NOTES
TO RESTATED UNAUDITED CONDENSED FINANCIAL STATEMENTS
OCTOBER
31, 2019
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 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.
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
November 2019 and September 2042. 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 October 31, 2019 and April 30, 2019, investments consisted of the following:
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
Investments at
|
|
Cost
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
October
31, 2019
|
|
Basis
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Municipal bonds
|
|
$
|
5,362,000
|
|
|
|
122,000
|
|
|
|
(47,000
|
)
|
|
|
5,437,000
|
|
|
Corporate bonds
|
|
|
26,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26,000
|
|
|
REITs
|
|
|
89,000
|
|
|
|
2,000
|
|
|
|
(8,000
|
)
|
|
|
83,000
|
|
|
Equity securities
|
|
|
16,943,000
|
|
|
|
4,375,000
|
|
|
|
(254,000
|
)
|
|
|
21,064,000
|
|
|
Money markets
and CDs
|
|
|
774,000
|
|
|
|
1,000
|
|
|
|
—
|
|
|
|
775,000
|
|
|
Total
|
|
$
|
23,194,000
|
|
|
$
|
4,500,000
|
|
|
$
|
(309,000
|
)
|
|
$
|
27,385,000
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
Investments at
|
|
Cost
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
April
30, 2019
|
|
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 recorded
an impairment loss of $7,000 for the quarter, and recorded a loss of $41,000 for the six months ended October 31, 2019. As for
the corresponding periods last year, management recorded an impairment loss of $32,000 for both the quarter and six-months ended
October 31, 2018.
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 October 31, 2019 and April 30, 2019, respectively.
Unrealized
Loss Breakdown by Investment Type at October 31, 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
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
512,000
|
|
|
$
|
(47,000
|
)
|
|
$
|
512,000
|
|
|
$
|
(47,000
|
)
|
|
REITs
|
|
|
—
|
|
|
|
—
|
|
|
|
59,000
|
|
|
|
(8,000
|
)
|
|
|
59,000
|
|
|
|
(8,000
|
)
|
|
Equity securities
|
|
|
1,214,000
|
|
|
|
(66,000
|
)
|
|
|
1,819,000
|
|
|
|
(188,000
|
)
|
|
|
3,033,000
|
|
|
|
(254,000
|
)
|
|
Total
|
|
$
|
1,214,000
|
|
|
$
|
(66,000
|
)
|
|
$
|
2,390,000
|
|
|
$
|
(243,000
|
)
|
|
$
|
3,604,000
|
|
|
$
|
(309,000
|
)
|
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 October 31, 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. 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 October 31, 2019.
Note
3 Inventories
Inventories
at October 31, 2019 and April 30, 2019 consisted of the following:
|
|
|
October
31, 2019
|
|
|
April
30, 2019
|
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
4,131,000
|
|
|
$
|
3,644,000
|
|
|
Work in process
|
|
|
458,000
|
|
|
|
389,000
|
|
|
Finished goods
|
|
|
667,000
|
|
|
|
641,000
|
|
|
|
|
|
5,256,000
|
|
|
|
4,674,000
|
|
|
Less: allowance
for obsolete inventory
|
|
|
(93,000
|
)
|
|
|
(91,000
|
)
|
|
Inventories,
net
|
|
$
|
5,163,000
|
|
|
$
|
4,583,000
|
|
Note
4 Business Segments
The
following is financial information relating to industry segments:
|
|
|
Three months
|
|
|
Six months
|
|
|
Three months
|
|
|
Six months
|
|
|
|
|
ended
|
|
|
ended
|
|
|
ended
|
|
|
ended
|
|
|
|
|
Oct
31, 2019
|
|
|
Oct
31, 2019
|
|
|
Oct
31, 2018
|
|
|
Oct
31, 2018
|
|
|
Net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
alarm products
|
|
$
|
2,985,000
|
|
|
$
|
5,852,000
|
|
|
$
|
2,852,000
|
|
|
$
|
5,371,000
|
|
|
Cable & wiring
tools
|
|
|
571,000
|
|
|
|
1,071,000
|
|
|
|
649,000
|
|
|
|
1,351,000
|
|
|
Other
products
|
|
|
154,000
|
|
|
|
340,000
|
|
|
|
166,000
|
|
|
|
374,000
|
|
|
Total net revenue
|
|
$
|
3,710,000
|
|
|
$
|
7,263,000
|
|
|
$
|
3,667,000
|
|
|
$
|
7,096,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security alarm products
|
|
$
|
762,000
|
|
|
$
|
1,495,000
|
|
|
$
|
689,000
|
|
|
$
|
1,291,000
|
|
|
Cable & wiring
tools
|
|
|
140,000
|
|
|
|
273,000
|
|
|
|
157,000
|
|
|
|
293,000
|
|
|
Other
products
|
|
|
44,000
|
|
|
|
87,000
|
|
|
|
40,000
|
|
|
|
75,000
|
|
|
Total income
from operations
|
|
$
|
946,000
|
|
|
$
|
1,855,000
|
|
|
$
|
886,000
|
|
|
$
|
1,659,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security alarm products
|
|
$
|
71,000
|
|
|
$
|
94,000
|
|
|
$
|
10,000
|
|
|
$
|
20,000
|
|
|
Cable & wiring
tools
|
|
|
31,000
|
|
|
|
62,000
|
|
|
|
31,000
|
|
|
|
62,000
|
|
|
Other products
|
|
|
(4,000
|
)
|
|
|
16,000
|
|
|
|
28,000
|
|
|
|
55,000
|
|
|
Corporate
general
|
|
|
(4,000
|
)
|
|
|
11,000
|
|
|
|
15,000
|
|
|
|
30,000
|
|
|
Total depreciation
and amortization
|
|
$
|
94,000
|
|
|
$
|
183,000
|
|
|
$
|
84,000
|
|
|
$
|
167,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security alarm products
|
|
$
|
10,000
|
|
|
$
|
179,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Cable & wiring
tools
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Other products
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Corporate
general
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total capital
expenditures
|
|
$
|
10,000
|
|
|
$
|
179,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
October
31, 2019
|
|
|
April
30, 2019
|
|
|
Identifiable assets:
|
|
|
|
|
|
|
|
|
|
Security
alarm products
|
|
$
|
6,351,000
|
|
|
$
|
6,179,000
|
|
|
Cable & wiring
tools
|
|
|
2,666,000
|
|
|
|
2,713,000
|
|
|
Other products
|
|
|
835,000
|
|
|
|
842,000
|
|
|
Corporate
general
|
|
|
33,341,000
|
|
|
|
33,293,000
|
|
|
Total assets
|
|
$
|
43,193,000
|
|
|
$
|
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 October 31,
|
|
|
|
|
Originally
Filed 2019
|
|
|
Adjustment
2019
|
|
|
Restated
2019
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
864,000
|
|
|
$
|
93,000
|
|
|
$
|
957,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
|
|
|
4,952,110
|
|
|
|
—
|
|
|
|
4,952,110
|
|
|
Convertible Preferred
Stock
|
|
|
20,500
|
|
|
|
—
|
|
|
|
20,500
|
|
|
Weighted average common shares
outstanding, diluted
|
|
|
4,972,610
|
|
|
|
—
|
|
|
|
4,972,610
|
|
|
Net Income per share - Basic
|
|
$
|
0.17
|
|
|
$
|
0.02
|
|
|
$
|
0.19
|
|
|
Income per shares - Diluted
|
|
$
|
0.17
|
|
|
$
|
0.02
|
|
|
$
|
0.19
|
|
|
|
|
For
the Six Months Ended October 31,
|
|
|
|
|
Originally
Filed 2019
|
|
|
Adjustment
2019
|
|
|
Restated
2019
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,729,000
|
|
|
$
|
203,000
|
|
|
$
|
1,932,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
|
|
|
4,954,250
|
|
|
|
—
|
|
|
|
4,964,250
|
|
|
Convertible Preferred
Stock
|
|
|
20,500
|
|
|
|
—
|
|
|
|
20,500
|
|
|
Weighted average common shares
outstanding, diluted
|
|
|
4,974,750
|
|
|
|
—
|
|
|
|
4,974,750
|
|
|
Net Income per share - Basic
|
|
$
|
0.35
|
|
|
$
|
0.04
|
|
|
$
|
0.39
|
|
|
Income per shares - Diluted
|
|
$
|
0.35
|
|
|
$
|
0.04
|
|
|
$
|
0.39
|
|
|
|
|
For
the Three Months Ended October 31,
|
|
|
|
|
Originally
Filed 2018
|
|
|
Adjustment
2018
|
|
|
Restated
2018
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
768,000
|
|
|
$
|
(852,000
|
)
|
|
$
|
(84,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
|
|
|
4,962,177
|
|
|
|
—
|
|
|
|
4,962,177
|
|
|
Convertible Preferred
Stock
|
|
|
20,500
|
|
|
|
—
|
|
|
|
20,500
|
|
|
Weighted average common shares
outstanding, diluted
|
|
|
4,982,677
|
|
|
|
—
|
|
|
|
4,982,677
|
|
|
Net Income per share - Basic
|
|
$
|
0.15
|
|
|
$
|
(0.17
|
)
|
|
$
|
(0.02
|
)
|
|
Income per shares - Diluted
|
|
$
|
0.15
|
|
|
$
|
(0.17
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
For
the Six Months Ended October 31,
|
|
|
|
|
Originally
Filed 2018
|
|
|
Adjustment
2018
|
|
|
Restated
2018
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,386,000
|
|
|
$
|
(544,000
|
)
|
|
$
|
842,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
|
|
|
4,964,879
|
|
|
|
—
|
|
|
|
4,964,879
|
|
|
Convertible Preferred
Stock
|
|
|
20,500
|
|
|
|
—
|
|
|
|
20,500
|
|
|
Weighted average common shares
outstanding, diluted
|
|
|
4,985,379
|
|
|
|
—
|
|
|
|
4,985,379
|
|
|
Net Income per share - Basic
|
|
$
|
0.28
|
|
|
$
|
(0.11
|
)
|
|
$
|
0.17
|
|
|
Income per shares - Diluted
|
|
$
|
0.28
|
|
|
$
|
(0.11
|
)
|
|
$
|
0.17
|
|
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 $7,000 and $3,000 were paid during each quarter ending October 31, 2019 and 2018, respectively. Likewise,
the Company paid matching contributions of approximately $9,000 and $5,000 during each six-month period ending October 31, 2019
and 2018, respectively.
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 October 31, 2019, our investments consisted of money markets, certificates of deposits (CDs), 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 table sets 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
October 31, 2019
|
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal Bonds
|
|
$
|
—
|
|
|
$
|
5,437,000
|
|
|
$
|
—
|
|
|
$
|
5,437,000
|
|
|
Corporate Bonds
|
|
|
26,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26,000
|
|
|
REITs
|
|
|
—
|
|
|
|
83,000
|
|
|
|
—
|
|
|
|
83,000
|
|
|
Equity Securities
|
|
|
21,064,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21,064,000
|
|
|
Money
Markets and CDs
|
|
|
775,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
775,000
|
|
|
Total fair value
of assets measured on a recurring basis
|
|
$
|
21,865,000
|
|
|
$
|
5,520,000
|
|
|
$
|
—
|
|
|
$
|
27,385,000
|
|
|
|
|
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 Subsequent Events
In
an update to related party transactions, the Company finalized the purchase of the building that it had previously leased from
Bonita Risk on November 22, 2019. 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. Prior to the purchase, the lease required a minimum payment of $1,535 on
a month-to-month basis. The purchase price of the building was $200,000, which was approximately the assessed value of the building
at the time of purchase.
Note
9 Correction of Previously Issued Financial Statements
Subsequent
to the issuance of its Quarterly Report on SEC Form 10-Q for the three-and six months periods ended October 31, 2019, 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 unrealized gains on marketable securities
representing the value change in the equities for the three-and six months periods ended October 31, 2019 and 2018.
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 six month periods
ending October 31, 2019 and 2018:
|
|
|
As
of October 31, 2019
|
|
|
|
|
Original
|
|
|
Adjustment
|
|
|
As
Restated
|
|
|
Balance
Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
Income Taxes
|
|
$
|
1,286,000
|
|
|
$
|
(8,000
|
)
|
|
$
|
1,278,000
|
|
|
Total
Liabilities
|
|
$
|
3,715,000
|
|
|
$
|
(8,000
|
)
|
|
$
|
3,707,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
other comprehensive income
|
|
|
2,983,000
|
|
|
|
(2,933,000
|
)
|
|
|
50,000
|
|
|
Retained
Earnings
|
|
|
37,893,000
|
|
|
|
2,941,000
|
|
|
|
40,834,000
|
|
|
Total
stockholder’s Equity
|
|
$
|
39,478,000
|
|
|
$
|
8,000
|
|
|
$
|
39,486,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholder’s Equity
|
|
$
|
43,193,000
|
|
|
$
|
—
|
|
|
$
|
43,193,000
|
|
|
|
|
As
of October 31, 2018
|
|
|
|
|
Original
|
|
|
Adjustment
|
|
|
As
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
other comprehensive income
|
|
$
|
1,821,000
|
|
|
$
|
(1,879,000
|
)
|
|
$
|
(58,000
|
)
|
|
Retained Earnings
|
|
|
36,246,000
|
|
|
|
1,881,000
|
|
|
|
38,127,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholder’s
Equity
|
|
$
|
36,748,000
|
|
|
$
|
2,000
|
|
|
$
|
36,750,000
|
|
|
|
|
For
the Three Months Ended October 31, 2019
|
|
|
|
|
Original
|
|
|
Adjustment
|
|
|
As
Restated
|
|
|
Income Statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
Gain (Loss) on Equity Securities
|
|
$
|
—
|
|
|
$
|
129,000
|
|
|
$
|
129,000
|
|
|
Total Other Income
(Expense)
|
|
|
177,000
|
|
|
|
129,000
|
|
|
|
306,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Provisions
for Income Taxes
|
|
|
1,123,000
|
|
|
|
129,000
|
|
|
|
1,252,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisions for Income
Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax expense (benefit)
|
|
|
1,000
|
|
|
|
36,000
|
|
|
|
37,000
|
|
|
Total
Income Tax Expense
|
|
|
259,000
|
|
|
|
36,000
|
|
|
|
295,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
864,000
|
|
|
$
|
93,000
|
|
|
$
|
957,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per
Share of Common Stock
|
|
$
|
0.17
|
|
|
$
|
0.02
|
|
|
$
|
0.19
|
|
|
Basic
|
|
$
|
0.17
|
|
|
$
|
0.02
|
|
|
$
|
0.19
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Six Months Ended October 31, 2019
|
|
|
|
|
Original
|
|
|
Adjustment
|
|
|
As
Restated
|
|
|
Income Statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
Gain (Loss) on Equity Securities
|
|
$
|
—
|
|
|
$
|
274,000
|
|
|
$
|
274,000
|
|
|
Total Other Income
(Expense)
|
|
$
|
420,000
|
|
|
$
|
274,000
|
|
|
$
|
694,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Provisions
for Income Taxes
|
|
|
2,275,000
|
|
|
|
274,000
|
|
|
|
2,549,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax expense (benefit)
|
|
|
(6,000
|
)
|
|
|
71,000
|
|
|
|
65,000
|
|
|
Total Income Tax
Expense
|
|
|
546,000
|
|
|
|
71,000
|
|
|
|
617,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
1,729,000
|
|
|
$
|
203,000
|
|
|
$
|
1,932,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per
Share of Common Stock
|
|
$
|
0.35
|
|
|
$
|
0.04
|
|
|
$
|
0.39
|
|
|
Basic
|
|
$
|
0.35
|
|
|
$
|
0.04
|
|
|
$
|
0.39
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Three Months Ended October 31, 2018
|
|
|
|
|
Original
|
|
|
Adjustment
|
|
|
As
Restated
|
|
|
Income Statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
Gain (Loss) on Equity Securities
|
|
$
|
—
|
|
|
$
|
(1,197,000
|
)
|
|
$
|
(1,197,000
|
)
|
|
Total Other Income
(Expense)
|
|
$
|
131,000
|
|
|
$
|
(1,197,000
|
)
|
|
$
|
(1,066,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Provisions
for Income Taxes
|
|
|
1,017,000
|
|
|
|
(1,197,000
|
)
|
|
|
(180,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax expense (benefit)
|
|
|
(12,000
|
)
|
|
|
(345,000
|
)
|
|
|
(357,000
|
)
|
|
Total
Income Tax Expense
|
|
|
249,000
|
|
|
|
(345,000
|
)
|
|
|
(96,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
768,000
|
|
|
$
|
(852,000
|
)
|
|
$
|
(84,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per
Share of Common Stock
|
|
$
|
0.15
|
|
|
$
|
(0.17
|
)
|
|
$
|
(0.02
|
)
|
|
Basic
|
|
$
|
0.15
|
|
|
$
|
(0.17
|
)
|
|
$
|
(0.02
|
)
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Six Months Ended October 31, 2018
|
|
|
|
|
Original
|
|
|
Adjustment
|
|
|
As
Restated
|
|
|
Income Statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
Gain (Loss) on Equity Securities
|
|
$
|
—
|
|
|
$
|
(765,000
|
)
|
|
$
|
(765,000
|
)
|
|
Total Other Income
(Expense)
|
|
$
|
259,000
|
|
|
$
|
(765,000
|
)
|
|
$
|
(506,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Provisions
for Income Taxes
|
|
|
1,918,000
|
|
|
|
(765,000
|
)
|
|
|
1,153,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax expense (benefit)
|
|
|
24,000
|
|
|
|
(221,000
|
)
|
|
|
(197,000
|
)
|
|
Total
Income Tax Expense
|
|
|
532,000
|
|
|
|
(221,000
|
)
|
|
|
311,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
1,386,000
|
|
|
$
|
(544,000
|
)
|
|
$
|
842,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per
Share of Common Stock
|
|
$
|
0.28
|
|
|
$
|
(0.11
|
)
|
|
$
|
0.17
|
|
|
Basic
|
|
$
|
0.28
|
|
|
$
|
(0.11
|
)
|
|
$
|
0.17
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Three Months Ended October 31, 2019
|
|
|
|
|
Original
|
|
|
Adjustment
|
|
|
As
Restated
|
|
|
Statement of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
864,000
|
|
|
$
|
93,000
|
|
|
$
|
957,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive
Income, net of Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain
(loss) on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding
gains (losses) arising during period
|
|
|
241,000
|
|
|
|
(240,000
|
)
|
|
|
1,000
|
|
|
Less: reclassification
adjustment for (gains) losses included in net income
|
|
|
(111,000
|
)
|
|
|
111,000
|
|
|
|
—
|
|
|
Income
tax expense (benefit) related to other comprehensive income
|
|
|
(37,000
|
)
|
|
|
37,000
|
|
|
|
—
|
|
|
Other
Comprehensive Income (Loss)
|
|
$
|
93,000
|
|
|
$
|
(92,000
|
)
|
|
$
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
$
|
957,000
|
|
|
$
|
1,000
|
|
|
$
|
958,000
|
|
|
|
|
For
the Six Months Ended October 31, 2019
|
|
|
|
|
Original
|
|
|
Adjustment
|
|
|
As
Restated
|
|
|
Statement of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
1,729,000
|
|
|
$
|
203,000
|
|
|
$
|
1,932,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive
Income, net of Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain
(loss) on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding
gains arising during period
|
|
|
565,000
|
|
|
|
(515,000
|
)
|
|
|
50,000
|
|
|
Less: reclassification
adjustment for (gains) losses included in net income
|
|
|
(240,000
|
)
|
|
|
240,000
|
|
|
|
—
|
|
|
Income
tax expense related to other comprehensive income
|
|
|
(94,000
|
)
|
|
|
80,000
|
|
|
|
(14,000
|
)
|
|
Other
Comprehensive Income (Loss)
|
|
$
|
231,000
|
|
|
$
|
(195,000
|
)
|
|
$
|
36,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
$
|
1,960,000
|
|
|
$
|
8,000
|
|
|
$
|
1,968,000
|
|
|
|
|
For
the Three Months Ended October 31, 2018
|
|
|
|
|
Original
|
|
|
Adjustment
|
|
|
As
Restated
|
|
|
Statement of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
768,000
|
|
|
$
|
(852,000
|
)
|
|
$
|
(84,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive
Income (Loss), net of Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain
(loss) on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding
gains (Loss) arising during period
|
|
|
(1,245,000
|
)
|
|
|
1,190,000
|
|
|
|
(55,000
|
)
|
|
Less:
reclassification adjustment for (gains) losses included in net income
|
|
|
(7,000
|
)
|
|
|
7,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense related to other comprehensive income
|
|
|
361,000
|
|
|
|
(346,000
|
)
|
|
|
15,000
|
|
|
Other
Comprehensive Income (Loss)
|
|
$
|
(891,000
|
)
|
|
$
|
851,000
|
|
|
$
|
(40,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Loss
|
|
$
|
(123,000
|
)
|
|
$
|
(1,000
|
)
|
|
$
|
(124,000
|
)
|
|
|
|
For
the Six Months Ended October 31, 2018
|
|
|
|
|
Original
|
|
|
Adjustment
|
|
|
As
Restated
|
|
|
Statement of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
1,386,000
|
|
|
$
|
(544,000
|
)
|
|
$
|
842,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive
Income, net of Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain
(loss) on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding
gains arising during period
|
|
|
(638,000
|
)
|
|
|
803,000
|
|
|
|
165,000
|
|
|
Less: reclassification
adjustment for (gains) losses included in net income
|
|
|
37,000
|
|
|
|
(37,000
|
)
|
|
|
—
|
|
|
Income
tax expense related to other comprehensive income
|
|
|
173,000
|
|
|
|
(221,000
|
)
|
|
|
(48,000
|
)
|
|
Other
Comprehensive Income (Loss)
|
|
$
|
(428,000
|
)
|
|
$
|
545,000
|
|
|
$
|
117,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income (Loss)
|
|
$
|
958,000
|
|
|
$
|
1,000
|
|
|
$
|
959,000
|
|
|
|
|
Original
|
|
|
Adjustment
|
|
|
As
Restated
|
|
|
Statement of Stockholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, July 31, 2019
|
|
$
|
40,504,000
|
|
|
$
|
7,000
|
|
|
$
|
40,511,000
|
|
|
Purchase of common
stock
|
|
|
(2,000
|
)
|
|
|
1,000
|
|
|
|
(1,000
|
)
|
|
Dividend declared
at $0.40 per common share outstanding
|
|
|
(1,981,000
|
)
|
|
|
(1,000
|
)
|
|
|
(1,982,000
|
)
|
|
Unrealized gain
(loss), net of tax effect
|
|
|
93,000
|
|
|
|
(92,000
|
)
|
|
|
1,000
|
|
|
Net
Income
|
|
|
864,000
|
|
|
|
93,000
|
|
|
|
957,000
|
|
|
Balance, October
31, 2019
|
|
$
|
39,478,000
|
|
|
$
|
8,000
|
|
|
$
|
39,486,000
|
|
|
|
|
Original
|
|
|
Adjustment
|
|
|
As
Restated
|
|
|
Statement of Stockholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, July 31, 2018
|
|
$
|
38,806,000
|
|
|
$
|
1,000
|
|
|
$
|
38,807,000
|
|
|
Purchase of common
stock
|
|
|
(49,000
|
)
|
|
|
—
|
|
|
|
(49,000
|
)
|
|
Dividend declared
at $0.38 per common share outstanding
|
|
|
(1,886,000
|
)
|
|
|
1,000
|
|
|
|
(1,885,000
|
)
|
|
Unrealized gain
(loss), net of tax effect
|
|
|
(891,000
|
)
|
|
|
851,000
|
|
|
|
(40,000
|
)
|
|
Net
Income
|
|
|
768,000
|
|
|
|
(851,000
|
)
|
|
|
(83,000
|
)
|
|
Balance,
October 31, 2018
|
|
$
|
36,748,000
|
|
|
$
|
2,000
|
|
|
$
|
36,750,000
|
|
|
|
|
Original
|
|
|
Adjustment
|
|
|
As
Restated
|
|
|
Statement of Stockholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, April 30, 2019
|
|
$
|
39,553,000
|
|
|
$
|
—
|
|
|
$
|
39,553,000
|
|
|
Purchase of common
stock
|
|
|
(54,000
|
)
|
|
|
—
|
|
|
|
(54,000
|
)
|
|
Dividend declared
at $0.40 per common share outstanding
|
|
|
(1,981,000
|
)
|
|
|
—
|
|
|
|
(1,981,000
|
)
|
|
Unrealized gain
(loss), net of tax effect
|
|
|
231,000
|
|
|
|
(195,000
|
)
|
|
|
36,000
|
|
|
Net
Income
|
|
|
1,729,000
|
|
|
|
203,000
|
|
|
|
1,932,000
|
|
|
Balance, October
31, 2019
|
|
$
|
39,478,000
|
|
|
$
|
8,000
|
|
|
$
|
39,486,000
|
|
|
|
|
Original
|
|
|
Adjustment
|
|
|
As
Restated
|
|
|
Statement of Stockholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, April 30, 2018
|
|
$
|
37,730,000
|
|
|
$
|
—
|
|
|
$
|
37,730,000
|
|
|
Purchase of common
stock
|
|
|
(54,000
|
)
|
|
|
—
|
|
|
|
(54,000
|
)
|
|
Dividend declared
at $0.38 per common share outstanding
|
|
|
(1,886,000
|
)
|
|
|
1,000
|
|
|
|
(1,885,000
|
)
|
|
Unrealized gain
(loss), net of tax effect
|
|
|
(428,000
|
)
|
|
|
545,000
|
|
|
|
117,000
|
|
|
Net
Income
|
|
|
1,386,000
|
|
|
|
(544,000
|
)
|
|
|
842,000
|
|
|
Balance, October
31, 2018
|
|
$
|
36,748,000
|
|
|
$
|
2,000
|
|
|
$
|
36,750,000
|
|
|
|
|
For
the Six Months Ended October 31, 2019
|
|
|
|
|
Original
|
|
|
Adjustment
|
|
|
As
Restated
|
|
|
Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
1,729,000
|
|
|
$
|
203,000
|
|
|
$
|
1,932,000
|
|
|
Adjustment to reconcile
net income to net cash provided operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (gain)
loss on equity securities
|
|
|
—
|
|
|
|
(274,000
|
)
|
|
|
(274,000
|
)
|
|
Deferred income
taxes
|
|
|
(6,000
|
)
|
|
|
71,000
|
|
|
|
65,000
|
|
|
Net cash provided
by (used in) operating activities
|
|
$
|
2,111,000
|
|
|
$
|
—
|
|
|
$
|
2,111,000
|
|
|
|
|
For
the Six Months Ended October 31, 2018
|
|
|
|
|
Original
|
|
|
Adjustment
|
|
|
As
Restated
|
|
|
Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
1,386,000
|
|
|
$
|
(544,000
|
)
|
|
$
|
842,000
|
|
|
Adjustment to reconcile
net income to net cash provided operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (gain)
loss on equity securities
|
|
|
—
|
|
|
|
765,000
|
|
|
|
765,000
|
|
|
Deferred income
taxes
|
|
|
25,000
|
|
|
|
(222,000
|
)
|
|
|
(197,000
|
)
|
|
Net cash provided
by (used in) operating activities
|
|
$
|
1,172,000
|
|
|
$
|
—
|
|
|
$
|
1,172,000
|
|
|
|
|
For
the Three Months Ended October 31,
|
|
|
|
|
Originally
Filed 2019
|
|
|
Adjustment
2019
|
|
|
Restated
2019
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
864,000
|
|
|
$
|
93,000
|
|
|
$
|
957,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
|
|
|
4,952,110
|
|
|
|
—
|
|
|
|
4,952,110
|
|
|
Convertible Preferred Stock
|
|
|
20,500
|
|
|
|
—
|
|
|
|
20,500
|
|
|
Weighted average common shares outstanding, diluted
|
|
|
4,972,610
|
|
|
|
—
|
|
|
|
4,972,610
|
|
|
Net Income per share - Basic
|
|
$
|
0.17
|
|
|
$
|
0.02
|
|
|
$
|
0.19
|
|
|
Income per shares - Diluted
|
|
$
|
0.17
|
|
|
$
|
0.02
|
|
|
$
|
0.19
|
|
|
|
|
For
the Six Months Ended October 31,
|
|
|
|
|
Originally
Filed 2019
|
|
|
Adjustment
2019
|
|
|
Restated
2019
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,729,000
|
|
|
$
|
203,000
|
|
|
$
|
1,932,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
|
|
|
4,954,250
|
|
|
|
—
|
|
|
|
4,964,250
|
|
|
Convertible Preferred
Stock
|
|
|
20,500
|
|
|
|
—
|
|
|
|
20,500
|
|
|
Weighted average common shares
outstanding, diluted
|
|
|
4,974,750
|
|
|
|
—
|
|
|
|
4,974,750
|
|
|
Net Income per share - Basic
|
|
$
|
0.35
|
|
|
$
|
0.04
|
|
|
$
|
0.39
|
|
|
Income per shares - Diluted
|
|
$
|
0.35
|
|
|
$
|
0.04
|
|
|
$
|
0.39
|
|
|
|
|
For
the Three Months Ended October 31,
|
|
|
|
|
Originally
Filed 2018
|
|
|
Adjustment
2018
|
|
|
Restated
2018
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
768,000
|
|
|
$
|
(852,000
|
)
|
|
$
|
(84,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
|
|
|
4,962,177
|
|
|
|
—
|
|
|
|
4,962,177
|
|
|
Convertible Preferred
Stock
|
|
|
20,500
|
|
|
|
—
|
|
|
|
20,500
|
|
|
Weighted average common shares
outstanding, diluted
|
|
|
4,982,677
|
|
|
|
—
|
|
|
|
4,982,677
|
|
|
Net Income per share - Basic
|
|
$
|
0.15
|
|
|
$
|
(0.17
|
)
|
|
$
|
(0.02
|
)
|
|
Income per shares - Diluted
|
|
$
|
0.15
|
|
|
$
|
(0.17
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
For
the Six Months Ended October 31,
|
|
|
|
|
Originally
Filed 2018
|
|
|
Adjustment
2018
|
|
|
Restated
2018
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,386,000
|
|
|
$
|
(544,000
|
)
|
|
$
|
842,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
|
|
|
4,964,879
|
|
|
|
—
|
|
|
|
4,964,879
|
|
|
Convertible Preferred
Stock
|
|
|
20,500
|
|
|
|
—
|
|
|
|
20,500
|
|
|
Weighted average common shares
outstanding, diluted
|
|
|
4,985,379
|
|
|
|
—
|
|
|
|
4,985,379
|
|
|
Net Income per share - Basic
|
|
$
|
0.28
|
|
|
$
|
(0.11
|
)
|
|
$
|
0.17
|
|
|
Income per shares - Diluted
|
|
$
|
0.28
|
|
|
$
|
(0.11
|
)
|
|
$
|
0.17
|
|
GEORGE
RISK INDUSTRIES, INC.
PART
I. FINANCIAL INFORMATION
Item
2. Management Discussion and Analysis of Financial Condition and Results of Operations
MANAGEMENT
DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
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 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 continues to improve through the first half of the current fiscal year with the first and second quarters
presenting almost identical numbers. 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. Additionally, the Company’s products
are traditionally tied to the housing market and with that market remaining strong, it in turn helps the Company’s sales
grow. 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. Challenges in the coming months include continuing to get product
out to customers in a timely manner and to fill the stockroom with inventory to get back to shipping out core products the same
day. Also, there have been some shortages of raw materials and prices of raw materials have increased with the execution of tariffs
by the US government. 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 $3,710,000 for the quarter ended October 31, 2019, which is an 1.17% increase from the corresponding quarter last
year. Year-to-date net sales were $7,263,000 at October 31, 2019, which is a 2.35% increase from the same period last year.
The increases in sales shows the stability of the Company and loyalty of its customer base. The ongoing commitment towards
outstanding customer service and customization of products are a few of the many reasons sales continue to grow. Also, new
sales have emerged since GRI acquired the assets of Labor Saving Devices. The Company has been selling this product line for
a couple of years now, which has been a factor in the increased sales.
|
|
|
|
|
|
|
●
|
Cost
of goods sold was 50.13% of net sales for the quarter ended October 31, 2019 and was 51.62% for the same quarter last year.
Year-to-date cost of goods sold percentages were 49.98% for the current six months and 52.07% for the corresponding six months
last year. The current cost of goods sold percentages are right at Management’s goal of keeping labor and other manufacturing
expenses at less than 50% for both the quarter and year-to-date results. Labor costs have decreased because Management has
been working with and training employees to work more efficiently.
|
|
|
●
|
Operating
expenses were up $16,000 for the quarter and were up $36,000 for the six-months ended October 31, 2019 as compared to the
corresponding periods last year. But when comparing percentages in relation to net sales, the operating expenses for the quarter
ended October 31, 2019 was 24.37% of net sales while it was 24.22% of net sales for the same quarter the prior year. For year-to-date
numbers, operating expense were 24.48% and 24.55% of net sales for the six months ended October 31, 2019 and 2018, respectively.
The Company has been able to keep the operating expenses at less than 30% of net sales for many years now; however, the actual
dollar amount increase is because of increased commission amounts (since sales have increased) and additional labor costs
for hiring new employees and wage increases.
|
|
|
|
|
|
|
●
|
Income
from operations for the quarter ended October 31, 2019 was at $946,000, which is a 6.77% increase from the corresponding quarter
last year, which had income from operations of $886,000. Income from operations for the six months ended October 31, 2019
was at $1,855,000, which is a 11.81% increase from the corresponding six months last year, which had income from operations
of $1,659,000.
|
|
|
|
|
|
|
●
|
Other
income and expenses showed a $306,000 gain for the quarter ended October 31, 2019 as compared to a $1,066,000 loss for the
quarter ended October 31, 2018. 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 six months ended October 31, 2019 an unrealized
gain was recorded, a non-cash entry, on marketable securities of $274,000. For the six months ended October 31, 2018 an unrealized
loss of $765,000 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 October 31, 2019 was up $1,041,000, or 1,239.29%, from the same quarter last year. Similarly,
net income for the six-month period ended October 31, 2019 was up $1,090,000, or 129.45%, from the same period in the prior
year.
|
|
|
|
|
|
|
●
|
Earnings
per common share for quarter ended October 31, 2019 were $0.19 per share and $0.39 per share for the year-to-date numbers.
EPS for the quarter and six months ended October 31, 2018 were ($0.02) per share and $0.17 per share, respectively.
|
Liquidity
and capital resources
Operating
|
|
●
|
Net
cash increased $339,000 during the six months ended October 31, 2019 as compared to a decrease of $204,000 during the corresponding
period last year.
|
|
|
|
|
|
|
●
|
Accounts
receivable decreased $486,000 for the six months ended October 31, 2019 compared with a $23,000 decrease for the same period
last year. The current year decrease is a result of improved sales and collections on accounts receivable have improved over
the last year. An analysis of accounts shows that there were only 0.02% that were over 90 days at October 31, 2019.
|
|
|
|
|
|
|
●
|
Inventories
increased $583,000 during the current six-month period as compared to a $435,000 increase last year. The bigger increase in
the current year is primarily due to increased sales and being able to have inventory on hand to get product out to customers
in a timely manner.
|
|
|
●
|
Prepaid
expenses saw a $271,000 decrease for the current six months, primarily due to inventory
being delivered that had to be paid for in advance. The prior six months showed a $168,000
increase in prepaid expenses.
|
|
|
●
|
Income
tax overpayment for the period ended October 31, 2019 decreased $114,000, while there
was an increase of $97,000 for the same period the prior year. The current decrease is
due to making an educated evaluation of the Company’s income tax estimates.
|
|
|
●
|
Accounts
payable shows decreases for the current and prior six-month periods of $36,000 and $189,000,
respectively. The company strives to pay all invoices within terms, and the variance
in the decreases is primarily due to the timing of receipt of products and payment of
invoices.
|
|
|
●
|
Accrued
expenses increased $11,000 for the current six-month period as compared to a $8,000 increase for the six-month period ended
October 31, 2018. The current year increase is due to increased wages and commissions.
|
Investing
|
|
●
|
As
for our investment activities, the Company purchased $179,000 of property and equipment during the current six-month period.
In comparison with the corresponding six months last year, the Company did not buy any fixed assets.
|
|
|
|
|
|
|
●
|
Additionally,
the Company continues to purchase marketable securities, which include municipal bonds and quality stocks. During the six-month
period ended October 31, 2019 there was quite a bit of buy/sell activity in the investment accounts. Net cash spent on purchases
of marketable securities for the six-month period ended October 31, 2019 was $250,000 compared to $324,000 spent in the prior
six-month period. We continue 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 its common stock when the opportunity arises. For the six-month period ended October 31,
2019, the Company purchased $54,000 worth of treasury stock, in comparison to $54,000 repurchased in the corresponding six-month
period last year.
|
|
|
|
|
|
|
●
|
The
company declared a dividend of $0.40 per share of common stock on September 30, 2019, which was paid out during the second
quarter. This is a slight increase to the dividend of $0.38, which 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
|
|
|
|
|
October
31, 2019
|
|
|
October
31, 2018
|
|
|
Working capital
|
|
|
|
|
|
|
|
|
|
(current
assets – current liabilities)
|
|
$
|
37,805,000
|
|
|
$
|
34,508,000
|
|
|
Current ratio
|
|
|
|
|
|
|
|
|
|
(current assets
/ current liabilities)
|
|
|
16.564
|
|
|
|
16.614
|
|
|
Quick ratio
|
|
|
|
|
|
|
|
|
|
((cash + investments
+ AR) / current liabilities)
|
|
|
14.333
|
|
|
|
14.401
|
|
New
Product Development
The
Company and its engineering department continue to develop enhancements to product lines, develop new products that 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 to work on high security switches. We have a triple biased high security switch design nearly complete and an adjustable
magnet design was completed for recessed mounting applications.
|
|
|
|
|
|
|
●
|
Tool
and die is currently working on a mold for a new version of the channel magnet. These magnets fit into the top channel of
steel doors; no drilling of the recessed magnet required.
|
|
|
|
|
|
|
●
|
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 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 Devices product. It is a 12” adjustable hole cutter which complements our 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, sits against the ceiling, keeps the ceiling material and dust enclosed making for a
clean, time saving installation.
|
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.
GEORGE
RISK INDUSTRIES, INC.
PART
I. FINANCIAL INFORMATION