10-Q/A 1 form10qa.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q/A

Amendment No 1

 

(Mark One)

 

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

 

For the quarter ended January 31, 2020

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______________ to ________________

 

Commission File Number: 000-05378

 

GEORGE RISK INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

 

Colorado   84-0524756

(State of incorporation)

 

(IRS Employers Identification No.)

 

802 S. Elm St., Kimball, NE   69145
(Address of principal executive offices)   (Zip Code)

 

(308) 235-4645

(Registrant’s telephone number, including area code)

 

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

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Class A Common Stock, $0.10 par value   RSKIA   OTC Markets
Convertible Preferred Stock, $20 stated value   RSKIA   OTC Markets

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (&232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, a small reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

  Large accelerated filer [  ] Accelerated filer [  ]  
  Non-accelerated filer [  ] Smaller reporting company [X]  
    Emerging growth company [  ]  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes [  ] No [X]

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

The number of shares of the Registrant’s Common Stock outstanding, as of March 20, 2020, was 4,950,260.

 

 

 

 

 

 

EXPLANATORY NOTE

 

This Amendment No. 1 to Form 10-Q, or this Amendment, amends the Quarterly Report on Form 10-Q for the three-and nine months periods ended January 31, 2020 that we originally filed with the Securities and Exchange Commission, or the Commission, on March 23, 2020, or the Original Filing, in connection with our failure to give effect to the implementation of FASB ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”) in the prior year financial statements included in the Original Filing.

 

All amendments and restatements to the financial statements are non-cash in nature.

 

Restatement

 

As further discussed in Note 10 to our unaudited financial statements in Part I, Item 1, “Financial Statements” of this Amendment, on April 1, 2020, we concluded that certain disclosures necessary to fairly explain the changes in the financial statements presented were excluded in our previous filings and that we would we would restate our previously issued financial statements for the three-and nine months periods ended January 31, 2019, as set forth in the Original Filing in connection with our failure to give effect to the implementation of ASU 2016-01 in the prior year financial statements included in the Original Quarterly Report on Form 10-Q.

 

Amendment

 

The purpose of this Amendment is to restate our previously issued unaudited financial statements and related disclosures for the three-and nine months periods ended January 31, 2019 in connection with the application of ASU 2016-01. This Amendment also includes (a) an amended Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to reflect the correction of the error described above.

 

Except as expressly set forth herein, including in the notes to the unaudited financial statements, this Amendment, along with Amendment #1 (“Amendments”) does not reflect events occurring after the date of the Original Filing or modify or update any of the other disclosures contained therein in any way other than as required to reflect the amendment discussed above. Accordingly, this Amendment should be read in conjunction with the Original Filing and our other filings with the Commission. Information not affected by the restatement is unchanged and reflects disclosures made at the time of the filing of the Original Form 10-Q.

 

See Note 10 to the financial statements included in Item 1 for additional information and a reconciliation of the previously reported amounts to the restated amounts.

 

Items Amended in this Filing

 

For reasons discussed above, we are filing this Amendment in order to amend the following items in our Original Filing to the extent necessary to reflect the adjustments discussed above and make corresponding revisions to our financial data cited elsewhere in this Amendment in connection with the application of ASU 2016-01 in this Amendment that was not previously applied:

 

Part I, Item 1. Financial Statements

 

Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Part I, Item 4. Controls and Procedures

 

In accordance with applicable Commission rules, this Amendment includes new certifications required by Rule 13a-14 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, from our Chief Executive Officer and Chief Financial Officer dated as of the date of filing of this Amendment.

 

 

 

 

GEORGE RISK INDUSTRIES, INC.

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements (Restated)

 

The restated unaudited financial statements for the three- and nine-month period ended January 31, 2020, are attached hereto.

 

   

 

 

GEORGE RISK INDUSTRIES, INC.

CONDENSED BALANCE SHEETS

 

  January 31, 2020  April 30, 2019  
  (unaudited)      
ASSETS          
Current Assets:          
Cash and cash equivalents  $5,647,000   $4,873,000 
Investments and securities   28,178,000    27,291,000 
Accounts receivable:          
Trade, net of $993 and $9,321 doubtful account allowance   2,243,000    2,696,000 
Other   4,000    6,000 
Income tax overpayment   117,000    259,000 
Inventories, net   5,046,000    4,583,000 
Prepaid expenses   356,000    282,000 
Total Current Assets   41,591,000    39,990,000 
           
Property and Equipment, net, at cost   1,284,000    984,000 
           
Other Assets          
Investment in Limited Land Partnership, at cost   320,000    293,000 
Projects in process       117,000 
Other   3,000    3,000 
Total Other Assets   323,000    413,000 
           
Intangible Assets, net   1,548,000    1,640,000 
           
TOTAL ASSETS  $44,746,000   $43,027,000 

 

See accompanying notes to the unaudited condensed financial statements.

 

 

 

 

GEORGE RISK INDUSTRIES, INC.

CONDENSED BALANCE SHEETS

(continued)

 

  January 31, 2020  April 30, 2019  
  (unaudited)      
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current Liabilities          
Accounts payable, trade  $222,000   $206,000 
Dividends payable   1,892,000    1,714,000 
Accrued expenses   357,000    356,000 
Total Current Liabilities   2,471,000    2,276,000 
           
Long-Term Liabilities          
Deferred income taxes   1,423,000    1,198,000 
Total Long-Term Liabilities   1,423,000    1,198,000 
           
Total Liabilities   3,894,000    3,474,000 
           
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   69,000    14,000 
Retained earnings   42,198,000    40,883,000 
Less: treasury stock, 3,552,621 and 3,544,271 shares, at cost   (4,298,000)   (4,227,000)
Total Stockholders’ Equity   40,852,000    39,553,000 
           
TOTAL LIABILITES AND STOCKHOLDERS’ EQUITY  $44,746,000   $43,027,000 

 

See accompanying notes to the unaudited condensed financial statements

 

 

 

 

GEORGE RISK INDUSTRIES, INC.

CONDENSED INCOME STATEMENTS (Unaudited)

 

   Three months   Nine months   Three months   Nine months 
   ended   ended   ended   ended 
   Jan 31, 2020   Jan 31, 2020   Jan 31, 2019   Jan 31, 2019 
           (Restated)   (Restated) 
Net Sales  $3,589,000   $10,852,000   $3,455,000   $10,551,000 
Less: Cost of Goods Sold   (1,832,000)   (5,462,000)   (1,772,000)   (5,467,000)
Gross Profit   1,757,000    5,390,000    1,683,000    5,084,000 
                     
Operating Expenses                    
General and Administrative   302,000    928,000    294,000    911,000 
Sales   587,000    1,698,000    531,000    1,611,000 
Engineering   34,000    66,000    21,000    57,000 
Rent Paid to Related Parties       8,000    5,000    14,000 
Total Operating Expenses   923,000    2,700,000    851,000    2,593,000 
                     
Income From Operations   834,000    2,690,000    832,000    2,491,000 
                     
Other Income                    
Other       2,000    1,000    10,000 
Dividend and Interest Income   423,000    782,000    471,000    816,000 
Unrealized Gain (Loss) on equity securities   508,000    782,000    (184,000)   (949,000)
Gain on Investments   78,000    137,000    169,000    74,000 
Gain on Sale of Assets   5,000    5,000         
    1,014,000    1,708,000    457,000    (49,000)
                     
Income Before Provisions for Income Taxes   1,848,000    4,398,000    1,289,000    2,442,000 
                     
Provisions for Income Taxes:                    
Current Expense   359,000    911,000    291,000    799,000 
Deferred Tax Expense (Benefit)   125,000    191,000    (44,000)   (241,000)
Total Income Tax Expense   484,000    1,102,000    247,000    558,000 
                     
Net Income  $1,364,000   $3,296,000   $1,042,000   $1,884,000 
                     
Income Per Share of Common Stock                    
Basic  $0.28   $0.67   $0.21   $0.38 
Diluted  $0.27   $0.66   $0.21   $0.38 
                     
Weighted Average Number of Common                    
Shares Outstanding Basic   4,950,524    4,953,008    4,961,018    4,963,592 
Diluted   4,971,024    4,973,508    4,981,518    4,984,092 

 

See accompanying notes to the unaudited condensed financial statements

 

 

 

 

GEORGE RISK INDUSTRIES, INC.

CONDENSED STATEMENT OF COMPREHENSIVE INCOME (Unaudited)

 

     Three months  Nine months  Three months  Nine months  
     ended  ended  ended  ended  
     Jan 31, 2020     Jan 31, 2020     Jan 31, 2019     Jan 31, 2019  
              (Restated)  (Restated)  
Net Income  $1,364,000   $3,296,000   $1,042,000   $1,884,000 
                     
Other Comprehensive Income, Net of Tax                    
Unrealized gain (loss) on securities:                    
Unrealized holding gains (losses) arising during period   27,000    77,000    56,000    221,000 
Income tax benefit (expense) related to other comprehensive income   (8,000)   (22,000)   (16,000)   (64,000)
Other Comprehensive Income (Loss)   19,000    55,000    40,000    

157,000

                     
Comprehensive Income (Loss)  $1,383,000   $3,351,000   $1,082,000   $

2,041,000

 

See accompanying notes to the unaudited condensed financial statements

 

 

 

 

GEORGE RISK INDUSTRIES, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED JANUARY 31, 2020 AND 2019

(Unaudited)

 

   Preferred Stock  

Common Stock Class A

 
   Shares   Amount   Shares   Amount 
Balances, October 31, 2019   4,100   $99,000    8,502,881   $850,000 
                     
Dividend declared at $0.40 per common share outstanding                
                     
Unrealized gain (loss), net of tax effect                
                     
Net Income                
                     
Balances, January 31, 2020   4,100   $99,000    8,502,881   $850,000 

 

   Preferred Stock  

Common Stock Class A

 
   Shares   Amount   Shares   Amount 
Balances, October 31, 2018 (Restated)   4,100   $99,000    8,502,881   $850,000 
                     
Purchases of common stock                
                     
Unrealized gain (loss), net of tax effect                
                     
Net Income                
                     
Balances, January 31, 2019 (Restated)   4,100   $99,000    8,502,881   $850,000 

 

See accompanying notes to the unaudited condensed financial statements

 

 

 

 

GEORGE RISK INDUSTRIES, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED JANUARY 31, 2020 AND 2019

(Unaudited)

 

          

 

Accumulated

         
Paid-In   

Treasury Stock

(Common Class A)

  

Other

Comprehensive

   Retained     
Capital   Shares   Amount   Income   Earnings   Total 
$1,934,000    3,550,771   $(4,281,000)  $50,000   $40,834,000   $39,486,000 
                            
     1,850    (17,000)           (17,000)
                            
             19,000        19,000 
                            
                 1,364,000    1,364,000 
                            
$1,934,000    3,552,621   $(4,297,000)  $69,000   $42,198,000   $40,852,000 

  

   

Treasury Stock

  

Accumulated

Other

         
Paid-In   (Common Class A)   Comprehensive   Retained     
Capital   Shares   Amount   Income   Earnings   Total 
$ 1,934,000   3,541,234   $ (4,202,000  $ (58,000  $ 38,127,000   $ 36,750,000 
                            
     937    (8,000)           (8,000)
                            
             40,000        40,000 
                            
                 1,042,000    1,042,000 
                            
$1,934,000    3,542,171   $(4,210,000)  $(18,000)  $39,169,000   $37,824,000 

 

See accompanying notes to the unaudited condensed financial statements

 

 

 

 

GEORGE RISK INDUSTRIES, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED JANUARY 31, 2020 AND 2019

(Unaudited)

 

    Preferred Stock    

Common Stock

Class A

 
    Shares     Amount     Shares     Amount  
Balances, April 30, 2019     4,100     $ 99,000       8,502,881     $ 850,000  
                                 
Purchases of common stock                        
                                 
Dividend declared at $0.40 per common share outstanding                        
                                 
Unrealized gain (loss), net of tax effect                        
                                 
Net Income                        
                                 
Balances, January 31, 2020     4,100     $ 99,000       8,502,881     $ 850,000  

 

    Preferred Stock    

Common Stock

Class A

 
    Shares     Amount     Shares     Amount  
Balances, April 30, 2018, as previously reported     4,100     $ 99,000       8,502,881     $ 850,000  
                                 
Cumulative effect of restatement on prior periods, for adoption of ASU 2016-01                        
                                 
Balance at May 1, 2018 after adoption of ASU 2016-01, as restated                        
                                 
Purchases of common stock                        
                                 
Dividend declared at $0.38 per common share outstanding                                
                                 
Unrealized gain (loss), net of tax effect                        
                                 
Net Income                        
                                 
Balances, January 31, 2019 (Restated)     4,100     $ 99,000       8,502,881     $ 850,000  

 

See accompanying notes to the unaudited condensed financial statements

 

 

 

 

GEORGE RISK INDUSTRIES, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED JANUARY 31, 2020 AND 2019

(Unaudited)

 

            Accumulated         
Paid-In  

Treasury Stock

(Common Class A)

  

Other

Comprehensive

   Retained     
Capital   Shares   Amount   Income   Earnings   Total 
$1,934,000    3,544,271   $(4,227,000)  $14,000   $40,883,000   $39,553,000 
                            
     8,350    (71,000)           (71,000)
                            
                 (1,981,000)   (1,981,000)
                            
             55,000        55,000 
                            
                 3,296,000    3,296,000 
                            
$1,934,000    3,552,621   $(4,298,000)  $69,000   $42,198,000   $40,852,000 

 

            Accumulated         
Paid-In  

Treasury Stock

(Common Class A)

  

Other

Comprehensive

   Retained     
Capital   Shares   Amount   Income   Earnings   Total 
$1,934,000    3,534,784   $(4,148,000)  $2,249,000   $36,746,000   $37,730,000 
                            
                (2,424,000)   2,424,000      
 1,934,000    3,534,784    (4,148,000)   (175,000)   39,170,000    37,730,000 
                            
                            
     7,387    (62,000)           (62,000)
                            
                 (1,885,000)   (1,885,000)
                            
             157,000        157,000 
                            
                 1,884,000    1,884,000 
                            
$1,934,000    3,542,171   $(4,210,000)  $(18,000)  $39,169,000   $37,824,000 

 

See accompanying notes to the unaudited condensed financial statements

 

   

 

 

GEORGE RISK INDUSTRIES, INC.

CONDENSED STATEMENT OF CASH FLOWS (Unaudited)

 

   Nine months   Nine months 
   ended   ended 
   Jan 31, 2020   Jan 31, 2019 
         (Restated) 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net Income  $3,296,000   $1,884,000 
Adjustments to reconcile net income to net cash          
provided by operating activities:          
Depreciation and amortization   276,000    248,000 
(Gain) loss on sale of investments   (178,000)   (142,000)
Impairments on investments   41,000    68,000 
Unrealized (gain) loss on equity investments   (782,000)   949,000 
Reserve for bad debts   (6,000)   (3,000)
Reserve for obsolete inventory   42,000    12,000 
Deferred income taxes   191,000    (241,000)
(Gain) loss on sale of assets   (5,000)    
Net book value of assets retired   (17,000)    
Changes in assets and liabilities:          
(Increase) decrease in:          
Accounts receivable   460,000    514,000 
Inventories   (506,000)   (999,000)
Prepaid expenses   43,000    164,000 
Other receivables   2,000    (2,000)
Income tax overpayment   142,000    (106,000)
Increase (decrease) in:          
Accounts payable   16,000    (35,000)
Accrued expenses       (36,000)
Net cash provided by (used in) operating activities   3,015,000    2,275,000 
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Proceeds from sale of assets   7,000     
(Purchase) of property and equipment   (468,000)   (88,000)
Proceeds from sale of marketable securities   760,000    761,000 
(Purchase) of marketable securities   (640,000)   (839,000)
(Purchase) of long-term investment   (27,000)    
Net cash provided by (used in) investing activities   (368,000)   (166,000)
CASH FLOWS FROM FINANCING ACTIVITIES:          
(Purchase) of treasury stock   (71,000)   (62,000)
Dividends paid   (1,802,000)   (1,752,000)
Net cash provided by (used in) financing activities   (1,873,000)   (1,814,000)
           
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   774,000    295,000 
           
Cash and Cash Equivalents, beginning of period   4,873,000    4,294,000 
Cash and Cash Equivalents, end of period  $5,647,000   $4,589,000 
           
Supplemental Disclosure for Cash Flow Information:          
Cash payments for:          
Income taxes  $870,000   $900,000 
Interest paid  $   $1,000 
Cash receipts for:          
Income taxes  $159,000   $ 

 

See accompanying notes to the unaudited condensed financial statements

 

 

 

 

GEORGE RISK INDUSTRIES, INC.

NOTES TO RESTATED CONDENSED FINANCIAL STATEMENTS

JANUARY 31, 2020

 

Note 1: Unaudited Interim Financial Statements

 

The accompanying financial statements have been prepared in accordance with the instructions for Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. It is suggested that these unaudited condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s April 30, 2019 annual report on Form 10-K. In the opinion of management, all adjustments, consisting only of normal recurring adjustments considered necessary for a fair presentation, have been included. Operating results for any quarter are not necessarily indicative of the results for any other quarter or for the full year.

 

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

 

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

 

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

 

 

 

 

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

 

In June 2016, the FASB issued ASU 2016-13 (“ASU 2016-13”), Financial Instruments—Credit Losses. Subsequently, the FASB issued ASU 2019-05, Financial Instruments- Credit Losses (Topic 326): Targeted Transition Relief and codification improvements to Topic 326 in ASU 2019-11, ASU 2019-04 and ASU 2018-19. The amendments update guidance on reporting credit losses for financial assets. These amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years. All entities may adopt the amendments through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). The ASU is effective for fiscal years beginning after December 15, 2020. Subsequent to September 30, 2019, the FASB issued ASU 2019-10, “Financial Instruments - Credit Loss (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842),” which defers the effective date for public filers that are considered small reporting companies (“SRC”) as defined by the Securities and Exchange Commission to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Since the Company is an SRC, implementation is not needed until May 1, 2023. The Company will continue to evaluate the effect of adopting ASU 2016-13 will have on the Company’s financial statements and disclosures.

 

In January 2020, the FASB issued ASU 2020-01, “Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions. ASU 2016-01 made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. For public business entities, the amendments in the ASU are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of ASU 2020-01 to have a material impact on its condensed financial statements.

 

Revenue Recognition—In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” or “ASC 606”. ASC 606 and all subsequently issued clarifying ASCs replaced most existing revenue recognition guidance in U.S. GAAP. ASC 606 also required expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted the new standard effective November 1, 2019. The effect of this adoption was immaterial to our Financial Statements, and the Company does not expect a material effect to the Financial Statements on an ongoing basis.

 

 

 

 

The Company recognizes revenue under ASC 606, “Revenue from Contracts with Customers”. The core principle of the new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company applies the following standards and recognizes revenue when (1) it has a firm contract and the parties are committed to perform their respective obligations, (2) the product has been shipped to and accepted by the customer or the service has been provided, (3) the sales price is fixed or determinable and (4) amounts are reasonably assured of collection, including the consideration of the customer’s ability and intention to pay when the amount is due. The Company primarily receives fixed consideration for sales of product. The Company does not have any significant financing components as payment is received at or shortly after the point of sale. Shipping and handling amounts paid by customers are included in revenue. Sales tax and other similar taxes are excluded from revenue.

 

Revenue is recorded net of provisions for discounts, which are typically agreed to upfront with the customer and do not represent variable consideration. The Company estimates these discounts in the same period that the revenue is recognized for products sales to customers. The amount of revenue recognized represents the amount that will not be subject to a significant future reversal of revenue. All sales to distributors and customers are generally final. In limited instances the Company may accept returned product due to quality. During the current fiscal year, returns have not been material.

 

The Company’s customers generally pay within 60 days from the receipt of a valid invoice. The Company offers discounts of up to 2% to certain customers for payments made within a specified number of days. These early pay discounts are estimated in the period of sale based on experience with sales to eligible customers. Early pay discounts are recorded as a deduction to the accounts receivable balance presented on the balance sheet.

 

The Company’s performance obligations are satisfied at the point in time when products are shipped to the customer, which is when the customer has title and the significant risks and rewards of ownership.

 

 

 

 

Note 2: Investments (Restated)

 

The Company has investments in publicly traded equity securities, corporate bonds, state and municipal debt securities, real estate investment trusts, and money markets and they are recorded at fair value. The investments in debt securities have maturities between April 2020 and January 2044. The Company uses the average cost method to determine the cost of securities sold with any unrealized gains or losses reported in each respective period’s earnings. Dividend and interest income are reported as earned.

 

As of January 31, 2020 and April 30, 2019, investments consisted of the following:

 

Investments at      Gross   Gross     
January 31, 2020  Cost   Unrealized   Unrealized   Fair 
   Basis   Gains   Losses   Value 
Municipal bonds  $5,402,000   $156,000   $(43,000)  $5,515,000 
Corporate bonds   26,000            26,000 
REITs   89,000    3,000    (9,000)   83,000 
Equity securities   17,167,000    4,870,000    (241,000)   21,796,000 
Money markets and CDs   758,000            758,000 
Total  $23,442,000   $5,029,000   $(293,000)  $28,178,000 

 

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

 

Marketable securities that are equity securities are carried at fair value on the balance sheets with changes in fair value recorded as an unrealized gain or (loss) in the Statements of Operations in the period of the change; and debt securities are carried at fair value on the balance sheets with changes in fair value recorded as unrealized gains or losses in the Statement of Comprehensive Income. Upon the disposition of a marketable security, the Company records a realized gain or (loss) on the Company’s statements of operations. On May 1. 2018, as a result of the adoption of ASU 2016-01 – Financial Instruments, the Company reclassified $2,424,000 of net unrealized gains on marketable securities, that were formerly classified as available-for-sale securities before the adoption of the new standard, from Accumulated Other Comprehensive Income to Retained Earnings. 

 

The Company evaluates all marketable securities for other-than temporary declines in fair value, which are defined as when the cost basis exceeds the fair value for approximately one year. The Company also evaluates the nature of the investment, cause of impairment and number of investments that are in an unrealized position. When an “other-than-temporary” decline is identified, the Company will decrease the cost of the marketable security to the new fair value and recognize a real loss. The investments are periodically evaluated to determine if impairment changes are required. As a result of this standard, management do not record an impairment loss for the quarter, but did record an impairment loss of $41,000 for the nine months ended January 31, 2020. For the corresponding periods last year, management recorded an impairment loss of $36,000 for the quarter, and recorded a loss of $68,000 for the nine months ended January 31, 2019.

 

 

 

 

The following tables show 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 January 31, 2020 and April 30, 2019, respectively.

 

Unrealized Loss Breakdown by Investment Type at January 31, 2020

 

   Less than 12 months   12 months or greater   Total 
Description  Fair Value   Unrealized Loss   Fair Value   Unrealized Loss   Fair Value   Unrealized Loss 
Municipal bonds  $   $   $401,000   $(43,000)  $401,000   $(43,000)
REITs           57,000    (9,000)   57,000    (9,000)
Equity securities   445,000    (48,000)   1,930,000    (193,000)   2,375,000    (241,000)
Total  $445,000   $(48,000)  $2,388,000   $(245,000)  $2,833,000   $(293,000)

 

Unrealized Loss Breakdown by Investment Type at April 30, 2019

 

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

 

Municipal Bonds

 

The unrealized losses on the Company’s investments in municipal bonds were caused by interest rate increases. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. Because the Company has the ability to hold these investments until a recovery of fair value, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at January 31, 2020.

 

Marketable Equity Securities and REITs

 

The Company’s investments in marketable equity securities and REITs consist of a wide variety of companies. Investments in these companies include growth, growth income, and foreign investment objectives. The individual holdings have been evaluated, and due to management’s plan to hold on to these investments for an extended period, the Company does not consider these investments to be other-than-temporarily impaired at January 31, 2020.

 

 

 

 

Note 3: Inventories

 

Inventories at January 31, 2020 and April 30, 2019 consisted of the following:

 

<TABLE>

 

   January 31,   April 30, 
   2020   2019 
         
Raw materials  $4,102,000   $3,644,000 
Work in process   468,000    389,000 
Finished goods   609,000    641,000 
    5,179,000    4,674,000 
Less: allowance for obsolete inventory   (133,000)   (91,000)
Totals  $5,046,000   $4,583,000 

 

 

 

 

Note 4: Business Segments

 

The following is financial information relating to industry segments:

 

   Three months   Nine months   Three months   Nine months 
   ended   ended   Ended   ended 
   Jan 31, 2020   Jan 31, 2020   Jan 31, 2019   Jan 31, 2019 
Net revenue:                    
Security alarm products  $2,909,000   $8,700,000   $2,735,000   $8,103,000 
Cable & wiring tools   547,000    1,680,000    576,000    1,929,000 
Other products   133,000    472,000    144,000    519,000 
Total net revenue  $3,589,000   $10,852,000   $3,455,000   $10,551,000 
                     
Income from operations:                    
Security alarm products  $669,000   $2,156,000   $659,000   $1,972,000 
Cable & wiring tools   129,000    417,000    138,000    415,000 
Other products   36,000    117,000    35,000    104,000 
Total income from operations  $834,000   $2,690,000   $832,000   $2,491,000 
                     
Depreciation and amortization:                    
Security alarm products  $(22,000)  $72,000   $37,000   $57,000 
Cable & wiring tools   31,000    92,000    30,000    92,000 
Other products   34,000    50,000        55,000 
Corporate general   50,000    62,000    14,000    44,000 
Total depreciation and amortization  $93,000   $276,000   $81,000   $248,000 
                     
Capital expenditures:                    
Security alarm products  $   $178,000   $35,000   $35,000 
Cable & wiring tools                
Other products   18,000    18,000    37,000    37,000 
Corporate general   272,000    272,000    16,000    16,000 
Total capital expenditures  $290,000   $468,000   $88,000   $88,000 

 

     January 31, 2020     April 30, 2019  
Identifiable assets:          
Security alarm products  $6,478,000   $6,179,000 
Cable & wiring tools   2,676,000    2,713,000 
Other products   733,000    842,000 
Corporate general   34,859,000    33,293,000 
Total assets  $44,746,000   $43,027,000 

 

 

 

 

Note 5: Earnings per Share (Restated)

 

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

 

    For the three months ended January 31, 2020  
    Income     Shares     Per-share  
    (Numerator)     (Denominator)     Amount  
Net Income   $ 1,364,000                  
                         
Basic EPS   $ 1,364,000       4,950,524     $ 0.28  
Effect of dilutive securities:                        
Convertible preferred stock           20,500          
                         
Diluted EPS   $ 1,364,000       4,971,024     $ 0.27  

 

    For the nine months ended January 31, 2020  
    Income     Shares     Per-share  
    (Numerator)     (Denominator)     Amount  
Net Income   $ 3,296,000                  
                         
Basic EPS   $ 3,296,000       4,953,008     $ 0.67  
Effect of dilutive securities:                        
Convertible preferred stock           20,500          
                         
Diluted EPS   $ 3,296,000       4,973,508     $ 0.66  

 

   For the Three Months Ended January 31, 
  

Originally

Filed 2019

  

Adjustment

2019

  

Restated

2019

 
Numerator            
Net income  $1,173,000   $(131,000)  $1,042,000 
                
Denominator               
Weighted average common shares outstanding, basic   4,961,018        4,961,018 
Convertible Preferred Stock   20,500        20,500 
Weighted average common shares outstanding, diluted   4,981,518