Item 1 Business
(a) Business Development
George Risk Industries, Inc. (GRI or the Company) was incorporated in 1967 in Colorado. The Company is presently engaged in the design, manufacture, and sale of computer keyboards, push button switches, burglar alarm components and systems, pool alarms, EZ Duct wire covers, water sensors and wire and cable installation tools.
Products, Market, and Distribution
The Company designs, manufactures, and sells computer keyboards, push-button switches, burglar alarm components and systems, pool alarms, water sensors, and wire and cable installation tools. Their Telemark division, which concentrates on selling products for security purposes, comprises of approximately 95 percent of net revenues and are sold through distributors and alarm dealers/installers.
The security segment has approximately 1,000 current customers. One of the distributors, ADI (which is a division of Honeywell International), accounts for approximately 34.6 percent of the Company’s sales of these products. Tri-Ed Distribution accounts for another 10.2 percent of Company sales. Loss of these distributors would be significant to the Company. However, both companies have purchased from the Company for many years and are expected to continue. Also, the Company has obtained a written agreement with ADI. This agreement was signed in February 2011 and initiated by the customer. The contents of the agreement include product terms, purchasing, payment terms, term and termination, product marketing, representations and warranties, product support, mutual confidentiality, indemnification and insurance, and general provisions.
The keyboard segment has approximately 800 customers. Keyboard products are sold to original equipment manufacturers to their specifications and to distributors of off-the-shelf keyboards of proprietary design.
Competition
The Company has intense competition in the keyboard and burglar alarm lines.
The burglar alarm segment has approximately eight major competitors. The Company competes well based on price, product design, quality, customization and prompt delivery.
The competitors in the keyboard segment are larger companies with automated production facilities. GRI has emphasized small custom order sales that many of its competitors decline or discourage.
Research and Development
The Company performs research and development for its customers when needed and requested. Costs in connection with such product development have been borne by the customers. Costs associated with the development of new products are expensed as incurred.
Employees
GRI has approximately 175 employees.
Item 2Properties
The Company owns the manufacturing and some of the office facilities. Total square footage of the plant in Kimball, Nebraska is approximately 42,500 sq. ft. Furthermore, a 7,500 sq. ft. building was purchased in June 2017 for storage to make accommodations for assets of Labor Saving Devices. Additionally, the Company leases 15,000 square feet for $1,535 per month with Bonita Risk. Bonita Risk is a director of the Company.
The Company also owns a building in Gering, NE that is 7,200-sq. ft. in size. This is used for manufacturing. Currently, there are 39 employees at the Gering site.
Item 3Legal Proceedings
None.
Item 4Submission of Matters to a Vote of Security Holders
Not applicable.
Part II
Item 5Market for the Registrant’s Common Equity and Related Stockholders’ Matter
Principal Market
The Company’s Class A Common Stock, which is traded under the ticker symbol RSKIA, is currently quoted on the OTC Bulletin Board by one market maker.
Stock Prices and Dividends Information
2018 Fiscal Year High Low
May 1-July 31 8.50 8.05
August 1-October 31 8.50 8.02
November 1-January 31 8.45 7.90
February 1-April 30 8.75 8.20
2017 Fiscal Year High Low
May 1-July 31 7.65 7.12
August 1-October 31 8.10 7.20
November 1-January 31 8.45 7.30
February 1-April 30 8.50 8.15
On September 30, 2017, a dividend of $.36 per common share was declared for the fiscal year ended April 30, 2018.
For the prior fiscal year, a dividend of $.35 per common share was declared on September 30, 2016.
The number of holders of record of the Company’s Class A Common Stock as of April 30, 2018, was approximately 1,160.
Repurchases of Equity Securities
On September 18, 2008, the Board of Directors approved an authorization for the repurchase of up to 500,000 shares of the Company’s common stock. Purchases can be made in the open market or in privately negotiated transactions. The Board did not specify an expiration date for the authorization.
The following tables show repurchases of GRI’s common stock made on a quarterly basis:
Fiscal Year
Number of shares repurchased
May 1-July 31
August 1-October 31
November 1-January 31
February 1-April 30
Fiscal Year
Number of shares repurchased
May 1-July 31
August 1-October 31
November 1-January 31
75,935
February 1-April 30
There are still approximately 264,000 shares available to be repurchased under the current resolution.
Item 6Selected Financial Data
As a smaller reporting company, we are not required to respond to this item.
Item 7Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Overview
George Risk Industries, Inc. (GRI) (the “Company”) is a diversified manufacturer of electronic components, encompassing the security industry’s widest variety of door and window contact switches, environmental products, wire and cable installation tools, proximity switches and custom keyboards. The security products division comprises the largest portion of GRI sales and products are sold worldwide through distributors, who in turn sell these products to security installation companies. These products are used for residential, commercial, industrial and government installations. International sales accounted for approximately 13.0% of revenues for fiscal year 2018 and 12.4% for 2017.
GRI is known for its quality American made products, top-notch customer service and the willingness to work with customers on their special applications.
GRI owns and operates its main manufacturing plant and offices in Kimball, Nebraska with a satellite plant 40 miles away in Gering, Nebraska.
The Company has substantial marketable securities holdings and these holding have a material impact on the financial results. For the fiscal year ending April 30, 2018, other income accounted for 29.72% of income before income taxes. In comparison, other income accounted for 21.12% of the income before income taxes for the year ending April 30, 2017. Management’s philosophy behind having holdings in marketable securities is to keep the money working and gaining interest on the cash that is not needed to be put back into the business. And over the years, the investments have kept the earnings per share up when the results from operations have not fared as well.
Management is always open to the possibility of acquiring a business that would complement our existing operations, which is exactly what took place in October 2017 when the Company purchased substantially all of the assets from Labor Saving Devices, Inc. (“LSDI”) and Roy Bowling (“Bowling”).
There are no known seasonal trends with any of GRI’s products, since we mostly sell to distributors and OEM manufacturers. The products are tied to the housing industry and will fluctuate with building trends.
Liquidity and Capital Resources
Operating
Net cash decreased $2,162,000 during the year ended April 30, 2018 compared to an increase of $538,000 during the year ended April 30, 2017. Accounts receivable increased $701,000 during the current year while showing a $61,000 decrease in the prior year. The current increase in cash flow from accounts receivable is partly a result of the acquisition of LSDI, which brought more aged receivables plus the ability of the Company to accommodate customer requests for longer payment terms. At April 30, 2018, 57.82% of receivables were less than 45 days and 10.81% were over 90 days. In comparison, 69.92% of the receivables were considered current (less than 45 days) and less than 1.3% of the total were over 90 days past due for the prior year during the same period.
Inventories increased by $980,000 in fiscal year ended April 30, 2018 while the prior year showed a decrease of $660,000 at year end. The current year increase is mainly a result of inventory acquired through the acquisition of LSDI.
Prepaid expenses increased by $403,000 and $125,000 in the current and prior year, respectively. The increase in the current year is due to an increase in vendors taking advantage of prepaying to obtain more competitive pricing of raw materials.
Income tax overpayments increased by $494,000 for the year ended April 30, 2018. This increase was based on estimates for current year taxes, without adjusting for the 2018 tax revisions.
For the year ended April 30, 2018, accounts payable increased by $268,000 as compared to an increase of $38,000 for the same period the year before. The change in cash with regards to accounts payable is largely based on timing. Payables are paid within terms and fluctuate based primarily on inventory needs for production. Accrued expenses increased $33,000 for the year ended April 30, 2018, due to an increase in employees over the prior year.
Investing
As for investment activities, $533,000 was spent on purchases of property and equipment during the current fiscal year, compared to $115,000 during the year ended April 30, 2017. Most of these capitalized costs were purchases of new machinery and equipment and the purchase of an additional building to aid in the Company’s expansion. Additionally, the Company continues to purchase marketable securities, which include municipal bonds and quality stocks. Cash spent on purchases of marketable securities for the year ended April 30, 2018 was $767,000 versus the $947,000 spent for the corresponding period last year. Conversely, net proceeds from the sale of marketable securities were $2,033,000 and $587,000 at April 30, 2018 and 2017, respectively. The Company uses “money manager” accounts for most stock transactions. By doing this, the Company gives an independent third-party firm, who are experts in this field, permission to buy and sell stocks at will. The Company pays a quarterly service fee based on the value of the investments.
As a result of the asset acquisition from Labor Saving Devices, Inc. (“LSDI”), intangible assets increased by $1,624,000.
Financing
Cash used in financing activities consists of two items. First, for the year ended April 30, 2018, $1,617,000 was spent on the payment of dividends. The Company declared a dividend of $0.36 per share of common stock on September 30, 2017 for the current year, while a $0.35 per share of common stock dividend was declared on September 30, 2016 was issued in the prior year. Furthermore, the Company continues to purchase back its common stock when the opportunity arises. For the year ended April 30, 2018, the Company purchased $10,000 of treasury stock and $555,000 was bought back for the year ended April 30, 2017. We have been actively searching for stockholders that have been “lost” over the years. The payment of dividends over the last thirteen fiscal years has also prompted many stockholders and/or their relatives and descendants to sell back their stock to the Company.
At April 30, 2018, working capital decreased 0.278% in comparison to the previous fiscal year. The Company measures liquidity using the quick ratio, which is the ratio of cash, securities and accounts receivables to current obligations. The Company’s quick ratio decreased to 14.703 for the year ended April 30, 2018 compared to 19.345 for the year ended April 30, 2017. The current year ratio still reflects a strong position but decreased because the Labor Savings Devices asset acquisition was accomplished with cash.
Results of Operations
GRI completed the fiscal year ending April 30, 2018 with a net profit of 21.34% of net sales. Net sales were at $11,931,000, up 9.42% over the previous year. The increase in sales is a direct result of the asset purchase of Labor Saving Devices and having a new product line to sell because of that purchase. Cost of goods sold was 52.94% of net sales for the year ended April 30, 2018 and 47.91% for the same period last year. Management’s goal is to keep the cost of goods sold percentage of less than 50%, but there were some added expenses that were incurred with the purchase of Labor Saving Devices assets and the implementation of our new computer software. Many of these added costs were “one time” expenses and management expects the cost of goods sold percentage to fall and return to normal in the future.
Operating expenses were 26.18% of net sales for the year ended April 30, 2018 as compared to 26.57% for the corresponding period last year. Management’s goal is to keep the operating expenses around 30% or less of net sales, so the goal has been met for the current fiscal year. Income from operations for the year ended April 30, 2018 was at $2,492,000, which is a 10.46% decrease from the corresponding period last year, which had income from operations of $2,783,000.
Other income and expense results for the fiscal year ended April 30, 2018 produced a gain of $1,054,000. This is in comparison to a gain of $745,000 for the fiscal year ended April 30, 2017. Dividend and interest income was $960,000, which is up 24.03% over the prior year. Dividend and interest income at April 30, 2017 was $774,000. Net gain on the sale of investments for the current fiscal year was $200,000, which is a 600% increase over the prior year. Net loss on the sale of investments for the fiscal year ending April 30, 2017 was $40,000.
Net income for the year ended April 30, 2018 was $2,546,000, which is up 6.04% from the prior year, which produced net income of $2,401,000. Basic and diluted earnings per common share for the year ended April 30, 2018 was $0.51 per share. Basic and diluted EPS for the year ended April 30, 2017 was $0.48 per share.
Management is hopeful that sales will increase for the fiscal year ending April 30, 2019. With the purchase of the assets from Labor Saving Devices, those sales have made up the difference for some of the decline experienced with existing product lines. Also, the Company had some setbacks in production when we went “live” with our computer system in May 2017. Management believes many of those setbacks have been tackled but knows there is always room for improvement. We are always researching and developing new products that will help our sales increase. While only a few new or improved products were successfully launched in fiscal year 2018, we are confident that more new products will be released soon, and we are searching for products that complement our current offerings.
New product development
The GRI Engineering department continues to develop enhancements to our existing products as well as to develop new products that will continue to secure our position in the industry.
A new face plate for our pool alarms is nearing completion. The innovative design is slim in style and will also allow the homeowner to change the plate to match their décor.
An updated version of the pool access alarm is currently going through electrical listing testing. This next-generation model combines our battery operated DPA series with our hard wired 289 series. A variety of installation options will be available through jumper pin settings.
The high voltage current controller (CC-15) is complete and has received UL approval for the US and Canada. The CC-15 series is 15-amps and will come in a variety of voltage configurations. Some examples that these switches can be used for are appliance control, environmental control and lighting systems.
They continue to work on high security switches. They have a triple biased high security switch design nearly complete and an adjustable magnet design was completed for recessed mounting applications.
They continue to research the possibilities of fuel level sensing and how that may also serve other agricultural based needs. Several companies from around the world have been looking for ways to secure fuel tanks and trucks. Their emphasis would be in ways to safely monitor fuel levels and report tampering.
A new float water sensor is being developed that will monitor water levels in livestock tanks and sump pumps.
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.
Updated versions of our 200-36 and 4532 series overhead door switch line up is complete and has been selling well. The modified versions, the 200-36UF and 4532UF, are being made as a universal fit switch. This will allow an installer to replace an existing switch without drilling new holes into the cement or adjusting the location. The modified case has an additional mounting hole along with reshaped mounting holes.
Critical Accounting Policies
The discussion and analysis of the financial condition and results of operations are based upon the consolidated financial statements, which have been prepared in conformity with generally accepted accounting principles in the United States. The preparation of these financial statements requires the use of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in those financial statements. These judgments can be subjective and complex, and consequently actual results could differ from those estimates. The most critical accounting policies relate to accounts receivable; marketable securities; inventory; income taxes; and segment reporting.
Accounts receivable-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. Management 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 large 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.
Marketable securities-The Company has investments in publicly traded equity securities, state and municipal debt securities, corporate bonds and REITs. The investments in securities are classified as available-for-sale securities and are reported at fair value. The Company uses the average cost method to determine the cost of securities sold and the amount reclassified out of accumulated other comprehensive income into earnings. Unrealized gains and losses are excluded from earnings and reported separately as a component of stockholder’s equity. Dividend and interest income are reported as earned.
In accordance with the Generally Accepted Accounting Principles in the United States (US GAAP), the Company evaluates all marketable securities for other-than temporary declines in fair value. When the cost basis exceeds the fair market value for approximately one year, management evaluates the nature of the investment, cause of impairment and number of investments that are in an unrealized position. When it is determined that a security will probably remain impaired, a recognized loss is booked and the investment is written down to its new fair value. The investments are periodically evaluated to determine if impairment changes are required.
Inventories-Inventories are valued at the lower of cost or market value. Costs are determined using the average cost-pricing method. The Company uses standard costs to price its manufactured inventories, approximating average costs. The reported net value of inventory includes finished saleable products, work-in-process and raw materials that will be sold or used in future periods. Inventory costs include raw materials, direct labor and overhead. The Company’s overhead expenses are applied, based in part, upon estimates of the proportion of those expenses that are related to procuring and storing raw materials as compared to the manufacture and assembly of finished products. These proportions, the method of their application, and the resulting overhead included in ending inventory, are based in part on subjective estimates and approximations and actual results could differ from those estimates.
In addition, the Company records an inventory obsolescence reserve, which represents the cost of the inventory that has had no movement in over two years. There is inherent professional judgment and subjectivity made by management in determining the estimated obsolescence percentage. In addition, and as necessary, the Company may establish specific reserves for future known or anticipated events.
Income Taxes-US GAAP requires use of the liability method, whereby current and deferred tax assets and liabilities are determined based on tax rates and laws enacted as of the balance sheet date. Deferred tax expense represents the change in the deferred tax asset/liability balances.
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.
Related Party Transactions - The Company leases a building from Bonita Risk. Bonita Risk is a director and an employee of the Company and is the majority holder of George Risk Industries, Inc. stock. This building contains the Company’s sales and accounting departments, maintenance department, engineering department and some production facilities. This lease requires a minimum payment of $1,535 on a month-to-month basis. The total lease expense for this arrangement was $18,420 for each of the fiscal years ended April 30, 2018 and 2017.
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 $3,819,000 for the year ended April 30, 2018 and $5,820,000 for the year ended April 30, 2017. The Company also received interest income from FirsTier Bank in the amount of approximately $33,200 for the fiscal year ended April 30, 2018 and approximately $4,900 was received for the fiscal year ended April 30, 2017.
Item 8Financial Statements
George Risk Industries, Inc.
Report of Independent Registered Public Accounting Firm
Board of Directors
George Risk Industries, Inc.
Kimball, Nebraska
Opinion on the Financial Statements
We have audited the accompanying balance sheets of George Risk Industries, Inc. (the Company) as of April 30, 2018 and 2017, and the related statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the two-year period ended, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of April 30, 2018 and 2017, and the results of its operations and its cash flows for the years ending April 30, 2018 and 2017 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express and opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Haynie & Company
We have served as the Company’s auditor since 1992
Littleton, Colorado
August 13, 2018
George Risk Industries, Inc.
Balance Sheets
As of April 30, 2018 and 2017
The accompanying notes are an integral part of these financial statements.
George Risk Industries, Inc.
Balance Sheets (Continued)
As of April 30, 2018 and 2017
The accompanying notes are an integral part of these financial statements.
George Risk Industries, Inc.
Income Statements
For the years ended April 30, 2018 and 2017
The accompanying notes are an integral part of these financial statements.
George Risk Industries, Inc.
Statements of Comprehensive Income
For the years ended April 30, 2018 and 2017
The accompanying notes are an integral part of these financial statements.
George Risk Industries, Inc.
Statements of Stockholders’ Equity
For the Years Ended April 30, 2018 and 2017
The accompanying notes are an integral part of these financial statements.
George Risk Industries, Inc.
Statements of Stockholders’ Equity
For the Years Ended April 30, 2018 and 2017
The accompanying notes are an integral part of these financial statements.
George Risk Industries, Inc.
Statements of Cash Flows
The accompanying notes are an integral part of these financial statements.
George Risk Industries, Inc.
Notes to Financial Statements
April 30, 2018
1. Nature of Business and Summary of Significant Accounting Policies
George Risk Industries, Inc. (GRI or the Company) was incorporated in 1967 in Colorado. The Company is presently engaged in the design, manufacture, and sale of computer keyboards, push button switches, burglar alarm components and systems, pool alarms, EZ Duct wire covers, water sensors and wire and cable installation tools.
Nature of Business-The Company is engaged in the design, manufacture, and marketing of custom computer keyboards, push-button switches, proximity sensors, security alarm components, pool alarms, liquid detection sensors, raceway wire covers, wire and cable installation tools and various other sensors and devices.
Cash and Cash Equivalents-The Company considers all investments with a maturity of three months or less to be cash equivalents.
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 $6,651 for the year ended April 30, 2018 and $2,425 for the year ended April 30, 2017. For the fiscal year ended April 30, 2018, bad debt expense was $3,345. For the fiscal year ended April 30, 2017, bad debt expense was $2,351.
Inventories-Inventories are stated at the lower of cost or market. Cost is determined using the average cost-pricing method. The Company uses standard costs to price its manufactured inventories approximating average costs.
1. Nature of Business and Summary of Significant Accounting Policies, continued
Property and Equipment-Property and equipment are recorded at cost. Depreciation is calculated based on the following estimated useful lives using the straight-line method:
Depreciation expense of $195,000 and $187,000 was charged to operations for the years ended April 30, 2018 and 2017, 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.
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, 2018, the Company had $1,763,000 of net intangible asset costs. Since the intangible assets were purchased during the current reporting year, both the accumulated amortization and amortization expense for the year ended April 30, 2018 were $61,478.
As of April 30, 2018, future amortization of intangible assets is expected as follows:
1. Nature of Business and Summary of Significant Accounting Policies, continued
Advertising-Advertising costs are expensed as incurred and are included in selling expenses. Advertising expense amounted to $213,000 and $330,000 for the years ended April 30, 2018 and 2017, respectively.
Income Taxes-US GAAP requires use of the liability method, whereby current and deferred tax assets and liabilities are determined based on tax rates and laws enacted as of the balance sheet date. Deferred tax expense represents the change in the deferred tax asset/liability balances.
The flow-through method of accounting for tax credits has been adopted by the Company. Such credits are reflected as a reduction of the provision for income taxes in the year in which they become available.
Net Income Per Common Share-Net income per common share is based on the weighted average number of common shares outstanding during each fiscal year. The dilutive effect of convertible preferred stock is reflected in diluted earnings per share by application of the if-converted method. Under this method, preferred dividends applicable to convertible preferred stock are added to the numerator and convertible preferred stock is assumed to have been converted at the beginning of the period.
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.
Financial Instruments-Financial instruments consist of cash and cash equivalents, marketable securities, accounts receivable and accounts payable. The carrying values of these financial instruments approximate fair value due to their short-term nature.
Revenue Recognition-Revenue is recognized when risks and benefits in ownership are transferred, which normally occurs at the time of shipment of products.
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, 2018, the Company operated in three segments organized by security line products, cable and wiring tools (Labor Saving Devices - LSDI) products, and all other products. See Note 9 for further segment information disclosures.
Reclassifications-Certain reclassifications have been made to conform to the current year presentation. The total net income and equity are unchanged due those reclassifications.
1. Nature of Business and Summary of Significant Accounting Policies, continued
Recently Issued Accounting Pronouncements - In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers. The objective of this update is to provide a robust framework for addressing revenue recognition issues and, upon its effective date, replaces almost all existing revenue recognition guidance. This update is effective in annual reporting periods beginning after December 15, 2017 and the interim periods within that year. The Company is evaluating the impact of this update on the Company’s financial statements.
In February of 2016, the FASB issued ASU 2016-02 Leases. Under the new guidance, lessees will be required to recognize so-called right-of-use assets and liabilities for most leases having lease terms of 12 months or more. This update is effective in annual reporting periods beginning after December 31, 2019 and the interim periods starting thereafter. The Company is evaluating the impact of this update on the Company’s financial statements.
In February of 2018, the FASB issued ASU 2018-02 Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. Under this update, companies have the option to reclassify stranded tax effects caused by US Tax Cuts and Jobs Act (TCJA) from accumulated other comprehensive income (AOCI) to retained earnings. Under current US GAAP, effects from a change in tax law is recorded as a component of the income tax provision related to continuing operations in the period of enactment, even if the deferred taxes were established for a financial statement component not part of continuing operations, such as accumulated other comprehensive income (AOCI). Adopting of this standard will remove tax effects stranded in AOCI by the tax law enactment. Adoption of this ASU is optional. This update is effective in annual reporting periods beginning after December 15, 2018 and the interim periods starting thereafter. The Company is evaluating the impact of this update on the Company’s financial statements.
Subsequent Events - Management has evaluated all events or transactions that occurred after April 30, 2018 through August 13, 2018, the report date of the financial statements. During this period, the Company did not have any material recognizable subsequent events.
2. Inventories
Inventories at April 30, 2018 and 2017, consisted of the following:
3. Investments
The Company has investments in publicly traded equity securities, corporate bonds, state and municipal debt securities, real estate investment trusts, money markets, certificates of deposits and hedge funds. The investments in securities, which include all investments except for the hedge funds, are classified as available-for-sale securities, and are reported at fair value. Available-for-sale investments in debt securities mature between August 2018 and November 2048. The Company uses the average cost method to determine the cost of securities sold and the amount reclassified out of accumulated other comprehensive income into earnings. Unrealized gains and losses are excluded from earnings and reported separately as a component of stockholders’ equity. Dividend and interest income are reported as earned.
As of April 30, 2018 and 2017, investments consisted of the following:
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 $31,000 for the year ended April 30, 2018 and $220,000 for the year ended April 30, 2017.
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, 2018 and 2017.
Unrealized Loss Breakdown by Investment Type at April 30, 2018
Unrealized Loss Breakdown by Investment Type at April 30, 2017
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, 2018.
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, 2018.
4. Retirement Benefit Plan
On January 1, 1998, the Company adopted the George Risk Industries, Inc. Retirement Savings Plan (the “Plan”). The Plan is a defined contribution savings plan designed to provide retirement income to eligible employees of the Company and its subsidiaries. The Plan is intended to be qualified under Section 401(k) of the Internal Revenue Code of 1986, as amended. It is funded by voluntary pre-tax contributions from eligible employees who may contribute a percentage of their eligible compensation, limited and subject to statutory limits. Employees are eligible to participate in the Plan when they have attained the age of 21 and completed one thousand hours of service in any plan year with the Company. Upon leaving the Company, each participant is 100% vested with respect to the participants’ contributions while the Company’s matching contributions are vested over a six-year period in accordance with the Plan document. Contributions are invested, as directed by the participant, in investment funds available under the Plan. Matching contributions of approximately $10,000 were paid for each of the fiscal years ending April 30, 2018 and 2017, respectively.
5. Stockholders’ Equity
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, 2018 and 2017.
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, 2018, the Company purchased 1,275 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.
6. Earnings Per Share
Basic and diluted earnings per share, assuming convertible preferred stock was converted for each period presented are:
7. Commitments, Contingencies, and Related Party Transactions
The Company leases a building from Bonita Risk. Bonita Risk is a majority stockholder, a director and employee of the Company. This building contains the Company’s sales and accounting departments, maintenance department, engineering department and some production facilities. This lease requires a minimum payment of $1,535 on a month-to-month basis. The total lease expense for this arrangement per year was $18,420 for the fiscal years ended April 30, 2018 and 2017.
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 $3,819,000 for the year ended April 30, 2018 and $5,820,000 for the year ended April 30, 2017. The Company also received interest income from FirsTier Bank in the amount of approximately $33,200 for the year ended April 30, 2018 and $4,900 for the year ended April 30, 2017.
8. Income Taxes
Reconciliation of income taxes with Federal and State taxable income:	
The following schedule reconciles the provision for income taxes to the amount computed by applying the statutory rate to income before income taxes:
8. Income Taxes, continued
Deferred tax assets (liabilities) consist of the following components at April 30, 2018 and 2017:
9. Business Segments
The following is financial information relating to industry segments:
10. Concentrations
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, 2018 and 2017, the Company had uninsured balances of $3,591,000, and $5,642,000, respectively. Management believes that this financial institution is financially sound and the risk of loss is minimal. The Company also maintains cash balances in money market funds at the above-mentioned financial institution. Such balances are not insured.
Management also has cash funds with Wells Fargo Bank with uninsured balances of $224,000 and $386,000 for the years ending April 30, 2018 and 2017, 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 34% of total sales for the year ended April 30, 2018 and 38% of total sales for the year ended April 30, 2017. This distributor accounted for 55% and 47% of accounts receivable at April 30, 2018 and 2017, respectively.
Security switch sales made up 71% of total sales for the fiscal year ended April 30, 2018 and 81% of total sales for the fiscal year ended April 30, 2017.
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 Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 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 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, 2018, The Company’s investments consisted of money markets, publicly traded equity securities, real estate investment trusts (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.
12. Asset Purchase
In October 2017, George Risk Industries, Inc. (the “Company”) purchased certain assets from Labor Saving Devices, Inc. (“LSDI”). LSDI is engaged in the business of wire installation, tool design and manufacturing serving the audio/visual, electrical, communications and security alarm markets. The acquisition of LSDI was completed pursuant to an asset purchase agreement dated October 7, 2017. The purchase price for the assets consisted of $3,000,000 in cash and 24,097 shares of the Company’s Class A common stock (valued at $200,000, or approximately $8.30 per share). An initial payment of $1,000,000 in cash was made at closing, with the remaining $2,000,000 in cash paid in November 2017.
The value of the assets purchased in October 2017 as described above consisted of the following:
Since the asset purchase took place in October 2017, there was no value to these assets at April 30, 2017.
Item Disagreements on Accounting and Financial Disclosures
There were no disagreements with accountants on accounting and financial disclosure.
Item 9A
Item 9A Controls and Procedures
Evaluation of disclosure controls and procedures:
Based on their evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of April 30, 2018 our president and chief executive officer (also working as our chief financial officer) has concluded that our disclosure controls and procedures are effective such that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and (ii) accumulated and communicated to our management, including our chief executive officer (also working as our chief financial officer), as appropriate to allow timely decisions regarding disclosure. A control system cannot provide absolute assurance, however, that the objectives of the control systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
Internal control over financial reporting:
The Company’s management is responsible for establishing and maintaining adequate internal controls over financial reporting for the Company. Due to limited resources, Management conducted an evaluation of internal controls based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). The results of this evaluation determined that our internal control over financial reporting was ineffective for the years ended of April 30, 2018 and 2017, due to a material weakness. A material weakness in internal control over financial reporting is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of our financial reporting.
Management’s assessment identified the following material weakness in internal control over financial reporting:
● The small size of our Company limits our ability to achieve the desired level of separation of internal controls and financial reporting, particularly as it relates to financial reporting and deferred taxes. 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. The Company hired an individual in 2018 to fulfill the controller position, but more training is required to satisfy disclosure control and procedure responsibilities, including review procedures for key accounting schedules and timely and proper documentation of material transactions and agreements. We do not believe we have met the full requirement for separation for financial reporting purposes.
Because of the material weakness in internal control over financial reporting described above, the Company’s management has concluded that, as of April 30, 2018 and 2017, the Company’s internal control over financial reporting was not effective based on the criteria in Internal Control - Integrated Framework issued by the COSO.
We will continue to follow the standards for the Public Company Accounting Oversight Board (United States) for internal control over financial reporting to include procedures that:
● Pertain to the maintenance of records in reasonable detail that fairly reflect the transactions and dispositions of the Company’s assets;
● Provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the Board of Directors; and
● Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
This annual report does not include an attestation report of the Corporation’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Corporation’s independent registered public accounting firm pursuant to Section 404(c) of the Sarbanes-Oxley Act of 2002, as amended, that permit the Corporation to provide only the management’s report in this annual report.
Item 9B