NOTE 3—REVENUE

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

Impacts on Consolidated Financial Statements

The following table summarizes the cumulative effect of the changes to our consolidated balance sheet as of May 1, 2018 from the adoption of ASC 606:


			Adjustments due to
	April 30, 2018		ASC 606		May 1, 2018
Assets
Contract assets	$	—	$	102,000	$	102,000

Equity
Accumulated deficit	$	(8,743,000)	$	102,000	$	(8,641,000)

In accordance with the new revenue recognition requirements relative to the revenue recognition requirements under ASC 605, the disclosure of the impact of adoption on our consolidated balance sheet, consolidated statement of operations, and consolidated statement of cash flows as of and for the year ended April 30, 2019 was as follows:


			Balances Without Adoption
			of ASC 606		Effect of Change
	As Reported		as of April 30, 2019		Higher/(Lower)
Balance Sheet
Contract assets	$	1,104,000	$	—	$	1,104,000
Inventories		3,054,000		3,612,000		(558,000)
Accumulated deficit		(7,999,000)		(7,453,000)		(546,000)


			Balances Without Adoption
			of ASC 606 for the		Effect of Change
	As Reported		year ended April 30, 2019		Higher/(Lower)
Statement of Operations
Net sales	$	20,555,000	$	19,451,000	$	1,104,000
Cost of goods sold		13,591,000		13,033,000		558,000
Gross profit		6,964,000		6,418,000		546,000
Income from operations		767,000		221,000		546,000
Income before income tax expense		655,000		109,000		546,000
Net income		642,000		96,000		546,000

Statement of Cash Flows
Net income	$	642,000	$	96,000	$	546,000
Contract assets		(1,002,000)		—		(1,002,000)
Inventories		(692,000)		(1,250,000)		558,000
Net cash used in operating activities		(453,000)		(453,000)		—

Disaggregation of Revenue

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


			Balances Without Adoption
			of ASC 606 for the		Effect of Change
	As Reported		year ended April 30, 2019		Higher/(Lower)
Markets
Commercial Aerospace	$	7,690,000	$	7,616,000	$	74,000
Defense		11,849,000		10,822,000		1,027,000
Industrial		1,016,000		1,013,000		3,000
Total consolidated net sales	$	20,555,000	$	19,451,000	$	1,104,000


			Balances Without Adoption
			of ASC 606 for the		Effect of Change
	As Reported		year ended April 30, 2019		Higher/(Lower)
Product Line
Magnetic components	$	10,600,000	$	10,197,000	$	403,000
Potted coil assembly		5,751,000		5,094,000		657,000
Electro-mechanical assemblies		3,920,000		3,876,000		44,000
Large transformers		284,000		284,000		—
Total consolidated net sales	$	20,555,000	$	19,451,000	$	1,104,000


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

Contract balances

All receivable balances relate to customer contracts entered into during the fiscal year 2019. We have no contract liabilities other than customer deposits which represent prepaid consideration for contracts with customers. There have been no significant adjustments to contract asset balances related to contract modifications. We have certain customers totaling revenue of $4,301,000 with variable payment terms related to discounts in the amount of $32,000 in fiscal year 2019.

Remaining performance obligation

As of April 30, 2019, the aggregate amount of the contracted revenues allocated to our unsatisfied (or partially unsatisfied) performance obligations was $4,591,000. The balance of unsatisfied performance obligations excludes contracts with original maturities of one year or less. We expect to recognize revenue as we satisfy our remaining performance obligations. Total remaining performance obligation to be recognized in fiscal year 2020 is expected to be $4,571,000. Total remaining performance obligation to be recognized in fiscal year 2021 is expected to be $20,000.