NOTE 5—COMMITMENTS AND CONTINGENCIES

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

On July 10, 2014, we entered into a real estate lease agreement in Hatfield, Pennsylvania to lease approximately 5,000 square feet for manufacturing electromechanical assemblies and other transformers. This agreement commenced on August 1, 2014 and continues through July 31, 2019.

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

Future minimum lease payments on operating leases are as follows:


	Capital		Operating
Fiscal Years Ending April 30,	Leases		Leases
2019	$	87,000	$	413,000
2020		75,000		407,000
2021		31,000		402,000
2022		—		427,000
2023		—		442,000
2024		—		452,000
2025		—		456,000
2026		—		467,000
2027		—		350,000
		193,000		3,816,000
Less: Amounts representing interest		(23,000)		—
Total	$	170,000	$	3,816,000

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

Minimum rent payments under operating leases are recognized on a straight-line basis over the term of the lease including any periods free of rent. Total rent expense for all operating leases for the fiscal years ended April 30, 2018 and 2017 was $596,000 and $246,000, respectively.

As of April 30, 2018, the property owned by Torotel at 620 N. Lindenwood in Olathe, Kansas had a net carrying value of approximately $694,000, and is listed on the market for immediate sale. The property is currently accounted for as a capital asset at historical cost less depreciation.

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