10-K 1 form10-k.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10–K

 

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended April 30, 2019

 

[  ] TRANSITION REPORT UNDER 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 of incorporation)   (IRS Employer Identification No.)
     

802 South Elm St., Kimball, NE

(Address of principal executive offices)

 

69145

(Zip Code)

 

Registrant’s telephone number (308) 235–4645

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class   Name of Exchange on Which Registered
None   None

 

Securities registered under Section 12(g) of the Act:

 

Class A Common Stock, $.10 par value

(Title of class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [  ] No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Sections 15(d) of the Act.

Yes [  ] No [X]

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 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] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229-405 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 [  ] No [X]

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229-405 of this chapter) is not contained herein, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10–K or any amendment to this Form 10–K. [X]

 

Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, or a small reporting 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 [X]
  (Do not check if 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 Act).

Yes [  ] No [X]

 

The aggregate market value, as of August 6, 2019, of the common stock (based on the average of the bid and asked prices of the shares on the OTCM of George Risk Industries, Inc.) held by non-affiliates (assuming, for this purpose, that all directors, officers and owners of 5% or more of the registrant’s common stock are deemed affiliates) was approximately $16,623,000.

 

The number of outstanding shares of the common stock as of August 6, 2019 was 4,952,310.

 

 

 

 
 

 

Part I

 

Preliminary Note Regarding Forward-Looking Statements and Currency Disclosure

 

This annual report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” that may cause our, or our industry’s, actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

 

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We do not intend to update any of the forward-looking statements to conform these statements to actual results except as required by applicable law, including the securities laws of the United States.

 

Our financial statements are stated in United States dollars, rounded to the nearest thousand, and are prepared in accordance with United States Generally Accepted Accounting Principles.

 

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 94 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, Ademco, Inc. (previously known as ADI), accounts for approximately 41.4 percent of the Company’s sales of these products. Anixter, Inc. (which finalized the purchased Tri Ed Distribution in 2018) accounts for another 10.7 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 a written agreement with Ademco. This agreement was signed in February 2011 and was 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.

 

2
 

 

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 2 Properties

 

The Company owns the manufacturing and some of the office facilities. Total square footage of the plant in Kimball, Nebraska is approximately 50,000 sq. ft. 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 35 employees at the Gering site.

 

Item 3 Legal Proceedings

 

None.

 

Item 4 Submission of Matters to a Vote of Security Holders

 

Not applicable.

 

3
 

 

Part II

 

Item 5 Market 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

 

2019 Fiscal Year  High  Low
May 1—July 31  8.68  8.25
August 1—October 31  8.70  8.10
November 1—January 31  8.66  8.05
February 1—April 30  8.70  8.05

 

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  8.70  8.20

 

On September 30, 2018, a dividend of $.38 per common share was declared for the fiscal year ended April 30, 2019.

 

For the prior fiscal year, a dividend of $.36 per common share was declared on September 30, 2017.

 

The number of holders of record of the Company’s Class A Common Stock as of April 30, 2019, was approximately 1,140.

 

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.

 

4
 

 

The following tables show repurchases of GRI’s common stock made on a quarterly basis:

 

2019 Fiscal Year  Number of shares repurchased
May 1—July 31  650
August 1—October 31  5,800
November 1—January 31  937
February 1—April 30  2,100

 

2018 Fiscal Year  Number of shares repurchased
May 1—July 31  325
August 1—October 31  0
November 1—January 31  100
February 1—April 30  850

 

There are still approximately 254,000 shares available to be repurchased under the current resolution.

 

Item 6 Selected Financial Data

 

As a smaller reporting company, we are not required to respond to this item.

 

5
 

 

Item 7 Management’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 11.4% of revenues for fiscal year 2019 and 13.0% for 2018.

 

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, 2019, other income accounted for 23.97% of income before income taxes. In comparison, other income accounted for 29.72% of the income before income taxes for the year ending April 30, 2018. 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 increased by $579,000 during the year ended April 30, 2019 compared to a decrease of $2,162,000 during the year ended April 30, 2018. Accounts receivable increased by $155,000 during the current year while showing a $701,000 increase in the prior year. The current smaller increase in cash flow from accounts receivable is result of collecting on accounts at a slightly faster pace than last year. At April 30, 2019, 72.17% of receivables were less than 60 days and 5.87% were over 90 days. In comparison, 71.05% of the receivables were considered current (less than 60 days) and 10.81% of the total were over 90 days past due for the prior year during the same period.

 

6
 

 

Inventories increased by $1,316,000 in fiscal year ended April 30, 2019 while the prior year showed an increase of $980,000 at year end. The current year increase is a result of having inventory available in relation to the increase in sales.

 

Prepaid expenses decreased by $207,000 while they increased $403,000 in the current and prior year, respectively. The decrease in the current year is due not having as many prepayments of raw materials at year end and not having to renew multi-year subscriptions.

 

Income tax overpayments decreased by $489,000 for the year ended April 30, 2019. This decrease in the current year is a result of having more sales and income in comparison to the calculated income tax estimates.

 

For the year ended April 30, 2019, accounts payable decreased by $130,000 as compared to an increase of $268,000 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 $15,000 for the year ended April 30, 2019, due to an increase in commissions over the prior year.

 

Investing

 

As for investment activities, $154,000 was spent on purchases of property and equipment during the current fiscal year, compared to $533,000 during the year ended April 30, 2018. Most of these capitalized costs were purchases of new machinery and equipment. 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, 2019 was $942,000 versus the $767,000 spent for the corresponding period last year. Conversely, net proceeds from the sale of marketable securities were $766,000 and $2,033,000 at April 30, 2019 and 2018, 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 quarterly service fees based on the value of the investments.

 

Financing

 

Cash used in financing activities consists of two items. First, for the year ended April 30, 2019, $1,752,000 was spent on the payment of dividends. The Company declared a dividend of $0.38 per share of common stock on September 30, 2018 for the current year, while a $0.36 per share of common stock dividend was declared on September 30, 2017 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, 2019, the Company purchased $79,000 of treasury stock and $10,000 was bought back for the year ended April 30, 2018. We have been actively searching for stockholders that have been “lost” over the years. The payment of dividends over the last fourteen fiscal years has also prompted many stockholders and/or their relatives and descendants to sell back their stock to the Company.

 

At April 30, 2019, working capital increased 6.096% 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 increased to 15.316 for the year ended April 30, 2019 compared to 14.703 for the year ended April 30, 2018.

 

7
 

 

Results of Operations

 

GRI completed the fiscal year ending April 30, 2019 with a net profit of 23.25% of net sales. Net sales were at $14,126,000, up 18.397% over the previous year. The increase in sales is a combined result of having a whole year of a new product line to sell (our cable and wiring tools product line) and continued growth with the legacy product lines. Cost of goods sold was 51.86% of net sales for the year ended April 30, 2019 and 52.94% for the same period last year. Management’s goal is to keep the cost of goods sold percentage of less than 50%, but since wages and other expenses have increased while the Company’s prices haven’t increased to customers is the reason why the cost of goods percentage is just past Management’s goal.

 

Operating expenses were 24.73% of net sales for the year ended April 30, 2019 as compared to 26.18% 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, 2019 was at $3,306,000, which is a 32.66% increase from the corresponding period last year, which had income from operations of $2,492,000.

 

Other income and expense results for the fiscal year ended April 30, 2019 produced a gain of $1,042,000. This is in comparison to a gain of $1,054,000 for the fiscal year ended April 30, 2018. Dividend and interest income was $981,000, which is up 2.19% over the prior year. Dividend and interest income at April 30, 2018 was $960,000. Net gain on the sale of investments for the current fiscal year was $61,000, which is a 69.5% decrease over the prior year. Net gain on the sale of investments for the fiscal year ending April 30, 2018 was $200,000.

 

Net income for the year ended April 30, 2019 was $3,284,000, which is up 28.99% from the prior year, which produced net income of $2,546,000. Basic and diluted earnings per common share (EPS) for the year ended April 30, 2019 was $0.66 per share. Basic and diluted earnings per common share (EPS) for the year ended April 30, 2018 was $0.51 per share.

 

Management is hopeful that sales will continue to increase for the fiscal year ending April 30, 2020. With the purchase of the assets from Labor Saving Devices, Inc., the Company has seen an overall increase in sales, and we have also seen growth in our existing product lines as well. Our Security sales division, which is our largest sales generator, is directly tied to the housing industry and we normally experience the same fluctuations. 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 2019, we are confident that more new products will be released soon, and we are searching for products that complement our current offerings. 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.

 

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.

 

8
 

 

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.

 

Engineering continues to work on a high security switch. A triple biased high security switch design nearly complete and an adjustable magnet design was completed for recessed mounting applications.

 

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.

 

There have been several new products that have been introduced for our cable and wiring tools segment. They are listed below:

 

Black Light Rod Kits; these Fiberfuse™ rod kits are vibrant green in daylight, invisible in the dark, yet glow brilliantly under a black light flashlight. These kits are available in two popular sizes; 30’ & 36’. Used for surveillance wiring by security companies, private detectives and government agencies for top secret and covert installations.

 

Auto Noodle with Retriever Loop; the Auto Noodle is a coated, pliable 24” long noodle with an attachable, flexible loop perfect for tying wires to push or pull through difficult and hard to reach areas such as engines, dashboards, under seats, etc. The other end has a strong neodymium magnet which comes in handy for picking up dropped screws, bolts and even tools. The Auto Noodle is great for coach builders, recreational vehicles, agricultural equipment, trailers and much more.

 

We have reconfigured and reintroduced several of the popular Labor Saving Device’s Tool Kits; the Basic Installer Apprentice Kit, the All-Tool Mate Standard Threaded Tool Kit and the Roy Rods All-Tool Mate Master Tool Kit which is quick connect compared to the threaded. These kits contain a variety of must have LSDI products including Fiberfuse ™ rods, drill bits, soldering kits and tools in a convenient carrying case.

 

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.

 

9
 

 

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 real-estate investment trusts (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, 2019 and 2018.

 

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 $4,224,000 for the year ended April 30, 2019 and $3,819,000 for the year ended April 30, 2018. The Company also received interest income from FirsTier Bank in the amount of approximately $63,400 for the fiscal year ended April 30, 2019 and approximately $33,200 was received for the fiscal year ended April 30, 2018.

 

10
 

 

Item 8 Financial Statements

 

Index to Financial Statements

George Risk Industries, Inc.

 

  Page
   
Report of Independent Registered Public Accounting Firm F-2
   
Balance Sheets—April 30, 2019 and 2018 F-3
   
Statements of Income For the Years Ended April 30, 2019 and 2018 F-5
   
Statements of Comprehensive Income For the Years Ended April 30, 2019 and 2018 F-6
   
Statements of Changes in Stockholders’ Equity For the Years Ended April 30, 2019 and 2018 F-7
   
Statements of Cash Flows For the Years Ended April 30, 2019 and 2018 F-9
   
Notes to Financial Statements F-10

 

F-1
 

 

Report of Independent Registered Public Accounting Firm

 

Board of Directors

George Risk Industries, Inc.

Kimball, Nebraska

 

Opinion of the Financial Statements

 

We have audited the accompanying balance sheets of George Risk Industries, Inc. (the Company) as of April 30, 2019 and 2018, and the related statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the two-year period ended April 30, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for the years ended April 30, 2019 and 2018 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 an 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, 2019  

 

F-2
 

 

George Risk Industries, Inc.

Balance Sheets

As of April 30, 2019 and 2018

 

   2019   2018 
ASSETS          
           
Current Assets:          
Cash and cash equivalents  $4,873,000   $4,294,000 
Investments and securities   27,291,000    26,346,000 
Accounts receivable:          
Trade, net of $9,321 and $6,651 doubtful account allowance for 2019 and 2018, respectively   2,696,000    2,545,000 
Other   6,000    2,000 
Income tax overpayment   259,000    747,000 
Inventories, net   4,583,000    3,267,000 
Prepaid expenses   282,000    603,000 
Total Current Assets  $39,990,000   $37,804,000 
           
Property and Equipment, at cost, net   984,000    1,076,000 
           
Other Assets          
Investment in Limited Land Partnership, at cost   293,000    293,000 
Projects in process   117,000     
Other   3,000    6,000 
Total Other Assets  $413,000   $299,000 
           
Intangible Assets, net   1,640,000    1,763,000 
           
TOTAL ASSETS  $43,027,000   $40,942,000 

 

The accompanying notes are an integral part of these financial statements.

 

F-3
 

 

George Risk Industries, Inc.

Balance Sheets (Continued)

As of April 30, 2019 and 2018

 

   2019   2018 
LIABILITIES AND STOCKHOLDERS’ EQUITY          
           
Current Liabilities          
Accounts payable, trade  $206,000   $336,000 
Dividends payable   1,714,000    1,580,000 
Accrued expenses:          
Payroll and related expenses   356,000    329,000 
Property taxes       12,000 
Total Current Liabilities  $2,276,000   $2,257,000 
           
Long-Term Liabilities          
Deferred income taxes   1,198,000    955,000 
Total Long-Term Liabilities  $1,198,000   $955,000 
           
Total Liabilities  $3,474,000   $3,212,000 
           
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 
Common stock, Class A, $.10 par value, 10,000,000 shares authorized, 8,502,881 shares issued and outstanding   850,000    850,000 
Additional paid-in capital   1,934,000    1,934,000 
Accumulated other comprehensive income   2,752,000    2,249,000 
Retained earnings   38,145,000    36,746,000 
Less: treasury stock, 3,544,271 and 3,534,784 shares, at cost   (4,227,000)   (4,148,000)
Total Stockholders’ Equity  $39,553,000   $37,730,000 
           
TOTAL LIABILITES AND STOCKHOLDERS’ EQUITY  $43,027,000   $40,942,000 

 

The accompanying notes are an integral part of these financial statements.

 

F-4
 

 

George Risk Industries, Inc.

Income Statements

For the years ended April 30, 2019 and 2018

 

   Year ended   Year ended 
   April 30, 2019   April 30, 2018 
         
Net Sales  $14,126,000   $11,931,000 
Less: Cost of Goods Sold   (7,326,000)   (6,316,000)
Gross Profit   6,800,000    5,615,000 
           
Operating Expenses:          
General and Administrative   1,235,000    1,127,000 
Sales   2,167,000    1,888,000 
Engineering   74,000    90,000 
Rent Paid to Related Parties   18,000    18,000 
Total Operating Expenses   3,494,000    3,123,000 
           
Income From Operations   3,306,000    2,492,000 
           
Other Income (Expense)          
Other   11,000    (112,000)
Interest Expense   (1,000)    
Dividend and Interest Income   981,000    960,000 
Gain (Loss) on Sale of Investment   61,000    200,000 
Gain (Loss) on Sale of Assets   (10,000)   6,000 
    1,042,000    1,054,000 
           
Income Before Provisions for Income Taxes   4,348,000    3,546,000 
           
Provisions for Income Taxes          
Current Expense   1,024,000    972,000 
Deferred tax (benefit) expense   40,000    28,000 
Total Income Tax Expense   1,064,000    1,000,000 
           
Net Income  $3,284,000   $2,546,000 
           
Earnings Per Share of Common Stock          
Basic  $0.66   $0.51 
Diluted  $0.66   $0.51 
           
Weighted Average Number of Common Shares Outstanding (Basic)   4,962,547    4,958,769 
Weighted Average Number of Common Shares Outstanding (Diluted)   4,983,047    4,977,584 

 

The accompanying notes are an integral part of these financial statements.

 

F-5
 

 

George Risk Industries, Inc.

Statements of Comprehensive Income

For the years ended April 30, 2019 and 2018

 

   Year ended   Year ended 
   April 30, 2019   April 30, 2018 
         
Net Income  $3,284,000   $2,546,000 
           
Other Comprehensive Income, Net of Tax          
Unrealized gain (loss) on securities:          
Unrealized holding gains (losses) arising during period   895,000    1,351,000 
Less: reclassification adjustment for (gains) losses included in net income   (188,000)   (321,000)
Income tax expense related to other comprehensive income   (204,000)   (20,000)
Other Comprehensive Income   503,000    1,010,000 
           
Comprehensive Income  $3,787,000   $3,556,000 

 

The accompanying notes are an integral part of these financial statements.

 

F-6
 

 

George Risk Industries, Inc.

Statements of Stockholders’ Equity

For the Years Ended April 30, 2019 and 2018

 

   Preferred Stock  

Common Stock Class A

 
   Shares   Amount   Shares   Amount 
Balances, April 30, 2017   4,100   $99,000    8,502,881   $850,000 
                     
Purchases of common stock                
                     
Shares given as part of LSDI asset acquisition                    
                     
Dividend declared at $0.36 per common share outstanding                
                     
Unrealized gain (loss), net of tax effect                
                     
Net Income                
                     
Balances, April 30, 2018   4,100    99,000    8,502,881    850,000 
                     
Purchases of common stock                
                     
Dividend declared at $0.38 per common share outstanding                
                     
Unrealized gain (loss), net of tax effect                
                     
Net Income                
                     
Balance, April 30, 2019   4,100   $99,000    8,502,881   $850,000 

 

The accompanying notes are an integral part of these financial statements.

 

F-7
 

 

George Risk Industries, Inc.

Statements of Stockholders’ Equity

For the Years Ended April 30, 2019 and 2018

 

   

Treasury Stock
(Common Class A)

  

Accumulated

Other Comprehensive

   Retained     
Paid-In Capital   Shares   Amount  

Income

   Earnings   Total 
$1,736,000    3,557,606   $(4,140,000)  $1,239,000   $35,981,000   $35,765,000 
                            
     1,275    (10,000)           (10,000)
                            
 198,000    (24,097)   2,000            200,000 
                            
                 (1,781,000)   (1,781,000)
                            
             1,010,000        1,010,000 
                            
                 2,546,000    2,546,000 
                            
 1,934,000    3,534,784    (4,148,000)   2,249,000    36,746,000    37,730,000 
                            
     9,487    (79,000)           (79,000)
                            
                 (1,885,000)   (1,885,000)
                            
             503,000        503,000 
                            
                 3,284,000    3,284,000 
                            
$1,934,000    3,544,271   $(4,227,000)  $2,752,000   $38,145,000   $39,553,000 

 

The accompanying notes are an integral part of these financial statements.

 

F-8
 

 

George Risk Industries, Inc.

Statements of Cash Flows

 

   Year ended   Year ended 
   April 30, 2019   April 30, 2018 
         
Cash Flows From Operating Activities:          
Net Income  $3,284,000   $2,546,000 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   354,000    257,000 
(Gain) loss on sale of investments   (129,000)   (231,000)
Impairment on investments   68,000    31,000 
Bad debt expense   3,000    3,000 
Reserve for obsolete inventory       17,000 
(Gain) loss on sale of assets   10,000    (6,000)
Deferred income taxes   40,000    28,000 
Changes in assets and liabilities:          
(Increase) decrease in:          
Accounts receivable   (155,000)   (701,000)
Inventories   (1,316,000)   (980,000)
Prepaid expenses   207,000    (403,000)
Other receivables   (5,000)   2,000 
Income tax overpayment   489,000    (494,000)
Increase (decrease) in:          
Accounts payable   (130,000)   268,000 
Accrued expense   15,000    33,000 
Net cash provided by (used in) operating activities   2,735,000    370,000 
           
Cash Flows From Investing Activities:          
Proceeds from sale of assets   5,000    6,000 
(Purchase) of property and equipment   (154,000)   (533,000)
Proceeds from sale of marketable securities   766,000    2,033,000 
(Purchase) of marketable securities   (942,000)   (767,000)
(Purchase) of intangible asset       (1,624,000)
(Purchase) of long-term investment       (20,000)
Net cash provided by (used in) investing activities   (325,000)   (905,000)
           
Cash Flows From Financing Activities:          
(Purchase) of treasury stock   (79,000)   (10,000)
Dividends paid   (1,752,000)   (1,617,000)
Net cash provided by (used in) financing activities   (1,831,000)   (1,627,000)
           
Net Increase (Decrease) in Cash and Cash Equivalents   579,000    (2,162,000)
           
Cash and Cash Equivalents, beginning of period   4,294,000    6,456,000 
           
Cash and Cash Equivalents, end of period  $4,873,000   $4,294,000 
           
Supplemental Disclosure for Cash Flow Information:          
Cash payments for:          
Income taxes paid  $1,200,000   $1,760,000 
Interest expense   1,000     
           
Cash receipts for:          
Income taxes  $589,000   $294,000 

 

The accompanying notes are an integral part of these financial statements.

 

F-9
 

 

George Risk Industries, Inc.

Notes to Financial Statements

April 30, 2019

 

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. The Company maintains its cash in bank deposit accounts, the balances of which at times may exceed insured limits. The Company continually monitors its banking relationships and consequently has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.

 

Allowance for Doubtful Accounts — Accounts receivable are customer obligations due under normal trade terms. The Company sells its products to security alarm distributors, alarm installers, and original equipment manufacturers. The Company performs continuing credit evaluations of its customers’ financial condition and the Company generally does not require collateral.

 

The Company records an allowance for doubtful accounts based on an analysis of specifically identified customer balances. The Company has a limited number of customers with individually substantial amounts due at any given date. Any unanticipated change in any one of these customers’ credit worthiness or other matters affecting the collectability of amounts due from such customers could have a material effect on the results of operations in the period in which such changes or events occur. After all attempts to collect a receivable have failed, the receivable is written off. The Company has recorded an allowance for doubtful accounts of $9,321 for the year ended April 30, 2019 and $6,651 for the year ended April 30, 2018. For the fiscal year ended April 30, 2019, bad debt expense was $3,807. For the fiscal year ended April 30, 2018, bad debt expense was $3,345.

 

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.

 

F-10
 

 

1. Nature of Business and Summary of Significant Accounting Policies, continued

 

Property and Equipment — Property and equipment are recorded at cost. Depreciation is calculated based on the following estimated useful lives using the straight-line method:

 

Classification  Useful Life
in Years
  2019
Cost
   2018
Cost
 
Dies, jigs, and molds  3–7  $1,808,000   $1,808,000 
Machinery and equipment  5–10   1,533,000    1,414,000 
Furniture and fixtures  5–10   142,000    145,000 
Leasehold improvements  5–32   256,000    250,000 
Buildings  20–39   853,000    853,000 
Automotive  3–5   89,000    90,000 
Software  2–5   390,000    382,000 
Land  N/A   13,000    13,000 
Total      5,084,000    4,955,000 
Accumulated depreciation      (4,100,000)   (3,879,000)
Net     $984,000   $1,076,000 

 

Depreciation expense of $231,000 and $195,000 was charged to operations for the years ended April 30, 2019 and 2018, respectively.

 

Maintenance and repairs are charged to expense as incurred, and expenditures for major improvements are capitalized. When assets are retired or otherwise disposed of, the property accounts are relieved of costs and accumulated depreciation and any resulting gain or loss is credited or charged to operations.

 

Investment in Limited Land Partnership — In November 2002, the Company purchased 6.67% of a prime 22-acre land parcel for development in Winter Park-Grand County, CO for investment purposes for a total of $200,000. The goal was to hold the property for resale(s) in 2-5 years, but many efforts to sell the property have not materialized. Over the years, there have been a total of $93,000 of additional contributions to aid in improvements and recurring expenses such as debt service, utilities, taxes, maintenance, insurance and professional fees. Management has evaluated this investment and does not believe there is any impairment and that the full cost will be recovered when sold.

 

Intangible Assets — Intangible assets are amortized on a straight-line basis over their estimated useful lives, unless it is determined their lives to be indefinite. The two intangible assets currently being amortized are (1) a non-compete agreement with a useful live of 5 years and (2) intellectual property with a useful live of 15 years. As of April 30, 2019, the Company had $1,640,000 of net intangible asset costs, while the net intangible assets costs at April 30, 2018 were $1,763,000. Amortization expense was $123,000 for the year ended April 30, 2019 and $61,000 for the year ended April 30, 2018.

 

F-11
 

 

1. Nature of Business and Summary of Significant Accounting Policies, continued

 

As of April 30, 2019, future amortization of intangible assets is expected as follows:

 

Fiscal year end   Amortization
amount
 
 2020   $123,000 
 2021   $123,000 
 2022   $123,000 
 2023   $122,000 
 2024   $121,000 
 Thereafter   $1,028,000 
     $1,640,000 

 

Basic and Diluted Earnings per Share — The Company computes earnings per share in accordance with ASC 260-10-45 Earnings per Share, which requires presentation of both basic and diluted earnings per share on the face of the statement of operations. Basic earnings per share is computed by dividing net earnings available to common stockholders by the weighted average number of outstanding common shares during the period. Diluted earnings per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive earnings per share excludes all potential common shares if their effect is anti-dilutive. The Company has no potential dilutive instruments, and therefore, basic and diluted earnings per share are equal.

 

Advertising — Advertising costs are expensed as incurred and are included in selling expenses. Advertising expense amounted to $245,000 and $213,000 for the years ended April 30, 2019 and 2018, respectively.

 

Income Taxes — Deferred tax assets and liabilities are recorded for the future consequences of events that have been recognized in the Company’s financial statements or tax returns. Measurement of the deferred tax items is based on enacted tax laws. In the event the future consequences of differences between financial reporting bases and tax bases of the Company’s assets or liabilities result in a deferred tax asset, we evaluate the probability of realizing the future benefits comprising that asset and record a valuation allowance if considered necessary.

 

Accounting standards prescribe a recognition threshold and a measurement attribute for the financial statement recognition and measurement of the positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. A “more likely than not” tax position is measured as the largest amount of benefit that is greater than a fifty percent likelihood of being realized upon ultimate settlement, or else a full reserve is established against the tax asset or a liability is recorded. Interest and penalties accrued on uncertain tax positions are recorded as income tax expense.

 

Accounting Estimates — The preparation of these financial statements requires the use of estimates and assumptions including the carrying value of assets. The estimates and assumptions result in approximate rather than exact amounts.

 

F-12
 

 

1. Nature of Business and Summary of Significant Accounting Policies, continued

 

Fair Value of Financial Instruments — Certain financial instruments are required to be recorded at fair value. Changes in assumptions or estimation methods could affect the fair value estimates; however, we do not believe any such changes would have a material impact on our financial condition, results of operations or cash flows. Other financial instruments, including cash equivalents, certain investments and short-term debt, are recorded at cost, which approximates fair value. The fair values of long-term debt and financial instruments are disclosed in Note 11.

 

Revenue Recognition — Effective May 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers.” The Company recognizes product revenue using a five-step approach to determine the amount and timing of revenue to be recognized. The five-step approach requires (1) identifying the contract with the customer, (2) identifying the performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations in the contract and (5) recognizing revenue when performance obligations are satisfied. The Company recognizes revenue for product sales upon transfer of title to the customer. Customer purchase orders and/or contracts are generally used to determine the existence of an arrangement. Shipping documents and the completion of any customer acceptance requirements, when applicable, are used to verify product delivery or that services have been rendered. The Company assesses whether a price is fixed or determinable based upon the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. Payments received from customers in advance of product shipment or revenue recognition are treated as deferred revenues and recognized when the product is shipped. The Company recognizes product returns as they receive them.

 

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, 2019, 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.

 

F-13
 

 

1. Nature of Business and Summary of Significant Accounting Policies, continued

 

Recently Issued Accounting Pronouncements — In May 2014, FASB issued ASU 2014-09, on Revenue from Contracts with Customers. The updated guidance modifies the guidance companies use to recognize revenue from contracts with customers for transfers of goods or services and transfers of nonfinancial assets, unless those contracts are within the scope of other standards. The guidance also requires new qualitative and quantitative disclosures, including information about contract balances and performance obligations. In July 2015, the FASB approved a one-year deferral of the effective date. Accordingly, the update is effective for the Company in the first quarter of fiscal 2019 with retrospective application to prior periods presented or as a cumulative effect adjustment in the period of adoption. In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net).” This new guidance provides additional implementation guidance on how an entity should identify the unit of accounting for the principal versus agent evaluations. In May 2016, the FASB issued 2016 ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients.” This new ASU provides more specific guidance on certain aspects of Topic 606. The Company has analyzed the effect of the standard from its revenue streams to evaluate the impact of the new standard on revenue contracts. This included reviewing current accounting policies and practices to identify potential differences that would result from applying the requirements under the new standard. Most of the Company’s services are primarily short-term in nature, and the assessment was the adoption of the new revenue recognition standard will not have a material impact on its financial statements. The Company adopted the standard in the first quarter of fiscal 2019.

 

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which provides guidance for accounting for leases. ASU 2016-02 requires lessees to classify leases as either finance or operating leases and to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of the lease classification. The lease classification will determine whether the lease expense is recognized based on an effective interest rate method or on a straight-line basis over the term of the lease. Accounting for lessors remains largely unchanged from current GAAP. ASU 2016-02 is effective for the Company beginning May 1, 2019. Early adoption is permitted. In July 2018, the FASB issued ASU No. 2018-10 “Codification Improvements to Topic 842, Leases” (“ASU 2018-10”) and ASU No. 2018-11 “Leases (Topic 842) Targeted Improvements” (“ASU 2018-11”) and ASU 2018-20, “Narrow-Scope Improvements for Lessors”. ASU 2018-10 provides certain amendments that affect narrow aspects of the guidance issued in ASU 2016-02. ASU 2018-11 allows all entities adopting ASU 2016-02 to choose an additional (and optional) transition method of adoption, under which an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. ASU 2018-11 also allows lessors to not separate non-lease components from the associated lease component if certain conditions are met. During the first quarter of 2019, the FASB issued ASU 2019-01, Leases (Topic 842) to amend ASU 2016-02. This amendment exempts both lessees and lessors from having to provide certain prior year interim disclosure information in the fiscal year in which a company adopts the new leases standard. The Company will adopt the ASUs in the first quarter of fiscal 2020 and the Company’s accounting systems will be upgraded to comply with the requirements of the new standard, however, the adoption of ASU 2016-02 is not anticipated to have a material impact on the Company’s financial statements and related disclosures.

 

F-14
 

 

1. Nature of Business and Summary of Significant Accounting Policies, continued

 

In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02). Under existing U.S. GAAP, the effects of changes in tax rates and laws on deferred tax balances are recorded as a component of income tax expense in the period in which the law was enacted. When deferred tax balances related to items originally recorded in accumulated other comprehensive income (loss) are adjusted, certain tax effects become stranded in accumulated other comprehensive income. The amendments in ASU 2018-02 allow a reclassification from accumulated other comprehensive income (loss) to retained earnings (accumulated deficit) for stranded income tax effects resulting from the Tax Cuts and Jobs Act (the Tax Act). The amendments in this ASU also require certain disclosures about stranded income tax effects. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption in any period is permitted. The Company has not yet adopted ASU 2018-02 and is currently evaluating the potential impact of adopting the applicable guidance on the Company’s financial statements and related disclosures.

 

In July 2018, the FASB issued ASU No. 2018-09, “Codification Improvements” (“ASU 2018-09”). ASU 2018-09 provides amendments to a wide variety of topics in the FASB’s Accounting Standards Codification, which applies to all reporting entities within the scope of the affected accounting guidance. The transition and effective date guidance are based on the facts and circumstances of each amendment. Some of the amendments in ASU 2018-09 do not require transition guidance and were effective upon issuance of ASU 2018-09. However, many of the amendments do have transition guidance with effective dates for annual periods beginning after December 15, 2018. The Company is currently evaluating the potential impact of adopting the applicable guidance; however the Company does not believe that the adoption of ASU 2018-09 will have a material impact on the Company’s financial statements and related disclosures.

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820). The updated guidance improves the disclosure requirements on fair value measurements. The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures. The Company is currently assessing the timing and impact of adopting the updated provisions.

 

In August 2018, The FASB issued ASU 2018-14 to improve the effectiveness of disclosures for defined benefit plans under ASC 715-20. The ASU applies to employers that sponsor defined benefit pension or other postretirement plans. The FASB issued ASU 2018-14 as part of its disclosure framework project, which has an objective and primary focus to improve the effectiveness of disclosures in the notes to financial statements. As part of the project, during August 2018, the Board also issued a Concepts Statement, which the FASB used as a basis for amending the disclosure requirements for Subtopic 715-20. The guidance is effective or fiscal years ending after December 15, 2020 and early adoption is permitted. The Company is currently assessing the timing and impact of adopting the updated provisions.

 

F-15
 

 

1. Nature of Business and Summary of Significant Accounting Policies, continued

 

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which requires the Company to measure and recognize expected credit losses for financial assets held 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, and Topic 825, Financial Instruments,” 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 effective for fiscal years beginning after December 15, 2020. The ASU requires a modified retrospective adoption method. The Company is still evaluating the impact of adoption on its financial statements and disclosures.

 

Subsequent Events – Management has evaluated all events or transactions that occurred after April 30, 2019 through August 13, 2019 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, 2019 and 2018, consisted of the following:

 

   2019   2018 
Raw materials  $3,644,000   $2,450,000 
Work in process   389,000    444,000 
Finished goods   641,000    463,000 
    4,674,000    3,357,000 
Less: allowance for obsolete inventory   (91,000)   (90,000)
Inventories, net  $4,583,000   $3,267,000 

 

F-16
 

 

3. Investments

 

The Company has investments in publicly traded equity securities, corporate bonds, state and municipal debt securities, REITs, 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 June 2019 and January 2044. 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, 2019 and 2018, investments consisted of the following:

 

Investments at      Gross   Gross     
April 30, 2019  Cost   Unrealized   Unrealized   Reported 
   Basis   Gains   Losses   Value 
Municipal bonds  $5,459,000   $79,000   $(55,000)  $5,483,000 
Corporate bonds  $26,000   $-   $-   $26,000 
REITs  $89,000   $1,000   $(6,000)  $84,000 
Equity securities  $16,618,000   $4,143,000   $(296,000)  $20,465,000 
Money Markets and CDs  $1,233,000   $-   $-   $1,233,000 
Total  $23,425,000   $4,223,000   $(357,000)  $27,291,000 

 

Investments at      Gross   Gross     
April 30, 2018  Cost   Unrealized   Unrealized   Reported 
   Basis   Gains   Losses   Value 
Municipal bonds  $5,984,000   $66,000   $(309,000)  $5,741,000 
Corporate bonds  $129,000   $2,000   $-   $131,000 
REITs  $110,000   $3,000   $(7,000)  $106,000 
Equity securities  $15,930,000   $3,714,000   $(311,000)  $19,333,000 
Money Markets and CDs  $1,035,000   $-   $-   $1,035,000 
Total  $23,188,000   $3,785,000   $(627,000)  $26,346,000 

 

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 $68,000 for the year ended April 30, 2019 and $31,000 for the year ended April 30, 2018.

 

F-17
 

 

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, 2019 and 2018.

 

Unrealized Loss Breakdown by Investment Type at April 30, 2019

 

   Less than 12 months   12 months or greater   Total 
Description  Fair Value   Unrealized Loss   Fair Value   Unrealized Loss   Fair Value   Unrealized Loss 
Municipal bonds  $772,000   $(4,000)  $580,000   $(50,000)  $1,352,000   $(54,000)
REITs  $   $   $32,000   $(6,000)  $32,000   $(6,000)
Equity securities  $932,000   $(102,000)  $1,652,000   $(195,000)  $2,584,000   $(297,000)
Total  $1,704,000   $(106,000)  $2,264,000   $(251,000)  $3,968,000   $(357,000)

 

Unrealized Loss Breakdown by Investment Type at April 30, 2018

 

   Less than 12 months   12 months or greater   Total 
Description  Fair Value   Unrealized Loss   Fair Value   Unrealized Loss   Fair Value   Unrealized Loss 
Municipal bonds  $960,000   $(200,000)  $2,385,000   $(109,000)  $3,345,000   $(309,000)
REITs  $55,000   $(6,000)  $27,000   $(1,000)  $82,000   $(7,000)
Equity securities  $2,545,000   $(127,000)  $823,000   $(184,000)  $3,368,000   $(311,000)
Total  $3,560,000   $(333,000)  $3,235,000   $(294,000)  $6,795,000   $(627,000)

 

Municipal Bonds

 

The unrealized losses on the Company’s investments in municipal bonds were caused by interest rate increases. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. Because the Company has the ability to hold these investments until a recovery of fair value occurs, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at April 30, 2019.

 

Marketable Equity Securities and REITs

 

The Company’s investments in marketable equity securities and REITs consist of a wide variety of companies. Investments in these companies include growth, growth income, and foreign investment objectives. Management has evaluated the individual holdings and does not consider these investments to be other-than-temporarily impaired at April 30, 2019.

 

F-18
 

 

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, 2019 and 2018 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, 2019 and 2018.

 

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, 2019, the Company purchased 9,487 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.

 

F-19
 

 

6. Earnings Per Share

 

Basic and diluted earnings per share, assuming convertible preferred stock was converted for each period presented are:

 

   April 30, 2019 
   Income   Shares   Per-Share 
   (Numerator)   (Denominator)   Amount 
Net income  $3,284,000           
Basic EPS  $3,284,000    4,962,547   $.6618 
Effect of dilutive Convertible Preferred Stock       20,500    (.0028)
Diluted EPS  $3,284,000    4,983,047   $.6590 

 

  

 

April 30, 2018

 
   Income   Shares   Per-Share 
   (Numerator)   (Denominator)   Amount 
Net income  $2,546,000           
Basic EPS  $2,546,000    4,958,769   $.5134 
Effect of dilutive Convertible Preferred Stock       20,500    (.0019)
Diluted EPS  $2,546,000    4,977,584   $.5115 

 

F-20
 

 

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, 2019 and 2018.

 

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 $4,224,000 for the year ended April 30, 2019 and $3,819,000 for the year ended April 30, 2018. The Company also received interest income from FirsTier Bank in the amount of approximately $63,400 for the year ended April 30, 2019 and $33,200 for the year ended April 30, 2018.

 

8. Income Taxes

 

Reconciliation of income taxes with Federal and State taxable income:

 

   2019   2018 
Income before income taxes  $4,348,000   $3,546,000 
State income tax deduction   (265,000)   (192,000)
Interest and dividend income   (658,000)   (669,000)
Domestic production activities deduction       (243,000)
Nondeductible expenses and timing differences   136,000    150,000 
Taxable income  $3,561,000   $2,592,000 

 

The following schedule reconciles the provision for income taxes to the amount computed by applying the statutory rate to income before income taxes:

 

    2019     2018  
Income tax provision at statutory rate   $ 1,252,000     $ 1,327,000  
Increase (decrease) income taxes resulting from:                
State income taxes     (76,000 )     (72,000 )
Interest and dividend income     (190,000 )     (250,000 )
Domestic production activities           (91,000 )
Deferred taxes     40,000       28,000  
Other temporary and permanent differences     38,000       58,000  
Income tax expense   $ 1,064,000     $ 1,000,000  
                 
Federal tax rate     21.00 %     29.72 %
State tax rate     7.81 %     7.70 %
Blended statutory rate     28.81 %     37.42 %

 

Deferred tax assets (liabilities) consist of the following components at April 30, 2019 and 2018:

 

   2019   2018 
Deferred tax assets (liabilities):          
Depreciation   (141,000)   (161,000)
Inventory valuation   26,000    26,000 
Allowance for doubtful accounts   3,000    2,000 
263A adjustment       58,000 
Accrued vacation   28,000    30,000 
Accumulated unrealized (gain)/loss on investments   (1,114,000)   (910,000)
Net deferred tax assets (liabilities)  $(1,198,000)  $(955,000)

 

F-21
 

 

9. Business Segments

 

The following is financial information relating to industry segments:

 

   Quarter ended   Year ended   Year ended 
   April 30,   April 30,   April 30, 
   2019   2019   2018 
Net revenue:               
Security alarm products  $2,872,000   $11,006,000   $8,423,000 
Cable & wiring tools   527,000    2,431,000    1,326,000 
Other products   175,000    689,000    2,182,000 
Total net revenue  $3,574,000   $14,126,000   $11,931,000 
                
Income from operations:               
Security alarm products   654,000    2,656,000    1,759,000 
Cable & wiring tools   120,000    488,000    277,000 
Other products   40,000    162,000    456,000 
Total income from operations  $814,000   $3,306,000   $2,492,000 
                
Depreciation and amortization:               
Security alarm products   38,000    95,000    37,000 
Cable & wiring tools   31,000    123,000    62,000 
Other products   19,000    74,000    103,000 
Corporate general   18,000    62,000    55,000 
Total depreciation and amortization  $106,000   $354,000   $257,000 
                
Capital expenditures:               
Security alarm products   39,000    75,000    280,000 
Cable & wiring tools            
Other products   19,000    56,000    172,000 
Corporate general   8,000    23,000    81,000 
Total capital expenditures  $66,000   $154,000   $533,000 

 

   April 30, 2019   April 30, 2018 
Identifiable assets:          
Security alarm products   6,179,000    4,561,000 
Cable & wiring tools   2,713,000    2,347,000 
Other products   842,000    1,521,000 
Corporate general   33,293,000    32,510,000 
Total assets  $43,027,000   $40,942,000 

 

F-22
 

 

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, 2019 and 2018, the Company had uninsured balances of $4,082,000, and $3,591,000, respectively. Management believes that this financial institution is financially sound and the risk of loss is minimal.

 

Management also has cash funds with Wells Fargo Bank with uninsured balances of $399,000 and $224,000 for the years ending April 30, 2019 and 2018, 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 41% of total sales for the year ended April 30, 2019 and 34% of total sales for the year ended April 30, 2018. This distributor accounted for 61% and 55% of accounts receivable at April 30, 2019 and 2018, respectively. Security switch sales made up 78% of total sales for the fiscal year ended April 30, 2019 and 71% of total sales for the fiscal year ended April 30, 2018.

 

11. Fair Value Measurements

 

The carrying value of the Company’s cash and cash equivalents, accounts receivable and accounts payable approximate their fair value due to their short term nature. The fair value of our investments is determined utilizing market based information. Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions, and credit risk.

 

US GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The levels of the fair value hierarchy under US GAAP are described below:

 

  Level 1 Valuation is based upon quoted prices for identical instruments traded in active markets.
     
  Level 2 Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
     
  Level 3 Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

 

Investments and Marketable Securities

 

As of April 30, 2019, The Company’s investments consisted of money markets, publicly traded equity securities, REITs as well as certain state and municipal debt securities and corporate bonds. The marketable securities are valued using third-party broker statements. The value of the majority of securities is derived from quoted market information. The inputs to the valuation are classified as Level 1 given the active market for these securities; however, if an active market does not exist, which is the case for municipal bonds and REITs; the inputs are recorded as Level 2.

 

Fair Value Hierarchy

 

The following tables set forth our assets and liabilities measured at fair value on a recurring basis and a non-recurring basis by level within the fair value hierarchy. As required by US GAAP, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

   Assets Measured at Fair Value on a Recurring
Basis as of April 30, 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 April 30, 2018
 
   Level 1   Level 2   Level 3   Total 
Assets:                    
Municipal Bonds      $5,741,000       $5,741,000 
Corporate Bonds  $131,000           $131,000 
REITs      $106,000       $106,000 
Equity Securities  $19,333,000           $19,333,000 
Money Markets and CDs  $1,035,000           $1,035,000 
Total fair value of assets measured on a recurring basis  $20,499,000   $5,847,000       $26,346,000 

 

F-23
 

 

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:

 

Type of Asset  Fair Value of Assets Acquired 
Inventory  $1,366,000 
Fixed Assets  $10,000 
Non-compete agreement  $10,000 
Intangible assets  $1,814,000 
Total  $3,200,000 

 

F-24
 

 

Item 9Disagreements on Accounting and Financial Disclosures

 

There were no disagreements with accountants on accounting and financial disclosure.

 

Item 9AControls 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, 2019 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, 2019 and 2018, 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.

 

11
 

 

Because of the material weakness in internal control over financial reporting described above, the Company’s management has concluded that, as of April 30, 2019 and 2018, 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 9BOther Information

 

None.

 

12
 

 

Part III

 

Item 10 Directors and Executive Officers of the Registrant

 

(a & b) Identification of Directors and Executive Officers

 

All the executive officers of the corporation serve at the pleasure of the board of directors and do not have fixed terms.

 

The following information as of April 30, 2019, is furnished with respect to each director and executive officer:

 

Name   Principal Occupation or Employment   Age   Director or
Officer Since
Stephanie M. Risk-McElroy   Chairman of the Board, Chief Executive Officer and Chief Financial Officer   47   August 8,1999
Sharon Westby   Secretary/Treasurer   67   June 16, 2006
Donna Debowey   Director, retired GRI plant manager   81   July 12, 2005
Joel H. Wiens   Director, FirsTier Banks   89   September 6, 2007
Bonita P. Risk   Director, Stock Transfer Agent at GRI   69   March 15, 2013
Jerry Knutsen   Director, retired business owner   76   August 29, 2016

 

The following director compensation table is furnished with respect to each director that served during the year ended April 30, 2019:

 

Name  Director’s
Fees Paid
   Stock
Awards
   Option
Awards
   Non-equity
incentive
plan
compen-sation
   Non-qualified
deferred
compensation
earnings
   Total 
Stephanie Risk-McElroy (1)                        
Sharon Westby (1)                        
Jerry Andersen (2)  $200                   $200 
Donna Debowey (2)  $200                   $200 
Joel H. Wiens (2)  $200                   $200 
Bonita P. Risk (1)                        
Jerry Knutsen                        

 

The inside directors (1), or employees of the Company, do not receive additional compensation for their services. Outside directors (2) are paid $200 per meeting for their services.

 

13
 

 

(c) Identification of Certain Significant Employees

 

None.

 

(d) Family Relationships

 

Stephanie Risk-McElroy and Bonita P. Risk have a daughter - mother relationship.

 

(e) Business Experience of Directors and Executive Officers

 

Stephanie Risk-McElroy, Chairman of the Board, Chief Executive Officer, and Chief Financial Officer, has over twenty years of experience in the accounting field. Mrs. Risk-McElroy graduated from Hastings College with a degree in Accounting. Stephanie worked for Platte Valley Sales from May 1990 until January 1997 as a staff accountant. In 1997, she pursued her career with an accounting manager position at Kershner’s Auto Korner in Hastings, NE. She joined the accounting staff at GRI in 1999 and then was promoted to CFO upon retirement of the prior CFO. Upon the death of her father, Ken R. Risk, in February 2013, she was appointed to the position of Chairman of the Board and Chief Executive Officer.

 

Mrs. Risk-McElroy serves on the Board of Directors of GRI, as a direct link to the financial condition of the Company. She and her staff oversee all the accounting obligations of the Company. She has knowledge and experience in business outside of the Company that makes her an asset to the Board. And as President of the Company, she oversees all the day to day operations as well.

 

Sharon Westby, the Corporate Secretary, worked at GRI right after high school for a couple of years as the personal secretary to the Founder of the Company, George Risk, who was President and CEO. Before she returned to the Company in 1982, Sharon was a Clerk Steno 1 at Jackson County Welfare in Kansas City, MO, worked in medical records at the Kimball County Hospital in Kimball, NE, and also managed motels in Texas and Nebraska. She is the Executive Assistant to the President and CEO and Sales Administrator of the Keyboard and Switch division of GRI.

 

Ms. Westby continues in her position on the Board of Directors at GRI with over 35 years of experience with the Company. She has seen the Company through many years of ups and downs has broad knowledge of her product line and is very customer oriented in trying to sell her products to the “non-security use” industry.

 

Donna Debowey, Director, worked in various retail stores and restaurants until she started at GRI in 1968. She started on the production line, but quickly worked her way up the ranks. She has been a Production Line Supervisor, Director of Quality Control and was named Plant Manager and Senior Vice President in 1998. She held that position until her retirement in 2003.

 

Ms. Debowey made the transition from employee of GRI to a member of the Board of Directors with no hesitation after her retirement. She brings her 40+ years of experience in the industry to the table and has a vested interest in seeing the continued success of the Company that she helped to build.

 

Joel H. Wiens, Director, is an entrepreneur with many business interests. He is a director and principal shareholder of FirsTier Banks Nebraska/Wyoming, director of FirsTier II BanCorporation (which owns FirsTier Bank Nebraska/Wyoming), Chairman of Rite-A-Way Industries (lodging and hospitality industries), real estate investments, and ranching and livestock.

 

14
 

 

Mr. Wiens took his place on the Board of Directors when his predecessor Mike Nelson, (who is affiliated with Mr. Wiens’ financial institutions) retired from the Board to take another position within the banks and moved away. Joel’s knowledge and experience in business and industry span 50+ years and serves as a valuable asset to GRI.

 

Bonita P. Risk, Director, attended Wayne State College, in Wayne, Nebraska. Upon returning back home to Columbus, NE, she worked in factory positions. Upon her marriage to Ken Risk, she became a homemaker, raising 3 children and working at several sales positions. In 1981, she and Ken started Platte Valley Sales in Hastings, Nebraska, and her expertise was in accounting and sales. For 8 years, she ran the Hastings business while Ken devoted his time to both GRI in Kimball and Platte Valley Sales in Hastings. Ken and Bonita moved to Kimball in 1997. In 1998, she began at GRI in sales support. She continues in sales support and became the Company stock transfer agent in 2004 upon the retirement of Eileen Risk and is an assistant to the chief financial officer.

 

Jerry Knutsen, Director, has lived in Kimball, Nebraska most of his life. He left the community for a few years to attend the University of Nebraska at Lincoln. Before his retirement, Jerry owned and operated several businesses over his career, including Knutsen Oil, Inc., Marv’s LP Gas, Inc., and Jerry Knutsen, Inc. and he co-owned Kimball Ford-Lincoln-Mercury. He served 24 years and held several positions on the school board in Kimball, NE. Mr. Knutsen is a past member and president of The Nebraska Propane Gas Association and The Nebraska Petroleum Marketers & Convenience Store Association. Other boards he is presently serving on include the Kimball Schools Foundation Board of Directors and Kimball Health Services Board of Trustees.

 

(f) Involvement in Certain Legal Proceedings

 

None.

 

(g) Promoters and Control Persons

 

None.

 

15
 

 

Compliance with Section 16(a) of the Securities Exchange Act of 1934

 

Section 16(a) of the Exchange Act requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common stock and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the SEC regulations to furnish us with copies of all Section 16(a) reports that they file.

 

Based solely on our review of copies of the Section 16(a) reports filed for the fiscal year ended April 30, 2019, we believe that all filing requirements applicable to our officers, directors, and greater than 10% beneficial owners were complied with.

 

Code of Ethics and Code of Business Conduct

 

The Company does not have a written code of ethics at this time. The Company is a small business and employees know that the President of the Company must approve all material business. The Company also has checks and balances to make sure that there is not any fraud or illegal activities taking place.

 

Corporate Governance

 

Nominating and Compensation Committees

 

We do not have standing nominating or compensation committees, or committees performing similar functions. Our Board of Directors believes that it is not necessary to have a standing compensation committee at this time because our Board of Directors adequately performs the functions of such committee.

 

Our Board of Directors also is of the view that it is appropriate for us not to have a standing nominating committee because our Board of Directors has performed and will perform adequately the functions of a nominating committee. Our Board of Directors has not adopted a charter for the nomination committee. There have not been any defined policy or procedure requirements for stockholders to submit recommendations or nomination for directors. Our Board of Directors does not believe that a defined policy with regard to the consideration of candidates recommended by stockholders is necessary at this time because we believe that, given the early stages of our development, a specific nominating policy would be premature and of little assistance until our business operations are at a more advanced level.

 

Audit Committee

 

We do not have a standing audit committee at the present time. Our Board of Directors has determined that we do not have a board member that qualifies as an “audit committee financial expert” as defined in Item 401(h) of Regulation S-K, nor do we have a board member that qualifies as “independent” as the term is used in Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934, as amended.

 

Other Committees

 

All proceedings of our Board of Directors for the year ended April 30, 2019 were conducted by resolutions consented to in writing by our directors and filed with the minutes of the proceedings of the Board of Directors. Our Company currently does not have any committees.

 

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Item 11 Executive Compensation

 

The following table sets forth certain information regarding the compensation paid to or accrued by the Company to executive officers for services rendered in all capacities during each of the Company’s fiscal years ended April 30, 2019 and 2018.

 

Name and
principal
position
  Year   Salary   Bonus   Stock Awards   Option Awards   Non-Equity Incentive Plan Compen-sation   Change in Pension Value and Non-qualified Deferred Compen-sation Earnings   All Other Compen-sation   Total 
Bonita Risk, Director,   2019   $38,000   $                   $102,000   $140,000 
Shareholder, Employee   2018   $36,000   $                   $84,000   $120,000 
                                              
Stephanie Risk-McElroy,   2019   $87,000   $                   $33,000   $120,000 
CEO/CFO, Director, Shareholder   2018   $83,000   $                   $27,000   $110,000 
                                              
Scott McMurray,   2019   $25,000   $                   $77,000   $102,000 
Director of Sales   2018   $24,000   $                   $63,000   $87,000 

 

Bonita Risk, Stephanie Risk-McElroy, and Scott McMurray receive a base salary and bonus/commission based on a percentage of sales for the year.

 

There were no other officers compensated in excess of $100,000 for the fiscal years ended April 30, 2019 and 2018.

 

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Item 12 Security Ownership of Certain Beneficial Owners and Management

 

The following table sets forth certain information regarding our Common Stock beneficially owned as of April 30, 2019, for (i) each stockholder known to be the beneficial owner of 5% or more of our outstanding Common Stock, (ii) each executive officer and director, and (iii) all executive officers and directors as a group. In general, a person is deemed to be a beneficial owner of a security if that person has or shares the power to vote or direct the voting of such security, or the power to dispose or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which the person has the right to acquire beneficial ownership within 60 days. Shares of Common Stock subject to options, warrants or convertible securities exercisable or convertible within 60 days are deemed outstanding for computing the percentage of the person or entity holding such options, warrants or convertible securities but are not deemed outstanding for computing the percentage of any other person. Percentages are determined based on 4,958,610 shares of Common Stock of the Company issued and outstanding and less treasury shares as of April 30, 2019. To the best of our knowledge, subject to community and marital property laws, all persons named have sole voting and investment power with respect to such shares, except as otherwise noted.

 

Name and Address of Beneficial Owner (1)  Number of Shares of
Common Stock (2)
   % of Class of Stock
Outstanding (3)
 
Executive Officers and Directors:          
Bonita Risk – Director   2,948,211    59.46%
The above director has beneficial ownership over the Kenneth Risk Trust that owns 2,187,056 shares, Bonita Risk Family Irrevocable Trust that owns 732,470 shares, and 28,685 shares owned personally. As a result, combined, they have voting and shared dispositive control.          
           
Stephanie M. Risk-McElroy Chairman, CEO, & CFO   1,775    Less than 1%
Donna Debowey – Director   500    Less than 1%
Daniel Douglas – Vice President, Materials   250    Less than 1%
           
All Officers and Directors as a group   2,950,736    59.51%

 

(1) Unless otherwise indicated, the address of the named beneficial owner is George Risk Industries, Inc., 802 S. Elm St., Kimball, NE 69145.
   
(2) Security ownership information for named beneficial owners (other than executive officers and directors of the Company) is taken from statements filed with the Securities and Exchange Commission pursuant to information made known by the Company and from the Company’s transfer agent.
   
(3) Based on the net shares outstanding as of April 30, 2019. This consists of Common Shares issued and outstanding (8,502,881) less treasury shares (3,544,271).

 

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Changes in Control

 

We are not aware of any arrangements, including any pledge by any person of our securities, the operation of which may result in a change in control of the Company.

 

Item 13 Certain Relationships and Related Party Transactions

 

During each of three years ended April 30, 2019, 2018, and 2017, the Company executed transactions with related entities and individuals. Each of the transactions was in terms at least as favorable as could be obtained from unrelated third parties.

 

Related Party  2019   2018   2017 
Rent            
Bonita Risk, Director  $18,420    18,420    18,420 
Bank Balances               
Joel Wiens, Director  $4,224,231   $3,819,042   $5,819,763 
                
Interest Income               
Joel Wiens, Director  $63,437   $33,229   $4,890 

 

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Item 14 Principal Accountant Fees and Services

 

1) Audit Fees

 

For each of the last two fiscal years the Company incurred aggregate fees and expenses for professional services rendered by our principal accountants for the audit of our annual financial statements and review of our financial statements for Form 10-Q. The amounts are listed below:

 

FYE 2019  $45,800   Haynie & Company
   $5,163   CFO Systems, LLC
         
FYE 2018  $43,900   Haynie & Company

 

2) Audit-Related Fees

 

The Company incurred aggregate fees and expenses for professional services rendered by our principal accountants for the audit of the Company’s employee benefit plan and for work performed related to the asset purchase of Labor Saving Devices. The amounts are listed below:

 

FYE 2019  $6,500   Haynie & Company
         
FYE 2018  $9,460   Haynie & Company
   $8,208   CFO Systems, LLC

 

3) Tax Fees

 

The Company incurred aggregate fees or expenses for professional services rendered by tax accountants for tax compliance, tax advice, and tax planning for the last two fiscal years.

 

FYE 2019  $1,600   Haynie & Company
   $3,985   Tax Resources Group, Inc.
         
FYE 2018  $6,610   Haynie & Company
   $4,935   Tax Resources Group, Inc.

 

4) All Other Fees

 

There were no other fees incurred during each of the last two fiscal years.

 

5) The Board of Directors, considered whether, and determined that, the auditor’s provisions of non-audit services were compatible with maintaining the auditor’s independence. All the services described above were approved by the Board of Directors pursuant to its policies and procedures.

 

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Part IV

 

Item 15Exhibits and Reports on Form 8–K

 

3.(1).a   Articles of Incorporation—Filed as Exhibit 5 to the Registrant’s Form 10–K for the fiscal year ended April 10, 1970, and incorporated by reference herein
     
3.(i).b   Certificate of Amendment to the Articles of Incorporation of the Registrant—Filed as Exhibit 1.2 to the Registrant’s Form 10–K for the fiscal year ended April 30, 1971, and incorporated by reference herein
     
3.(ii).c   By-laws—Filed as Exhibit 1.3 to the Registrant’s Form 10–K for the fiscal year ended April 10, 1971, and incorporated by reference herein
     
10.1   Vendor agreement dated as of February 16, 2011 between Honeywell International, Inc., acting through the ADI business of its Security Group (“ADI”) and George Risk Industries, Inc. – Filed herewith. *
     
10.2   Asset Purchase Agreement dated as of October 10, 2017 between George Risk Industries, Inc., Labor Saving Devices, Inc. and Roy Bowling – Filed as Exhibit 10.1 to the Registrant’s Form 10-Q for the fiscal quarter ended January 31, 2018, and incorporated by reference herein
     
31.1   Certification pursuant to Rule 13a-14(a) of the Chief Executive Officer (Principal Financial and Accounting Officer)
     
32.1   Certification pursuant to 18 U.S.C. 1350 of the Chief Executive Officer (Principal Financial and Accounting Officer)

 

 

 

* Portions of this exhibit have been omitted pursuant to a request for confidential treatment under Rule 24b-2 under the Securities Exchange Act of 1934. The request is currently under review.

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

/s/ STEPHANIE M. RISK-MCELROY    August 13, 2019
STEPHANIE M. RISK-MCELROY   Date
President and Chairman of the Board    

 

Pursuant to the requirements of the securities exchange act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

/s/ STEPHANIE M. RISK-MCELROY    August 13, 2019
STEPHANIE M. RISK-MCELROY   Date
President and Chairman of the Board    
     
/s/ DONNA DEBOWEY    August 13, 2019
DONNA DEBOWEY   Date
Director    
     
/s/ JOEL H. WIENS    August 13, 2019
JOEL H. WIENS   Date
Director    
     
/s/ BONITA P. RISK    August 13, 2019
BONITA P. RISK   Date
Director    
     
/s/ JERRY KNUTSEN    August 13, 2019
JERRY KNUTSEN   Date
Director    

 

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