by or at the direction of the President, or the Secretary, or the officer or persons calling such meeting, to each Shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail in a sealed envelope addressed to the Shareholder at his address as it appears on the records of the Corporation, with postage thereon prepaid. Notice shall be published to the extent required by the laws of the State of Missouri. Attendance of a person entitled to notice at a meeting, in person or by proxy, shall constitute a waiver of notice of such meeting, except when such person attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.

Section 5. MEETING OF ALL SHAREHOLDERS . If all of the Shareholders shall meet at any time and place, either within or without the State of Missouri, and consent to the holding of a meeting, such meeting shall be valid, without call or notice, and at such meeting any corporate action may be taken.

Section 6. VOTING LISTS . At least ten days before each meeting of Shareholders, the officer or agent having charge of the transfer book for shares of the Corporation shall make a complete list of the Shareholders entitled to vote at such meeting, arranged in alphabetical order with the address of, and the number of shares held by, each Shareholder, which list, for a period of ten days prior to such meeting, shall be kept on file at the registered office of the Corporation and shall be subject to inspection by any Shareholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any Shareholder during the whole time of the meeting. The original share ledger or transfer book, or a duplicate thereof kept in this state, shall be prima facie evidence as to who are the Shareholders entitled to examine such list or share ledger or transfer book or to vote at any meeting of Shareholders.

Section 7. QUORUM . A majority of the outstanding shares of the Corporation, represented in person or by proxy, shall constitute a quorum at any meeting of the Shareholders; provided, that if less than a majority of the outstanding shares are represented at said meeting, from time to time, the meeting may be adjourned, without further notice, to a date not longer than ninety days from the date originally set for such meeting.

Section 8. PROXIES . At all meetings of Shareholders, a Shareholder may vote by proxy executed in writing by the Shareholder or by his duly authorized attorney-in-fact. Such proxy shall be filed with the Secretary of the Corporation before or at the time of the meeting. Any facsimile, telegraph or telex or by electronic mail or other electronic means of the writing or transmission created pursuant to this Section may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy. A proxy is revocable by a Shareholder at any time without condition or qualification unless the proxy states that it is irrevocable and the proxy is coupled with an interest. A proxy may be made irrevocable for as long as it is coupled with an interest. The interest with which a proxy may be coupled includes an interest in the stock to be voted under the proxy or another general interest in the Corporation or its assets or liabilities.

Section 9. VOTING OF SHARES . Subject to the provisions of Section 12, each outstanding share of capital stock having voting rights shall be entitled to one vote upon each matter submitted to a vote at a meeting of Shareholders. If a quorum is present, the affirmative vote of a majority of the shares represented in person or by proxy and entitled to vote at the meeting shall be the act of the Shareholders unless the vote of a greater number of shares is required by the Articles of Incorporation, by these By-laws or by law. A Shareholder may vote either in person or by proxy.

Section 10. VOTING OF SHARES BY CERTAIN HOLDERS . Shares standing in the name of another corporation, domestic or foreign, may be voted by such officer, agent, or proxy as the By-Laws of such corporation may prescribe, or, in the absence of such provision, as the Board of Directors of such corporation may determine.

Shares standing in the name of a deceased person may be voted by his administrator or executor, either in person or by proxy. Shares standing in the name of a guardian, curator, or trustee may be voted by such fiduciary, either in person or by proxy, but no guardian, curator, or trustee shall be entitled, as such fiduciary, to vote shares held by him without a transfer of such shares into his name.

Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority so to do be contained in an appropriate order of the court by which such receiver was appointed.

A Shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred.

Section 11. CUMULATIVE VOTING . In all elections for Directors, every Shareholder shall have the right to vote, in person or by proxy, the number of shares owned by him, for as many persons as there are Directors to be elected, or to cumulate said shares, and give one candidate as many votes as the number of Directors multiplied by the number of his shares shall equal, or distribute them on the same principal among as many candidates as he shall see fit.

Section 12. INFORMAL ACTION BY SHAREHOLDERS . Any action which may be taken at a meeting of the Shareholders may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the Shareholders entitled to vote with respect to the subject matter thereof.

Section 13. NOMINATION OF DIRECTORS . Nomination of persons for election to the Board of Directors of the Corporation at a meeting of the Shareholders may be made by or at the direction of the Board of Directors or may be made at a meeting of Shareholders by any Shareholder of the Corporation entitled to vote for the election of Directors at the meeting in compliance with the notice procedures set forth in this Section 13 of Article II. Such nomination, other than those made by or at the direction of the Board, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a Shareholder’s notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than fifty (50) days nor more than seventy-five (75) days prior to the meeting; provided, however, that in the event that less than sixty-five (65) days’ notice or prior public disclosure of the date of the meeting is given or made to Shareholders, notice by the Shareholder to be timely must be so received no later than the close of business on the fifteenth (15th) day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. Such Shareholder’s notice to the Secretary shall set forth (a) as to each person whom the Shareholder proposes to nominate for election or re-election as a Director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of capital stock of the Corporation which are beneficially owned by the person and (iv) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of Directors pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and (b) as to the Shareholder giving the notice (i) the name and record address of the Shareholder and (ii) the class and number of shares of capital stock of the Corporation which are beneficially owned by the Shareholder. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as Director of the Corporation. No person shall be eligible for election as a Director of the Corporation at a meeting of the Shareholders unless such person has been nominated in accordance with the procedures set forth herein. If the facts warrant, the Chairman of the meeting shall determine and declare to the meeting that a nomination does not satisfy the requirements set forth in the preceding sentence and the defective nomination shall be disregarded. Nothing in this Section 13 shall be construed to affect the requirements for proxy statements of the Corporation under Regulation 14A of the Exchange Act.

Section 14. PRESENTATION OF BUSINESS AT SHAREHOLDERS’ MEETINGS . At any meeting of the Shareholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before a meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise

properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a Shareholder. For business to be properly brought before a meeting by a Shareholder, the Shareholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a Shareholder’s notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than fifty (50) days nor more than seventy-five (75) days prior to the meeting; provided, however, that in the event that less than sixty-five (65) days’ notice or prior public disclosure of the date of the meeting is given or made to Shareholders, notice by the Shareholder to be timely must be so received no later than the close of business on the fifteenth (15th) day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. Such Shareholder’s notice to the Secretary shall set forth (a) as to each matter the Shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, and (b) as to the Shareholder giving the notice (i) the name and record address of the Shareholder, (ii) the class and number of shares of capital stock of the Corporation which are beneficially owned by the Shareholder and (iii) any material interest of the Shareholder in such business. No business shall be conducted at a meeting of the Shareholders unless proposed in accordance with the procedures set forth herein. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the foregoing procedure and such business shall not be transacted. To the extent this Section 14 shall be deemed by the Board of Directors or the Securities and Exchange Commission, or finally adjudged by a court of competent jurisdiction, to be inconsistent with the right of Shareholders to request inclusion of a proposal in the Corporation’s proxy statement pursuant to Rule 14a¬8 promulgated under the Exchange Act, such rule shall prevail.

Section 15. PRESIDING OFFICIALS . The Chairman of the Board of Directors, or in his absence or inability, the President, or in his absence or inability to act, a Vice President shall preside at all Shareholders’ meetings.

ARTICLE III - DIRECTORS

Section 1. GENERAL POWERS . The business and affairs of the Corporation shall be managed by its Board of Directors. The Board of Directors may exercise all the powers of the Corporation, except those conferred on or reserved to the Shareholders by statute or by the Articles of Incorporation or these By-laws. The Board of Directors may adopt such rules and regulations for the conduct of its meetings and the management of the Corporation as it may deem proper, and which are not inconsistent with these By-laws and with the GBCL.

Section 2. NUMBER, ELECTION AND TERM . The number of Directors of the Corporation shall be fixed from time to time exclusively by vote of the Board of Directors; provided, however, that such number of Directors shall never be less than the minimum number of directors required by the GBCL. Subject to the rights of the holders of any other series or class of stock as set forth in the Articles of Incorporation to elect Directors under specified circumstances, the Directors shall be divided with respect to the time for which they severally hold office into three classes designated as Class I, Class II and Class III, respectively, as nearly equal in number as possible. The initial term of office of the Class I directors shall expire in 2020 and Class I directors shall be elected for a full term of three years. The initial term of office of the Class II directors shall expire in 2018 and Class II directors shall be elected for a full term of three years. The initial term of office of the Class III directors shall expire in 2019 and Class III directors shall be elected for a full term of three years.

Each Director shall hold office until his or her successor shall have been duly elected and qualified, or until such Director’s earlier death, incapacity, disqualification, resignation or removal. At each annual meeting of Shareholders, commencing at the 2005 annual meeting, (A) Directors elected to succeed those

directors whose terms then expire shall be elected for a term of office to expire at the third succeeding annual meeting of Shareholders after their election, with each Director to hold office until his or her successor shall have been duly elected and qualified, and (B) if authorized by a resolution of the Board of Directors, Directors may be elected to fill any vacancy on the Board of Directors, regardless of how such vacancy shall have been created. Any Director may be elected for successive terms. A full term for a Director shall consist of three full years.

Section 3. REGULAR MEETINGS . A regular meeting of the Board of Directors shall be held without other notice than this By-Law, immediately after, and at the same place as, the annual meeting of Shareholders. The Board of Directors may provide, by resolution, the time and place, either within or without the State of Missouri, for the holding of additional regular meetings with notice of such resolution to all Directors.

Section 4. SPECIAL MEETINGS . Special meetings of the Board of Directors may be called by or at the request of the President or any two Directors. The person or persons authorized to call special meetings of the Board of Directors may fix any place in the United States, either within or without the State of Missouri, as the place for holding any special meeting of the Board of Directors called by them.

Section 5. NOTICE . Notice of any special meeting shall be given at least five days previously thereto by written notice delivered personally or mailed to each Director at his business address, or by means of electronic mail or other means of electronic transmission as approved by the Board of Directors and permitted by applicable law provided, however, that if the designated meeting place is without the State of Missouri, an additional five days’ notice shall be given. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail in a sealed envelope so addressed, with postage thereon prepaid. If notice be given by electronic transmission, such notice shall be deemed to be delivered once transmitted to the recipient. Any Director may waive notice of any meeting. The attendance of a Director at any meeting shall constitute a waiver of notice of such meeting, except where a Director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.

Section 6. TELEPHONIC MEETINGS . Members of the Board of Directors, or of any committee thereof, may participate in a meeting of such Board of Directors or committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Article III, Section 6 shall constitute presence in person at such meeting.

Section 7. QUORUM . A majority of the Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, provided that if less than a majority of the Directors are present at said meeting, a majority of the Directors present may adjourn the meeting from time to time without further notice.

Section 8. MANNER OF ACTING . The act of the majority of the Directors present at a meeting of the Directors at which a quorum is present shall be the act of the Board of Directors, unless the concurrence of a greater proportion is required for such action by the Articles of Incorporation.

Section 9. VACANCIES . In case of the death or resignation or disqualification of one or more of the Directors, a majority of the survivors or remaining Directors, even if such majority does not constitute a quorum, may fill such vacancy or vacancies to serve until the successor or successors are elected at the next annual meeting of the Shareholders in which such Director’s designated Class is up for election pursuant to Article III, Section 2. In the event the Shareholders do not elect a full slate of Directors at an annual meeting or the number of Directors is reduced for whatever reason between annual meetings, the

remaining Directors may establish any number of Directors in accordance with the GBCL to constitute the complete Board of Directors until the next annual meeting without the need to fill vacant Director positions and attendance at meetings of a majority of the existing Directors at any such designated, reduced size Board of Directors shall constitute a quorum in accord with Section 7 of this Article III.

Section 10. COMPENSATION . Directors as such shall not receive any stated salaries for their services, but by resolution of the Board of Directors, an annual retainer and/or a fixed sum plus expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of the Board of Directors or at any Committee meeting thereof; provided, that nothing herein contained shall be construed to preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor.

Section 11. COMMITTEES . The Board of Directors, by a vote of a majority of the Board of Directors, may from time to time designate committees of the Board, with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board and shall, for these committees and any others provided for herein, elect a Director(s) to serve as the member(s), designating, if it desires, other Directors as alternate members who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation.

Section 12. INFORMAL ACTION BY DIRECTORS . Any action which may be taken at a meeting of the Directors may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the Directors entitled to vote with respect to the subject matter thereof. Consent by any Director by electronic transmission, as defined in Section 351.245 of the GBCL, and including transmission by email, shall satisfy the unanimous consent requirements of this Article III, Section 12.

ARTICLE IV - OFFICERS

Section 1. NUMBER . The officers of the Corporation shall be a Chairman of the Board of Directors, a President, one or more Vice-Presidents (the number thereof to be determined by the Board of Directors), a Treasurer, a Secretary and such other officers as may be elected in accordance with the provisions of this Article. The Chairman of the Board of Directors and the President shall be chosen from the Members of the Board of Directors. The remaining officers of the Corporation need not be chosen from the Members of the Board, but they may be so chosen. The Board of Directors, by resolution, may create the offices of one or more assistant Treasurers and assistant Secretaries, all of whom shall be elected by the Board of Directors. Any two or more offices may be held by the same person, except the offices of President and Secretary.

All officers and agents of the Corporation, as between themselves and the Corporation, shall have such authority and perform such duties in the management of the property and affairs of the Corporation as may be provided in the By-Laws, or, in the absence of such provisions, as may be determined by resolution of the Board of Directors.

Section 2. ELECTION AND TERM OF OFFICE . The officers of the Corporation shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of Shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. New offices may be created and filled at any meeting of the Board of Directors. Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided.

Section 3. REMOVAL . Any officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interests of the Corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed.

Section 4. VACANCIES . If the office of any officer of the Corporation becomes vacant because of death, resignation, removal, disqualification or for any other reason or if any officer of the Corporation is unable to perform the duties of his office for any reason, the Board of Directors may choose a successor who shall replace such officer or the Board of Directors may delegate the duties of any such vacant office to any other officer or to any Director of the Corporation for the unexpired portion of the term.

Section 5. THE CHAIRMAN OF THE BOARD . The Chairman of the Board of Directors shall be the principal executive officer of the Corporation and shall preside at all meetings of Shareholders and Directors. The Chairman shall possess the same power as the President and may sign all certificates, contracts, and other instruments of the Corporation which may be authorized by the Board of Directors except where by law the signature of the President is required. During the absence or disability of the President, he shall exercise all the powers and discharge all the duties of the President.

Section 6. PRESIDENT . The President shall supervise and control the business and affairs of the Corporation. He shall preside at all meetings of the Shareholders and of the Board of Directors in the absence of the Chairman of the Board of Directors. He may sign, with the Secretary or Treasurer or any other proper officer thereunto authorized by the Board of Directors, certificates for shares of the Corporation, any deeds, mortgages, bonds, contracts, or other instruments which the Board of Directors have authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these By-Laws to some other officer or agent of the Corporation, or shall be required by law to be otherwise signed or executed; and, in general, shall perform all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors from time to time. Unless the Board otherwise provides, the President, or any person designated in writing by him, may (i) attend meetings of shareholders of other corporations to represent this Corporation and to vote or take action with respect to the shares of any such corporation owned by this Corporation in such manner as he or his designee may determine, and (ii) execute and deliver waivers of notice and proxies for and in the name of the Corporation with respect to any such shares owned by his Corporation.

Section 7. THE VICE-PRESIDENT . In the absence of the President or the Chairman of the Board or in the event of inability or refusal to act by both, the Vice-President (or in the event there be more than one Vice-President, the Vice-Presidents in the order of their election) shall perform the duties of the President, and when so acting, shall have all the power of and be subject to all the restrictions upon the President. Any Vice-President may sign, with the Secretary or an Assistant Secretary, or with the Treasurer or an Assistant Treasurer, certificates for shares of the Corporation; and shall perform such other duties as from time to time may be assigned to him by the President or by the Board of Directors.

Section 8. THE TREASURER . If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors shall determine. He shall: (a) have charge and custody of and be responsible for all funds and securities of the Corporation from any source whatsoever, and deposit all such monies in the name of the Corporation in such banks, trust companies or other depositaries as shall be selected in accordance with the provisions of Article VI of these By-Laws; (b) in general, perform all the duties incident to the office of Treasurer and such other duties from time to time may be assigned to him by the President or by the Board of Directors.

Section 9. THE SECRETARY . The Secretary shall: (a) keep the minutes of the Shareholders’ and of the Board of Directors’ meetings in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these By-Laws or as required by law; (c) be custodian of the corporate records and of the seal of the Corporation and see that the seal of the Corporation is affixed to all certificates for shares prior to the issue thereof and to all documents, the execution of which on behalf of the Corporation under its seal is duly authorized in accordance with the provisions of these By-Laws; (d) sign with the President, or a Vice-President, certificates for shares of the Corporation, the issue of which shall have been authorized by resolution of the Board of Directors; (e) in general, perform all duties as from time to time may be assigned to him by the President or by the Board of Directors.

Section 10. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES . The Assistant Treasurers shall, respectively, if required by the Board of Directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the Board of Directors shall determine. Assistant Secretaries and Treasurers, as thereunto authorized by the Board of Directors may sign with the President or a Vice-President certificates for shares of the Corporation the issue of which shall have been authorized by a resolution of the Board of Directors. The Assistant Treasurers and Assistant Secretaries, in general, shall perform such duties as shall be assigned to them by the Treasurer or the Secretary, respectively, or by the President or the Board of Directors.

Section 11. SALARIES . The salaries of the officers shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a Director of the Corporation.

ARTICLE V - AGENTS AND ATTORNEYS

The Board of Directors may appoint such agents, attorneys, and attorneys-in-fact of the Corporation as it may deem proper, and may, by written power of attorney, authorize such agents, attorneys, or attorneys-in-fact, to represent it and for it and in its name, place and stead, and for its use and benefit to transact any and all business which said Corporation is authorized to transact or do by its Articles of Incorporation, and in its name, place and stead, and as its corporate act and deed, to sign, acknowledge and execute any and all contracts and instruments, in writing necessary or convenient in the transaction of such business as fully to all intents and purposes as said Corporation might or could do if it acted by and through its regularly elected and qualified officers.

ARTICLE VI - CONTRACTS, LOANS, CHECKS AND DEPOSITS

Section 1. CONTRACTS . The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances.

Section 2. LOANS . No loans shall be contracted on behalf of the Corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances.

Section 3. CHECKS, DRAFTS, ETC . All checks, drafts, or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation, shall be signed by such officer of officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors.

Section 4. DEPOSITS . All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositaries as the Board of Directors may select.

ARTICLE VII - CERTIFICATES FOR SHARES AND THEIR TRANSFER

Section 1. CERTIFICATES FOR SHARES . Certificates representing shares of the Corporation shall be in such form as may be determined by the Board of Directors. Such certificates shall be signed, manually or by facsimile, if such certificates be signed by the transfer agent and registrar, by the President or Vice-President and by the Secretary, Treasurer or an Assistant Secretary or Treasurer, and shall be sealed with the seal of the Corporation or facsimile thereof. All certificates for shares shall be consecutively numbered. The name of the person owning the shares represented thereby with the number of shares and date of issue shall be entered on the books of the Corporation. All certificates surrendered to the Corporation for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the Corporation as the Board of Directors may prescribe.

Section 2. TRANSFERS OF SHARES — TRANSFER AGENT — REGISTRAR . The Board of Directors shall have power and authority to make such rules and regulations as it may deem expedient concerning the issuance, transfer and registration of certificates of stock or un-certificated shares of stock. Transfers of shares of stock shall be made on the stock record or transfer books of the Corporation only by the person named in the stock certificate, or by his attorney lawfully constituted in writing, and upon surrender of the certificate therefor. The stock record book and other transfer records shall be in the possession of the Secretary or of a transfer agent or transfer clerk for the Corporation. The Corporation, by resolution of the Board, may from time to time appoint a transfer agent or transfer clerk, and, if desired, a registrar, under such arrangements and upon such terms and conditions as the Board deems advisable, but until and unless the Board appoints some other person, firm or corporation as its transfer agent or transfer clerk (and upon the revocation of any such appointment, thereafter until a new appointment is similarly made) the Secretary of the Corporation shall be the transfer agent or transfer clerk of the Corporation without the necessity of any formal action of the Board, and the Secretary, or any person designated by him, shall perform all or the duties thereof.

Section 3. TREASURY STOCK . All issued and outstanding stock of the Corporation that may be purchased or otherwise acquired by the Corporation shall be treasury stock, and shall be subject to disposal by action of the Board of Directors. Such stock shall neither vote nor participate in dividends while held by the Corporation.

Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE . The Board of Directors of the Corporation may close its stock transfer books for a period not exceeding fifty (50) days preceding the date of any meeting of Shareholders, or the date for the payment of any dividend or for the allotment of rights or the date when any change or conversion or exchange of shares shall be effective; or, in lieu thereof, may fix in advance a date, not exceeding fifty (50) days preceding the date of any dividend or for the allotment of rights, or to the date when any change or reconversion or exchange of shares shall be effective, as the record date for determination of Shareholders entitled to notice of, or to vote at, such meeting, or Shareholders entitled to receive payment of any such dividend or to receive any such allotment of rights, or to exercise rights in respect of any such change, conversion or exchange of shares; and the Shareholders of record on such date of closing the transfer books, or on the record date so fixed, shall be the Shareholders entitled to notice of and to vote at, such meeting, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, as the case may be. If the Board of Directors shall not have closed the transfer books or set a record date for the determination of its Shareholders entitled to vote or of any other Shareholder rights, the date on which notice of the meeting is mailed or the date such dividend is declared or other right announced, as the case may be, shall be the record date for such determination of Shareholders so entitled to vote.

Section 5. STOCK LEDGER . The Corporation shall maintain a stock ledger which contains the name and address of each Shareholder and the number of shares of stock of each class registered in the name of each Shareholder. The stock ledger may be in written form or in any other form which can be converted within a reasonable time into written form for visual inspection. The original or a duplicate of the stock ledger shall be kept at the offices of a transfer agent for the particular class of stock, within or without the State of Missouri, or, if none, at the principal office or the principal executive offices of the Corporation in the State of Kansas.

Section 6. LOST, STOLEN OR DESTROYED STOCK CERTIFICATES . The Board of Directors of the Corporation may determine the conditions for issuing a new stock certificate or un-certificated shares in place of a stock certificate that is purportedly alleged to have been lost, stolen or destroyed, or the Board of Directors may delegate such power to any officer(s) of the Corporation. In its discretion, the Board of Directors or such officer(s) may refuse to issue such new certificate or un-certificated shares except upon the order of a court having jurisdiction in the premises.

ARTICLE VIII - FISCAL YEAR

The fiscal year of the Corporation will begin on the first day of May in each year starting in 1985 and end on the last day of April in each year.

ARTICLE IX - DIVIDENDS

The Board of Directors may from time to time, declare, and the Corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law and its Articles of Incorporation.

ARTICLE X - SEAL

The Corporation shall have a corporate seal which shall have inscribed around the circumference thereof “TOROTEL, INC., Missouri,” and elsewhere thereon shall bear the words “Corporate Seal.” The corporate seal may be affixed by impression or may be by facsimile.

ARTICLE XI - WAIVER OF NOTICE

Whenever any notice whatever is required to be given under the provisions of these By-Laws or under the provisions of the Articles of Incorporation or under the provisions of the GBCL, waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice.

ARTICLE XII - INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS

The Corporation will indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative, other than an action by or in the right of the Corporation, by reason of the fact that he is or was serving at the request of the Corporation as a Director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorney’s fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit, or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The determination of any action, suit, or

proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not of itself create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.

The Corporation will indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a Director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including attorney’s fees, actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation; provided, however, that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of this duty to the Corporation unless and only to the extent that the court in which the action or suit was brought determines upon application that , despite the adjudication of liability and in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper.

To the extent that a Director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to above, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses, including attorney’s fees, actually and reasonably incurred by him in connection with the action, suit or proceeding.

Any indemnification under either of the first two paragraphs of this Section, unless ordered by a court, shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the Director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in the appropriate statutes of the State of Missouri. Such determination shall be made by the Board of Directors of the Corporation by a majority vote of a quorum of Directors who were not parties to the action, suit, or proceeding, or, if such a quorum is not obtainable, or , even if obtainable, a quorum of disinterested Directors so directs, by independent legal counsel in a written opinion, or by the Shareholders of the Corporation.

Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of the action, suit, or proceeding as authorized by the Board of Directors in the specific case upon receipt of an undertaking by or on behalf of the Director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the Corporation.

The indemnification provided by this Section shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any By-Law, agreement, vote of Shareholders or disinterested Directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a Director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person.

The Corporation may purchase and maintain insurance on behalf of any person who is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a Director, officer, employee or agent of another corporation, partnership, join venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Section.

ARTICLE XIII - AMENDMENTS

These By-Laws may be altered, amended or repealed and new By-Laws may be adopted by the affirmative vote of two-thirds of the Corporation’s Shareholders at any annual meeting of the Shareholders or at any special meeting of the Shareholders called for that purpose or by the Board of Directors; provided, however, that the power of the Directors to alter, amend, suspend or repeal the By-Laws or any portion thereof may be denied as to any By-Laws or portion thereof enacted by the Shareholders if at the time of such enactment the Shareholders shall so expressly provide.

EXHIBIT 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Dale H. Sizemore, Jr., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Torotel, Inc;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a—15(f) and 15d—15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date:	March 13, 2018

/s/ Dale H. Sizemore, Jr.

Dale H. Sizemore, Jr.
Chief Executive Officer

EXHIBIT 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Heath C. Hancock, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Torotel, Inc;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date:	March 13, 2018

/s/ Heath C. Hancock

Heath C. Hancock
Chief Financial Officer

EXHIBIT 32.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with this quarterly report of Torotel, Inc. (the “Company”) on Form 10-Q for the period ending January 31, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dale H. Sizemore, Jr., Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


/s/ Dale H. Sizemore, Jr.

Dale H. Sizemore, Jr.
Chief Executive Officer
March 13, 2018

EXHIBIT 32.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with this quarterly report of Torotel, Inc. (the “Company”) on Form 10-Q for the period ending January 31, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Heath C. Hancock, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


/s/ Heath C. Hancock

Heath C. Hancock
Chief Financial Officer
March 13, 2018