Notes
to Financial Statements
April
30, 2020
|
1.
|
Nature
of Business and Summary of Significant Accounting Policies
|
George
Risk Industries, Inc. (GRI or the Company) was incorporated in 1967 in Colorado. The Company is presently engaged in the design,
manufacture, and sale of custom computer keyboards, push button switches, burglar alarm components and systems, pool alarms, EZ
Duct wire covers, water sensors and wire and cable installation tools.
Nature
of Business — The Company is engaged in the design, manufacture, and marketing of custom computer keyboards, push-button
switches, proximity sensors, security alarm components, pool alarms, liquid detection sensors, raceway wire covers, wire and cable
installation tools and various other sensors and devices.
Cash
and Cash Equivalents — The Company considers all investments with a maturity of three months or less to be cash equivalents.
The Company maintains its cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. The
Company continually monitors its banking relationships and consequently has not experienced any losses in such accounts. The Company
believes it is not exposed to any significant credit risk on cash and cash equivalents.
Allowance
for Doubtful Accounts — Accounts receivable are customer obligations due under normal trade terms. The Company sells
its products to security alarm distributors, alarm installers, and original equipment manufacturers. The Company performs continuing
credit evaluations of its customers’ financial condition and the Company generally does not require collateral.
The
Company records an allowance for doubtful accounts based on an analysis of specifically identified customer balances. The Company
has a limited number of customers with individually substantial amounts due at any given date. Any unanticipated change in any
one of these customers’ credit worthiness or other matters affecting the collectability of amounts due from such customers
could have a material effect on the results of operations in the period in which such changes or events occur. After all attempts
to collect a receivable have failed, the receivable is written off. The Company has recorded an allowance for doubtful accounts
of $7,306 for the year ended April 30, 2020 and $9,321 for the year ended April 30, 2019. For the fiscal year ended April 30,
2020, bad debt recovery was $156. For the fiscal year ended April 30, 2019, bad debt expense was $3,807.
Inventories
— Inventories are stated at the lower of cost or net realized value. Cost is determined using the average cost-pricing
method. The Company uses actual costs to price its manufactured inventories, approximating average costs.
|
1.
|
Nature
of Business and Summary of Significant Accounting Policies, continued
|
Property
and Equipment — Property and equipment are recorded at cost. Depreciation is calculated based on the following estimated
useful lives using the straight-line method:
|
Classification
|
|
Useful
Life
in Years
|
|
2020
Cost
|
|
|
2019
Cost
|
|
|
Dies, jigs, and molds
|
|
3–7
|
|
$
|
1,826,000
|
|
|
$
|
1,808,000
|
|
|
Machinery and equipment
|
|
5–10
|
|
|
1,797,000
|
|
|
|
1,533,000
|
|
|
Furniture and fixtures
|
|
5–10
|
|
|
143,000
|
|
|
|
142,000
|
|
|
Leasehold improvements
|
|
5–32
|
|
|
266,000
|
|
|
|
256,000
|
|
|
Buildings
|
|
20–39
|
|
|
1,151,000
|
|
|
|
853,000
|
|
|
Automotive
|
|
3–5
|
|
|
110,000
|
|
|
|
89,000
|
|
|
Software
|
|
2–5
|
|
|
425,000
|
|
|
|
390,000
|
|
|
Land
|
|
N/A
|
|
|
80,000
|
|
|
|
13,000
|
|
|
Total
|
|
|
|
|
5,798,000
|
|
|
|
5,084,000
|
|
|
Accumulated depreciation
|
|
|
|
|
(4,333,000
|
)
|
|
|
(4,100,000
|
)
|
|
Property and
equipment, net
|
|
|
|
$
|
1,465,000
|
|
|
$
|
984,000
|
|
Depreciation
expense of $250,000 and $231,000 was charged to operations for the years ended April 30, 2020 and 2019, respectively.
Maintenance
and repairs are charged to expense as incurred, and expenditures for major improvements are capitalized. When assets are retired
or otherwise disposed of, the property accounts are relieved of costs and accumulated depreciation and any resulting gain or loss
is credited or charged to operations.
Investment
in Limited Land Partnership – Held for Sale — In November 2002, the Company purchased 6.67% of a prime
22-acre land parcel for development in Winter Park-Grand County, CO for investment purposes for a total of $200,000. The goal
was to hold the property for resale(s) in 2-5 years, but many efforts to sell the property have not materialized. Over the years,
there have been a total of $120,000 of additional contributions to aid in improvements and recurring expenses such as debt service,
utilities, taxes, maintenance, insurance and professional fees. Management has evaluated this investment and does not believe
there is any impairment and that the full cost will be recovered when sold.
Intangible
Assets — Intangible assets are amortized on a straight-line basis over their estimated useful lives, unless it is determined
their lives to be indefinite. The two intangible assets currently being amortized are (1) a non-compete agreement with a useful
live of 5 years and (2) intellectual property with a useful live of 15 years. As of April 30, 2020, the Company had $1,517,000
of net intangible asset costs, while the net intangible assets costs at April 30, 2019 were $1,640,000. Amortization expense was
$123,000 for the years ended April 30, 2020 and 2019, respectively.
|
1.
|
Nature
of Business and Summary of Significant Accounting Policies, continued
|
As
of April 30, 2020, future amortization of intangible assets is expected as follows:
|
Fiscal
year end
|
|
Amortization
amount
|
|
|
2021
|
|
$
|
123,000
|
|
|
2022
|
|
$
|
123,000
|
|
|
2023
|
|
$
|
123,000
|
|
|
2024
|
|
$
|
122,000
|
|
|
2025
|
|
$
|
121,000
|
|
|
Thereafter
|
|
$
|
902,000
|
|
|
|
|
$
|
1,517,000
|
|
Basic
and Diluted Earnings per Share — The Company computes earnings per share in accordance with ASC 260-10-45 Earnings per
Share, which requires presentation of both basic and diluted earnings per share on the face of the statement of income. Basic
earnings per share is computed by dividing net earnings available to common stockholders by the weighted average number of outstanding
common shares during the period. Diluted earnings per share gives effect to all dilutive potential common shares outstanding during
the period. Dilutive earnings per share excludes all potential common shares if their effect is anti-dilutive.
Advertising
— Advertising costs are expensed as incurred and are included in selling expenses. Advertising expense amounted to $174,000
and $223,000 for the years ended April 30, 2020 and 2019, respectively.
Income
Taxes — Deferred tax assets and liabilities are recorded for the future consequences of events that have been recognized
in the Company’s financial statements or tax returns. Measurement of the deferred tax items is based on enacted tax laws.
In the event the future consequences of differences between financial reporting bases and tax bases of the Company’s assets
or liabilities result in a deferred tax asset, we evaluate the probability of realizing the future benefits comprising that asset
and record a valuation allowance if considered necessary.
Accounting
standards prescribe a recognition threshold and a measurement attribute for the financial statement recognition and measurement
of the positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more
likely than not to be sustained upon examination by taxing authorities. A “more likely than not” tax position is measured
as the largest amount of benefit that is greater than a fifty percent likelihood of being realized upon ultimate settlement, or
else a full reserve is established against the tax asset or a liability is recorded. Tax years open for examination by taxing
authorities are 2016, 2017, and 2018. Interest and penalties accrued on uncertain tax positions are recorded as income tax expense.
Accounting
Estimates — The preparation of these financial statements requires the use of estimates and assumptions including the
carrying value of assets. The estimates and assumptions result in approximate rather than exact amounts.
|
1.
|
Nature
of Business and Summary of Significant Accounting Policies, continued
|
Fair
Value of Financial Instruments — Certain financial instruments are required to be recorded at fair value. Changes in
assumptions or estimation methods could affect the fair value estimates; however, we do not believe any such changes would have
a material impact on our financial condition, results of operations or cash flows. Other financial instruments, including cash
equivalents, certain investments and short-term debt, are recorded at cost, which approximates fair value. The fair values of
long-term debt and financial instruments are disclosed in Note 11.
Investments
— The accounting policies for the Company’s principal investments are as follows: Debt Securities and Equity
Securities: Effective May 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2016-01 “Financial Instruments-Overall
(ASC Subtopic 825-10):Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”)
(See the Adoption of New Pronouncements section). As a result, the Company measures its equity securities at fair value and recognizes
any changes in fair value in net income. Prior to adoption, equity securities were designated as available-for-sale and reported
at fair value with unrealized capital gains (losses) recorded in Accumulated other comprehensive income (loss) (“AOCI”).
The Company’s Debt Securities are currently designated as available-for-sale. Available-for-sale securities are reported
at fair value and unrealized capital gains (losses) on these securities are recorded directly in AOCI and presented net of related
changes in deferred income taxes. Purchases and sales of debt securities and equity securities are recorded on the trade date.
Investment gains and losses on sales of securities are generally determined on a first-in-first-out (“FIFO”) basis.
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.
Revenue
Recognition — Effective May 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) 606,
“Revenue from Contracts with Customers.” The Company recognizes product revenue using a five-step approach to determine
the amount and timing of revenue to be recognized. The five-step approach requires (1) identifying the contract with the customer,
(2) identifying the performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction
price to the performance obligations in the contract and (5) recognizing revenue when performance obligations are satisfied. The
Company recognizes revenue for product sales upon transfer of title to the customer. Customer purchase orders and/or contracts
are generally used to determine the existence of an arrangement. Shipping documents and the completion of any customer acceptance
requirements, when applicable, are used to verify product delivery or that services have been rendered. The Company assesses whether
a price is fixed or determinable based upon the payment terms associated with the transaction and whether the sales price is subject
to refund or adjustment. Payments received from customers in advance of product shipment or revenue recognition are treated as
deferred revenues and recognized when the product is shipped.
Variable Consideration
-- The Company measures revenue as the amount of consideration for which it expects to be entitled in exchange for transferring
goods. Certain customers may receive cash and/or non-cash incentives such as cash rebates, customer discounts (such as volume
or trade discounts), which are accounted for as variable consideration. In some cases, the Company must apply judgment, including
contractual rates and historical payment trends, when estimating variable consideration.
Product Returns
-- In the normal course of business, the Company may allow customers to return product per the provisions in a sale agreement.
Estimated product returns are recorded as a reduction in reported revenues with offsetting entries recorded in the balance sheet
quarterly based upon historical product return experience, adjusted for known trends, to arrive at the amount of consideration
expected to receive.
Product Warranties
-- In the normal course of business, the Company offers warranties for a variety of its products. The specific terms and conditions
of the warranties vary depending upon the specific product and markets in which the products were sold. The Company accrues for
the estimated cost of product warranty at the time of sale based on historical experience.
|
1.
|
Nature
of Business and Summary of Significant Accounting Policies, continued
|
Shipping
and Handling Costs — The Company considers all shipping and handling to be fulfillment activities and not a separate
performance obligation. Shipping and handling costs are recorded as cost of sales.
Comprehensive
Income — US GAAP requires disclosure of total non-stockholder changes in equity in interim periods and additional disclosures
of the components of non-stockholder changes in equity on an annual basis. Total non-stockholder changes in equity include all
changes in equity during a period except those resulting from fiscal investments by and distributions to stockholders.
Segment
Reporting and Related Information — The Company designates the internal organization that is used by management for
allocating resources and assessing performance as the source of the Company’s reportable segments. US GAAP also requires
disclosures about products and services, geographic area and major customers. At April 30, 2020, the Company operated in three
segments organized by security line products, cable and wiring tools (Labor Saving Devices - LSDI) products, and all other products.
See Note 9 for further segment information disclosures.
|
1.
|
Nature
of Business and Summary of Significant Accounting Policies, continued
|
Recently
Issued Accounting Pronouncements — In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments –
Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which requires entities to
use a forward looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including
trade receivables. The FASB has subsequently issued updates to the standard to provide additional clarification on specific topics.
Topic 326 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. As
a result, we are required to apply this guidance in our fiscal 2021 interim and annual financial statements commencing May 1,
2020. Currently, we do not expect this guidance to impact our results of operations, financial position, or statement of cash
flow.
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.
We do not expect this guidance to impact our results of operations, financial position, or statement of cash flow.
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 financial statements.
There
are no other new accounting pronouncements that are expected to have a significant impact on our financial statements.
|
1.
|
Nature
of Business and Summary of Significant Accounting Policies, continued
|
Subsequent
Events – Management has evaluated all events or transactions that occurred after April 30, 2020 through August 13, 2020,
the report date of the financial statements. During and subsequent to the fourth 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 our employees 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.
Inventories
at April 30, 2020 and 2019, consisted of the following:
|
|
|
2020
|
|
|
2019
|
|
|
Raw materials
|
|
$
|
4,233,000
|
|
|
$
|
3,644,000
|
|
|
Work in process
|
|
|
402,000
|
|
|
|
389,000
|
|
|
Finished goods
|
|
|
606,000
|
|
|
|
641,000
|
|
|
|
|
|
5,241,000
|
|
|
|
4,674,000
|
|
|
Less: allowance
for obsolete inventory
|
|
|
(138,000
|
)
|
|
|
(91,000
|
)
|
|
Inventories,
net
|
|
$
|
5,103,000
|
|
|
$
|
4,583,000
|
|
The
Company has investments in publicly traded equity securities, corporate bonds, state and municipal debt securities, REITs, money
markets, and certificates of deposits and they are recorded at fair value. The investments in debt securities, which include municipal
bonds, bond funds, and corporate bonds, mature between June 2020 and January 2044. The Company uses the average cost method to
determine the cost of equity securities sold with any unrealized gains or losses reported in the respective period’s earnings.
Dividend and interest income are reported as earned.
As
of April 30, 2020 and 2019, investments consisted of the following:
|
Investments at
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
April
30, 2020
|
|
Cost
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Reported
|
|
|
|
|
Basis
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Municipal bonds
|
|
$
|
5,271,000
|
|
|
$
|
80,000
|
|
|
$
|
(89,000
|
)
|
|
$
|
5,262,000
|
|
|
Corporate bonds
|
|
$
|
26,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
26,000
|
|
|
REITs
|
|
$
|
112,000
|
|
|
$
|
-
|
|
|
$
|
(44,000
|
)
|
|
$
|
68,000
|
|
|
Equity securities
|
|
$
|
17,119,000
|
|
|
$
|
3,446,000
|
|
|
$
|
(1,180,000
|
)
|
|
$
|
19,385,000
|
|
|
Money Markets
and CDs
|
|
$
|
581,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
581,000
|
|
|
Total
|
|
$
|
23,109,000
|
|
|
$
|
3,526,000
|
|
|
$
|
(1,313,000
|
)
|
|
$
|
25,322,000
|
|
|
Investments at
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
April
30, 2019
|
|
Cost
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Reported
|
|
|
|
|
Basis
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Municipal bonds
|
|
$
|
5,459,000
|
|
|
$
|
79,000
|
|
|
$
|
(55,000
|
)
|
|
$
|
5,483,000
|
|
|
Corporate bonds
|
|
$
|
26,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
26,000
|
|
|
REITs
|
|
$
|
89,000
|
|
|
$
|
1,000
|
|
|
$
|
(6,000
|
)
|
|
$
|
84,000
|
|
|
Equity securities
|
|
$
|
16,618,000
|
|
|
$
|
4,143,000
|
|
|
$
|
(296,000
|
)
|
|
$
|
20,465,000
|
|
|
Money Markets
and CDs
|
|
$
|
1,233,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,233,000
|
|
|
Total
|
|
$
|
23,425,000
|
|
|
$
|
4,223,000
|
|
|
$
|
(357,000
|
)
|
|
$
|
27,291,000
|
|
Marketable
securities that are classified as 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 income in the period of the change. Upon the disposition of a marketable
security, the Company records a realized gain or (loss) on the Company’s statements of income. 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 equity securities before the adoption of the new standard, from
Accumulated Other Comprehensive Income to Retained Earnings.
The
Company evaluates all investments for other-than temporary declines in fair value, which are defined as when the cost basis exceeds
the fair value for approximately one year. The Company also evaluates the nature of the investment, cause of impairment and number
of investments that are in an unrealized position. When other than a temporary decline is identified, the Company will decrease
the cost of the investment to the new fair value and recognize a loss. The investments are periodically evaluated to determine
if impairment changes are required. As a result of this standard, management recorded impairment losses of $157,000 for the year
ended April 30, 2020 and $68,000 for the year ended April 30, 2019.
The
Company’s investments are actively traded in the stock and bond markets. Therefore, there is either a realized gain or loss
that is recorded when a sale happens. For the fiscal year ended April 30, 2020 the Company had sales of equity securities which
yielded gross realized gains of $374,000 and gross realized losses of $608,000. For the same period, sales of debt securities
yielded gross realized gains of $4,000 and gross realized losses of $154,000. Conversely, the Company recorded gross realized
gains on equity securities of $679,000 and gross realized losses of $380,000 for the fiscal year ending April 30, 2019. As for
debt securities, gross realized gains were $20,000 and gross realized losses were $258,000 for the fiscal year ending April 30,
2019. The gross realized loss numbers include the impaired figures listed in the previous paragraph. Additionally, proceeds from
sales of securities available for sale were $776,000 for the fiscal year ended April 30, 2020 and were $766,000 for the prior
fiscal year.
|
3.
|
Investments,
continued
|
The
following table shows the investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated
by investment category and length of time that individual securities have been in a continuous unrealized loss position, at April
30, 2020 and 2019.
Unrealized
Loss Breakdown by Investment Type at April 30, 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
|
|
$
|
2,203,000
|
|
|
$
|
(42,000
|
)
|
|
$
|
484,000
|
|
|
$
|
(47,000
|
)
|
|
$
|
2,687,000
|
|
|
$
|
(89,000
|
)
|
|
REITs
|
|
$
|
43,000
|
|
|
$
|
(30,000
|
)
|
|
$
|
24,000
|
|
|
$
|
(14,000
|
)
|
|
$
|
67,000
|
|
|
$
|
(44,000
|
)
|
|
Equity securities
|
|
$
|
5,496,000
|
|
|
$
|
(866,000
|
)
|
|
$
|
1,651,000
|
|
|
$
|
(314,000
|
)
|
|
$
|
7,147,000
|
|
|
$
|
(1,180,000
|
)
|
|
Total
|
|
$
|
7,742,000
|
|
|
$
|
(938,000
|
)
|
|
$
|
2,159,000
|
|
|
$
|
(375,000
|
)
|
|
$
|
9,901,000
|
|
|
$
|
(1,313,000
|
)
|
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 occurs, which may be maturity, the
Company does not consider these investments to be other-than-temporarily impaired at April 30, 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. Management has evaluated the individual holdings and
does not consider these investments to be other-than-temporarily impaired at April 30, 2020.
|
4.
|
Retirement
Benefit Plan
|
On
January 1, 1998, the Company adopted the George Risk Industries, Inc. Retirement Savings Plan (the “Plan”). The Plan
is a defined contribution savings plan designed to provide retirement income to eligible employees of the Company. The Plan is
intended to be qualified under Section 401(k) of the Internal Revenue Code of 1986, as amended. It is funded by voluntary pre-tax
and Roth (taxable) contributions from eligible employees who may contribute a percentage of their eligible compensation, limited
and subject to statutory limits. Employees are eligible to participate in the Plan when they have attained the age of 21 and completed
one thousand hours of service in any plan year with the Company. Upon leaving the Company, each participant is 100% vested with
respect to the participants’ contributions while the Company’s matching contributions are vested over a six-year period
in accordance with the Plan document. Contributions are invested, as directed by the participant, in investment funds available
under the Plan. Matching contributions of approximately $40,000 and $10,000 were paid in each of the fiscal years ending April
30, 2020 and 2019 respectively.
Preferred
Stock—Each share of the Series #1 preferred stock is convertible at the option of the holder into five shares of Class
A common stock and is also redeemable at the option of the board of directors at $20 per share. The holders of the convertible
preferred stock shall be entitled to a dividend at a rate up to $1 per share annually, payable quarterly as declared by the board
of directors. No dividends were declared or paid during the two years ended April 30, 2020 and 2019.
Convertible
preferred stock without par value may be issued from time to time as determined by the board of directors. Shares of different
series shall be of equal rank but may vary as to terms and conditions.
Class
A Common Stock—The holders of the Class A common stock are entitled to receive dividends as declared by the board of
directors. No dividends may be paid on the Class A common stock until the holders of the Series #1 preferred stock have been paid.
A dividend for the four prior quarters and provision has been made for the full dividend in the current fiscal year.
During
the fiscal year ended April 30, 2020, the Company purchased 8,683 shares of Class A common stock. This was initiated by stockholders
contacting the Company.
Stock
Transfer Agent—The Company does not have an independent stock transfer agent. The Company maintains all stock records.
Basic
and diluted earnings per share, assuming convertible preferred stock was converted for each period presented are:
|
|
|
April
30, 2020
|
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per-Share
|
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
Net
income
|
|
$
|
2,104,000
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
2,104,000
|
|
|
|
4,952,277
|
|
|
$
|
.42
|
|
|
Effect of dilutive Convertible Preferred
Stock
|
|
|
–
|
|
|
|
20,500
|
|
|
|
–
|
|
|
Diluted
EPS
|
|
$
|
2,104,000
|
|
|
|
4,972,777
|
|
|
$
|
.42
|
|
|
|
|
April
30, 2019
|
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per-Share
|
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
Net
income
|
|
$
|
3,598,000
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
3,598,000
|
|
|
|
4,962,547
|
|
|
$
|
.73
|
|
|
Effect of dilutive Convertible Preferred
Stock
|
|
|
–
|
|
|
|
20,500
|
|
|
|
(.01
|
)
|
|
Diluted
EPS
|
|
$
|
3,598,000
|
|
|
|
4,983,047
|
|
|
$
|
.72
|
|
|
7.
|
Commitments,
Contingencies, and Related Party Transactions
|
The
Company leased a building from Bonita Risk until the Company purchased the building from her in November 2019 for $200,000. Bonita
Risk is a majority stockholder, a director and employee of the Company. This building contains the Company’s sales and accounting
departments, maintenance department, engineering department and some production facilities. This lease required a minimum payment
of $1,535 on a month-to-month basis. The total lease expense for this arrangement per year was $7,675 and $18,420 for the fiscal
years ended April 30, 2020 and 2019, respectively.
One
of the directors of the board, Joel Wiens, is the principal shareholder of FirsTier Bank. FirsTier Bank is the financial institution
the Company uses for its day to day banking operations. Year end balances of accounts held at this bank are $5,167,000 for the
year ended April 30, 2020 and $4,224,000 for the year ended April 30, 2019. The Company also received interest income from FirsTier
Bank in the amount of approximately $74,600 for the year ended April 30, 2020 and $63,400 for the year ended April 30, 2019.
Reconciliation
of income taxes with Federal and State taxable income:
|
|
|
2020
|
|
|
2019
|
|
|
Income before income
taxes
|
|
$
|
2,665,000
|
|
|
$
|
4,792,000
|
|
|
State income tax deduction
|
|
|
(282,000
|
)
|
|
|
(265,000
|
)
|
|
Interest and dividend income
|
|
|
(462,000
|
)
|
|
|
(658,000
|
)
|
|
Nondeductible expenses and timing
differences
|
|
|
1,875,000
|
|
|
|
(308,000
|
)
|
|
Taxable income
|
|
$
|
3,796,000
|
|
|
$
|
3,561,000
|
|
The
following schedule reconciles the provision for income taxes to the amount computed by applying the statutory rate to income before
income taxes:
|
|
|
2020
|
|
|
2019
|
|
|
Income tax provision
at statutory rate
|
|
$
|
768,000
|
|
|
$
|
1,380,000
|
|
|
Increase (decrease) income taxes
resulting from:
|
|
|
|
|
|
|
|
|
|
State income
taxes
|
|
|
(81,000
|
)
|
|
|
(76,000
|
)
|
|
Interest and
dividend income
|
|
|
(133,000
|
)
|
|
|
(190,000
|
)
|
|
Deferred taxes
|
|
|
(495,000
|
)
|
|
|
170,000
|
|
|
Other temporary
and permanent differences
|
|
|
502,000
|
|
|
|
(90,000
|
)
|
|
Income tax expense
|
|
$
|
561,000
|
|
|
$
|
1,194,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal tax rate
|
|
|
21.00
|
%
|
|
|
21.00
|
%
|
|
State tax rate
|
|
|
7.81
|
%
|
|
|
7.81
|
%
|
|
Blended statutory
rate
|
|
|
28.81
|
%
|
|
|
28.81
|
%
|
Deferred
tax assets (liabilities) consist of the following components at April 30, 2020 and 2019:
|
|
|
2020
|
|
|
2019
|
|
|
Deferred tax assets (liabilities):
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
(136,000
|
)
|
|
$
|
(141,000
|
)
|
|
Inventory valuation
|
|
|
40,000
|
|
|
|
26,000
|
|
|
Allowance for
doubtful accounts
|
|
|
2,000
|
|
|
|
3,000
|
|
|
Accrued vacation
|
|
|
32,000
|
|
|
|
28,000
|
|
|
Accumulated unrealized
(gain)/loss on investments
|
|
|
(637,000
|
)
|
|
|
(1,114,000
|
)
|
|
Net deferred
tax assets (liabilities)
|
|
$
|
(699,000
|
)
|
|
$
|
(1,198,000
|
)
|
The
following is financial information relating to industry segments:
|
|
|
Quarter ended
|
|
|
Year ended
|
|
|
Year ended
|
|
|
|
|
April 30,
|
|
|
April 30,
|
|
|
April 30,
|
|
|
|
|
2020
|
|
|
2020
|
|
|
2019
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
Net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
alarm products
|
|
$
|
3,380,000
|
|
|
$
|
12,021,000
|
|
|
$
|
11,006,000
|
|
|
Cable & wiring
tools
|
|
|
410,000
|
|
|
|
2,141,000
|
|
|
|
2,431,000
|
|
|
Other
products
|
|
|
167,000
|
|
|
|
647,000
|
|
|
|
689,000
|
|
|
Total net
revenue
|
|
$
|
3,957,000
|
|
|
$
|
14,809,000
|
|
|
$
|
14,126,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security alarm
products
|
|
|
889,000
|
|
|
|
3,186,000
|
|
|
|
2,656,000
|
|
|
Cable & wiring
tools
|
|
|
108,000
|
|
|
|
387,000
|
|
|
|
488,000
|
|
|
Other
products
|
|
|
44,000
|
|
|
|
157,000
|
|
|
|
162,000
|
|
|
Total income
from operations
|
|
$
|
1,041,000
|
|
|
$
|
3,730,000
|
|
|
$
|
3,306,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security alarm
products
|
|
|
44,000
|
|
|
|
121,000
|
|
|
|
95,000
|
|
|
Cable & wiring
tools
|
|
|
31,000
|
|
|
|
123,000
|
|
|
|
123,000
|
|
|
Other products
|
|
|
13,000
|
|
|
|
64,000
|
|
|
|
74,000
|
|
|
Corporate
general
|
|
|
9,000
|
|
|
|
65,000
|
|
|
|
62,000
|
|
|
Total depreciation
and amortization
|
|
$
|
97,000
|
|
|
$
|
373,000
|
|
|
$
|
354,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security alarm
products
|
|
|
165,000
|
|
|
|
359,000
|
|
|
|
75,000
|
|
|
Cable & wiring
tools
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Other products
|
|
|
—
|
|
|
|
18,000
|
|
|
|
56,000
|
|
|
Corporate
general
|
|
|
82,000
|
|
|
|
354,000
|
|
|
|
23,000
|
|
|
Total capital
expenditures
|
|
$
|
247,000
|
|
|
$
|
731,000
|
|
|
$
|
154,000
|
|
|
|
|
April
30, 2020
|
|
|
April
30, 2019
|
|
|
Identifiable assets:
|
|
|
|
|
|
|
|
|
|
Security
alarm products
|
|
|
7,150,000
|
|
|
|
6,179,000
|
|
|
Cable & wiring
tools
|
|
|
2,684,000
|
|
|
|
2,713,000
|
|
|
Other products
|
|
|
724,000
|
|
|
|
842,000
|
|
|
Corporate general
|
|
|
33,204,000
|
|
|
|
33,293,000
|
|
|
Total assets
|
|
$
|
43,762,000
|
|
|
$
|
43,027,000
|
|
The
Company maintains the majority of its cash balance in a financial institution in Kimball, Nebraska. Accounts at this institution
are insured by the Federal Deposit Insurance Corporation for up to $250,000. For the years ended April 30, 2020 and 2019, the
Company had uninsured balances of $4,940,000, and $4,082,000, respectively. Management believes that this financial institution
is financially sound and the risk of loss is minimal.
Management
also has cash funds with Wells Fargo Bank with uninsured balances of $1,041,000 and $399,000 for the years ending April 30, 2020
and 2019, respectively. Management believes that this financial institution is financially sound and the risk of loss is minimal.
The
Company has sales to a security alarm distributor representing 40% of total sales for the year ended April 30, 2020 and 41% of
total sales for the year ended April 30, 2019. This distributor accounted for 54% and 61% of accounts receivable at April 30,
2020 and 2019, respectively.
Security
switch sales made up 81% of total sales for the fiscal year ended April 30, 2020 and 78% of total sales for the fiscal year ended
April 30, 2019.
|
11.
|
Fair
Value Measurements
|
The
carrying value of the Company’s cash and cash equivalents, accounts receivable and accounts payable approximate their fair
value due to their short term nature. The fair value of our investments is determined utilizing market based information. Fair
value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are
required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the
market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent
risk, transfer restrictions, and credit risk.
US
GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements)
and the lowest priority to unobservable inputs (level 3 measurements). The levels of the fair value hierarchy under US GAAP are
described below:
|
|
Level
1
|
Valuation
is based upon quoted prices for identical instruments traded in active markets.
|
|
|
|
|
|
|
Level
2
|
Valuation
is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments
in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable
in the market.
|
|
|
|
|
|
|
Level
3
|
Valuation
is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable
assumptions reflect our own estimates of assumptions that market participants would use in pricing the asset or liability.
Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.
|
Investments
and Marketable Securities
As
of April 30, 2020, The Company’s investments consisted of money markets, publicly traded equity securities, REITs as well
as certain state and municipal debt securities and corporate bonds. The marketable securities are valued using third-party broker
statements. The value of the majority of securities is derived from quoted market information. The inputs to the valuation are
classified as Level 1 given the active market for these securities; however, if an active market does not exist, which is the
case for municipal bonds and REITs; the inputs are recorded as Level 2.
Fair
Value Hierarchy
The
following tables set forth our assets and liabilities measured at fair value on a recurring basis and a non-recurring basis by
level within the fair value hierarchy. As required by US GAAP, assets and liabilities are classified in their entirety based on
the lowest level of input that is significant to the fair value measurement.
|
|
|
Assets
Measured at Fair Value on a Recurring
Basis
as of April 30, 2020
|
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
Bonds
|
|
|
—
|
|
|
$
|
5,262,000
|
|
|
|
—
|
|
|
$
|
5,262,000
|
|
|
Corporate Bonds
|
|
$
|
26,000
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
26,000
|
|
|
REITs
|
|
|
—
|
|
|
$
|
68,000
|
|
|
|
—
|
|
|
$
|
68,000
|
|
|
Equity Securities
|
|
$
|
19,385,000
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
19,385,000
|
|
|
Money Markets and CDs
|
|
$
|
581,000
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
581,000
|
|
|
Total fair value of assets measured
on a recurring basis
|
|
$
|
19,992,000
|
|
|
$
|
5,330,000
|
|
|
|
—
|
|
|
$
|
25,322,000
|
|
|
|
|
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
|
|
On
April 15, 2020, the Company received loan proceeds of approximately $950,000 (the “PPP Loan”) from FirsTier Bank,
pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act, which was enacted
March 27, 2020. The PPP Loan, which was in the form of a Note dated April 15, 2020 issued to the Company, matures on April 15,
2022 and bears interest at a rate of 1% per annum, payable monthly commencing on November 15, 2020. The Note may be prepaid by
the Company at any time prior to maturity with no prepayment penalties. Funds from the PPP Loan may only be used for payroll costs,
costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on certain other debt obligations.
The Company intends to use the entire PPP Loan amount for qualifying expenses. Under the terms of the PPP, certain amounts of
the PPP Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act.