The accompanying notes are an integral part of
these financial statements.
The accompanying notes are an integral part of
these financial statements.
The accompanying notes are an integral part of
these financial statements.
The accompanying notes are an integral part of
these financial statements.
The accompanying notes are an integral part of
these financial statements.
The accompanying notes are an integral part of
these financial statements.
The accompanying notes are an integral part of
these financial statements.
Notes
to Financial Statements
April
30, 2022
| 1. |
Nature of Business and Summary of Significant Accounting Policies |
George
Risk Industries, Inc. (GRI or the Company) was incorporated in 1967 in Colorado. The Company is presently engaged in the design, manufacture,
and sale of custom computer keyboards, proximity switches, security alarm components and systems, pool access alarms, EZ Duct wire covers,
water sensors, electronic switching devices, high security switches, and wire and cable installation tools.
Nature
of Business — The Company is engaged in the design, manufacture, and marketing of custom computer keyboards, proximity sensors,
security alarm components, pool access alarms, liquid detection sensors, raceway wire covers, wire and cable installation tools and various
other sensors and devices.
Cash
and Cash Equivalents — The Company considers all investments with a maturity of three months or less to be cash equivalents.
The Company maintains its cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. The Company
continually monitors its banking relationships and consequently has not experienced any losses in such accounts. The Company believes
it is not exposed to any significant credit risk on cash and cash equivalents.
Accounts
Receivable and Allowance for Estimated Credit Losses — 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
extends credit to its customers based on their credit worthiness, and performs continuing credit evaluations of its customers’
financial condition. If the Company believes the extension of credit is not advisable, other payment methods such as prepayments are
required. Balances deemed uncollectible by the Company are written off against our allowance for credit loss accounts.
The
Company maintains an allowance for estimated credit losses related to accounts receivable for future expected credit losses resulting
from the inability or unwillingness of our customers to make required payments. We estimate our allowance for credit losses based on
relevant information such as historical experience, current conditions, and future expectation of specifically identified customer balances.
This allowance is adjusted as appropriate to reflect current conditions. The Company has recorded an allowance for estimated credit losses
of $33,531 for the year ended April 30, 2022 and $9,947 for the year ended April 30, 2021. The provision for credit losses on accounts
receivable was $24,199 for the fiscal year ended April 30, 2022, and $1,828 for the fiscal year ended April 30, 2021.
Concentrations
of Credit Risk — 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.
Inventories
— Inventories are stated at the lower of cost or net realized value. Cost is determined using the average cost-pricing method.
The Company uses actual costs to price its manufactured inventories, approximating average costs.
| 1. |
Nature of Business and Summary of Significant Accounting Policies, continued |
Property
and Equipment — Property and equipment are recorded at cost. Depreciation is calculated based on the following estimated useful
lives using the straight-line method:
Schedule
of Property and Equipment
| Classification | |
Useful Life
in Years | |
2022
Cost | | |
2021
Cost | |
| Dies, jigs, and molds | |
3–7 | |
$ | 1,855,000 | | |
$ | 1,844,000 | |
| Machinery and equipment | |
5–10 | |
| 2,224,000 | | |
| 2,064,000 | |
| Furniture and fixtures | |
5–10 | |
| 222,000 | | |
| 196,000 | |
| Improvements | |
5–32 | |
| 541,000 | | |
| 361,000 | |
| Buildings | |
20–39 | |
| 1,151,000 | | |
| 1,151,000 | |
| Automotive | |
3–5 | |
| 110,000 | | |
| 110,000 | |
| Software | |
2–5 | |
| 425,000 | | |
| 425,000 | |
| Land | |
N/A | |
| 80,000 | | |
| 80,000 | |
| Total | |
| |
| 6,608,000 | | |
| 6,231,000 | |
| Property and equipment, gross | |
| |
| 6,608,000 | | |
| 6,231,000 | |
| Accumulated depreciation | |
| |
| (4,826,000 | ) | |
| (4,527,000 | ) |
| Property and equipment, net | |
| |
$ | 1,782,000 | | |
$ | 1,704,000 | |
Depreciation
expense of $312,000 and $278,000 was charged to operations for the years ended April 30, 2022 and 2021, 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 $144,000 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, 2022, the Company had $1,271,000 of net intangible
asset costs, while the net intangible assets costs at April 30, 2021 were $1,394,000. Amortization expense was $123,000 for the years
ended April 30, 2022 and 2021, respectively.
| 1. |
Nature of Business and Summary of Significant Accounting Policies, continued |
As
of April 30, 2022, future amortization of intangible assets is expected as follows:
Schedule
of Future Amortization of Intangible Assets
| Fiscal year end | |
Amortization
amount | |
| 2023 | |
$ | 122,000 | |
| 2024 | |
$ | 121,000 | |
| 2025 | |
$ | 121,000 | |
| 2026 | |
$ | 121,000 | |
| 2027 | |
$ | 121,000 | |
| Thereafter | |
$ | 665,000 | |
| Total | |
$ | 1,271,000 | |
Basic
and Diluted Earnings per Share — The Company computes earnings per share in accordance with ASC 260-10-45 Earnings per Share,
which requires presentation of both basic and diluted earnings per share on the face of the statement of income. Basic earnings per share
is computed by dividing net earnings available to common stockholders by the weighted average number of outstanding common shares during
the period. Diluted earnings per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive earnings
per share excludes all potential common shares if their effect is anti-dilutive.
Advertising
— Advertising costs are expensed as incurred and are included in selling expenses. Advertising expense amounted to $162,000
and $67,000 for the years ended April 30, 2022 and 2021, respectively.
Income
Taxes — Deferred tax assets and liabilities are recorded for the future consequences of events that have been recognized in
the Company’s financial statements or tax returns. Measurement of the deferred tax items is based on enacted tax laws. In the event
the future consequences of differences between financial reporting bases and tax bases of the Company’s assets or liabilities result
in a deferred tax asset, we evaluate the probability of realizing the future benefits comprising that asset and record a valuation allowance
if considered necessary.
Accounting
standards prescribe a recognition threshold and a measurement attribute for the financial statement recognition and measurement of the
positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than
not to be sustained upon examination by taxing authorities. A “more likely than not” tax position is measured as the largest
amount of benefit that is greater than a fifty percent likelihood of being realized upon ultimate settlement, or else a full reserve
is established against the tax asset or a liability is recorded. Tax years open for examination by taxing authorities are 2018, 2019,
and 2020. Interest and penalties accrued on uncertain tax positions are recorded as income tax expense.
It
has been determined that the Company does not have uncertain tax positions on its tax returns for the years 2021, 2020, and prior.
Based on evaluation of the 2022 transactions and events, the Company does not have any material uncertain tax positions that require
measurement.
| 1. |
Nature of Business and Summary of Significant Accounting Policies, continued |
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.
Fair
Value of Financial Instruments — Certain financial instruments are required to be recorded at fair value. Changes in assumptions
or estimation methods could affect the fair value estimates; however, we do not believe any such changes would have a material impact
on our financial condition, results of operations or cash flows. Other financial instruments, including cash equivalents, certain investments
and short-term debt, are recorded at cost, which approximates fair value. The fair values of long-term debt and financial instruments
are disclosed in Note 11.
Investments
— The accounting policies for the Company’s principal investments are as follows: Debt Securities and Equity Securities:
Effective May 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2016-01 “Financial Instruments-Overall
(ASC Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”).
As a result, the Company measures its equity securities at fair value and recognizes any changes in fair value in net income. Prior to
adoption, equity securities were designated as available-for-sale and reported at fair value with unrealized capital gains (losses) recorded
in Accumulated other comprehensive income (loss) (“AOCI”). The Company’s debt securities are currently designated as
available-for-sale. Available-for-sale securities are reported at fair value and unrealized capital gains (losses) on these securities
are recorded directly in AOCI and presented net of related changes in deferred income taxes. Purchases and sales of debt securities and
equity securities are recorded on the trade date. Investment gains and losses on sales of securities are generally determined on a first-in-first-out
(“FIFO”) basis.
The
Company evaluates all marketable securities for other-than temporary declines in fair value, which are defined as when the cost basis
exceeds the fair value for approximately one year. The Company also evaluates the nature of the investment, cause of impairment and number
of investments that are in an unrealized position. When an “other-than-temporary” decline is identified, the Company will
decrease the cost of the marketable security to the new fair value and recognize a real loss. The investments are periodically evaluated
to determine if impairment changes are required.
Revenue
Recognition — Effective May 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) 606, “Revenue
from Contracts with Customers.” The Company recognizes product revenue using a five-step approach to determine the amount and timing
of revenue to be recognized. The five-step approach requires (1) identifying the contract with the customer, (2) identifying the performance
obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations
in the contract and (5) recognizing revenue when performance obligations are satisfied. The Company recognizes revenue for product sales
upon transfer of title to the customer. Customer purchase orders and/or contracts are generally used to determine the existence of an
arrangement. Shipping documents and the completion of any customer acceptance requirements, when applicable, are used to verify product
delivery or that services have been rendered. The Company assesses whether a price is fixed or determinable based upon the payment terms
associated with the transaction and whether the sales price is subject to refund or adjustment. Payments received from customers in advance
of product shipment or revenue recognition are treated as deferred revenues and recognized when the product is shipped.
| 1. | Nature
of Business and Summary of Significant Accounting Policies, continued |
Variable
Consideration — The Company measures revenue as the amount of consideration for which it expects to be entitled in exchange
for transferring goods. Certain customers may receive cash and/or non-cash incentives such as cash rebates, customer discounts (such
as volume or trade discounts), which are accounted for as variable consideration. In some cases, the Company must apply judgment, including
contractual rates and historical payment trends, when estimating variable consideration.
Product
Returns — In the normal course of business, the Company may allow customers to return product per the provisions in a sale
agreement. Estimated product returns are recorded as a reduction in reported revenues with offsetting entries recorded in the balance
sheet quarterly based upon historical product return experience, adjusted for known trends, to arrive at the amount of consideration
expected to receive.
Product
Warranties — In the normal course of business, the Company offers warranties for a variety of its products. The specific terms
and conditions of the warranties vary depending upon the specific product and markets in which the products were sold. The Company accrues
for the estimated cost of product warranty at the time of sale based on historical experience.
Shipping
and Handling Costs — The Company considers all shipping and handling to be fulfillment activities and not a separate performance
obligation. Shipping and handling costs are recorded as cost of sales.
Research
and Development Costs — Generally, costs related to the research, design, and development of products are charged to engineering
expense as incurred. Certain research and development costs are recognized under assets in the balance sheet.
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, 2022, the Company operated in three segments organized by security
line products, cable and wiring tools (Labor Saving Devices - LSDI) products, and all other products. See Note 9 for further segment
information disclosures.
| 1. |
Nature of Business and Summary of Significant Accounting Policies, continued |
Recently
Issued Accounting Pronouncements — In 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. ASU 2020-01 deals with changes in the significant influence
of derivative and investments, of which the Company has none and became effective for the Company in the first quarter of 2021. The adoption
of this standard did not have any impact on the Company’s condensed financial statements.
There
are no other new accounting pronouncements that are expected to have a significant impact on our financial statements.
Recently
Adopted Accounting Standards — In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic
326),” Effective May 1, 2021, we adopted ASU 2016-13, which requires financial assets measured at amortized cost, such as our
trade receivables, to be presented net of expected credit losses, which may be estimated based on relevant information such as historical
experience, current conditions, and future expectations for each pool of similar financial assets. We adopted ASU 2016-13 using the modified
retrospective method, whereby the guidance was applied prospectively as of the date of adoption and prior periods are not restated. The
cumulative effect of adoption was not material.
| 1. |
Nature of Business and Summary of Significant Accounting Policies, continued |
Subsequent
Events – Management has evaluated all events or transactions that occurred after April 30, 2022 through July 29, 2022, the
report date of the financial statements. During this period, the Company did not have any material recognizable subsequent events.
Inventories
at April 30, 2022 and 2021, consisted of the following:
Schedule
of Inventories
| | |
2022 | | |
2021 | |
| Raw materials | |
$ | 6,772,000 | | |
$ | 4,399,000 | |
| Work in process | |
| 618,000 | | |
| 457,000 | |
| Finished goods | |
| 838,000 | | |
| 768,000 | |
| Inventory in transit | |
| — | | |
| 173,000 | |
| inventory gross | |
| 8,228,000 | | |
| 5,797,000 | |
| Less: allowance for obsolete inventory | |
| (288,000 | ) | |
| (175,000 | ) |
| Inventories, net | |
$ | 7,940,000 | | |
$ | 5,622,000 | |
The
Company has investments in publicly traded equity securities, state and municipal debt securities, REITs, and money markets and they
are recorded at fair value. The investments in debt securities, which include municipal bonds and bond funds, mature between August 2022
and September 2042. The Company uses the average cost method to determine the cost of equity securities sold with any unrealized gains
or losses reported in the respective period’s earnings. Dividend and interest income are reported as earned.
As
of April 30, 2022 and 2021, investments consisted of the following:
Schedule of Investments
| | |
| | |
Gross | | |
Gross | | |
| |
| Investments at | |
Cost | | |
Unrealized | | |
Unrealized | | |
Reported | |
| April 30, 2022 | |
Basis | | |
Gains | | |
Losses | | |
Value | |
| Municipal bonds | |
$ | 5,625,000 | | |
$ | 41,000 | | |
$ | (229,000 | ) | |
$ | 5,437,000 | |
| REITs | |
$ | 131,000 | | |
$ | 16,000 | | |
$ | (3,000 | ) | |
$ | 144,000 | |
| Equity securities | |
$ | 18,322,000 | | |
$ | 6,921,000 | | |
$ | (473,000 | ) | |
$ | 24,770,000 | |
| Money Markets and CDs | |
$ | 628,000 | | |
$ | - | | |
$ | - | | |
$ | 628,000 | |
| Total | |
$ | 24,706,000 | | |
$ | 6,978,000 | | |
$ | (705,000 | ) | |
$ | 30,979,000 | |
| | |
| | |
Gross | | |
Gross | | |
| |
| Investments at | |
Cost | | |
Unrealized | | |
Unrealized | | |
Reported | |
| April 30, 2021 | |
Basis | | |
Gains | | |
Losses | | |
Value | |
| Municipal bonds | |
$ | 5,854,000 | | |
$ | 198,000 | | |
$ | (43,000 | ) | |
$ | 6,009,000 | |
| REITs | |
$ | 131,000 | | |
$ | 11,000 | | |
$ | (5,000 | ) | |
$ | 137,000 | |
| Equity securities | |
$ | 17,199,000 | | |
$ | 9,294,000 | | |
$ | (74,000 | ) | |
$ | 26,419,000 | |
| Money Markets and CDs | |
$ | 772,000 | | |
$ | - | | |
$ | - | | |
$ | 772,000 | |
| Total | |
$ | 23,956,000 | | |
$ | 9,503,000 | | |
$ | (122,000 | ) | |
$ | 33,337,000 | |
Marketable
securities that are classified as equity securities are carried at fair value on the balance sheets with changes in fair value recorded
as an unrealized gain or (loss) in the statements of income in the period of the change. Upon the disposition of a marketable security,
the Company records a realized gain or (loss) on the Company’s statements of income.
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 did not have to record any impairment losses for the year ended April 30, 2022, but management
did record an impairment loss of $79,000 for the year ended April 30, 2021.
The
Company’s investments are actively traded in the stock and bond markets. Therefore, there is either a realized gain or loss that
is recorded when a sale happens. For the fiscal year ended April 30, 2022 the Company had sales of equity securities which yielded gross
realized gains of $661,000 and gross realized losses of $221,000. For the same period, there were not any sales of debt securities for
gross realized gains, but sales of debt securities yielded gross realized losses of $26,000. Conversely, the Company recorded gross realized
gains on equity securities of $666,000 and gross realized losses of $290,000 for the fiscal year ending April 30, 2021. As for debt securities,
there were not any sales of debt securities for gross realized gains, but sales of debt securities yielded gross realized losses of $13,000
for the fiscal year ending April 30, 2021. The gross realized loss numbers include the impaired figures listed in the previous paragraph.
Additionally, proceeds from sales of securities available for sale were $452,000 for the fiscal year ended April 30, 2022 and were $21,000
for the prior fiscal year.
| 3. |
Investments, continued |
The
following table shows the investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by
investment category and length of time that individual securities have been in a continuous unrealized loss position, at April 30, 2022
and 2021.
Unrealized
Loss Breakdown by Investment Type at April 30, 2022
Schedule
of Unrealized Loss Breakdown by Investment
| Description | |
Fair Value | | |
Unrealized
Loss | | |
Fair Value | | |
Unrealized
Loss | | |
Fair Value | | |
Unrealized
Loss | |
| | |
Less than 12 months | | |
12 months or greater | | |
Total | |
| Description | |
Fair Value | | |
Unrealized
Loss | | |
Fair Value | | |
Unrealized
Loss | | |
Fair Value | | |
Unrealized
Loss | |
| Municipal bonds | |
$ | 4,420,000 | | |
$ | (142,000 | ) | |
$ | 539,000 | | |
$ | (87,000 | ) | |
$ | 4,959,000 | | |
$ | (229,000 | ) |
| REITs | |
$ | 18,000 | | |
$ | (1,000 | ) | |
$ | 26,000 | | |
$ | (2,000 | ) | |
$ | 44,000 | | |
$ | (3,000 | ) |
| Equity securities | |
$ | 4,157,000 | | |
$ | (424,000 | ) | |
$ | 274,000 | | |
$ | (49,000 | ) | |
$ | 4,431,000 | | |
$ | (473,000 | ) |
| Total | |
$ | 8,595,000 | | |
$ | (567,000 | ) | |
$ | 839,000 | | |
$ | (138,000 | ) | |
$ | 9,434,000 | | |
$ | (705,000 | ) |
Unrealized
Loss Breakdown by Investment Type at April 30, 2021
| Description | |
Fair Value | | |
Unrealized
Loss | | |
Fair Value | | |
Unrealized
Loss | | |
Fair Value | | |
Unrealized
Loss | |
| | |
Less than 12 months | | |
12 months or greater | | |
Total | |
| Description | |
Fair Value | | |
Unrealized
Loss | | |
Fair Value | | |
Unrealized
Loss | | |
Fair Value | | |
Unrealized
Loss | |
| Municipal bonds | |
$ | 390,000 | | |
$ | (6,000 | ) | |
$ | 365,000 | | |
$ | (37,000 | ) | |
$ | 755,000 | | |
$ | (43,000 | ) |
| REITs | |
$ | — | | |
$ | — | | |
$ | 23,000 | | |
$ | (5,000 | ) | |
$ | 23,000 | | |
$ | (5,000 | ) |
| Equity securities | |
$ | 340,000 | | |
$ | (35,000 | ) | |
$ | 377,000 | | |
$ | (39,000 | ) | |
$ | 717,000 | | |
$ | (74,000 | ) |
| Total | |
$ | 730,000 | | |
$ | (41,000 | ) | |
$ | 765,000 | | |
$ | (81,000 | ) | |
$ | 1,495,000 | | |
$ | (122,000 | ) |
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, 2022 and 2021.
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, 2022 and 2021.
| 4. |
Retirement Benefit Plan |
On
January 1, 1998, the Company adopted the George Risk Industries, Inc. Retirement Savings Plan (the “Plan”). The Plan is a
defined contribution savings plan designed to provide retirement income to eligible employees of the Company. The Plan is intended to
be qualified under Section 401(k) of the Internal Revenue Code of 1986, as amended. It is funded by voluntary pre-tax and Roth (taxable)
contributions from eligible employees who may contribute a percentage of their eligible compensation, limited and subject to statutory
limits. Employees are eligible to participate in the Plan when they have attained the age of 21 and completed one thousand hours of service
in any plan year with the Company. Upon leaving the Company, each participant is 100% vested with respect to the participants’
contributions while the Company’s matching contributions are vested over a six-year period in accordance with the Plan document.
Contributions are invested, as directed by the participant, in investment funds available under the Plan. Matching contributions of approximately
$63,000 and $61,000 were paid in each of the fiscal years ending April 30, 2022 and 2021, respectively.
Preferred
Stock—Each share of the Series #1 preferred stock is convertible at the option of the holder into five shares of Class A common
stock and is also redeemable at the option of the board of directors at $20 per share. The holders of the convertible preferred stock
shall be entitled to a dividend at a rate up to $1 per share annually, payable quarterly as declared by the board of directors. No dividends
were declared or paid during the two years ended April 30, 2022 and 2021.
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, 2022, the Company purchased 15,281 shares of Class A common stock. This was initiated by stockholders
contacting the Company.
Stock
Transfer Agent—The Company does not have an independent stock transfer agent. The Company maintains all stock records.
Basic
and diluted earnings per share, assuming convertible preferred stock was converted for each period presented are:
Schedule
of Basic and Diluted Earnings Per Share
| | |
April 30, 2022 | |
| | |
Income | | |
Shares | | |
Per-Share | |
| | |
(Numerator) | | |
(Denominator) | | |
Amount | |
| Net income | |
$ | 3,566,000 | | |
| | | |
| | |
| Basic EPS | |
$ | 3,566,000 | | |
| 4,941,825 | | |
$ | 0.72 | |
| Effect of dilutive Convertible Preferred Stock | |
| – | | |
| 20,500 | | |
| — | |
| Diluted EPS | |
$ | 3,566,000 | | |
| 4,962,325 | | |
$ | 0.72 | |
| | |
April 30, 2021 | |
| | |
Income | | |
Shares | | |
Per-Share | |
| | |
(Numerator) | | |
(Denominator) | | |
Amount | |
| Net income | |
$ | 10,822,000 | | |
| | | |
| | |
| Basic EPS | |
$ | 10,822,000 | | |
| 4,948,710 | | |
$ | 2.19 | |
| Effect of dilutive Convertible Preferred Stock | |
| – | | |
| 20,500 | | |
| (.01 | ) |
| Diluted EPS | |
$ | 10,822,000 | | |
| 4,969,210 | | |
$ | 2.18 | |
| 7. |
Commitments, Contingencies, and Related Party Transactions |
One
of the directors of the board, Joel Wiens, is the principal shareholder of FirsTier Bank. FirsTier Bank is the financial institution
the Company uses for its day to day banking operations. Year end balances of accounts held at this bank are $5,058,000 for the year ended
April 30, 2022 and $6,885,000 for the year ended April 30, 2021. The Company also received interest income from FirsTier Bank in the
amount of approximately $58,800 for the year ended April 30, 2022 and $54,800 for the year ended April 30, 2021.
From
time to time, the Company may be involved in litigation in the ordinary course of business. The Company is not currently involved in
any litigation that we believe could have a material adverse effect on its financial condition or results of operations.
The
world has been impacted by the spread of the coronavirus (COVID-19) since early 2020. It has created significant economic uncertainty
and volatility. The extent to which the coronavirus pandemic impacts our business, operations and financial results will depend on numerous
evolving factors that we may not be able to accurately predict, including: the duration and scope of the pandemic; governmental, business
and individuals’ actions that have been and continue to be taken in response to the pandemic; the impact of the pandemic on economic
activity and actions taken in response; the effect on our clients and client demand for our services and solutions; our ability to sell
and provide our services and solutions, including as a result of travel restrictions and people working from home; the ability of our
clients to pay for our services and solutions; and any closures of our and our clients’ offices and facilities. Any of these events
could materially adversely affect our business, financial condition, results of operations and/or stock price.
The
Company has been able to continue to operate through the pandemic. The health and safety of our employees and their families remains
our top priority. Therefore, we have implemented many Centers of Disease Control protocols to keep our employees safe while the Company
continues to produce products and provide service to our customers. While we are operating in a rapidly changing environment, the Company
has experienced delays in receiving raw material supplies in a timely manner.
The
Company utilizes the liability method of accounting for income taxes. The liability method measures the expected income tax impact of
future income and deductions implicit in the Balance Sheets. The income tax provision for the fiscal year ended April 30, 2022 and 2021
consisted of the following:
Schedule
of Income Tax Provision
| Year Ended April 30, | |
2022 | | |
2021 | |
| Current: | |
| | |
| |
| Federal | |
$ | 1,202,000 | | |
| 1,203,000 | |
| State | |
| 467,000 | | |
| 433,000 | |
| Deferred: | |
| | | |
| | |
| Federal | |
| (652,000 | ) | |
| 1,449,000 | |
| State | |
| (242,000 | ) | |
| 539,000 | |
| Total income tax provision | |
$ | 775,000 | | |
$ | 3,624,000 | |
Reconciliation
of income taxes with Federal and State taxable income:
Schedule
of Reconciliation of Income Taxes with Federal and State Taxable Income
| | |
2022 | | |
2021 | |
| State income tax deduction | |
| (477,000 | ) | |
| (433,000 | ) |
| Interest and dividend income | |
| (524,000 | ) | |
| (387,000 | ) |
| Nondeductible expenses and timing differences | |
| 3,120,000 | | |
| (7,763,000 | ) |
| Taxable income | |
$ | 6,460,000 | | |
$ | 5,863,000 | |
The following schedule reconciles the provision for income taxes to the amount computed by applying the statutory rate to income before income taxes:
Schedule of Statutory Rate to Income Before Income Taxes
| | |
2022 | | |
2021 | |
| Income tax provision at statutory rate | |
$ | 1,251,000 | | |
$ | 4,162,000 | |
| Increase (decrease) income taxes resulting from: | |
| | | |
| | |
| State income taxes | |
| (138,000 | ) | |
| (125,000 | ) |
| Interest and dividend income | |
| (151,000 | ) | |
| (112,000 | ) |
| Deferred taxes | |
| (894,000 | ) | |
| 1,988,000 | |
| Other temporary and permanent differences | |
| 707,000 | | |
| (2,289,000 | ) |
| Income tax expense | |
$ | 775,000 | | |
$ | 3,624,000 | |
| | |
| | | |
| | |
| Federal tax rate | |
| 21.00 | % | |
| 21.00 | % |
| State tax rate | |
| 7.81 | % | |
| 7.81 | % |
| Blended statutory rate | |
| 28.81 | % | |
| 28.81 | % |
Deferred tax assets (liabilities) consist of the following components at April 30, 2022 and 2021:
Summary of Deferred Tax Assets (Liabilities)
| | |
2022 | | |
2021 | |
| Deferred tax assets (liabilities): | |
| | | |
| | |
| Depreciation | |
$ | (67,000 | ) | |
$ | (124,000 | ) |
| Inventory valuation | |
| 83,000 | | |
| 50,000 | |
| Allowance for doubtful accounts | |
| 10,000 | | |
| 3,000 | |
| Accrued vacation | |
| 39,000 | | |
| 38,000 | |
| Accumulated unrealized (gain)/loss on investments | |
| (1,807,000 | ) | |
| (2,702,000 | ) |
| Net deferred tax assets (liabilities) | |
$ | (1,742,000 | ) | |
$ | (2,735,000 | ) |
The
following is financial information relating to industry segments:
Schedule of Financial Information Relating to Industry Segments
| | |
Quarter ended | | |
Year ended | | |
Year ended | |
| | |
April 30, | | |
April 30, | | |
April 30, | |
| | |
2022 | | |
2022 | | |
2021 | |
| | |
(Unaudited) | | |
| | |
| |
| Net revenue: | |
| | | |
| | | |
| | |
| Security alarm products | |
$ | 4,653,000 | | |
$ | 17,833,000 | | |
$ | 15,650,000 | |
| Cable & wiring tools | |
| 576,000 | | |
| 2,130,000 | | |
| 2,237,000 | |
| Other products | |
| 253,000 | | |
| 772,000 | | |
| 618,000 | |
| Total net revenue | |
$ | 5,482,000 | | |
$ | 20,735,000 | | |
$ | 18,505,000 | |
| | |
| | | |
| | | |
| | |
| Income from operations: | |
| | | |
| | | |
| | |
| Security alarm products | |
| 1,315,000 | | |
| 4,858,000 | | |
| 4,487,000 | |
| Cable & wiring tools | |
| 163,000 | | |
| 580,000 | | |
| 642,000 | |
| Other products | |
| 72,000 | | |
| 210,000 | | |
| 177,000 | |
| Total income from operations | |
$ | 1,550,000 | | |
$ | 5,648,000 | | |
$ | 5,306,000 | |
| | |
| | | |
| | | |
| | |
| Depreciation and amortization: | |
| | | |
| | | |
| | |
| Security alarm products | |
| 52,000 | | |
| 173,000 | | |
| 139,000 | |
| Cable & wiring tools | |
| 31,000 | | |
| 123,000 | | |
| 123,000 | |
| Other products | |
| 18,000 | | |
| 78,000 | | |
| 61,000 | |
| Corporate general | |
| 15,000 | | |
| 62,000 | | |
| 78,000 | |
| Total depreciation and amortization | |
$ | 116,000 | | |
$ | 436,000 | | |
$ | 401,000 | |
| | |
| | | |
| | | |
| | |
| Capital expenditures: | |
| | | |
| | | |
| | |
| Security alarm products | |
| 213,000 | | |
| 366,000 | | |
| 275,000 | |
| Cable & wiring tools | |
| — | | |
| — | | |
| — | |
| Other products | |
| — | | |
| 11,000 | | |
| 242,000 | |
| Corporate general | |
| 13,000 | | |
| 13,000 | | |
| — | |
| Total capital expenditures | |
$ | 226,000 | | |
$ | 390,000 | | |
$ | 517,000 | |
| | |
April 30, 2022 | | |
April 30, 2021 | |
| Identifiable assets: | |
| | | |
| | |
| Security alarm products | |
| 11,537,000 | | |
| 8,955,000 | |
| Cable & wiring tools | |
| 2,509,000 | | |
| 2,534,000 | |
| Other products | |
| 732,000 | | |
| 667,000 | |
| Corporate general | |
| 39,253,000 | | |
| 41,980,000 | |
| Total assets | |
$ | 54,031,000 | | |
$ | 54,136,000 | |
The
Company maintains the majority of its cash balance in a financial institution in Kimball, Nebraska. Accounts at this institution are
insured by the Federal Deposit Insurance Corporation for up to $250,000. For the years ended April 30, 2022 and 2021, the Company had
uninsured balances of $5,256,000, and $6,773,000, 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 $769,000 and $190,000 for the years ending April 30, 2022 and 2021,
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 35% of total sales for the year ended April 30, 2022 and 40% of total
sales for the year ended April 30, 2021. This distributor accounted for 50% and 55% of accounts receivable at April 30, 2022 and 2021,
respectively.
Security
switch sales made up 86% of total sales for the fiscal year ended April 30, 2022 and 85% of total sales for the fiscal year ended April
30, 2021.
| 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. |
| 11. |
Fair
Value Measurements, continued |
Investments
and Marketable Securities
As
of April 30, 2022 and 2021, The Company’s investments consisted of money markets, publicly traded equity securities, REITs as well as
certain state and municipal 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.
Schedule of Assets Measured at Fair Value on Recurring Basis
| | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
| | |
Assets Measured at Fair Value on a Recurring
Basis as of April 30, 2022 | |
| | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
| Assets: | |
| | |
| | |
| | |
| |
| Municipal Bonds | |
| — | | |
$ | 5,437,000 | | |
| — | | |
$ | 5,437,000 | |
| REITs | |
| — | | |
$ | 144,000 | | |
| — | | |
$ | 144,000 | |
| Equity Securities | |
$ | 24,770,000 | | |
| — | | |
| — | | |
$ | 24,770,000 | |
| Money Markets and CDs | |
$ | 628,000 | | |
| — | | |
| — | | |
$ | 628,000 | |
| Total fair value of assets measured on a recurring basis | |
$ | 25,398,000 | | |
$ | 5,581,000 | | |
| — | | |
$ | 30,979,000 | |
| | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
| | |
Assets Measured at Fair Value on a Recurring
Basis as of April 30, 2021 | |
| | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
| Assets: | |
| | |
| | |
| | |
| |
| Municipal Bonds | |
| — | | |
$ | 6,009,000 | | |
| — | | |
$ | 6,009,000 | |
| REITs | |
| — | | |
$ | 137,000 | | |
| — | | |
$ | 137,000 | |
| Equity Securities | |
$ | 26,419,000 | | |
| — | | |
| — | | |
$ | 26,419,000 | |
| Money Markets and CDs | |
$ | 772,000 | | |
| — | | |
| — | | |
$ | 772,000 | |
| Total fair value of assets measured on a recurring basis | |
$ | 27,191,000 | | |
$ | 6,146,000 | | |
| — | | |
$ | 33,337,000 | |
| 12. |
Paycheck Protection Program Loan |
On
April 15, 2020, the Company received loan proceeds of approximately $950,000 (the “PPP Loan”) from FirsTier Bank, pursuant
to the Paycheck Protection Program under Division A, Title I of the CARES Act, which was enacted March 27, 2020. The PPP Loan, which
was in the form of a Note dated April 15, 2020 issued to the Company, matures on April 15, 2022 and bears interest at a rate of 1% per
annum. The Company used the proceeds of the PPP Loan for qualifying expenses. On December 3, 2020, the Company received notice from the
lender that the entire amount of the PPP loan was forgiven. In January 2021 it was determined that PPP loan forgiveness was not taxable.
The loan forgiveness amount is included in the “Other” line of the Other Income (Expense) section of the income statement.