NOTES
TO RESTATED CONDENSED FINANCIAL STATEMENTS
JANUARY
31, 2020
|
Note
1:
|
Unaudited
Interim Financial Statements
|
The
accompanying financial statements have been prepared in accordance with the instructions for Form 10-Q and do not include all
of the information and footnotes required by generally accepted accounting principles for complete financial statements. It is
suggested that these unaudited condensed financial statements be read in conjunction with the financial statements and notes thereto
included in the Company’s April 30, 2019 annual report on Form 10-K. In the opinion of management, all adjustments, consisting
only of normal recurring adjustments considered necessary for a fair presentation, have been included. Operating results for any
quarter are not necessarily indicative of the results for any other quarter or for the full year.
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.
Recently
Issued Accounting Pronouncements — 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 has adopted the ASUs in the first quarter of fiscal year 2020 and the Company’s accounting systems have been
upgraded to comply with the requirements of the new standard, however, the adoption of ASU 2016-02 did not have a material impact
on the Company’s financial statements and related disclosures because leases are not material to the financial statements.
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.
In
June 2016, the FASB issued ASU 2016-13 (“ASU 2016-13”), Financial Instruments—Credit Losses. Subsequently, the
FASB issued ASU 2019-05, Financial Instruments- Credit Losses (Topic 326): Targeted Transition Relief and codification improvements
to Topic 326 in ASU 2019-11, ASU 2019-04 and ASU 2018-19. The amendments update guidance on reporting credit losses for financial
assets. These amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit
exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right
to receive cash. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2019, including
interim periods within those fiscal years. All entities may adopt the amendments through a cumulative-effect adjustment to retained
earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective
approach). The ASU is effective for fiscal years beginning after December 15, 2020. Subsequent to September 30, 2019, the FASB
issued ASU 2019-10, “Financial Instruments - Credit Loss (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic
842),” which defers the effective date for public filers that are considered small reporting companies (“SRC”)
as defined by the Securities and Exchange Commission to fiscal years beginning after December 15, 2022, including interim periods
within those fiscal years. Since the Company is an SRC, implementation is not needed until May 1, 2023. The Company will continue
to evaluate the effect of adopting ASU 2016-13 will have on the Company’s financial statements and disclosures.
In
January 2020, the FASB issued ASU 2020-01, “Investments - Equity Securities (Topic 321), Investments - Equity Method and
Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323,
and Topic 815.” The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability
in accounting for these transactions. ASU 2016-01 made targeted improvements to accounting for financial instruments, including
providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any
impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar
investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions
that require it to either apply or discontinue the equity method of accounting. For public business entities, the amendments in
the ASU are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early
adoption is permitted. The Company does not expect the adoption of ASU 2020-01 to have a material impact on its condensed financial
statements.
Revenue
Recognition—In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
No. 2014-09, “Revenue from Contracts with Customers” or “ASC 606”. ASC 606 and all subsequently issued
clarifying ASCs replaced most existing revenue recognition guidance in U.S. GAAP. ASC 606 also required expanded disclosures relating
to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted
the new standard effective November 1, 2019. The effect of this adoption was immaterial to our Financial Statements, and the Company
does not expect a material effect to the Financial Statements on an ongoing basis.
The
Company recognizes revenue under ASC 606, “Revenue from Contracts with Customers”. The core principle of the new revenue
standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount
that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company
applies the following standards and recognizes revenue when (1) it has a firm contract and the parties are committed to perform
their respective obligations, (2) the product has been shipped to and accepted by the customer or the service has been provided,
(3) the sales price is fixed or determinable and (4) amounts are reasonably assured of collection, including the consideration
of the customer’s ability and intention to pay when the amount is due. The Company primarily receives fixed consideration
for sales of product. The Company does not have any significant financing components as payment is received at or shortly after
the point of sale. Shipping and handling amounts paid by customers are included in revenue. Sales tax and other similar taxes
are excluded from revenue.
Revenue
is recorded net of provisions for discounts, which are typically agreed to upfront with the customer and do not represent variable
consideration. The Company estimates these discounts in the same period that the revenue is recognized for products sales to customers.
The amount of revenue recognized represents the amount that will not be subject to a significant future reversal of revenue. All
sales to distributors and customers are generally final. In limited instances the Company may accept returned product due to quality.
During the current fiscal year, returns have not been material.
The
Company’s customers generally pay within 60 days from the receipt of a valid invoice. The Company offers discounts of up
to 2% to certain customers for payments made within a specified number of days. These early pay discounts are estimated in the
period of sale based on experience with sales to eligible customers. Early pay discounts are recorded as a deduction to the accounts
receivable balance presented on the balance sheet.
The
Company’s performance obligations are satisfied at the point in time when products are shipped to the customer, which is
when the customer has title and the significant risks and rewards of ownership.
|
Note
2:
|
Investments
(Restated)
|
The
Company has investments in publicly traded equity securities, corporate bonds, state and municipal debt securities, real estate
investment trusts, and money markets and they are recorded at fair value. The investments in debt securities have maturities
between April 2020 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 each respective period’s earnings. Dividend and interest income are reported as earned.
As
of January 31, 2020 and April 30, 2019, investments consisted of the following:
|
Investments
at
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
January
31, 2020
|
|
Cost
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
|
Basis
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Municipal
bonds
|
|
$
|
5,402,000
|
|
|
$
|
156,000
|
|
|
$
|
(43,000
|
)
|
|
$
|
5,515,000
|
|
|
Corporate
bonds
|
|
|
26,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26,000
|
|
|
REITs
|
|
|
89,000
|
|
|
|
3,000
|
|
|
|
(9,000
|
)
|
|
|
83,000
|
|
|
Equity
securities
|
|
|
17,167,000
|
|
|
|
4,870,000
|
|
|
|
(241,000
|
)
|
|
|
21,796,000
|
|
|
Money
markets and CDs
|
|
|
758,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
758,000
|
|
|
Total
|
|
$
|
23,442,000
|
|
|
$
|
5,029,000
|
|
|
$
|
(293,000
|
)
|
|
$
|
28,178,000
|
|
|
Investments
at
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
April
30, 2019
|
|
Cost
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
|
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
|
|
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; and debt securities are carried at fair
value on the balance sheets with changes in fair value recorded as unrealized gains or losses in the Statement of Comprehensive
Income. Upon the disposition of a marketable security, the Company records a realized gain or (loss) on the Company’s statements
of operations. On May 1. 2018, 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 securities before
the adoption of the new standard, from Accumulated Other Comprehensive Income to Retained Earnings.
The
Company evaluates all marketable securities 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 an “other-than-temporary” decline is identified,
the Company will decrease the cost of the marketable security to the new fair value and recognize a real loss. The investments
are periodically evaluated to determine if impairment changes are required. As a result of this standard, management do not record
an impairment loss for the quarter, but did record an impairment loss of $41,000 for the nine months ended January 31, 2020. For
the corresponding periods last year, management recorded an impairment loss of $36,000 for the quarter, and recorded a loss of
$68,000 for the nine months ended January 31, 2019.
The
following tables show 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 January 31, 2020 and April 30, 2019, respectively.
Unrealized
Loss Breakdown by Investment Type at January 31, 2020
|
|
|
Less
than 12 months
|
|
|
12
months or greater
|
|
|
Total
|
|
|
Description
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Municipal
bonds
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
401,000
|
|
|
$
|
(43,000
|
)
|
|
$
|
401,000
|
|
|
$
|
(43,000
|
)
|
|
REITs
|
|
|
—
|
|
|
|
—
|
|
|
|
57,000
|
|
|
|
(9,000
|
)
|
|
|
57,000
|
|
|
|
(9,000
|
)
|
|
Equity
securities
|
|
|
445,000
|
|
|
|
(48,000
|
)
|
|
|
1,930,000
|
|
|
|
(193,000
|
)
|
|
|
2,375,000
|
|
|
|
(241,000
|
)
|
|
Total
|
|
$
|
445,000
|
|
|
$
|
(48,000
|
)
|
|
$
|
2,388,000
|
|
|
$
|
(245,000
|
)
|
|
$
|
2,833,000
|
|
|
$
|
(293,000
|
)
|
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
|
)
|
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, which may be maturity, the Company
does not consider these investments to be other-than-temporarily impaired at January 31, 2020.
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. The individual holdings have been evaluated, and due
to management’s plan to hold on to these investments for an extended period, the Company does not consider these investments
to be other-than-temporarily impaired at January 31, 2020.
Inventories
at January 31, 2020 and April 30, 2019 consisted of the following:
<TABLE>
|
|
|
January
31,
|
|
|
April
30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
4,102,000
|
|
|
$
|
3,644,000
|
|
|
Work in process
|
|
|
468,000
|
|
|
|
389,000
|
|
|
Finished
goods
|
|
|
609,000
|
|
|
|
641,000
|
|
|
|
|
|
5,179,000
|
|
|
|
4,674,000
|
|
|
Less:
allowance for obsolete inventory
|
|
|
(133,000
|
)
|
|
|
(91,000
|
)
|
|
Totals
|
|
$
|
5,046,000
|
|
|
$
|
4,583,000
|
|
|
Note
4:
|
Business
Segments
|
The
following is financial information relating to industry segments:
|
|
|
Three
months
|
|
|
Nine
months
|
|
|
Three
months
|
|
|
Nine
months
|
|
|
|
|
ended
|
|
|
ended
|
|
|
Ended
|
|
|
ended
|
|
|
|
|
Jan
31, 2020
|
|
|
Jan
31, 2020
|
|
|
Jan
31, 2019
|
|
|
Jan
31, 2019
|
|
|
Net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
alarm products
|
|
$
|
2,909,000
|
|
|
$
|
8,700,000
|
|
|
$
|
2,735,000
|
|
|
$
|
8,103,000
|
|
|
Cable
& wiring tools
|
|
|
547,000
|
|
|
|
1,680,000
|
|
|
|
576,000
|
|
|
|
1,929,000
|
|
|
Other
products
|
|
|
133,000
|
|
|
|
472,000
|
|
|
|
144,000
|
|
|
|
519,000
|
|
|
Total
net revenue
|
|
$
|
3,589,000
|
|
|
$
|
10,852,000
|
|
|
$
|
3,455,000
|
|
|
$
|
10,551,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
alarm products
|
|
$
|
669,000
|
|
|
$
|
2,156,000
|
|
|
$
|
659,000
|
|
|
$
|
1,972,000
|
|
|
Cable
& wiring tools
|
|
|
129,000
|
|
|
|
417,000
|
|
|
|
138,000
|
|
|
|
415,000
|
|
|
Other
products
|
|
|
36,000
|
|
|
|
117,000
|
|
|
|
35,000
|
|
|
|
104,000
|
|
|
Total
income from operations
|
|
$
|
834,000
|
|
|
$
|
2,690,000
|
|
|
$
|
832,000
|
|
|
$
|
2,491,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
alarm products
|
|
$
|
(22,000
|
)
|
|
$
|
72,000
|
|
|
$
|
37,000
|
|
|
$
|
57,000
|
|
|
Cable
& wiring tools
|
|
|
31,000
|
|
|
|
92,000
|
|
|
|
30,000
|
|
|
|
92,000
|
|
|
Other
products
|
|
|
34,000
|
|
|
|
50,000
|
|
|
|
—
|
|
|
|
55,000
|
|
|
Corporate
general
|
|
|
50,000
|
|
|
|
62,000
|
|
|
|
14,000
|
|
|
|
44,000
|
|
|
Total
depreciation and amortization
|
|
$
|
93,000
|
|
|
$
|
276,000
|
|
|
$
|
81,000
|
|
|
$
|
248,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
alarm products
|
|
$
|
—
|
|
|
$
|
178,000
|
|
|
$
|
35,000
|
|
|
$
|
35,000
|
|
|
Cable
& wiring tools
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Other
products
|
|
|
18,000
|
|
|
|
18,000
|
|
|
|
37,000
|
|
|
|
37,000
|
|
|
Corporate
general
|
|
|
272,000
|
|
|
|
272,000
|
|
|
|
16,000
|
|
|
|
16,000
|
|
|
Total
capital expenditures
|
|
$
|
290,000
|
|
|
$
|
468,000
|
|
|
$
|
88,000
|
|
|
$
|
88,000
|
|
|
|
|
|
January
31, 2020
|
|
|
|
April
30, 2019
|
|
|
Identifiable
assets:
|
|
|
|
|
|
|
|
|
|
Security
alarm products
|
|
$
|
6,478,000
|
|
|
$
|
6,179,000
|
|
|
Cable
& wiring tools
|
|
|
2,676,000
|
|
|
|
2,713,000
|
|
|
Other
products
|
|
|
733,000
|
|
|
|
842,000
|
|
|
Corporate
general
|
|
|
34,859,000
|
|
|
|
33,293,000
|
|
|
Total
assets
|
|
$
|
44,746,000
|
|
|
$
|
43,027,000
|
|
|
Note
5:
|
Earnings
per Share (Restated)
|
Restated
basic and diluted earnings per share, assuming convertible preferred stock was converted for each period presented, are:
|
|
|
For
the three months ended January 31, 2020
|
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per-share
|
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
Net
Income
|
|
$
|
1,364,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
1,364,000
|
|
|
|
4,950,524
|
|
|
$
|
0.28
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
preferred stock
|
|
|
—
|
|
|
|
20,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
$
|
1,364,000
|
|
|
|
4,971,024
|
|
|
$
|
0.27
|
|
|
|
|
For
the nine months ended January 31, 2020
|
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per-share
|
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
Net
Income
|
|
$
|
3,296,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
3,296,000
|
|
|
|
4,953,008
|
|
|
$
|
0.67
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
preferred stock
|
|
|
—
|
|
|
|
20,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
$
|
3,296,000
|
|
|
|
4,973,508
|
|
|
$
|
0.66
|
|
|
|
|
For
the Three Months Ended January 31,
|
|
|
|
|
Originally
Filed
2019
|
|
|
Adjustment
2019
|
|
|
Restated
2019
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,173,000
|
|
|
$
|
(131,000
|
)
|
|
$
|
1,042,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding,
basic
|
|
|
4,961,018
|
|
|
|
—
|
|
|
|
4,961,018
|
|
|
Convertible Preferred
Stock
|
|
|
20,500
|
|
|
|
—
|
|
|
|
20,500
|
|
|
Weighted average common shares outstanding,
diluted
|
|
|
4,981,518
|
|
|
|
—
|
|
|
|
4,981,518
|
|
|
Net Income per share - Basic
|
|
$
|
0.24
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.21
|
|
|
Income per shares - Diluted
|
|
$
|
0.24
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.21
|
|
|
|
|
For
the Nine Months Ended January 31,
|
|
|
|
|
Originally
Filed
2019
|
|
|
Adjustment
2019
|
|
|
Restated
2019
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,559,000
|
|
|
$
|
(675,000
|
)
|
|
$
|
1,884,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding,
basic
|
|
|
4,963,592
|
|
|
|
—
|
|
|
|
4,963,592
|
|
|
Convertible
Preferred Stock
|
|
|
20,500
|
|
|
|
—
|
|
|
|
20,500
|
|
|
Weighted average
common shares outstanding, diluted
|
|
|
4,984,092
|
|
|
|
—
|
|
|
|
4,984,092
|
|
|
Net Income per
share - Basic
|
|
$
|
0.52
|
|
|
$
|
(0.14
|
)
|
|
$
|
0.38
|
|
|
Income per shares
- Diluted
|
|
$
|
0.51
|
|
|
$
|
(0.13
|
)
|
|
$
|
0.38
|
|
|
Note
6:
|
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 corporation. The Plan
is intended to be qualified under Section 401(k) of the Internal Revenue Code of 1986, as amended. Matching contributions by the
Company of approximately $14,000 and $2,000 were paid during both the quarters ending January 31, 2020 and 2019, respectively.
Likewise, the Company paid matching contributions of approximately $23,000 during the nine-month period ending January 31, 2020
and $7,000 during the corresponding period the prior fiscal year.
|
Note
7:
|
Fair
Value Measurements
|
Generally
accepted accounting principles in the United States of America (US GAAP) defines fair value as 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 measurement)
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 January 31, 2020, our investments consisted of money markets, certificates of deposit, publicly traded equity securities, real
estate investment trusts (REITS) as well as certain state and municipal debt securities and corporate bonds. Our marketable securities
are valued using third-party broker statements. The value of the investments is derived from quoted market information. The inputs
to the valuation are generally 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 January 31, 2020
|
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
Bonds
|
|
$
|
—
|
|
|
$
|
5,515,000
|
|
|
$
|
—
|
|
|
$
|
5,515,000
|
|
|
Corporate
Bonds
|
|
|
26,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26,000
|
|
|
REITs
|
|
|
—
|
|
|
|
83,000
|
|
|
|
—
|
|
|
|
83,000
|
|
|
Equity
Securities
|
|
|
21,796,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21,796,000
|
|
|
Money
Markets and CDs
|
|
|
758,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
758,000
|
|
|
Total
fair value of assets measured on a recurring basis
|
|
$
|
22,580,000
|
|
|
$
|
5,598,000
|
|
|
$
|
—
|
|
|
$
|
28,178,000
|
|
|
|
|
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
|
|
|
Note
8:
|
Related
Party Transactions
|
The
Company purchased a building that it previously leased from Bonita Risk. Bonita Risk is a director and an employee of the Company
and is the majority holder of George Risk Industries, Inc. stock. This building contains the Company’s sales and accounting
departments, maintenance department, engineering department and some production facilities. The purchase price of the building
was $200,000 and the transaction happened during the Company’s third fiscal quarter.
|
Note
9:
|
Subsequent
Events
|
During
and subsequent to the third quarter of the current fiscal year, the world has been impacted by the spread of the coronavirus (COVID-19).
It has created significant economic uncertainty and volatility. The extent to which the coronavirus pandemic impacts our business,
operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including:
the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be
taken in response to the pandemic; the impact of the pandemic on economic activity and actions taken in response; the effect on
our clients and client demand for our services and solutions; our ability to sell and provide our services and solutions, including
as a result of travel restrictions and people working from home; the ability of our clients to pay for our services and solutions;
and any closures of our and our clients’ offices and facilities. Any of these events could materially adversely affect our
business, financial condition, results of operations and/or stock price.
The
Company manufactures and supplies “essential” products and services to many critical industries, so our production
facilities will continue to operate. The health and safety of our employees and their families remains our top priority. Therefore,
we have implemented many Center of Disease Control protocols to keep them safe while the Company continues to produce products
and provide service to our customers. While we are operating in a rapidly changing environment, we also continue to hear positive
news from our raw material suppliers.
|
Note
10
|
Correction
of Previously Issued Financial Statements
|
Subsequent
to the issuance of its Quarterly Report on SEC Form 10-Q for the three and nine months ended January 31, 2020, the Company discovered
an error due to missing a change in accounting related to other comprehensive income (loss) as reflected in the implementation
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-Q) 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
loss related to unrealized gains on equity securities as of May 1, 2018 and ii) recording an unrealized gain on marketable securities
representing the value change in the equities for the three and nine months ended January 31, 2019.
No
entries to correct for this restatement have any impact on our cash position, liquidity, or operations.
The
tables below reflect the effect of restatement on the Company’s financial statements for the three and nine month periods
ending January 31, 2019:
|
|
|
For
the Three Months Ended January 31, 2019
|
|
|
|
|
Original
|
|
|
Adjustment
|
|
|
As
Restated
|
|
|
Income
Statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
Gain (Loss) on Equity Securities
|
|
$
|
—
|
|
|
$
|
(184,000
|
)
|
|
$
|
(184,000
|
)
|
|
Total
Other Income (Expense)
|
|
$
|
641,000
|
|
|
$
|
(184,000
|
)
|
|
$
|
457,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Before Provisions for Income Taxes
|
|
|
1,473,000
|
|
|
|
(184,000
|
)
|
|
|
1,289,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax expense (benefit)
|
|
|
9,000
|
|
|
|
(53,000
|
)
|
|
|
(44,000
|
)
|
|
Total
Income Tax Expense
|
|
|
300,000
|
|
|
|
(53,000
|
)
|
|
|
247,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
1,173,000
|
|
|
$
|
(131,000
|
)
|
|
$
|
1,042,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
Per Share of Common Stock
|
|
$
|
0.24
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.21
|
|
|
Basic
|
|
$
|
0.24
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.21
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Nine Months Ended January 31, 2019
|
|
|
|
|
Original
|
|
|
Adjustment
|
|
|
As
Restated
|
|
|
Income
Statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
Gain (Loss) on Equity Securities
|
|
$
|
—
|
|
|
$
|
(949,000
|
)
|
|
$
|
(949,000
|
)
|
|
Total
Other Income (Expense)
|
|
$
|
900,000
|
|
|
$
|
(949,000
|
)
|
|
$
|
(49,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Before Provisions for Income Taxes
|
|
|
3,391,000
|
|
|
|
(949,000
|
)
|
|
|
2,442,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax expense (benefit)
|
|
|
33,000
|
|
|
|
(274,000
|
)
|
|
|
(241,000
|
)
|
|
Total
Income Tax Expense
|
|
|
832,000
|
|
|
|
(274,000
|
)
|
|
|
558,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
2,559,000
|
|
|
$
|
(675,000
|
)
|
|
$
|
1,884,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
Per Share of Common Stock
|
|
$
|
0.52
|
|
|
$
|
(0.14
|
)
|
|
$
|
0.38
|
|
|
Basic
|
|
$
|
0.51
|
|
|
$
|
(0.13
|
)
|
|
$
|
0.38
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Three Months Ended January 31, 2019
|
|
|
|
|
Original
|
|
|
Adjustment
|
|
|
As
Restated
|
|
|
Statement of Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
1,173,000
|
|
|
$
|
(131,000
|
)
|
|
$
|
1,042,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Comprehensive Income, net of Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on securities Unrealized holding gains arising during period
|
|
|
43,000
|
|
|
|
13,000
|
|
|
|
56,000
|
|
|
Less:
reclassification adjustment for (gains) losses included in net income
|
|
|
(171,000
|
)
|
|
|
171,000
|
|
|
|
—
|
|
|
Income
tax expense related to other comprehensive income
|
|
|
37,000
|
|
|
|
(53,000
|
)
|
|
|
(16,000
|
)
|
|
Other
Comprehensive Income (Loss)
|
|
$
|
(91,000
|
)
|
|
$
|
131,000
|
|
|
$
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
$
|
1,082,000
|
|
|
$
|
—
|
|
|
$
|
1,082,000
|
|
|
|
|
For
the Nine Months Ended January 31, 2019
|
|
|
|
|
Original
|
|
|
Adjustment
|
|
|
As
Restated
|
|
|
Statement of Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
2,559,000
|
|
|
$
|
(675,000
|
)
|
|
$
|
1,884,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Comprehensive Income, net of Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on securities Unrealized holding gains arising during period
|
|
|
(595,000
|
)
|
|
|
816,000
|
|
|
|
221,000
|
|
|
Less:
reclassification adjustment for (gains) losses included in net income
|
|
|
(134,000
|
)
|
|
|
134,000
|
|
|
|
—
|
|
|
Income
tax expense related to other comprehensive income
|
|
|
210,000
|
|
|
|
(274,000
|
)
|
|
|
(64,000
|
)
|
|
Other
Comprehensive Income (Loss)
|
|
$
|
(519,000
|
)
|
|
$
|
676,000
|
|
|
$
|
157,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
$
|
2,040,000
|
|
|
$
|
1,000
|
|
|
$
|
2,041,000
|
|
|
|
|
Original
|
|
|
Adjustment
|
|
|
As
Restated
|
|
|
Statement
of Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
October 31, 2018
|
|
$
|
36,748,000
|
|
|
$
|
2,000
|
|
|
$
|
36,750,000
|
|
|
Purchase
of common stock
|
|
|
(8,000
|
)
|
|
|
—
|
|
|
|
(8,000
|
)
|
|
Unrealized
gain (loss), net of tax effect
|
|
|
(91,000
|
)
|
|
|
131,000
|
|
|
|
40,000
|
|
|
Net
Income
|
|
|
1,173,000
|
|
|
|
(131,000
|
)
|
|
|
1,042,000
|
|
|
Balance, January
31, 2019
|
|
$
|
37,822,000
|
|
|
$
|
2,000
|
|
|
$
|
37,824,000
|
|
|
|
|
Original
|
|
|
Adjustment
|
|
|
As
Restated
|
|
|
Statement
of Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
April 30, 2018
|
|
$
|
37,730,000
|
|
|
$
|
—
|
|
|
$
|
37,730,000
|
|
|
Purchase
of common stock
|
|
|
(62,000
|
)
|
|
|
—
|
|
|
|
(62,000
|
)
|
|
Dividend
declared at $0.38 per common share outstanding
|
|
|
(1,886,000
|
)
|
|
|
1,000
|
|
|
|
(1,885,000
|
)
|
|
Impact of adoption
of ASU 2016-01
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Unrealized
gain (loss), net of tax effect
|
|
|
(519,000
|
)
|
|
|
676,000
|
|
|
|
157,000
|
|
|
Net
Income
|
|
|
2,559,000
|
|
|
|
(675,000
|
)
|
|
|
1,884,000
|
|
|
Balance, January
31, 2019
|
|
$
|
37,822,000
|
|
|
$
|
2,000
|
|
|
$
|
37,824,000
|
|
|
|
|
For
the Nine Months Ended January 31, 2019
|
|
|
|
|
Original
|
|
|
Adjustment
|
|
|
As
Restated
|
|
|
Statement of Cash
Flows
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
2,559,000
|
|
|
$
|
(675,000
|
)
|
|
$
|
1,884,000
|
|
|
Adjustment
to reconcile net income to net cash provided operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
(gain) loss on equity securities
|
|
|
—
|
|
|
|
949,000
|
|
|
|
949,000
|
|
|
Deferred
income taxes
|
|
|
33,000
|
|
|
|
(274,000
|
)
|
|
|
(241,000
|
)
|
|
Net
cash provided by (used in) operating activities
|
|
$
|
2,275,000
|
|
|
$
|
—
|
|
|
$
|
2,275,000
|
|
|
|
|
For
the Three Months Ended January 31,
|
|
|
|
|
Originally
Filed 2019
|
|
|
Adjustment
2019
|
|
|
Restated
2019
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,173,000
|
|
|
$
|
(131,000
|
)
|
|
$
|
1,042,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding,
basic
|
|
|
4,961,018
|
|
|
|
—
|
|
|
|
4,961,018
|
|
|
Convertible
Preferred Stock
|
|
|
20,500
|
|
|
|
—
|
|
|
|
20,500
|
|
|
Weighted average
common shares outstanding, diluted
|
|
|
4,981,518
|
|
|
|
—
|
|
|
|
4,981,518
|
|
|
Net Income per
share - Basic
|
|
$
|
0.24
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.21
|
|
|
Income per shares
- Diluted
|
|
$
|
0.24
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.21
|
|
|
|
|
For
the Nine Months Ended January 31,
|
|
|
|
|
Originally
Filed 2019
|
|
|
Adjustment
2019
|
|
|
Restated
2019
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,559,000
|
|
|
$
|
(675,000
|
)
|
|
$
|
1,884,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding,
basic
|
|
|
4,963,592
|
|
|
|
—
|
|
|
|
4,963,592
|
|
|
Convertible
Preferred Stock
|
|
|
20,500
|
|
|
|
—
|
|
|
|
20,500
|
|
|
Weighted average
common shares outstanding, diluted
|
|
|
4,984,092
|
|
|
|
—
|
|
|
|
4,984,092
|
|
|
Net Income per
share - Basic
|
|
$
|
0.52
|
|
|
$
|
(0.14
|
)
|
|
$
|
0.38
|
|
GEORGE
RISK INDUSTRIES, INC.
PART
I. FINANCIAL INFORMATION
Item
2. Management Discussion and Analysis of Financial Condition and Results of Operations (Restated)
MANAGEMENT
DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (RESTATED)
This
Quarterly Report on Form 10-Q, includes forward-looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended (the Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), which
are subject to the “safe harbor” created by those sections. Any statements herein that are not statements of historical
fact may be deemed to be forward-looking statements. For example, words such as “may,” “will,” “could,”
“would,” “should,” “anticipate,” “expect,” “intend,” “believe,”
“estimate,” “project” or “continue,” and the negatives of such terms are intended to identify
forward-looking statements. The information included herein represents our estimates and assumptions as of the date of this filing.
Unless required by law, we undertake no obligation to update publicly any forward-looking statements, or to update the reasons
actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes
available in the future.
The
following discussion should be read in conjunction with the attached unaudited condensed financial statements, and with the Company’s
audited financial statements and discussion for the fiscal year ended April 30, 2019.
Executive
Summary
The
Company’s performance has stayed steady through the three quarters, with a slight increase in sales, managing cost of sales
numbers, and strong investment returns. This is due to the continuation of our quality USA made products with the ability for
customization, our notable customer service, and the purchase of the assets of Labor Saving Devices, Inc. Opportunities include
gaining business from a competitor that is getting out of the security switch business and to continue looking at businesses that
might be a good fit to purchase. New challenges the Company has endured over the nine months of this fiscal year include continuing
to get product out to customers in a timelier manner and to fill the stockroom with inventory to get back to shipping out core
products the same day. Also, the price of raw materials has increased with the execution of tariffs by the US government and other
factors. The COVID-19 virus is also a concern for management as availability to get raw materials may be hampered by the pandemic.
But management continues to work at keeping operations flowing as efficient as possible with the hopes of getting the facilities
running leaner and more profitable than ever before.
Results
of Operations
|
|
●
|
Net
sales were $3,589,000 for the quarter ended January 31, 2020, which is a 3.88% increase from the corresponding quarter last
year. Year-to-date net sales were $10,852,000 at January 31, 2020, which is a 2.85% increase from the same period last year.
The steady growth in sales is due to our ongoing commitment to outstanding customer service and our ability to customize products.
The Company is also seeing growth since a major competitor closed its doors at the end of 2019.
|
|
|
●
|
Cost
of goods sold was 51.04% of net sales for the quarter ended January 31, 2020 and was 51.29% for the same quarter last year.
Year-to-date cost of goods sold percentages were 50.33% for the current nine months and 51.81% for the corresponding nine
months last year, which is just slightly over the target of less than 50% for both the quarter and year-to-date results. Management
has seen increases in labor and materials costs and initiated a price increase that started in January 2020.
|
|
|
●
|
Operating
expenses increased by $72,000 for the quarter as they increased by $107,000 for the nine-months ended January 31, 2020 as
compared to the corresponding periods last year. These increased costs are primarily due to increased commissions and wages
for raises and the hiring of more employees.
|
|
|
●
|
Income
from operations for the quarter ended January 31, 2020 was at $834,000 which is a .24% increase from the corresponding quarter
last year, which had income from operations of $832,000. Income from operations for the nine months ended January 31, 2020
was at $2,690,000, which is a 7.99% increase from the corresponding nine months last year, which had income from operations
of $2,491,000.
|
|
|
●
|
Other
income and expenses are up $557,000 when comparing to the current quarter to the same quarter last year. Comparatively, there
is an increase of $1,757,000 in other income and expenses for the year-to-date numbers. Investments in marketable securities
are presented at fair value and an unrealized gain or loss is recorded within the statements of operations, a non-cash entry,
at each period beginning May 1, 2018 and previously recorded unrealized gain or loss in other comprehensive income (loss).
For the nine months ended January 31, 2020 an unrealized gain was recorded, a non-cash entry, on marketable securities of
$782,000. For the nine months ended January 31, 2019 an unrealized loss of $949,000 was recorded. The remainder of the increase
is primarily due to increased dividend and interest income and taking gains on the sale of investments.
|
|
|
●
|
Overall,
net income for the quarter ended January 31, 2020 was up $322,000, or 30.90%, from the same quarter last year. Similarly,
net income for the nine-month period ended January 31, 2020 was up $1,412,000, or 74.95%, from the same period in the prior
year.
|
|
|
●
|
Earnings
per common share for quarter and nine months ended January 31, 2020 were $0.28 per share and $0.67 per share, respectively.
EPS for the quarter and nine months ended January 31, 2019 were $0.21 per share and $0.38 per share, respectively.
|
Liquidity
and capital resources
Operating
|
|
●
|
Net
cash increased $774,000 during the nine months ended January 31, 2020 as compared to an increase of $295,000 during the corresponding
period last year.
|
|
|
●
|
Accounts
receivable decreased $460,000 for the nine months ended January 31, 2020 compared with a $514,000 decrease for the same period
last year. The current year decrease is a result of improved sales and collections of accounts receivable improved over last
year. An analysis of accounts receivable shows that there were only 0.30% that were over 90 days at January 31, 2020.
|
|
|
●
|
Inventories
increased $506,000 during the current nine-month period as compared to an increase of $999,000 last year. The smaller increase
in the current year is primarily due to increased sales, not having a stockpile of finished goods, and some issues with getting
some vital raw materials in a timely manner.
|
|
|
●
|
Prepaid
expenses saw a $43,000 decrease for the current nine months, primarily due to inventory being delivered that had been paid
for in advance. The prior nine months showed a $164,000 decrease in prepaid expenses.
|
|
|
●
|
Income
tax overpayment for the nine months ended January 31, 2020 decreased $142,000, as the overpayment showed an increase of $106,000
for the same period the prior year. The main reason for the current decrease is that the Company has generated additional
income without the need to increase income tax estimates.
|
|
|
●
|
Accounts
payable shows a $16,000 increase for the current nine-month period ended January 31, 2020 as compared to a $35,000 decrease
for the prior nine-month period. The company strives to pay all invoices within terms, and the variance in increases is primarily
due to the timing of receipt of products and payment of invoices.
|
|
|
●
|
Accrued
expenses did not have any cash flow change for the current nine-month period as compared to a $36,000 decrease for the nine-month
period ended January 31, 2019.
|
Investing
|
|
●
|
As
for our investment activities, the Company spent approximately $468,000 on acquisitions of property and equipment for the
current nine-month period, in comparison with the corresponding nine months last year, where there was activity of $88,000.
|
|
|
●
|
Additionally,
the Company continues to purchase marketable securities, which include municipal bonds and quality stocks. During the nine-month
period ended January 31, 2020 there was quite a bit of buy/sell activity in the investment accounts. Net cash spent on purchases
of marketable securities for the nine-month period ended January 31, 2020 was $640,000 compared to $839,000 spent in the prior
nine-month period. The Company continues to use “money manager” accounts for most stock transactions. By doing
this, the Company gives an independent third-party firm, who are experts in this field, permission to buy and sell stocks
at will. The Company pays a quarterly service fee based on the value of the investments.
|
Financing
|
|
●
|
The
Company continues to purchase back common stock when the opportunity arises. For the nine-month period ended January 31, 2020,
the Company purchased $71,000 worth of treasury stock. This is in comparison to $62,000 spent in the same nine months period
the prior year.
|
|
|
●
|
The
company paid out dividends of $1,802,000 during the nine months ending January 31, 2020. These dividends were paid during
the second quarter. The company declared a dividend of $0.40 per share of common stock on September 30, 2019 and these dividends
were paid by October 31, 2019. As for the prior year numbers, dividends paid was $1,752,000 for the nine months ending January
31, 2019. A dividend of $0.38 per common share was declared and paid during the second fiscal quarter last year.
|
The
following is a list of ratios to help analyze George Risk Industries’ performance:
|
|
|
As
of
|
|
|
|
|
January
31, 2020
|
|
|
January
31, 2019
|
|
Working
capital
(current assets – current liabilities)
|
|
$
|
39,119,000
|
|
|
$
|
35,493,000
|
|
Current ratio
(current
assets / current liabilities)
|
|
|
16.831
|
|
|
|
16.299
|
|
Quick ratio
((cash
+ investments + AR) / current liabilities)
|
|
|
14.597
|
|
|
|
13.963
|
|
New
Product Development
The
Company and its engineering department continue to develop enhancements to product lines, develop new products which complement
existing products, and look for products that are well suited to our distribution network and manufacturing capabilities. Items
currently in the development process include:
|
|
●
|
A
new face plate for our pool alarms is nearing completion. The innovative design is slim in style and will also allow the homeowner
to change the plate to match their décor.
|
|
|
●
|
An
updated version of the pool access alarm is currently going through electrical listing testing. This next-generation model
combines our battery operated DPA series with our hard wired 289 series. A variety of installation options will be available
through jumper pin settings.
|
|
|
●
|
We
continue our work on high security switches. We have a triple biased high security switch design and an adjustable magnet
design was completed for recessed mounting applications. This is ready to be sent to in for electrical listing testing.
|
|
|
●
|
We
have introduced the GR1840 Oval Metal Door Channel Magnet. This is a direct replacement for the obsolete Interlogix magnet.
This magnet fits into the top channel of a metal door and does not require drilling into the door core. We have also paired
this with several of our ¾” and 1” steel door contacts.
|
|
|
●
|
Wireless
technology is a main area of focus for product development. We are considering adding wireless technology to some of our current
products. A wireless contact switch is in the final stages of development. Also, we are working on wireless versions of our
pool access alarm and environmental sensors that will be easy to install in current construction. We are also concentrating
on making products compatible with Wi-Fi, smartphone technology and the increasing popular Z-Wave standard for wireless home
automation.
|
|
|
●
|
We
are ready to launch a new Labor Saving Device’s product. It is a 12” adjustable hole cutter which compliments
the popular 10” hole cutter. Using a standard drill, this tool allows you to drill various size holes in the ceiling
for speakers and canned lights. The dust bin, which buts against the ceiling, keeps the ceiling material and dust enclosed
making for a clean, time saving installation.
|
|
|
●
|
Another
LSDI product is new lighted Bullnose tip in a variety of colors (red, green and blue) to go along with the standard clear
lights. These colored lights are placed on FiberFuse wire running rods which allows for easy location of the rod ends in dark
places such as attics and crawlspaces. The rods can be color coded for wire paths running into different rooms. Larger batteries
add to the longevity of these new lights.
|
Other
Information
In
addition to researching and developing new products, management is always open to the possibility of acquiring a business or product
line that would complement our existing operations. Due to the Company’s strong cash position, management believes this
could be achieved without the need for outside financing. The intent is to utilize the equipment, marketing techniques and established
customers to deliver new products and increase sales and profits.
There
are no known seasonal trends with any of GRI’s products, since we sell to distributors and OEM manufacturers. Our products
are tied to the housing industry and will fluctuate with building trends.
Recently
Issued Accounting Pronouncements
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 November 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”). 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. The Company adopted
the ASUs in the first quarter of 2019 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 will not have a material impact on the Company’s financial statements
and related disclosures.
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. We are currently evaluating the potential impact of adopting the applicable guidance; however we do 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 for 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.
In
June 2016, the FASB issued ASU 2016-13(“ASU 2016-13”), Financial Instruments—Credit Losses. Subsequently, the
FASB issued ASU 2019-05, Financial Instruments- Credit Losses (Topic 326): Targeted Transition Relief and codification improvements
to Topic 326 in ASU 2019-11, ASU 2019-04 and ASU 2018-19. The amendments update guidance on reporting credit losses for financial
assets. These amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit
exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right
to receive cash. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2019, including
interim periods within those fiscal years. All entities may adopt the amendments through a cumulative-effect adjustment to retained
earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective
approach). The ASU is effective for fiscal years beginning after December 15, 2020. Subsequent to September 30, 2019, the FASB
issued ASU 2019-10, “Financial Instruments - Credit Loss (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic
842),” which defers the effective date for public filers that are considered small reporting companies (“SRC”)
as defined by the Securities and Exchange Commission to fiscal years beginning after December 15, 2022, including interim periods
within those fiscal years. Since the Company is an SRC, implementation is not needed until May 1, 2023. The Company will continue
to evaluate the effect of adopting ASU 2016-13 will have on the Company’s financial statements and disclosures.
In
January 2020, the FASB issued ASU 2020-01, “Investments - Equity Securities (Topic 321), Investments - Equity Method and
Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323,
and Topic 815.” The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability
in accounting for these transactions. ASU 2016-01 made targeted improvements to accounting for financial instruments, including
providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any
impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar
investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions
that require it to either apply or discontinue the equity method of accounting. For public business entities, the amendments in
the ASU are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early
adoption is permitted. The Company does not expect the adoption of ASU 2020-01 to have a material impact on its condensed financial
statements.
GEORGE
RISK INDUSTRIES, INC.
PART
I. FINANCIAL INFORMATION