Notes
to Financial Statements
April
30, 2019
|
1.
|
Nature
of Business and Summary of Significant Accounting Policies
|
George
Risk Industries, Inc. (GRI or the Company) was incorporated in 1967 in Colorado. The Company is presently engaged in the design,
manufacture, and sale of computer keyboards, push button switches, burglar alarm components and systems, pool alarms, EZ Duct
wire covers, water sensors and wire and cable installation tools.
Nature
of Business — The Company is engaged in the design, manufacture, and marketing of custom computer keyboards, push-button
switches, proximity sensors, security alarm components, pool alarms, liquid detection sensors, raceway wire covers, wire and cable
installation tools and various other sensors and devices.
Cash
and Cash Equivalents — The Company considers all investments with a maturity of three months or less to be cash equivalents.
The Company maintains its cash in bank deposit accounts, the balances of which at times may exceed insured limits. The Company
continually monitors its banking relationships and consequently has not experienced any losses in such accounts. The Company believes
it is not exposed to any significant credit risk on cash and cash equivalents.
Allowance
for Doubtful Accounts — Accounts receivable are customer obligations due under normal trade terms. The Company sells
its products to security alarm distributors, alarm installers, and original equipment manufacturers. The Company performs continuing
credit evaluations of its customers’ financial condition and the Company generally does not require collateral.
The
Company records an allowance for doubtful accounts based on an analysis of specifically identified customer balances. The Company
has a limited number of customers with individually substantial amounts due at any given date. Any unanticipated change in any
one of these customers’ credit worthiness or other matters affecting the collectability of amounts due from such customers
could have a material effect on the results of operations in the period in which such changes or events occur. After all attempts
to collect a receivable have failed, the receivable is written off. The Company has recorded an allowance for doubtful accounts
of $9,321 for the year ended April 30, 2019 and $6,651 for the year ended April 30, 2018. For the fiscal year ended April 30,
2019, bad debt expense was $3,807. For the fiscal year ended April 30, 2018, bad debt expense was $3,345.
Inventories
— Inventories are stated at the lower of cost or market. Cost is determined using the average cost-pricing method. The
Company uses standard costs to price its manufactured inventories approximating average costs.
|
1.
|
Nature
of Business and Summary of Significant Accounting Policies, continued
|
Property
and Equipment — Property and equipment are recorded at cost. Depreciation is calculated based on the following estimated
useful lives using the straight-line method:
|
Classification
|
|
Useful
Life
in Years
|
|
2019
Cost
|
|
|
2018
Cost
|
|
|
Dies, jigs, and molds
|
|
3–7
|
|
$
|
1,808,000
|
|
|
$
|
1,808,000
|
|
|
Machinery and equipment
|
|
5–10
|
|
|
1,533,000
|
|
|
|
1,414,000
|
|
|
Furniture and fixtures
|
|
5–10
|
|
|
142,000
|
|
|
|
145,000
|
|
|
Leasehold improvements
|
|
5–32
|
|
|
256,000
|
|
|
|
250,000
|
|
|
Buildings
|
|
20–39
|
|
|
853,000
|
|
|
|
853,000
|
|
|
Automotive
|
|
3–5
|
|
|
89,000
|
|
|
|
90,000
|
|
|
Software
|
|
2–5
|
|
|
390,000
|
|
|
|
382,000
|
|
|
Land
|
|
N/A
|
|
|
13,000
|
|
|
|
13,000
|
|
|
Total
|
|
|
|
|
5,084,000
|
|
|
|
4,955,000
|
|
|
Accumulated depreciation
|
|
|
|
|
(4,100,000
|
)
|
|
|
(3,879,000
|
)
|
|
Net
|
|
|
|
$
|
984,000
|
|
|
$
|
1,076,000
|
|
Depreciation
expense of $231,000 and $195,000 was charged to operations for the years ended April 30, 2019 and 2018, respectively.
Maintenance
and repairs are charged to expense as incurred, and expenditures for major improvements are capitalized. When assets are retired
or otherwise disposed of, the property accounts are relieved of costs and accumulated depreciation and any resulting gain or loss
is credited or charged to operations.
Investment
in Limited Land Partnership — In November 2002, the Company purchased 6.67% of a prime 22-acre land parcel for development
in Winter Park-Grand County, CO for investment purposes for a total of $200,000. The goal was to hold the property for resale(s)
in 2-5 years, but many efforts to sell the property have not materialized. Over the years, there have been a total of $93,000
of additional contributions to aid in improvements and recurring expenses such as debt service, utilities, taxes, maintenance,
insurance and professional fees. Management has evaluated this investment and does not believe there is any impairment and that
the full cost will be recovered when sold.
Intangible
Assets — Intangible assets are amortized on a straight-line basis over their estimated useful lives, unless it is determined
their lives to be indefinite. The two intangible assets currently being amortized are (1) a non-compete agreement with a useful
live of 5 years and (2) intellectual property with a useful live of 15 years. As of April 30, 2019, the Company had $1,640,000
of net intangible asset costs, while the net intangible assets costs at April 30, 2018 were $1,763,000. Amortization expense was
$123,000 for the year ended April 30, 2019 and $61,000 for the year ended April 30, 2018.
|
1.
|
Nature
of Business and Summary of Significant Accounting Policies, continued
|
As
of April 30, 2019, future amortization of intangible assets is expected as follows:
|
Fiscal
year end
|
|
|
Amortization
amount
|
|
|
|
2020
|
|
|
$
|
123,000
|
|
|
|
2021
|
|
|
$
|
123,000
|
|
|
|
2022
|
|
|
$
|
123,000
|
|
|
|
2023
|
|
|
$
|
122,000
|
|
|
|
2024
|
|
|
$
|
121,000
|
|
|
|
Thereafter
|
|
|
$
|
1,028,000
|
|
|
|
|
|
|
$
|
1,640,000
|
|
Basic
and Diluted Earnings per Share — The Company computes earnings per share in accordance with ASC 260-10-45 Earnings per
Share, which requires presentation of both basic and diluted earnings per share on the face of the statement of operations. Basic
earnings per share is computed by dividing net earnings available to common stockholders by the weighted average number of outstanding
common shares during the period. Diluted earnings per share gives effect to all dilutive potential common shares outstanding during
the period. Dilutive earnings per share excludes all potential common shares if their effect is anti-dilutive. The Company has
no potential dilutive instruments, and therefore, basic and diluted earnings per share are equal.
Advertising
— Advertising costs are expensed as incurred and are included in selling expenses. Advertising expense amounted to $245,000
and $213,000 for the years ended April 30, 2019 and 2018, respectively.
Income
Taxes — Deferred tax assets and liabilities are recorded for the future consequences of events that have been recognized
in the Company’s financial statements or tax returns. Measurement of the deferred tax items is based on enacted tax laws.
In the event the future consequences of differences between financial reporting bases and tax bases of the Company’s assets
or liabilities result in a deferred tax asset, we evaluate the probability of realizing the future benefits comprising that asset
and record a valuation allowance if considered necessary.
Accounting
standards prescribe a recognition threshold and a measurement attribute for the financial statement recognition and measurement
of the positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more
likely than not to be sustained upon examination by taxing authorities. A “more likely than not” tax position is measured
as the largest amount of benefit that is greater than a fifty percent likelihood of being realized upon ultimate settlement, or
else a full reserve is established against the tax asset or a liability is recorded. Interest and penalties accrued on uncertain
tax positions are recorded as income tax expense.
Accounting
Estimates — The preparation of these financial statements requires the use of estimates and assumptions including the
carrying value of assets. The estimates and assumptions result in approximate rather than exact amounts.
|
1.
|
Nature
of Business and Summary of Significant Accounting Policies, continued
|
Fair
Value of Financial Instruments — Certain financial instruments are required to be recorded at fair value. Changes in
assumptions or estimation methods could affect the fair value estimates; however, we do not believe any such changes would have
a material impact on our financial condition, results of operations or cash flows. Other financial instruments, including cash
equivalents, certain investments and short-term debt, are recorded at cost, which approximates fair value. The fair values of
long-term debt and financial instruments are disclosed in Note 11.
Revenue
Recognition — Effective May 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) 606,
“Revenue from Contracts with Customers.” The Company recognizes product revenue using a five-step approach to determine
the amount and timing of revenue to be recognized. The five-step approach requires (1) identifying the contract with the customer,
(2) identifying the performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction
price to the performance obligations in the contract and (5) recognizing revenue when performance obligations are satisfied. The
Company recognizes revenue for product sales upon transfer of title to the customer. Customer purchase orders and/or contracts
are generally used to determine the existence of an arrangement. Shipping documents and the completion of any customer acceptance
requirements, when applicable, are used to verify product delivery or that services have been rendered. The Company assesses whether
a price is fixed or determinable based upon the payment terms associated with the transaction and whether the sales price is subject
to refund or adjustment. Payments received from customers in advance of product shipment or revenue recognition are treated as
deferred revenues and recognized when the product is shipped. The Company recognizes returns as a portion of past and current
sales, within the balance sheet.
Comprehensive
Income — US GAAP requires disclosure of total non-stockholder changes in equity in interim periods and additional disclosures
of the components of non-stockholder changes in equity on an annual basis. Total non-stockholder changes in equity include all
changes in equity during a period except those resulting from fiscal investments by and distributions to stockholders.
Segment
Reporting and Related Information — The Company designates the internal organization that is used by management for
allocating resources and assessing performance as the source of the Company’s reportable segments. US GAAP also requires
disclosures about products and services, geographic area and major customers. At April 30, 2019, the Company operated in three
segments organized by security line products, cable and wiring tools (Labor Saving Devices - LSDI) products, and all other products.
See Note 9 for further segment information disclosures.
Reclassifications
— Certain reclassifications have been made to conform to the current year presentation. The total net income and equity
are unchanged due those reclassifications.
|
1.
|
Nature
of Business and Summary of Significant Accounting Policies, continued
|
Recently
Issued Accounting Pronouncements — In May 2014, FASB issued ASU 2014-09, on Revenue from Contracts with Customers. The
updated guidance modifies the guidance companies use to recognize revenue from contracts with customers for transfers of goods
or services and transfers of nonfinancial assets, unless those contracts are within the scope of other standards. The guidance
also requires new qualitative and quantitative disclosures, including information about contract balances and performance obligations.
In July 2015, the FASB approved a one-year deferral of the effective date. Accordingly, the update is effective for the Company
in the first quarter of fiscal 2019 with retrospective application to prior periods presented or as a cumulative effect adjustment
in the period of adoption. In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606):
Principal versus Agent Considerations (Reporting Revenue Gross versus Net).” This new guidance provides additional implementation
guidance on how an entity should identify the unit of accounting for the principal versus agent evaluations. In May 2016, the
FASB issued 2016 ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical
Expedients.” This new ASU provides more specific guidance on certain aspects of Topic 606. The Company has analyzed the
effect of the standard from its revenue streams to evaluate the impact of the new standard on revenue contracts. This included
reviewing current accounting policies and practices to identify potential differences that would result from applying the requirements
under the new standard. Most of the Company’s services are primarily short-term in nature, and the assessment was the adoption
of the new revenue recognition standard will not have a material impact on its financial statements. The Company adopted the standard
in the first quarter of fiscal 2019.
In
February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which provides guidance
for accounting for leases. ASU 2016-02 requires lessees to classify leases as either finance or operating leases and to record
a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of the lease classification.
The lease classification will determine whether the lease expense is recognized based on an effective interest rate method or
on a straight-line basis over the term of the lease. Accounting for lessors remains largely unchanged from current GAAP. ASU 2016-02
is effective for the Company beginning May 1, 2019. Early adoption is permitted. In July 2018, the FASB issued ASU No. 2018-10
“Codification Improvements to Topic 842, Leases” (“ASU 2018-10”) and ASU No. 2018-11 “Leases (Topic
842) Targeted Improvements” (“ASU 2018-11”) and ASU 2018-20, “Narrow-Scope Improvements for Lessors”.
ASU 2018-10 provides certain amendments that affect narrow aspects of the guidance issued in ASU 2016-02. ASU 2018-11 allows all
entities adopting ASU 2016-02 to choose an additional (and optional) transition method of adoption, under which an entity initially
applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained
earnings in the period of adoption. ASU 2018-11 also allows lessors to not separate non-lease components from the associated lease
component if certain conditions are met. During the first quarter of 2019, the FASB issued ASU 2019-01, Leases (Topic 842) to
amend ASU 2016-02. This amendment exempts both lessees and lessors from having to provide certain prior year interim disclosure
information in the fiscal year in which a company adopts the new leases standard. The Company will adopt the ASUs in the first
quarter of fiscal 2020 and the Company’s accounting systems will be upgraded to comply with the requirements of the new
standard, however, the adoption of ASU 2016-02 is not anticipated to have a material impact on the Company’s financial statements
and related disclosures.
|
1.
|
Nature
of Business and Summary of Significant Accounting Policies, continued
|
In
February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
(ASU 2018-02). Under existing U.S. GAAP, the effects of changes in tax rates and laws on deferred tax balances are recorded as
a component of income tax expense in the period in which the law was enacted. When deferred tax balances related to items originally
recorded in accumulated other comprehensive income (loss) are adjusted, certain tax effects become stranded in accumulated other
comprehensive income. The amendments in ASU 2018-02 allow a reclassification from accumulated other comprehensive income (loss)
to retained earnings (accumulated deficit) for stranded income tax effects resulting from the Tax Cuts and Jobs Act (the Tax Act).
The amendments in this ASU also require certain disclosures about stranded income tax effects. The guidance is effective for fiscal
years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption in any period is permitted.
The Company has not yet adopted ASU 2018-02 and is currently evaluating the potential impact of adopting the applicable guidance
on the Company’s financial statements and related disclosures.
In
July 2018, the FASB issued ASU No. 2018-09, “Codification Improvements” (“ASU 2018-09”). ASU 2018-09 provides
amendments to a wide variety of topics in the FASB’s Accounting Standards Codification, which applies to all reporting entities
within the scope of the affected accounting guidance. The transition and effective date guidance are based on the facts and circumstances
of each amendment. Some of the amendments in ASU 2018-09 do not require transition guidance and were effective upon issuance of
ASU 2018-09. However, many of the amendments do have transition guidance with effective dates for annual periods beginning after
December 15, 2018. The Company is currently evaluating the potential impact of adopting the applicable guidance; however the Company
does not believe that the adoption of ASU 2018-09 will have a material impact on the Company’s financial statements and
related disclosures.
In
August 2018, the FASB issued ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820). The updated guidance improves
the disclosure requirements on fair value measurements. The updated guidance is effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures.
The Company is currently assessing the timing and impact of adopting the updated provisions.
In
August 2018, The FASB issued ASU 2018-14 to improve the effectiveness of disclosures for defined benefit plans under ASC 715-20.
The ASU applies to employers that sponsor defined benefit pension or other postretirement plans. The FASB issued ASU 2018-14 as
part of its disclosure framework project, which has an objective and primary focus to improve the effectiveness of disclosures
in the notes to financial statements. As part of the project, during August 2018, the Board also issued a Concepts Statement,
which the FASB used as a basis for amending the disclosure requirements for Subtopic 715-20. The guidance is effective or fiscal
years ending after December 15, 2020 and early adoption is permitted. The Company is currently assessing the timing and impact
of adopting the updated provisions.
|
1.
|
Nature
of Business and Summary of Significant Accounting Policies, continued
|
In
June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments,” which requires the Company to measure and recognize expected credit losses for financial assets
held and not accounted for at fair value through net income. In November 2018, April 2019 and May 2019, the FASB issued ASU No.
2018-19, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses,” “ASU No. 2019-04,
Codification Improvements to Topic 326, Financial Instruments - Credit Losses,” “Topic 815, Derivatives and Hedging,
and Topic 825, Financial Instruments,” and “ASU No. 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted
Transition Relief,” which provided additional implementation guidance on the previously issued ASU. The ASU is effective
for fiscal years beginning after December 15, 2020. The ASU requires a modified retrospective adoption method. The Company is
still evaluating the impact of adoption on its financial statements and disclosures.
Subsequent
Events – Management has evaluated all events or transactions that occurred after April 30, 2019 through August 13, 2019
the report date of the financial statements. During this period, the Company did not have any material recognizable subsequent
events.
Inventories
at April 30, 2019 and 2018, consisted of the following:
|
|
|
2019
|
|
|
2018
|
|
|
Raw materials
|
|
$
|
3,644,000
|
|
|
$
|
2,450,000
|
|
|
Work in process
|
|
|
389,000
|
|
|
|
444,000
|
|
|
Finished goods
|
|
|
641,000
|
|
|
|
463,000
|
|
|
|
|
|
4,674,000
|
|
|
|
3,357,000
|
|
|
Less: allowance
for obsolete inventory
|
|
|
(91,000
|
)
|
|
|
(90,000
|
)
|
|
Inventories,
net
|
|
$
|
4,583,000
|
|
|
$
|
3,267,000
|
|
The
Company has investments in publicly traded equity securities, corporate bonds, state and municipal debt securities, REITs, money
markets, certificates of deposits and hedge funds. Effective with the Company’s adoption of ASU 2016-01, Recognition
and Measurement of Financial Assets and Financial Liabilities, on May 1, 2018, the Company carries all investments at fair value.
The investments in debt securities, which includes all investments except for the hedge funds, mature between
June 2019 and January 2044. The Company uses the average cost method to determine the cost of securities sold with any unrealized
gains or losses reported in the respective period’s earnings. Dividend and interest income are reported as earned.
As
of April 30, 2019 and 2018, investments consisted of the following:
|
Investments
at
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
April
30, 2019
|
|
Cost
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Reported
|
|
|
|
|
Basis
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Municipal bonds
|
|
$
|
5,459,000
|
|
|
$
|
79,000
|
|
|
$
|
(55,000
|
)
|
|
$
|
5,483,000
|
|
|
Corporate bonds
|
|
$
|
26,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
26,000
|
|
|
REITs
|
|
$
|
89,000
|
|
|
$
|
1,000
|
|
|
$
|
(6,000
|
)
|
|
$
|
84,000
|
|
|
Equity securities
|
|
$
|
16,618,000
|
|
|
$
|
4,143,000
|
|
|
$
|
(296,000
|
)
|
|
$
|
20,465,000
|
|
|
Money Markets
and CDs
|
|
$
|
1,233,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,233,000
|
|
|
Total
|
|
$
|
23,425,000
|
|
|
$
|
4,223,000
|
|
|
$
|
(357,000
|
)
|
|
$
|
27,291,000
|
|
|
Investments
at
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
April
30, 2018
|
|
Cost
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Reported
|
|
|
|
|
Basis
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Municipal bonds
|
|
$
|
5,984,000
|
|
|
$
|
66,000
|
|
|
$
|
(309,000
|
)
|
|
$
|
5,741,000
|
|
|
Corporate bonds
|
|
$
|
129,000
|
|
|
$
|
2,000
|
|
|
$
|
-
|
|
|
$
|
131,000
|
|
|
REITs
|
|
$
|
110,000
|
|
|
$
|
3,000
|
|
|
$
|
(7,000
|
)
|
|
$
|
106,000
|
|
|
Equity securities
|
|
$
|
15,930,000
|
|
|
$
|
3,714,000
|
|
|
$
|
(311,000
|
)
|
|
$
|
19,333,000
|
|
|
Money Markets
and CDs
|
|
$
|
1,035,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,035,000
|
|
|
Total
|
|
$
|
23,188,000
|
|
|
$
|
3,785,000
|
|
|
$
|
(627,000
|
)
|
|
$
|
26,346,000
|
|
Marketable
securities that are equity securities are carried at fair value on the balance sheets with changes in fair value recorded as an
unrealized gain or (loss) in the Statements of Operations in the period of the change. Upon the disposition of a marketable security,
the Company records a realized gain or (loss) on the Company’s statements of operations. On April 30, 2019, as a result
of the adoption of ASU 2016-01 – Financial Instruments, the Company reclassified $2,424,000 of net unrealized gains on marketable
securities, that were formerly classified as available-for-sale equity securities before the adoption of the new standard, from
Accumulated Other Comprehensive Income to Retained Earnings.
The
Company evaluates all investments for other-than temporary declines in fair value, which are defined as when the cost basis exceeds
the fair value for approximately one year. The Company also evaluates the nature of the investment, cause of impairment and number
of investments that are in an unrealized position. When other than a temporary decline is identified, the Company will decrease
the cost of the investment to the new fair value and recognize a loss. The investments are periodically evaluated to determine
if impairment changes are required. As a result of this standard, management recorded impairment losses of $68,000 for the year
ended April 30, 2019 and $31,000 for the year ended April 30, 2018.
|
3.
|
Investments,
continued
|
The
following table shows the investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated
by investment category and length of time that individual securities have been in a continuous unrealized loss position, at April
30, 2019 and 2018.
Unrealized
Loss Breakdown by Investment Type at April 30, 2019
|
|
|
Less
than 12 months
|
|
|
12
months or greater
|
|
|
Total
|
|
|
Description
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Municipal bonds
|
|
$
|
772,000
|
|
|
$
|
(4,000
|
)
|
|
$
|
580,000
|
|
|
$
|
(50,000
|
)
|
|
$
|
1,352,000
|
|
|
$
|
(54,000
|
)
|
|
REITs
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
32,000
|
|
|
$
|
(6,000
|
)
|
|
$
|
32,000
|
|
|
$
|
(6,000
|
)
|
|
Equity securities
|
|
$
|
932,000
|
|
|
$
|
(102,000
|
)
|
|
$
|
1,652,000
|
|
|
$
|
(195,000
|
)
|
|
$
|
2,584,000
|
|
|
$
|
(297,000
|
)
|
|
Total
|
|
$
|
1,704,000
|
|
|
$
|
(106,000
|
)
|
|
$
|
2,264,000
|
|
|
$
|
(251,000
|
)
|
|
$
|
3,968,000
|
|
|
$
|
(357,000
|
)
|
Unrealized
Loss Breakdown by Investment Type at April 30, 2018
|
|
|
Less
than 12 months
|
|
|
12
months or greater
|
|
|
Total
|
|
|
Description
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Municipal bonds
|
|
$
|
960,000
|
|
|
$
|
(200,000
|
)
|
|
$
|
2,385,000
|
|
|
$
|
(109,000
|
)
|
|
$
|
3,345,000
|
|
|
$
|
(309,000
|
)
|
|
REITs
|
|
$
|
55,000
|
|
|
$
|
(6,000
|
)
|
|
$
|
27,000
|
|
|
$
|
(1,000
|
)
|
|
$
|
82,000
|
|
|
$
|
(7,000
|
)
|
|
Equity securities
|
|
$
|
2,545,000
|
|
|
$
|
(127,000
|
)
|
|
$
|
823,000
|
|
|
$
|
(184,000
|
)
|
|
$
|
3,368,000
|
|
|
$
|
(311,000
|
)
|
|
Total
|
|
$
|
3,560,000
|
|
|
$
|
(333,000
|
)
|
|
$
|
3,235,000
|
|
|
$
|
(294,000
|
)
|
|
$
|
6,795,000
|
|
|
$
|
(627,000
|
)
|
Municipal
Bonds
The
unrealized losses on the Company’s investments in municipal bonds were caused by interest rate increases. The contractual
terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment.
Because the Company has the ability to hold these investments until a recovery of fair value occurs, which may be maturity, the
Company does not consider these investments to be other-than-temporarily impaired at April 30, 2019.
Marketable
Equity Securities and REITs
The
Company’s investments in marketable equity securities and REITs consist of a wide variety of companies. Investments in these
companies include growth, growth income, and foreign investment objectives. Management has evaluated the individual holdings and
does not consider these investments to be other-than-temporarily impaired at April 30, 2019.
|
4.
|
Retirement
Benefit Plan
|
On
January 1, 1998, the Company adopted the George Risk Industries, Inc. Retirement Savings Plan (the “Plan”). The Plan
is a defined contribution savings plan designed to provide retirement income to eligible employees of the Company and its subsidiaries.
The Plan is intended to be qualified under Section 401(k) of the Internal Revenue Code of 1986, as amended. It is funded by voluntary
pre-tax contributions from eligible employees who may contribute a percentage of their eligible compensation, limited and subject
to statutory limits. Employees are eligible to participate in the Plan when they have attained the age of 21 and completed one
thousand hours of service in any plan year with the Company. Upon leaving the Company, each participant is 100% vested with respect
to the participants’ contributions while the Company’s matching contributions are vested over a six-year period in
accordance with the Plan document. Contributions are invested, as directed by the participant, in investment funds available under
the Plan. Matching contributions of approximately $10,000 were paid for each of the fiscal years ending April 30, 2019 and 2018
respectively.
Preferred
Stock—Each share of the Series #1 preferred stock is convertible at the option of the holder into five shares of Class
A common stock and is also redeemable at the option of the board of directors at $20 per share. The holders of the convertible
preferred stock shall be entitled to a dividend at a rate up to $1 per share annually, payable quarterly as declared by the board
of directors. No dividends were declared or paid during the two years ended April 30, 2019 and 2018.
Convertible
preferred stock without par value may be issued from time to time as determined by the board of directors. Shares of different
series shall be of equal rank but may vary as to terms and conditions.
Class
A Common Stock—The holders of the Class A common stock are entitled to receive dividends as declared by the board of
directors. No dividends may be paid on the Class A common stock until the holders of the Series #1 preferred stock have been paid.
A dividend for the four prior quarters and provision has been made for the full dividend in the current fiscal year.
During
the fiscal year ended April 30, 2019, the Company purchased 9,487 shares of Class A common stock. This was initiated by stockholders
contacting the Company.
Stock
Transfer Agent—The Company does not have an independent stock transfer agent. The Company maintains all stock records.
Basic
and diluted earnings per share, assuming convertible preferred stock was converted for each period presented are:
|
|
|
April
30, 2019
|
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per-Share
|
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
Net
income
|
|
$
|
3,598,000
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
3,598,000
|
|
|
|
4,962,547
|
|
|
$
|
.7250
|
|
|
Effect of
dilutive Convertible Preferred Stock
|
|
|
–
|
|
|
|
20,500
|
|
|
|
(.0030
|
)
|
|
Diluted
EPS
|
|
$
|
3,598,000
|
|
|
|
4,983,047
|
|
|
$
|
.7220
|
|
|
|
|
April
30, 2018
|
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per-Share
|
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
Net
income
|
|
$
|
2,546,000
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
2,546,000
|
|
|
|
4,958,769
|
|
|
$
|
.5134
|
|
|
Effect of
dilutive Convertible Preferred Stock
|
|
|
–
|
|
|
|
20,500
|
|
|
|
(.0019
|
)
|
|
Diluted
EPS
|
|
$
|
2,546,000
|
|
|
|
4,977,584
|
|
|
$
|
.5115
|
|
|
7.
|
Commitments,
Contingencies, and Related Party Transactions
|
The
Company leases a building from Bonita Risk. Bonita Risk is a majority stockholder, a director and employee of the Company. This
building contains the Company’s sales and accounting departments, maintenance department, engineering department and some
production facilities. This lease requires a minimum payment of $1,535 on a month-to-month basis. The total lease expense for
this arrangement per year was $18,420 for the fiscal years ended April 30, 2019 and 2018.
One
of the directors of the board, Joel Wiens, is the principal shareholder of FirsTier Bank. FirsTier Bank is the financial institution
the Company uses for its day to day banking operations. Year end balances of accounts held at this bank are $4,224,000 for the
year ended April 30, 2019 and $3,819,000 for the year ended April 30, 2018. The Company also received interest income from FirsTier
Bank in the amount of approximately $63,400 for the year ended April 30, 2019 and $33,200 for the year ended April 30, 2018.
Reconciliation
of income taxes with Federal and State taxable income:
|
|
|
2019
|
|
|
2018
|
|
|
Income before income
taxes
|
|
$
|
4,792,000
|
|
|
$
|
3,546,000
|
|
|
State income tax deduction
|
|
|
(265,000
|
)
|
|
|
(192,000
|
)
|
|
Interest and dividend income
|
|
|
(658,000
|
)
|
|
|
(669,000
|
)
|
|
Domestic production activities deduction
|
|
|
—
|
|
|
|
(243,000
|
)
|
|
Nondeductible
expenses and timing differences
|
|
|
136,000
|
|
|
|
150,000
|
|
|
Taxable
income
|
|
$
|
3,561,000
|
|
|
$
|
2,592,000
|
|
The
following schedule reconciles the provision for income taxes to the amount computed by applying the statutory rate to income before
income taxes:
|
|
|
2019
|
|
|
2018
|
|
|
Income
tax provision at statutory rate
|
|
$
|
1,252,000
|
|
|
$
|
1,327,000
|
|
|
Increase
(decrease) income taxes resulting from:
|
|
|
|
|
|
|
|
|
|
State
income taxes
|
|
|
(76,000
|
)
|
|
|
(72,000
|
)
|
|
Interest
and dividend income
|
|
|
(190,000
|
)
|
|
|
(250,000
|
)
|
|
Domestic
production activities
|
|
|
—
|
|
|
|
(91,000
|
)
|
|
Deferred
taxes
|
|
|
170,000
|
|
|
|
28,000
|
|
|
Other
temporary and permanent differences
|
|
|
38,000
|
|
|
|
58,000
|
|
|
Income
tax expense
|
|
$
|
1,194,000
|
|
|
$
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
tax rate
|
|
|
21.00
|
%
|
|
|
29.72
|
%
|
|
State
tax rate
|
|
|
7.81
|
%
|
|
|
7.70
|
%
|
|
Blended
statutory rate
|
|
|
28.81
|
%
|
|
|
37.42
|
%
|
Deferred
tax assets (liabilities) consist of the following components at April 30, 2019 and 2018:
|
|
|
2019
|
|
|
2018
|
|
|
Deferred tax assets (liabilities):
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
(141,000
|
)
|
|
|
(161,000
|
)
|
|
Inventory valuation
|
|
|
26,000
|
|
|
|
26,000
|
|
|
Allowance for
doubtful accounts
|
|
|
3,000
|
|
|
|
2,000
|
|
|
263A adjustment
|
|
|
—
|
|
|
|
58,000
|
|
|
Accrued vacation
|
|
|
28,000
|
|
|
|
30,000
|
|
|
Accumulated
unrealized (gain)/loss on investments
|
|
|
(1,114,000
|
)
|
|
|
(910,000
|
)
|
|
Net
deferred tax assets (liabilities)
|
|
$
|
(1,198,000
|
)
|
|
$
|
(955,000
|
)
|
The
following is financial information relating to industry segments:
|
|
|
Quarter ended
|
|
|
Year ended
|
|
|
Year ended
|
|
|
|
|
April 30,
|
|
|
April 30,
|
|
|
April 30,
|
|
|
|
|
2019
|
|
|
2019
|
|
|
2018
|
|
|
Net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
alarm products
|
|
$
|
2,872,000
|
|
|
$
|
11,006,000
|
|
|
$
|
8,423,000
|
|
|
Cable & wiring
tools
|
|
|
527,000
|
|
|
|
2,431,000
|
|
|
|
1,326,000
|
|
|
Other
products
|
|
|
175,000
|
|
|
|
689,000
|
|
|
|
2,182,000
|
|
|
Total net
revenue
|
|
$
|
3,574,000
|
|
|
$
|
14,126,000
|
|
|
$
|
11,931,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security alarm
products
|
|
|
654,000
|
|
|
|
2,656,000
|
|
|
|
1,759,000
|
|
|
Cable & wiring
tools
|
|
|
120,000
|
|
|
|
488,000
|
|
|
|
277,000
|
|
|
Other
products
|
|
|
40,000
|
|
|
|
162,000
|
|
|
|
456,000
|
|
|
Total income
from operations
|
|
$
|
814,000
|
|
|
$
|
3,306,000
|
|
|
$
|
2,492,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security alarm
products
|
|
|
38,000
|
|
|
|
95,000
|
|
|
|
37,000
|
|
|
Cable & wiring
tools
|
|
|
31,000
|
|
|
|
123,000
|
|
|
|
62,000
|
|
|
Other products
|
|
|
19,000
|
|
|
|
74,000
|
|
|
|
103,000
|
|
|
Corporate
general
|
|
|
18,000
|
|
|
|
62,000
|
|
|
|
55,000
|
|
|
Total depreciation
and amortization
|
|
$
|
106,000
|
|
|
$
|
354,000
|
|
|
$
|
257,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security alarm
products
|
|
|
39,000
|
|
|
|
75,000
|
|
|
|
280,000
|
|
|
Cable & wiring
tools
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Other products
|
|
|
19,000
|
|
|
|
56,000
|
|
|
|
172,000
|
|
|
Corporate
general
|
|
|
8,000
|
|
|
|
23,000
|
|
|
|
81,000
|
|
|
Total capital
expenditures
|
|
$
|
66,000
|
|
|
$
|
154,000
|
|
|
$
|
533,000
|
|
|
|
|
April
30, 2019
|
|
|
April
30, 2018
|
|
|
Identifiable assets:
|
|
|
|
|
|
|
|
|
|
Security
alarm products
|
|
|
6,179,000
|
|
|
|
4,561,000
|
|
|
Cable & wiring
tools
|
|
|
2,713,000
|
|
|
|
2,347,000
|
|
|
Other products
|
|
|
842,000
|
|
|
|
1,521,000
|
|
|
Corporate
general
|
|
|
33,293,000
|
|
|
|
32,510,000
|
|
|
Total assets
|
|
$
|
43,027,000
|
|
|
$
|
40,942,000
|
|
The
Company maintains the majority of its cash balance in a financial institution in Kimball, Nebraska. Accounts at this institution
are insured by the Federal Deposit Insurance Corporation for up to $250,000. For the years ended April 30, 2019 and 2018, the
Company had uninsured balances of $4,082,000, and $3,591,000, respectively. Management believes that this financial institution
is financially sound and the risk of loss is minimal.
Management
also has cash funds with Wells Fargo Bank with uninsured balances of $399,000 and $224,000 for the years ending April 30, 2019
and 2018, respectively. Management believes that this financial institution is financially sound and the risk of loss is minimal.
The
Company has sales to a security alarm distributor representing 41% of total sales for the year ended April 30, 2019 and 34% of
total sales for the year ended April 30, 2018. This distributor accounted for 61% and 55% of accounts receivable at April 30,
2019 and 2018, respectively. Security switch sales made up 78% of total sales for the fiscal year ended April 30, 2019 and 71%
of total sales for the fiscal year ended April 30, 2018.
|
11.
|
Fair
Value Measurements
|
The
carrying value of the Company’s cash and cash equivalents, accounts receivable and accounts payable approximate their fair
value due to their short term nature. The fair value of our investments is determined utilizing market based information. Fair
value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are
required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the
market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent
risk, transfer restrictions, and credit risk.
US
GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements)
and the lowest priority to unobservable inputs (level 3 measurements). The levels of the fair value hierarchy under US GAAP are
described below:
|
|
Level
1
|
Valuation
is based upon quoted prices for identical instruments traded in active markets.
|
|
|
|
|
|
|
Level
2
|
Valuation
is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments
in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable
in the market.
|
|
|
|
|
|
|
Level
3
|
Valuation
is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable
assumptions reflect our own estimates of assumptions that market participants would use in pricing the asset or liability.
Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.
|
Investments
and Marketable Securities
As
of April 30, 2019, The Company’s investments consisted of money markets, publicly traded equity securities, REITs as well
as certain state and municipal debt securities and corporate bonds. The marketable securities are valued using third-party broker
statements. The value of the majority of securities is derived from quoted market information. The inputs to the valuation are
classified as Level 1 given the active market for these securities; however, if an active market does not exist, which is the
case for municipal bonds and REITs; the inputs are recorded as Level 2.
Fair
Value Hierarchy
The
following tables set forth our assets and liabilities measured at fair value on a recurring basis and a non-recurring basis by
level within the fair value hierarchy. As required by US GAAP, assets and liabilities are classified in their entirety based on
the lowest level of input that is significant to the fair value measurement.
|
|
|
Assets
Measured at Fair Value on a Recurring
Basis as of April 30, 2019
|
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
Bonds
|
|
|
—
|
|
|
$
|
5,483,000
|
|
|
|
—
|
|
|
$
|
5,483,000
|
|
|
Corporate Bonds
|
|
$
|
26,000
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
26,000
|
|
|
REITs
|
|
|
—
|
|
|
$
|
84,000
|
|
|
|
—
|
|
|
$
|
84,000
|
|
|
Equity Securities
|
|
$
|
20,465,000
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
20,465,000
|
|
|
Money
Markets and CDs
|
|
$
|
1,233,000
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
1,233,000
|
|
|
Total fair value
of assets measured on a recurring basis
|
|
$
|
21,724,000
|
|
|
$
|
5,567,000
|
|
|
|
—
|
|
|
$
|
27,291,000
|
|
|
|
|
Assets
Measured at Fair Value on a Recurring
Basis as of April 30, 2018
|
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
Bonds
|
|
|
—
|
|
|
$
|
5,741,000
|
|
|
|
—
|
|
|
$
|
5,741,000
|
|
|
Corporate Bonds
|
|
$
|
131,000
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
131,000
|
|
|
REITs
|
|
|
—
|
|
|
$
|
106,000
|
|
|
|
—
|
|
|
$
|
106,000
|
|
|
Equity Securities
|
|
$
|
19,333,000
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
19,333,000
|
|
|
Money
Markets and CDs
|
|
$
|
1,035,000
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
1,035,000
|
|
|
Total fair value
of assets measured on a recurring basis
|
|
$
|
20,499,000
|
|
|
$
|
5,847,000
|
|
|
|
—
|
|
|
$
|
26,346,000
|
|
In
October 2017, George Risk Industries, Inc. (the “Company”) purchased certain assets from Labor Saving Devices, Inc.
(“LSDI”). LSDI is engaged in the business of wire installation, tool design and manufacturing serving the audio/visual,
electrical, communications and security alarm markets. The acquisition of LSDI was completed pursuant to an asset purchase agreement
dated October 7, 2017. The purchase price for the assets consisted of $3,000,000 in cash and 24,097 shares of the Company’s
Class A common stock (valued at $200,000, or approximately $8.30 per share). An initial payment of $1,000,000 in cash was made
at closing, with the remaining $2,000,000 in cash paid in November 2017.
The
value of the assets purchased in October 2017 as described above consisted of the following:
|
Type
of Asset
|
|
Fair
Value of Assets Acquired
|
|
|
Inventory
|
|
$
|
1,366,000
|
|
|
Fixed Assets
|
|
$
|
10,000
|
|
|
Non-compete agreement
|
|
$
|
10,000
|
|
|
Intangible assets
|
|
$
|
1,814,000
|
|
|
Total
|
|
$
|
3,200,000
|
|
|
13.
|
Correction
of Previously Issued Financial Statement
|
The
Company discovered an error due to missing a change in accounting related to other comprehensive income (loss) as reflected in
the phase in of ASU 2016-01, which became effective for the Company on May 1, 2018. Under the new guidance in ASU 2016-01 the
Company should record unrealized gains and losses in the value of the equity securities it owns in the statements of operations,
whereas, under previous guidance (and in the Original Form 10-K) those unrealized gains and losses were recorded as accumulated
other comprehensive income (loss).
This
restatement includes i) recording a one-time adjustment to retained earnings to reclassify the accumulated other comprehensive
gain, net of taxes, related to unrealized gains on equity securities as of April 30, 2019, ii) recording an unrealized gain on
marketable securities representing the value change in the equities for the year ended April 30, 2019, and iii) adjusting the
unrealized gain on debt securities for the impact under ASU 2016-01.
No
entries to correct for this restatement have any impact on our cash position, liquidity, or operations.