UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A10-Q
(Mark One)
[X] X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 20192020
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ________________
Commission File Number: 000-05378
GEORGE RISK INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Colorado | 84-0524756 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employers Identification No.) |
802 South Elm St. | ||
Kimball, NE | 69145 | |
(Address of principal executive offices) | (Zip Code) |
(308) 235-4645
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Class A Common Stock, $0.10 par value | RSKIA | OTC Markets | ||
Convertible Preferred Stock, $20 stated value | RSKIA | OTC Markets |
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X][ X ] No [ ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (&232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X][ X ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, a small reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] | Accelerated filer [ ] | ||
Non-accelerated filer [ ] | Smaller reporting company | ||
Emerging growth company [ ] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes [ ] No [X][ X ]
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of the Registrant’s Common Stock outstanding, as of September 18, 20192020 was 4,952,110.4,949,927.
EXPLANATORY NOTE
This Amendment No. 1 to Form 10-Q, or this Amendment, amends the Quarterly Report on Form 10-Q for the three months ended July 31, 2019 that we originally filed with the Securities and Exchange Commission, or the Commission, on September 18, 2019, or the Original Filing, in connection with our failure to give effect to the phase in of FASB ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”) in the financial statements included in the Original Filing.
All amendments and restatements to the financial statements are non-cash in nature.
Restatement
As further discussed in Note 9 to our unaudited financial statements in Part I, Item 1, “Financial Statements” of this Amendment, on March 4, 2020, we concluded that we would restate our previously issued financial statements as of and for the three months ended July 31, 2019, as set forth in the Original Filing in connection with our failure to give effect to the phase in of ASU 2016-01 in the financial statements included in the Original Quarterly Report on Form 10-Q.
Amendment
The purpose of this Amendment is to restate our previously issued unaudited financial statements and related disclosures as of and for the three months ended July 31, 2019 in connection with the application of ASU 2016-01. This Amendment also includes (a) an amended Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to reflect the correction of the error described above.
Except as expressly set forth herein, including in the notes to the unaudited financial statements, this Amendment does not reflect events occurring after the date of the Original Filing or modify or update any of the other disclosures contained therein in any way other than as required to reflect the amendment discussed above. Accordingly, this Amendment should be read in conjunction with the Original Filing and our other filings with the Commission. Information not affected by the restatement is unchanged and reflects disclosures made at the time of the filing of the Original Filing.
Items Amended in this Filing
For reasons discussed above, we are filing this Amendment in order to amend the following items in our Original Filing to the extent necessary to reflect the adjustments discussed above and make corresponding revisions to our financial data cited elsewhere in this Amendment in connection with the application of ASU 2016-01 in this Amendment that was not previously applied:
Part I, Item 1. Financial Statements
Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Part I, Item 4. Controls and Procedures
In accordance with applicable Commission rules, this Amendment includes new certifications required by Rule 13a-14 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, from our Chief Executive Officer and Chief Financial Officer dated as of the date of filing of this Amendment.
GEORGE RISK INDUSTRIES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1: Financial Statements
ITEM 1: | Financial Statements |
The unaudited financial statements for the three-month period ended July 31, 20192020 are attached hereto.
2 |
GEORGE RISK INDUSTRIES, INC.
CONDENSED BALANCE SHEETS
July 31, 2019 | April 30, 2019 | July 31, 2020 | April 30, 2020 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
ASSETS | ||||||||||||||||
Current Assets: | ||||||||||||||||
Cash and cash equivalents | $ | 5,667,000 | $ | 4,873,000 | $ | 7,491,000 | $ | 6,458,000 | ||||||||
Investments and securities, at fair value | 27,657,000 | 27,291,000 | 27,657,000 | 25,322,000 | ||||||||||||
Accounts receivable: | ||||||||||||||||
Trade, net of $8,764 and $9,321 doubtful account allowance | 2,534,000 | 2,696,000 | ||||||||||||||
Trade, net of $1,913 and $7,306 doubtful account allowance | 2,920,000 | 2,964,000 | ||||||||||||||
Other | 4,000 | 6,000 | 19,000 | 18,000 | ||||||||||||
Income tax overpayment | — | 259,000 | — | 56,000 | ||||||||||||
Inventories, net | 4,863,000 | 4,583,000 | 5,507,000 | 5,103,000 | ||||||||||||
Prepaid expenses | 320,000 | 282,000 | 334,000 | 516,000 | ||||||||||||
Total Current Assets | 41,045,000 | 39,990,000 | 43,928,000 | 40,437,000 | ||||||||||||
Property and Equipment, net, at cost | 1,095,000 | 984,000 | 1,505,000 | 1,465,000 | ||||||||||||
Other Assets | ||||||||||||||||
Investment in Limited Land Partnership, at cost | 293,000 | 293,000 | 320,000 | 320,000 | ||||||||||||
Projects in process | 1,000 | 117,000 | 108,000 | 21,000 | ||||||||||||
Other | 3,000 | 3,000 | 2,000 | 2,000 | ||||||||||||
Total Other Assets | 297,000 | 413,000 | 430,000 | 343,000 | ||||||||||||
Intangible assets, net | 1,609,000 | 1,640,000 | 1,486,000 | 1,517,000 | ||||||||||||
TOTAL ASSETS | $ | 44,046,000 | $ | 43,027,000 | $ | 47,349,000 | $ | 43,762,000 |
See accompanying notes to the condensed financial statements
3 |
GEORGE RISK INDUSTRIES, INC.
CONDENSED BALANCE SHEETS
(continued)
July 31, 2019 | April 30, 2019 | July 31, 2020 | April 30, 2020 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current Liabilities | ||||||||||||||||
Accounts payable, trade | $ | 261,000 | $ | 206,000 | $ | 304,000 | $ | 187,000 | ||||||||
Dividends payable | 1,714,000 | 1,714,000 | 1,892,000 | 1,892,000 | ||||||||||||
Accrued expenses: | ||||||||||||||||
Payroll and related expenses | 287,000 | 356,000 | 386,000 | 450,000 | ||||||||||||
Property taxes | 3,000 | — | 3,000 | — | ||||||||||||
Income tax payable | 30,000 | — | 290,000 | — | ||||||||||||
Notes payable | 950,000 | 950,000 | ||||||||||||||
Total Current Liabilities | 2,295,000 | 2,276,000 | 3,825,000 | 3,479,000 | ||||||||||||
Long-Term Liabilities | ||||||||||||||||
Deferred income taxes | 1,240,000 | 1,198,000 | 1,343,000 | 699,000 | ||||||||||||
Total Long-Term Liabilities | 1,240,000 | 1,198,000 | 1,343,000 | 699,000 | ||||||||||||
Total Liabilities | 3,535,000 | 3,474,000 | 5,168,000 | 4,178,000 | ||||||||||||
Commitments and contingencies | — | — | — | — | ||||||||||||
Stockholders’ Equity | ||||||||||||||||
Convertible preferred stock, 1,000,000 shares authorized, Series 1—noncumulative, $20 stated value, 25,000 shares authorized, 4,100 issued and outstanding | 99,000 | 99,000 | 99,000 | 99,000 | ||||||||||||
Common stock, Class A, $.10 par value, 10,000,000 shares authorized, 8,502,881 shares issued and outstanding | 850,000 | 850,000 | 850,000 | 850,000 | ||||||||||||
Additional paid-in capital | 1,934,000 | 1,934,000 | 1,934,000 | 1,934,000 | ||||||||||||
Accumulated other comprehensive income | 49,000 | 14,000 | 101,000 | (4,000 | ) | |||||||||||
Retained earnings | 41,859,000 | 40,883,000 | 43,498,000 | 41,006,000 | ||||||||||||
Less: treasury stock, 3,550,571 and 3,544,271 shares, at cost | (4,280,000 | ) | (4,227,000 | ) | ||||||||||||
Less: treasury stock, 3,552,954 and 3,552,954 shares, at cost | (4,301,000 | ) | (4,301,000 | ) | ||||||||||||
Total Stockholders’ Equity | 40,511,000 | 39,553,000 | 42,181,000 | 39,584,000 | ||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 44,046,000 | $ | 43,027,000 | $ | 47,349,000 | $ | 43,762,000 |
See accompanying notes to the condensed financial statements
4 |
GEORGE RISK INDUSTRIES, INC.
CONDENSED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED JULY 31, 20192020 AND 20182019
(Unaudited)
July 31, 2019 | July 31, 2018 | July 31, 2020 | July 31, 2019 | |||||||||||||
Net Sales | $ | 3,552,000 | $ | 3,429,000 | $ | 4,047,000 | $ | 3,552,000 | ||||||||
Less: Cost of Goods Sold | (1,769,000 | ) | (1,801,000 | ) | (1,952,000 | ) | (1,769,000 | ) | ||||||||
Gross Profit | 1,783,000 | 1,628,000 | 2,095,000 | 1,783,000 | ||||||||||||
Operating Expenses: | ||||||||||||||||
General and Administrative | 297,000 | 286,000 | 313,000 | 297,000 | ||||||||||||
Sales | 557,000 | 555,000 | 567,000 | 557,000 | ||||||||||||
Engineering | 14,000 | 9,000 | 29,000 | 14,000 | ||||||||||||
Rent Paid to Related Parties | 5,000 | 5,000 | — | 5,000 | ||||||||||||
Total Operating Expenses | 873,000 | 885,000 | 909,000 | 873,000 | ||||||||||||
Income From Operations | 910,000 | 773,000 | 1,186,000 | 910,000 | ||||||||||||
Other Income (Expense) | ||||||||||||||||
Other | 1,000 | 3,000 | 12,000 | 1,000 | ||||||||||||
Dividend and Interest Income | 193,000 | 193,000 | 156,000 | 193,000 | ||||||||||||
Unrealized gain (loss) on marketable securities | 145,000 | — | ||||||||||||||
Unrealized gain (loss) on equity securities | 2,114,000 | 145,000 | ||||||||||||||
Gain (Loss) on Sale of Investments | 49,000 | (68,000 | ) | (28,000 | ) | 49,000 | ||||||||||
Total Other Income | 388,000 | 128,000 | ||||||||||||||
2,254,000 | 388,000 | |||||||||||||||
Income Before Provisions for Income Taxes | 1,298,000 | 901,000 | 3,440,000 | 1,298,000 | ||||||||||||
Provisions for Income Taxes | ||||||||||||||||
Current Expense | 294,000 | 247,000 | 349,000 | 294,000 | ||||||||||||
Deferred tax expense | 28,000 | 37,000 | 599,000 | 28,000 | ||||||||||||
Total Income Tax Expense | 322,000 | 284,000 | 948,000 | 322,000 | ||||||||||||
Net Income | $ | 976,000 | $ | 617,000 | $ | 2,492,000 | $ | 976,000 | ||||||||
Basic Earnings Per Share of Common Stock | $ | 0.20 | $ | 0.12 | $ | 0.50 | $ | 0.20 | ||||||||
Diluted Earnings Per Share of Common Stock | $ | 0.20 | $ | 0.12 | $ | 0.50 | $ | 0.20 | ||||||||
Weighted Average Number of Common Shares Outstanding | 4,956,389 | 4,967,580 | 4,949,927 | 4,956,389 | ||||||||||||
Weighted Average Number of Shares Outstanding (Diluted) | 4,976,889 | 4,988,080 | 4,970,427 | 4,976,889 |
See accompanying notes to the condensed financial statements
5 |
GEORGE RISK INDUSTRIES, INC.
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED JULY 31, 20192020 AND 20182019
(Unaudited)
July 31, 2019 | July 31, 2018 | July 31, 2020 | July 31, 2019 | |||||||||||||
Net Income | $ | 976,000 | $ | 617,000 | $ | 2,492,000 | $ | 976,000 | ||||||||
Other Comprehensive Income, Net of Tax | ||||||||||||||||
Unrealized gain (loss) on securities: | ||||||||||||||||
Unrealized gain on debt securities: | ||||||||||||||||
Unrealized holding gains arising during period | 49,000 | 607,000 | 149,000 | 49,000 | ||||||||||||
Reclassification adjustment for gains included in net income | — | 44,000 | ||||||||||||||
Income tax expense related to other comprehensive income | (14,000 | ) | (188,000 | ) | (44,000 | ) | (14,000 | ) | ||||||||
Other Comprehensive Income | 35,000 | 463,000 | 105,000 | 35,000 | ||||||||||||
Comprehensive Income | $ | 1,011,000 | $ | 1,080,000 | $ | 2,597,000 | $ | 1,011,000 |
See accompanying notes to the condensed financial statements
6 |
GEORGE RISK INDUSTRIES, INC.
CONDENSEDSTATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED JULY 31, 20192020 and 20182019
(Unaudited)
Preferred Stock | Common Stock Class A | Preferred Stock | Common Stock Class A | |||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||
Balances, April 30, 2019 | 4,100 | $ | 99,000 | 8,502,881 | $ | 850,000 | 4,100 | $ | 99,000 | 8,502,881 | $ | 850,000 | ||||||||||||||||||||
Purchases of common stock | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Unrealized gain (loss), net of tax effect | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Net Income | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Balances, July 31, 2019 | 4,100 | $ | 99,000 | 8,502,881 | $ | 850,000 | 4,100 | $ | 99,000 | 8,502,881 | $ | 850,000 | ||||||||||||||||||||
Preferred Stock | Common Stock Class A | |||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||
Balances, April 30, 2018 | 4,100 | $ | 99,000 | 8,502,881 | $ | 850,000 | ||||||||||||||||||||||||||
Purchases of common stock | — | — | — | — | ||||||||||||||||||||||||||||
Unrealized gain (loss), net of tax effect | — | — | — | — | ||||||||||||||||||||||||||||
Net Income | — | — | — | — | ||||||||||||||||||||||||||||
Balances, July 31, 2018 | 4,100 | $ | 99,000 | 8,502,881 | $ | 850,000 |
Preferred Stock | Common Stock Class A | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Balances, April 30, 2020 | 4,100 | $ | 99,000 | 8,502,881 | $ | 850,000 | ||||||||||
Purchases of common stock | — | — | — | — | ||||||||||||
Unrealized gain (loss), net of tax effect | — | — | — | — | ||||||||||||
Net Income | — | — | — | — | ||||||||||||
Balances, July 31, 2020 | 4,100 | $ | 99,000 | 8,502,881 | $ | 850,000 |
See accompanying notes to the condensed financial statements
7 |
GEORGE RISK INDUSTRIES, INC.
CONDENSEDSTATEMENTS OF STOCKHOLDERS’ EQUITIY
FOR THE THREE MONTHS ENDED JULY 31, 20192020 and 20182019
(Unaudited)
Accumulated | ||||||||||||||||||||||
Treasury Stock | Other | |||||||||||||||||||||
Paid-In | (Common Class A) | Comprehensive | Retained | |||||||||||||||||||
Capital | Shares | Amount | Income | Earnings | Total | |||||||||||||||||
$ | 1,934,000 | 3,544,271 | $ | (4,227,000 | ) | $ | 14,000 | $ | 40,883,000 | $ | 39,553,000 | |||||||||||
— | 6,300 | (53,000 | ) | — | — | (53,000 | ) | |||||||||||||||
— | — | — | 35,000 | — | 35,000 | |||||||||||||||||
— | — | — | — | 976,000 | 976,000 | |||||||||||||||||
$ | 1,934,000 | 3,550,571 | $ | (4,280,000 | ) | $ | 49,000 | $ | 41,859,000 | $ | 40,511,000 |
Accumulated | Accumulated | |||||||||||||||||||||||||||||||||||||||||||
Treasury Stock | Other | Treasury Stock | Other | |||||||||||||||||||||||||||||||||||||||||
Paid-In | Paid-In | (Common Class A) | Comprehensive | Retained | Paid-In | (Common Class A) | Comprehensive | Retained | ||||||||||||||||||||||||||||||||||||
Capital | Capital | Shares | Amount | Income | Earnings | Total | Capital | Shares | Amount | Income | Earnings | Total | ||||||||||||||||||||||||||||||||
$ | 1,934,000 | 3,534,784 | $ | (4,148,000 | ) | $ | 2,249,000 | $ | 36,746,000 | $ | 37,730,000 | 1,934,000 | 3,552,954 | $ | (4,301,000 | ) | $ | (4,000 | ) | $ | 41,006,000 | $ | 39,584,000 | |||||||||||||||||||||
— | 650 | (5,000 | ) | — | — | (5,000 | ) | — | — | — | — | — | — | |||||||||||||||||||||||||||||||
— | — | — | 463,000 | — | 463,000 | — | — | — | 105,000 | — | 105,000 | |||||||||||||||||||||||||||||||||
— | — | — | — | 617,000 | 617,000 | — | — | — | — | 2,492,000 | 2,492,000 | |||||||||||||||||||||||||||||||||
$ | 1,934,000 | 3,535,434 | $ | (4,153,000 | ) | $ | 2,712,000 | $ | 37,363,000 | $ | 38,805,000 | 1,934,000 | 3,552,954 | $ | (4,301,000 | ) | $ | 101,000 | $ | 43,498,000 | $ | 42,181,000 |
See accompanying notes to the condensed financial statements
8 |
GEORGE RISK INDUSTRIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JULY 31, 20192020 AND 20182019
(Unaudited)
July 31, 2019 | July 31, 2018 | July 31, 2020 | July 31, 2019 | |||||||||||||
Cash Flows from Operating Activities: | ||||||||||||||||
Net Income | $ | 976,000 | $ | 617,000 | $ | 2,492,000 | $ | 976,000 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization | 89,000 | 83,000 | 86,000 | 89,000 | ||||||||||||
(Gain) loss on sale of investments | (83,000 | ) | 68,000 | — | (83,000 | ) | ||||||||||
Impairments on investments | 34,000 | — | 27,000 | 34,000 | ||||||||||||
Unrealized (gain) loss on marketable securities | (145,000 | ) | — | |||||||||||||
Unrealized (gain) loss on equity securities | (2,114,000 | ) | (145,000 | ) | ||||||||||||
Reserve for bad debts | (2,000 | ) | 3,000 | (5,000 | ) | (2,000 | ) | |||||||||
Reserve for obsolete inventory | 8,000 | 6,000 | 1,000 | 8,000 | ||||||||||||
Deferred income taxes | 28,000 | 37,000 | 599,000 | 28,000 | ||||||||||||
Changes in assets and liabilities: | ||||||||||||||||
(Increase) decrease in: | ||||||||||||||||
Accounts receivable | 163,000 | 234,000 | 49,000 | 163,000 | ||||||||||||
Inventories | (288,000 | ) | (389,000 | ) | (405,000 | ) | (288,000 | ) | ||||||||
Prepaid expenses | 79,000 | 166,000 | 94,000 | 79,000 | ||||||||||||
Employee receivables | 2,000 | — | (1,000 | ) | 2,000 | |||||||||||
Income tax overpayment | — | 244,000 | ||||||||||||||
Increase (decrease) in: | ||||||||||||||||
Accounts payable | 55,000 | (7,000 | ) | 117,000 | 55,000 | |||||||||||
Accrued expenses | (66,000 | ) | (172,000 | ) | (61,000 | ) | (66,000 | ) | ||||||||
Income tax payable | 289,000 | — | 346,000 | 289,000 | ||||||||||||
Net cash provided by operating activities | 1,139,000 | 890,000 | ||||||||||||||
Net cash from operating activities | 1,225,000 | 1,139,000 | ||||||||||||||
Cash Flows From Investing Activities: | ||||||||||||||||
(Purchase) of property and equipment | (169,000 | ) | — | (95,000 | ) | (169,000 | ) | |||||||||
Proceeds from sale of marketable securities | 9,000 | 2,000 | 14,000 | 9,000 | ||||||||||||
(Purchase) of marketable securities | (132,000 | ) | (233,000 | ) | (111,000 | ) | (132,000 | ) | ||||||||
Net cash (used in) investing activities | (292,000 | ) | (231,000 | ) | ||||||||||||
Net cash from investing activities | (192,000 | ) | (292,000 | ) | ||||||||||||
Cash Flows From Financing Activities: | ||||||||||||||||
(Purchase) of treasury stock | (53,000 | ) | (5,000 | ) | — | (53,000 | ) | |||||||||
Dividends paid | — | (1,000 | ) | |||||||||||||
Net cash (used in) financing activities | (53,000 | ) | (6,000 | ) | ||||||||||||
Net cash from financing activities | — | (53,000 | ) | |||||||||||||
Net Increase in Cash and Cash Equivalents | $ | 794,000 | $ | 653,000 | ||||||||||||
Net Change in Cash and Cash Equivalents | $ | 1,033,000 | $ | 794,000 | ||||||||||||
Cash and Cash Equivalents, beginning of period | $ | 4,873,000 | $ | 4,294,000 | $ | 6,458,000 | $ | 4,873,000 | ||||||||
Cash and Cash Equivalents, end of period | $ | 5,667,000 | $ | 4,947,000 | $ | 7,491,000 | $ | 5,667,000 | ||||||||
Supplemental Disclosure for Cash Flow Information: | ||||||||||||||||
Cash payments for: | ||||||||||||||||
Income taxes paid | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
Interest paid | $ | 0 | $ | 1,000 | $ | 0 | $ | 0 |
See accompanying notes to the condensed financial statements
9 |
GEORGE RISK INDUSTRIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JULY 31, 20192020
Note 1: Unaudited Interim Financial Statements
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, 20192020 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 FebruaryJune 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-02”), which provides guidance for accounting for leases. ASU 2016-02 requires lesseesentities to classify leases as either finance or operating leases and to recorduse 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 recognizedforward looking approach based on an effective interest rate method orexpected losses to estimate credit losses on a straight-line basis overcertain types of financial instruments, including trade receivables. The FASB has subsequently issued updates to the term of the lease. Accounting for lessors remains largely unchanged from current GAAP. ASU 2016-02standard to provide additional clarification on specific topics. Topic 326 is effective for the Companyfiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We have applied this guidance, as of 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 aspects2020, using a modified-retrospective approach. The application of thethis 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 recognizesdid not require a cumulative-effectcumulative 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 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 impacteffect on the Company’sour 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. We applied this guidance, as of May 1, 2020. The Company is currently assessing the timing and impactapplication of adopting the updated provisions.this guidance did not have a material effect on our disclosures.
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,January 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 No. 2016-13, “Financial Instruments2020-01, “Investments - Credit LossesEquity Securities (Topic 326): Measurement of Credit Losses on Financial Instruments,” which requires the Company to measure321), Investments - Equity Method and recognize expected credit losses for financial assets heldJoint Ventures (Topic 323), and not accounted for at fair value through net income. In November 2018, April 2019 and May 2019, the FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses,” “ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses,” “Topic 815, Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 825, Financial Instruments,815.” and “ASU No. 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief,” which provided additional implementation guidance on the previously issued ASU. The ASU is 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. The ASU requires a modified retrospective2020, and interim periods within those fiscal years. Early adoption method.is permitted. The Company is still evaluatingdoes not expect the impactadoption of adoptionASU 2020-01 to have a material impact on its financial statements and disclosures.statements.
Note 2: Investments
There are no other new accounting pronouncements that are expected to have a significant impact on our financial statements.
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Note 2: | Investments |
The Company has investments in publicly traded equity securities, corporate bonds, state and municipal debt securities, real estate investment trusts, and money markets. Effective with the Company’s adoption of ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, on May 1, 2018, the Company carries all investments at fair value, with unrealized gain or loss on equity securities reported through other income. The investments in debt securities, have maturitieswhich include municipal bonds and bond funds, mature between September 2019March 2021 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 eachthe respective period’s earnings. Unrealized gains and losses on debt securities are excluded from earnings and reported separately as a component of stockholder’s equity. Dividend and interest income are reported as earned.
As of July 31, 20192020 and April 30, 2019,2020, investments consisted of the following:
Gross | Gross | Gross | Gross | |||||||||||||||||||||||||||||
Investments at | Cost | Unrealized | Unrealized | Fair | Cost | Unrealized | Unrealized | Fair | ||||||||||||||||||||||||
July 31, 2019 | Basis | Gains | Losses | Value | ||||||||||||||||||||||||||||
July 31, 2020 | Basis | Gains | Losses | Value | ||||||||||||||||||||||||||||
Municipal bonds | $ | 5,475,000 | $ | 117,000 | $ | (43,000 | ) | $ | 5,549,000 | $ | 5,284,000 | $ | 180,000 | $ | (38,000 | ) | $ | 5,426,000 | ||||||||||||||
Corporate bonds | 26,000 | — | — | 26,000 | ||||||||||||||||||||||||||||
REITs | 89,000 | 3,000 | (9,000 | ) | 83,000 | 112,000 | — | (36,000 | ) | 76,000 | ||||||||||||||||||||||
Equity securities | �� | 16,729,000 | 4,252,000 | (260,000 | ) | 20,721,000 | 17,101,000 | 5,000,000 | (628,000 | ) | 21,473,000 | |||||||||||||||||||||
Money markets and CDs | 1,278,000 | — | — | 1,278,000 | 682,000 | — | — | 682,000 | ||||||||||||||||||||||||
Total | $ | 23,597,000 | $ | 4,372,000 | $ | (312,000 | ) | $ | 27,657,000 | $ | 23,179,000 | $ | 5,180,000 | $ | (702,000 | ) | $ | 27,657,000 |
Gross | Gross | Gross | Gross | |||||||||||||||||||||||||||||
Investments at | Cost | Unrealized | Unrealized | Fair | Cost | Unrealized | Unrealized | Fair | ||||||||||||||||||||||||
April 30, 2019 | Basis | Gains | Losses | Value | ||||||||||||||||||||||||||||
April 30, 2020 | Basis | Gains | Losses | Value | ||||||||||||||||||||||||||||
Municipal bonds | $ | 5,459,000 | $ | 79,000 | $ | (55,000 | ) | $ | 5,483,000 | $ | 5,271,000 | $ | 80,000 | $ | (89,000 | ) | $ | 5,262,000 | ||||||||||||||
Corporate bonds | 26,000 | — | — | 26,000 | 26,000 | — | — | 26,000 | ||||||||||||||||||||||||
REITs | 89,000 | 1,000 | (6,000 | ) | 84,000 | 112,000 | — | (44,000 | ) | 68,000 | ||||||||||||||||||||||
Equity securities | 16,618,000 | 4,143,000 | (296,000 | ) | 20,465,000 | 17,119,000 | 3,446,000 | (1,180,000 | ) | 19,385,000 | ||||||||||||||||||||||
Money markets and CDs | 1,233,000 | — | — | 1,233,000 | 581,000 | — | — | 581,000 | ||||||||||||||||||||||||
Total | $ | 23,425,000 | $ | 4,223,000 | $ | (357,000 | ) | $ | 27,291,000 | $ | 23,109,000 | $ | 3,526,000 | $ | (1,313,000 | ) | $ | 25,322,000 |
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 Statementsstatements of Operationsincome in the period of the change, and debt securities are carried at fair value on the balance sheet with changes in fair value recorded as unrealized gains or (losses) in the Statement of Comprehensive Income.change. Upon the disposition of a marketable security, the Company records a realized gain or (loss) on the Company’s statements of operations. On April 30, 2019, as a result of the adoption of ASU 2016-01 – Financial Instruments, the Company reclassified $2,424,000 of net unrealized gains on marketable securities, that were formerly classified as available-for-sale securities before the adoption of the new standard, from Accumulated Other Comprehensive Income to Retained Earnings.income.
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 onone 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 $34,000$27,000 for the quarter ended July 31, 2019.2020. For the prior quarter ended July 31, 2018, management2019, an impairment loss of $34,000 was recorded.
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The Company’s investments are actively traded in the stock and bond markets. Therefore, either a realized gain or loss is recorded when a sale happens. For the quarter ended July 31, 2020 the Company had sales of equity securities which yielded gross realized gains of $102,000 and gross realized losses of $126,000. For the same period, sales of debt securities did not need to recordyield any impairment losses.gross realized gains, but gross realized losses of $4,000 were recorded. During the quarter ending July 31, 2019, the Company recorded gross realized gains and losses on equity securities of $153,000 and $104,000, respectively, as well as gross realized gains and losses on debt securities of $3,000 and $3,000, respectively. The gross realized loss numbers include the impaired figures listed in the previous paragraph. Proceeds from sales of securities available for sale were $14,000 for the quarter ended July 31, 2020 and were $9,000 for the same quarter the prior year.
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 July 31, 20192020 and April 30, 2019,2020, respectively.
Unrealized Loss Breakdown by Investment Type at July 31, 20192020
Less than 12 months | 12 months or greater | Total | Less than 12 months | 12 months or greater | Total | |||||||||||||||||||||||||||||||||||||||||||
Description | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | ||||||||||||||||||||||||||||||||||||
Municipal bonds | $ | — | $ | — | $ | 448,000 | $ | (43,000 | ) | $ | 448,000 | $ | (43,000 | ) | $ | 62,000 | $ | — | $ | 342,000 | $ | (38,000 | ) | $ | 404,000 | $ | (38,000 | ) | ||||||||||||||||||||
REITs | — | — | 30,000 | (9,000 | ) | 30,000 | (9,000 | ) | 48,000 | (26,000 | ) | 28,000 | (10,000 | ) | 76,000 | (36,000 | ) | |||||||||||||||||||||||||||||||
Equity securities | 1,975,000 | (147,000 | ) | 729,000 | (113,000 | ) | 2,704,000 | (260,000 | ) | 4,148,000 | (478,000 | ) | 1,348,000 | (150,000 | ) | 5,496,000 | (628,000 | ) | ||||||||||||||||||||||||||||||
Total | $ | 1,975,000 | $ | (147,000 | ) | $ | 1,207,000 | $ | (165,000 | ) | $ | 3,182,000 | $ | (312,000 | ) | $ | 4,258,000 | $ | (504,000 | ) | $ | 1,718,000 | $ | (198,000 | ) | $ | 5,976,000 | $ | (702,000 | ) |
Unrealized Loss Breakdown by Investment Type at April 30, 20192020
Less than 12 months | 12 months or greater | Total | Less than 12 months | 12 months or greater | Total | |||||||||||||||||||||||||||||||||||||||||||
Description | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | 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 | ) | $ | 2,203,000 | $ | (42,000 | ) | $ | 484,000 | $ | (47,000 | ) | $ | 2,687,000 | $ | (89,000 | ) | ||||||||||||||||||
REITs | — | — | 32,000 | (6,000 | ) | 32,000 | (6,000 | ) | 43,000 | (30,000 | ) | 24,000 | (14,000 | ) | 67,000 | (44,000 | ) | |||||||||||||||||||||||||||||||
Equity securities | 932,000 | (102,000 | ) | 1,652,000 | (195,000 | ) | 2,584,000 | (297,000 | ) | 5,496,000 | (866,000 | ) | 1,651,000 | (314,000 | ) | 7,147,000 | (1,180,000 | ) | ||||||||||||||||||||||||||||||
Total | $ | 1,704,000 | $ | (106,000 | ) | $ | 2,264,000 | $ | (251,000 | ) | $ | 3,968,000 | $ | (357,000 | ) | $ | 7,742,000 | $ | (938,000 | ) | $ | 2,159,000 | $ | (375,000 | ) | $ | 9,901,000 | $ | (1,313,000 | ) |
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 July 31, 2019.2020.
Marketable Equity Securities and REITs
The Company’s investments in marketable equity securities and REITs consist of a wide variety of companies. Investments in these companies include growth, growth income, and foreign investment objectives. The individual holdings have been evaluated, and due to management’s plan to hold on to these investments for an extended period, the Company does not consider these investments to be other-than-temporarily impaired at July 31, 2019.
2020.
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Note 3: Inventories
Note 3: | Inventories |
Inventories at July 31, 20192020 and April 30, 20192020 consisted of the following:
July 31, | April 30, | |||||||||||||||
July 31, 2019 | April 30, 2019 | 2020 | 2020 | |||||||||||||
Raw materials | $ | 3,878,000 | $ | 3,644,000 | $ | 4,657,000 | $ | 4,233,000 | ||||||||
Work in process | 368,000 | 389,000 | 421,000 | 402,000 | ||||||||||||
Finished goods | 715,000 | 641,000 | 568,000 | 606,000 | ||||||||||||
4,961,000 | 4,674,000 | 5,646,000 | 5,241,000 | |||||||||||||
Less: allowance for obsolete inventory | (98,000 | ) | (91,000 | ) | (139,000 | ) | (138,000 | ) | ||||||||
Inventories, net | $ | 4,863,000 | $ | 4,583,000 | $ | 5,507,000 | $ | 5,103,000 |
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Note 4: Business Segments
Note 4: | Business Segments |
The following is financial information relating to industry segments:
July 31, | July 31, | |||||||||||||||
2019 | 2018 | 2020 | 2019 | |||||||||||||
Net revenue: | ||||||||||||||||
Security alarm products | $ | 2,830,000 | $ | 2,150,000 | $ | 3,114,000 | $ | 2,830,000 | ||||||||
Cable & wiring tools | 536,000 | 679,000 | 800,000 | 536,000 | ||||||||||||
Other products | 186,000 | 600,000 | 133,000 | 186,000 | ||||||||||||
Total net revenue | $ | 3,552,000 | $ | 3,429,000 | $ | 4,047,000 | $ | 3,552,000 | ||||||||
Income from operations: | ||||||||||||||||
Security alarm products | $ | 725,000 | $ | 485,000 | $ | 912,000 | $ | 725,000 | ||||||||
Cable & wiring tools | 137,000 | 153,000 | 235,000 | 137,000 | ||||||||||||
Other products | 48,000 | 135,000 | 39,000 | 48,000 | ||||||||||||
Total income from operations | $ | 910,000 | $ | 773,000 | $ | 1,186,000 | $ | 910,000 | ||||||||
Depreciation and amortization: | ||||||||||||||||
Security alarm products | $ | 23,000 | $ | 10,000 | $ | 22,000 | $ | 23,000 | ||||||||
Cable & wiring tools | 31,000 | 31,000 | 31,000 | 31,000 | ||||||||||||
Other products | 20,000 | 27,000 | 12,000 | 20,000 | ||||||||||||
Corporate general | 15,000 | 15,000 | 21,000 | 15,000 | ||||||||||||
Total depreciation and amortization | $ | 89,000 | $ | 83,000 | $ | 86,000 | $ | 89,000 | ||||||||
Capital expenditures: | ||||||||||||||||
Security alarm products | $ | 169,000 | $ | — | $ | 93,000 | $ | 169,000 | ||||||||
Cable & wiring tools | — | — | — | — | ||||||||||||
Other products | — | — | 2,000 | — | ||||||||||||
Corporate general | — | — | — | — | ||||||||||||
Total capital expenditures | $ | 169,000 | $ | — | $ | 95,000 | $ | 169,000 |
July 31, 2020 | April 30, 2020 | |||||||||||||||
Identifiable assets: | July 31, 2019 | April 30, 2019 | ||||||||||||||
Security alarm products | $ | 6,369,000 | $ | 6,179,000 | $ | 7,391,000 | $ | 7,150,000 | ||||||||
Cable & wiring tools | 2,725,000 | 2,713,000 | 3,152,000 | 2,684,000 | ||||||||||||
Other products | 864,000 | 842,000 | 440,000 | 724,000 | ||||||||||||
Corporate general | 34,088,000 | 33,293,000 | 36,366,000 | 33,204,000 | ||||||||||||
Total assets | $ | 44,046,000 | $ | 43,027,000 | $ | 47,349,000 | $ | 43,762,000 |
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Note 5: Earnings per Share
Note 5: | Earnings per Share |
Basic and diluted earnings per share, assuming convertible preferred stock was converted for each period presented, are:
For the three months ended July 31, 2019 | For the three months ended July 31, 2020 | |||||||||||||||||||||||
Income | Shares | Per-Share | Income | Shares | Per-Share | |||||||||||||||||||
(Numerator) | (Denominator) | Amount | (Numerator) | (Denominator) | Amount | |||||||||||||||||||
Net income | $ | 976,000 | $ | 2,492,000 | ||||||||||||||||||||
Basic EPS | $ | 976,000 | 4,956,389 | $ | .1969 | $ | 2,492,000 | 4,949,927 | $ | .50 | ||||||||||||||
Effect of dilutive Convertible Preferred Stock | – | 20,500 | (.0008 | ) | – | 20,500 | — | |||||||||||||||||
Diluted EPS | $ | 976,000 | 4,976,889 | $ | .1961 | $ | 2,492,000 | 4,970,427 | $ | .50 |
For the three months ended July 31, 2018 | For the three months ended July 31, 2019 | |||||||||||||||||||||||
Income | Shares | Per-Share | Income | Shares | Per-Share | |||||||||||||||||||
(Numerator) | (Denominator) | Amount | (Numerator) | (Denominator) | Amount | |||||||||||||||||||
Net income | $ | 617,000 | $ | 976,000 | ||||||||||||||||||||
Basic EPS | $ | 617,000 | 4,967,580 | $ | .1242 | $ | 976,000 | 4,956,389 | $ | .20 | ||||||||||||||
Effect of dilutive Convertible Preferred Stock | – | 20,500 | (.0005 | ) | – | 20,500 | — | |||||||||||||||||
Diluted EPS | $ | 617,000 | 4,988,080 | $ | .1237 | $ | 976,000 | 4,976,889 | $ | .20 |
Note 6: Retirement Benefit Plan
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.Company. The Plan is intended to be qualified under Section 401 (k)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 by the Company of approximately $13,000 and $2,000 were paid during bothin each of the quarterquarters ending July 31, 2020 and 2019 and 2018, respectively.
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Note 7: Fair Value Measurements
Note 7: | Fair Value Measurements |
Generally accepted accounting principles inThe carrying value of the United States of America (US GAAP) definesCompany’s cash and cash equivalents, accounts receivable and accounts payable approximate their fair value asdue 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 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 July 31, 2019,2020, 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. Oursecurities. The marketable securities are valued using third-party broker statements. The value of the investmentsmajority of securities 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 July 31, 2019 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Municipal Bonds | $ | — | $ | 5,549,000 | $ | — | $ | 5,549,000 | ||||||||
Corporate Bonds | 26,000 | — | — | 26,000 | ||||||||||||
REITs | — | 83,000 | — | 83,000 | ||||||||||||
Equity Securities | 20,721,000 | — | — | 20,721,000 | ||||||||||||
Money Markets and CDs | 1,278,000 | — | — | 1,278,000 | ||||||||||||
Total fair value of assets measured on a recurring basis | $ | 22,025,000 | $ | 5,632,000 | $ | — | $ | 27,657,000 |
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Assets Measured at Fair Value on a Recurring Basis as of April 30, 2019 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Municipal Bonds | $ | — | $ | 5,483,000 | $ | — | $ | 5,483,000 | ||||||||
Corporate Bonds | 26,000 | — | — | 26,000 | ||||||||||||
REITs | — | 84,000 | — | 84,000 | ||||||||||||
Equity Securities | 20,465,000 | — | — | 20,465,000 | ||||||||||||
Money Markets and CDs | 1,233,000 | — | — | 1,233,000 | ||||||||||||
Total fair value of assets measured on a recurring basis | $ | 21,724,000 | $ | 5,567,000 | $ | — | $ | 27,291,000 |
Assets Measured at Fair Value on a Recurring Basis as of July 31, 2020 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Municipal Bonds | $ | — | $ | 5,426,000 | $ | — | $ | 5,426,000 | ||||||||
REITs | — | 76,000 | — | 76,000 | ||||||||||||
Equity Securities | 21,473,000 | — | — | 21,473,000 | ||||||||||||
Money Markets and CDs | 682,000 | — | — | 682,000 | ||||||||||||
Total fair value of assets measured on a recurring basis | $ | 22,155,000 | $ | 5,502,000 | $ | — | $ | 27,657,000 |
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 |
Note 8 | Notes Payable |
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.
Note 8 Subsequent Events
Note 9 | Subsequent Events |
None
Note 9 Correction of Previously Issued Financial Statements
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Subsequent to the issuance of its Quarterly Report on SEC Form 10-Q for the three months ended July 31, 2019, the Company discovered an error due to missing a change in accounting related to other comprehensive income (loss) as reflected in the phase in of ASU 2016-01, which became effective for the Company on May 1, 2018. Under the new guidance in ASU 2016-01 the Company should record unrealized gains and losses in the value of the equity securities it owns in the statements of operations, whereas, under previous guidance (and in the Original Form 10-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 April 30, 2019 and ii) recording an unrealized gain on marketable securities representing the value change in the equities for the three months ended July 31, 2019.
No entries to correct for this restatement have any impact on our cash position, liquidity, or operations.
GEORGE RISK INDUSTRIES, INC.
PART I. FINANCIAL INFORMATION
Item 2:
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/A,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 current 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, 2019.2020.
Executive Summary
The Company’s performance has increased throughimproved during the first quarter in comparisonended July 31, 2020 as compared to the prior quarter last year. In comparison to the most recent prior quarter, performance has stayed steady with similar sales figures.ended July 31, 2019. The main difference between this year’s quarter and last year’s quarterreason for the increase is thatthe closure of a competitor at the end of calendar year 2019, resulting in a major uptick in sales. As a result of the increased demand, the Company doesn’t haveis experiencing a bigsizable back order log and islog; however, management has been able to get inventoryincrease inventory. Management now intends to focus on ramping up production to meet customer’s needs in the stockroom which allows the Company to ship products out ona timely basis.manner. Opportunities include continuing to learn and grow with our computer system and to continue looking at businesses that might be a good fit to purchase. Also, weWe also have new products that are scheduled to enter the marketplace by the end of the calendar year. Challenges in the coming months include continuing to get product out to customers in a timelier manner.timely manner and dealing with COVID-19 pandemic restrictions. Raw material prices are also a concern with tariffs being levied by the US government and other factors. Management continues to work at keeping the facilities running leaner and more profitable than ever before.
Results of Operations
● | Net sales for the quarter ended July 31, 2020 showed a | |
● | Cost of goods sold |
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● | Operating expenses |
● | Income from operations for the quarter ended July 31, 2019 was at | |
● | Other income and expenses showed a $2,254,000 gain for the quarter ended July 31, 2020 as compared to a $388,000 gain for the quarter ended July 31, | |
● | ||
● | In turn, net income for the quarter ended July 31, | |
● | Earnings per share for the quarter ended July 31, |
Liquidity and capital resources
Operating
Operating | ||
● | Net cash increased | |
● | Accounts receivable decreased | |
● | Inventories increased |
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● | ||
● | Accounts payable shows an increase of | |
● | Accrued expenses decreased | |
● | Income tax payable for the quarter ended July 31, |
Investing
Investing | ||
● | ||
● |
Financing
Financing | ||
● |
The
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In conjunction with the Company’s Condensed Financial Statements, we have provided the following is a list of ratios to help analyze George Risk Industries’ performance:
Qtr ended | Qtr ended | Qtr ended | Qtr ended | |||||||||||||
July 31, 2019 | July 31, 2018 | July 31, 2020 | July 31, 2019 | |||||||||||||
Working capital (current assets – current liabilities) | $ | 38,750,000 | $ | 36,894,000 | $ | 40,103,000 | $ | 38,750,000 | ||||||||
Current ratio (current assets / current liabilities) | 17.882 | 18.760 | 11.485 | 17.882 | ||||||||||||
Quick ratio ((cash + investments + AR) / current liabilities) | 15.622 | 16.567 | ||||||||||||||
Quick ratio ((cash + current investments + AR) / current liabilities) | 9.953 | 15.622 |
New Product Development
The Company and its’ engineering department perpetually work to develop enhancements to current product lines, develop new products which complement existing products, and look for products that are well suited to our distribution network and manufacturing capabilities. Items currently in various stages of 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. | |
● | ||
● | Wireless technology is a main area of focus for product development. We are looking into 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. | |
● | In the next months we are introducing a couple of new security products. First, the 2707 Series are triple high biased magnetic reed contacts for high security and are available in SPDT and DPDT models. These contacts are resistant to magnetic tamper and defeat. They are used in applications such as airports, biotechnology labs, manufacturing plants, banks, military bases and energy-generation facilities. Secondly, the 3040 Panic Switch contains screw terminals and uses an actuating lever which can be triggered with only the tip of the finger. It can be installed under a counter or desk or any similar place. The 3040CT uses 12’ extreme temperature rated wire for installation in refrigerators and freezers. Both models have a latching LED indicating when the switch is activated and automatically resets when the lever is closed and is fully re-armed. Latching LED and UL Listed versions are planned to follow. | |
● | We | |
● | There have been several new |
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Other Information
In addition to researching 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 FebruaryJune 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-02”), which provides guidance for accounting for leases. ASU 2016-02 requires lesseesentities to classify leases as either finance or operating leases and to recorduse 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 recognizedforward looking approach based on an effective interest rate method orexpected losses to estimate credit losses on a straight-line basis overcertain types of financial instruments, including trade receivables. The FASB has subsequently issued updates to the term of the lease. Accounting for lessors remains largely unchanged from current GAAP. ASU 2016-02standard to provide additional clarification on specific topics. Topic 326 is effective for the Companyfiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We have applied this guidance, as of 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 aspects2020, using a modified-retrospective approach. The application of thethis 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 recognizesdid not require a cumulative-effectcumulative 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 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 impacteffect on the Company’s financial statements and related disclosures because leases are not material to theour 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. We applied this guidance, as of May 1, 2020. The Company is currently assessing the timing and impactapplication of adopting the updated provisions.this guidance did not have a material effect on our disclosures.
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,January 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 No. 2016-13, “Financial Instruments2020-01, “Investments - Credit LossesEquity Securities (Topic 326): Measurement of Credit Losses on Financial Instruments,” which requires the Company to measure321), Investments - Equity Method and recognize expected credit losses for financial assets heldJoint Ventures (Topic 323), and not accounted for at fair value through net income. In November 2018, April 2019 and May 2019, the FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses,” “ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses,” “Topic 815, Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 825, Financial Instruments,815.” and “ASU No. 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief,” which provided additional implementation guidance on the previously issued ASU. The ASU is 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. The ASU requires a modified retrospective2020, and interim periods within those fiscal years. Early adoption method.is permitted. The Company is still evaluatingdoes not expect the impactadoption of adoptionASU 2020-01 to have a material impact on its financial statements and disclosures.statements.
There are no other new accounting pronouncements that are expected to have a significant impact on our financial statements.
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GEORGE RISK INDUSTRIES, INC.
PART I. FINANCIAL INFORMATION
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
This disclosure does not apply.
Item 4. Controls and Procedures
Item 4. | Controls and Procedures |
Our management, under the supervision and with the participation of our chief executive officer (also working as our chief financial officer), evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of July 31, 2019.2020. Based on that evaluation, our chief executive officer (also working as our chief financial officer)management concluded that the disclosure controls and procedures employed at the Company were not effective to provide reasonable assurance that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.
In our annual report filed on Report 10-K for the year ended April 30 ,2020, management identified the following material weakness in our internal control over financial reporting:
● | The small size of our Company limits our ability to achieve the desired level of separation of duties for proper internal controls and financial reporting, particularly as it relates to financial reporting to assure material disclosures or implementation of newly issued accounting standards are included. A secondary review over annual and quarterly filings does not occur. Due to the departure of the Controller, the current CEO and CFO roles are being fulfilled by the same individual. We do not have an audit committee. We do not believe we have met the full requirement for separation for financial reporting purposes. |
We continue to operate with a limited number of accounting and financial personnel. A new accounting professionalFor the quarter ending July 31, 2020 the Company did not have a Controller, but this position was hiredfilled in 2018 to fill the Controller position.September 2020. Training will be required to fulfill disclosure control and procedure responsibilities, including review procedures for key accounting schedules and timely and proper documentation of material transactions and agreements. Until sufficient training has taken place for this new Controller, we believe this control deficiency represents material weaknesses in internal control over financial reporting. To mitigate the effects of the material weakness identified in our annual report, the Company contracted with an outside CPA to perform a secondary review of our quarterly report filed on Form 10-Q.
Despite the material weaknesses in financial reporting noted above, we believe that our restated financial statements included in this restated report fairly present our financial position, results of operations and cash flows as of and for the periods presented in all material respects.
We are committed to the establishment of effective internal controls over financial reporting and will place emphasis on quarterly and year-end closing procedures, timely documentation and internal review of accounting and financial reporting consequences of material contracts and agreements, and enhanced review of all schedules and account analyses by experienced accounting department personnel or independent consultants.
Changes in Internal Control Over Financial Reporting
There wasOther than those mentioned above, there were no changechanges in our internal control over financial reporting during the fiscal quarter ended July 31, 20192020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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GEORGE RISK INDUSTRIES, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 1. | Legal Proceedings |
Not applicable
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
The following table provides information relating to the Company’s repurchase of common stock for the first quarter of fiscal year 2020.2021.
Period | Number of shares repurchased | |
May 1, | -0- | |
June 1, | ||
July 1, |
Item 3. Defaults upon Senior Securities
Item 3. | Defaults upon Senior Securities |
Not applicable
Item 4. Mine Safety Disclosures
Item 4. | Mine Safety Disclosures |
Not applicable
Item 5. Other Information
Item 5. | Other Information |
Not applicable
Item 6. Exhibits
Item 6. | Exhibits |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
George Risk Industries, Inc. | ||
(Registrant) | ||
Date | By: | /s/ Stephanie M. Risk-McElroy |
Stephanie M. Risk-McElroy | ||
President, Chief Executive Officer, Chief Financial Officer | ||
and Chairman of the Board |
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