NOTES
TO RESTATED CONDENSED FINANCIAL STATEMENTS
JULY
31, 2019
Note
1: Unaudited Interim Financial Statements
The
accompanying financial statements have been prepared in accordance with the instructions for Form 10-Q and do not include all
of the information and footnotes required by generally accepted accounting principles for complete financial statements. It is
suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included
in the Company’s April 30, 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 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 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.
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
September 2019 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 July 31, 2019 and April 30, 2019, investments consisted of the following:
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
Investments at
|
|
Cost
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
July 31, 2019
|
|
Basis
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Municipal bonds
|
|
$
|
5,475,000
|
|
|
$
|
117,000
|
|
|
$
|
(43,000
|
)
|
|
$
|
5,549,000
|
|
|
Corporate bonds
|
|
|
26,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26,000
|
|
|
REITs
|
|
|
89,000
|
|
|
|
3,000
|
|
|
|
(9,000
|
)
|
|
|
83,000
|
|
|
Equity securities
|
|
|
16,729,000
|
|
|
|
4,252,000
|
|
|
|
(260,000
|
)
|
|
|
20,721,000
|
|
|
Money markets and CDs
|
|
|
1,278,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,278,000
|
|
|
Total
|
|
$
|
23,597,000
|
|
|
$
|
4,372,000
|
|
|
$
|
(312,000
|
)
|
|
$
|
27,657,000
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
Investments at
|
|
Cost
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
April 30, 2019
|
|
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 sheet 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 on year. The Company also evaluates the nature of the investment, cause of impairment
and number of investments that are in an unrealized position. When an “other-than-temporary” decline is identified,
the Company will decrease the cost of the marketable security to the new fair value and recognize a real loss. The investments
are periodically evaluated to determine if impairment changes are required. As a result of this standard, management recorded
an impairment loss of $34,000 for the quarter ended July 31, 2019. For the prior quarter ended July 31, 2018, management did not
need to record any impairment losses.
The
following table shows the investments with unrealized losses that are not deemed to be “other-than-temporarily impaired”,
aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position,
at July 31, 2019 and April 30, 2019, respectively.
Unrealized
Loss Breakdown by Investment Type at July 31, 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
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
448,000
|
|
|
$
|
(43,000
|
)
|
|
$
|
448,000
|
|
|
$
|
(43,000
|
)
|
|
REITs
|
|
|
—
|
|
|
|
—
|
|
|
|
30,000
|
|
|
|
(9,000
|
)
|
|
|
30,000
|
|
|
|
(9,000
|
)
|
|
Equity securities
|
|
|
1,975,000
|
|
|
|
(147,000
|
)
|
|
|
729,000
|
|
|
|
(113,000
|
)
|
|
|
2,704,000
|
|
|
|
(260,000
|
)
|
|
Total
|
|
$
|
1,975,000
|
|
|
$
|
(147,000
|
)
|
|
$
|
1,207,000
|
|
|
$
|
(165,000
|
)
|
|
$
|
3,182,000
|
|
|
$
|
(312,000
|
)
|
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 July 31, 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. The individual holdings have been evaluated, and due
to management’s plan to hold on to these investments for an extended period, the Company does not consider these investments
to be other-than-temporarily impaired at July 31, 2019.
Note
3: Inventories
Inventories
at July 31, 2019 and April 30, 2019 consisted of the following:
|
|
|
July 31, 2019
|
|
|
April 30, 2019
|
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
3,878,000
|
|
|
$
|
3,644,000
|
|
|
Work in process
|
|
|
368,000
|
|
|
|
389,000
|
|
|
Finished goods
|
|
|
715,000
|
|
|
|
641,000
|
|
|
|
|
|
4,961,000
|
|
|
|
4,674,000
|
|
|
Less: allowance for obsolete inventory
|
|
|
(98,000
|
)
|
|
|
(91,000
|
)
|
|
Inventories, net
|
|
$
|
4,863,000
|
|
|
$
|
4,583,000
|
|
Note
4: Business Segments
The
following is financial information relating to industry segments:
|
|
|
July 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Net revenue:
|
|
|
|
|
|
|
|
|
|
Security alarm products
|
|
$
|
2,830,000
|
|
|
$
|
2,150,000
|
|
|
Cable & wiring tools
|
|
|
536,000
|
|
|
|
679,000
|
|
|
Other products
|
|
|
186,000
|
|
|
|
600,000
|
|
|
Total net revenue
|
|
$
|
3,552,000
|
|
|
$
|
3,429,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations:
|
|
|
|
|
|
|
|
|
|
Security alarm products
|
|
$
|
725,000
|
|
|
$
|
485,000
|
|
|
Cable & wiring tools
|
|
|
137,000
|
|
|
|
153,000
|
|
|
Other products
|
|
|
48,000
|
|
|
|
135,000
|
|
|
Total income from operations
|
|
$
|
910,000
|
|
|
$
|
773,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
Security alarm products
|
|
$
|
23,000
|
|
|
$
|
10,000
|
|
|
Cable & wiring tools
|
|
|
31,000
|
|
|
|
31,000
|
|
|
Other products
|
|
|
20,000
|
|
|
|
27,000
|
|
|
Corporate general
|
|
|
15,000
|
|
|
|
15,000
|
|
|
Total depreciation and amortization
|
|
$
|
89,000
|
|
|
$
|
83,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
Security alarm products
|
|
$
|
169,000
|
|
|
$
|
—
|
|
|
Cable & wiring tools
|
|
|
—
|
|
|
|
—
|
|
|
Other products
|
|
|
—
|
|
|
|
—
|
|
|
Corporate general
|
|
|
—
|
|
|
|
—
|
|
|
Total capital expenditures
|
|
$
|
169,000
|
|
|
$
|
—
|
|
|
Identifiable assets:
|
|
July 31, 2019
|
|
|
April 30, 2019
|
|
|
Security alarm products
|
|
$
|
6,369,000
|
|
|
$
|
6,179,000
|
|
|
Cable & wiring tools
|
|
|
2,725,000
|
|
|
|
2,713,000
|
|
|
Other products
|
|
|
864,000
|
|
|
|
842,000
|
|
|
Corporate general
|
|
|
34,088,000
|
|
|
|
33,293,000
|
|
|
Total assets
|
|
$
|
44,046,000
|
|
|
$
|
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 July 31,
|
|
|
|
|
Originally
Filed 2019
|
|
|
Adjustment
2019
|
|
|
Restated 2019
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
866,000
|
|
|
$
|
110,000
|
|
|
$
|
976,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
|
|
|
4,956,389
|
|
|
|
—
|
|
|
|
4,956,389
|
|
|
Convertible Preferred Stock
|
|
|
20,500
|
|
|
|
—
|
|
|
|
20,500
|
|
|
Weighted average common shares outstanding, diluted
|
|
|
4,976,889
|
|
|
|
—
|
|
|
|
4,976,889
|
|
|
Net Income per share - Basic
|
|
$
|
0.17
|
|
|
$
|
0.03
|
|
|
$
|
0.20
|
|
|
Income per shares - Diluted
|
|
$
|
0.17
|
|
|
$
|
0.03
|
|
|
$
|
0.20
|
|
|
|
|
For the Three Months Ended July 31,
|
|
|
|
|
Originally
Filed 2018
|
|
|
Adjustment
2018
|
|
|
Restated 2018
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
617,000
|
|
|
$
|
308,000
|
|
|
$
|
925,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
|
|
|
4,967,580
|
|
|
|
—
|
|
|
|
4,967,580
|
|
|
Convertible Preferred Stock
|
|
|
20,500
|
|
|
|
—
|
|
|
|
20,500
|
|
|
Weighted average common shares outstanding, diluted
|
|
|
4,988,080
|
|
|
|
—
|
|
|
|
4,988,080
|
|
|
Net Income per share - Basic
|
|
$
|
0.12
|
|
|
$
|
0.07
|
|
|
$
|
0.19
|
|
|
Income per shares - Diluted
|
|
$
|
0.12
|
|
|
$
|
0.07
|
|
|
$
|
0.19
|
|
Note
6: Retirement Benefit Plan
On
January 1, 1998, the Company adopted the George Risk Industries, Inc. Retirement Savings Plan (the “Plan”). The Plan
is a defined contribution savings plan designed to provide retirement income to eligible employees of the corporation. The Plan
is intended to be qualified under Section 401 (k) of the Internal Revenue Code of 1986, as amended. Matching contributions by
the Company of approximately $2,000 were paid during both the quarter ending July 31, 2019 and 2018, respectively.
Note
7: Fair Value Measurements
Generally
accepted accounting principles in the United States of America (US GAAP) defines fair value as the price that would be received
from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value,
we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions
that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions, and credit
risk.
US
GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement)
and the lowest priority to unobservable inputs (level 3 measurements). The levels of the fair value hierarchy under US GAAP are
described below:
|
|
Level
1
|
Valuation
is based upon quoted prices for identical instruments traded in active markets.
|
|
|
|
|
|
|
Level
2
|
Valuation
is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments
in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable
in the market.
|
|
|
|
|
|
|
Level
3
|
Valuation
is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable
assumptions reflect our own estimates of assumptions that market participants would use in pricing the asset or liability.
Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.
|
Investments
and Marketable Securities
As
of July 31, 2019, our investments consisted of money markets, certificates of deposits (CDs), publicly traded equity securities,
real estate investment trusts (REITs) as well as certain state and municipal debt securities and corporate bonds. Our marketable
securities are valued using third-party broker statements. The value of the investments is derived from quoted market information.
The inputs to the valuation are generally classified as Level 1 given the active market for these securities, however, if an active
market does not exist, which is the case for municipal bonds and REITs, the inputs are recorded as Level 2.
Fair
Value Hierarchy
The
following table sets forth our assets and liabilities measured at fair value on a recurring basis and a non-recurring basis by
level within the fair value hierarchy. As required by US GAAP, assets and liabilities are classified in their entirety based on
the lowest level of input that is significant to the fair value measurement.
|
|
|
Assets Measured at Fair Value on a Recurring Basis as of
July 31, 2019
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal Bonds
|
|
$
|
—
|
|
|
$
|
5,549,000
|
|
|
$
|
—
|
|
|
$
|
5,549,000
|
|
|
Corporate Bonds
|
|
|
26,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26,000
|
|
|
REITs
|
|
|
—
|
|
|
|
83,000
|
|
|
|
—
|
|
|
|
83,000
|
|
|
Equity Securities
|
|
|
20,721,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,721,000
|
|
|
Money Markets and CDs
|
|
|
1,278,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,278,000
|
|
|
Total fair value of assets measured on a recurring basis
|
|
$
|
22,025,000
|
|
|
$
|
5,632,000
|
|
|
$
|
—
|
|
|
$
|
27,657,000
|
|
|
|
|
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
|
|
Note
8 Subsequent Events
None
Note
9 Correction of Previously Issued Financial Statements
Subsequent
to the issuance of its Quarterly Report on SEC Form 10-Q for the three months ended July 31, 2019, the Company discovered an error
due to missing a change in accounting related to other comprehensive income (loss) as reflected in the implementation of
ASU 2016-01, which became effective for the Company on May 1, 2018. Under the new guidance in ASU 2016-01 the Company should record
unrealized gains and losses in the value of the equity securities it owns in the statements of operations, whereas, under previous
guidance (and in the Original Form 10-Q) those unrealized gains and losses were recorded as accumulated other comprehensive income
(loss).
This
restatement includes i) recording a one-time adjustment to retained earnings to reclassify the accumulated other comprehensive
loss related to unrealized gains on equity securities as of May 1, 2018 and ii) recording an unrealized gain on marketable securities
representing the value change in the equities for the three months ended July 31, 2019 and 2018.
No
entries to correct for this restatement have any impact on our cash position, liquidity, or operations.
The
tables below reflect the effect of restatement on the Company’s financial statements for the quarter:
|
|
|
As of July 31, 2019
|
|
|
|
|
Original
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Income Taxes
|
|
$
|
1,247,000
|
|
|
$
|
(7,000
|
)
|
|
$
|
1,240,000
|
|
|
Total Liabilities
|
|
|
3,542,000
|
|
|
|
(7,000
|
)
|
|
|
3,535,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
$
|
2,890,000
|
|
|
$
|
(2,841,000
|
)
|
|
$
|
49,000
|
|
|
Retained Earnings
|
|
|
39,011,000
|
|
|
|
2,848,000
|
|
|
|
41,859,000
|
|
|
Total stockholder’s Equity
|
|
$
|
40,504,000
|
|
|
$
|
7,000
|
|
|
$
|
40,511,000
|
|
|
|
|
As of April 30, 2019
|
|
|
|
|
Original
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
$
|
2,752,000
|
|
|
$
|
(2,738,000
|
)
|
|
$
|
14,000
|
|
|
Retained Earnings
|
|
|
38,145,000
|
|
|
|
2,738,000
|
|
|
|
40,883,000
|
|
|
|
|
For the Three Months Ended July 31, 2019
|
|
|
|
|
Original
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
Income Statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gain (Loss) on Equity Securities
|
|
$
|
—
|
|
|
$
|
145,000
|
|
|
$
|
145,000
|
|
|
Total Other Income (Expense)
|
|
$
|
243,000
|
|
|
$
|
145,000
|
|
|
$
|
388,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Provisions for Income Taxes
|
|
|
1,153,000
|
|
|
|
145,000
|
|
|
|
1,298,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax expense (benefit)
|
|
|
(7,000
|
)
|
|
|
35,000
|
|
|
|
28,000
|
|
|
Total Income Tax Expense
|
|
|
287,000
|
|
|
|
42,000
|
|
|
|
329,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
866,000
|
|
|
$
|
110,000
|
|
|
$
|
976,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share of Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.17
|
|
|
$
|
0.03
|
|
|
$
|
0.20
|
|
|
Diluted
|
|
$
|
0.17
|
|
|
$
|
0.03
|
|
|
$
|
0.20
|
|
|
|
|
For the Three Months Ended July 31, 2018
|
|
|
|
|
Original
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
Income Statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gain (Loss) on Equity Securities
|
|
$
|
—
|
|
|
$
|
432,000
|
|
|
$
|
432,000
|
|
|
Total Other Income (Expense)
|
|
$
|
128,000
|
|
|
$
|
432,000
|
|
|
$
|
560,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Provisions for Income Taxes
|
|
|
901,000
|
|
|
|
432,000
|
|
|
|
1,333,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax expense (benefit)
|
|
|
37,000
|
|
|
|
124,000
|
|
|
|
161,000
|
|
|
Total Income Tax Expense
|
|
|
284,000
|
|
|
|
124,000
|
|
|
|
408,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
617,000
|
|
|
$
|
308,000
|
|
|
$
|
925,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share of Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.12
|
|
|
$
|
0.07
|
|
|
$
|
0.19
|
|
|
Diluted
|
|
$
|
0.12
|
|
|
$
|
0.07
|
|
|
$
|
0.19
|
|
|
|
|
For the Three Months Ended July 31, 2019
|
|
|
|
|
Original
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
Statement of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
866,000
|
|
|
$
|
110,000
|
|
|
$
|
976,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income, net of Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains arising during period
|
|
|
324,000
|
|
|
|
(275,000
|
)
|
|
|
49,000
|
|
|
Less: reclassification adjustment for (gains) losses included in net income
|
|
|
(130,000
|
)
|
|
|
130,000
|
|
|
|
—
|
|
|
Income tax expense related to other comprehensive income
|
|
|
(56,000
|
)
|
|
|
42,000
|
|
|
|
(14,000
|
)
|
|
Other Comprehensive Income (Loss)
|
|
$
|
138,000
|
|
|
$
|
(103,000
|
)
|
|
$
|
35,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income
|
|
$
|
1,004,000
|
|
|
$
|
7,000
|
|
|
$
|
1,011,000
|
|
|
|
|
For the Three Months Ended July 31, 2018
|
|
|
|
|
Original
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
Statement of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
617,000
|
|
|
$
|
308,000
|
|
|
$
|
925,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income, net of Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains arising during period
|
|
|
607,000
|
|
|
|
(387,000
|
)
|
|
|
220,000
|
|
|
Less: reclassification adjustment for (gains) losses included in net income
|
|
|
44,000
|
|
|
|
(44,000
|
)
|
|
|
—
|
|
|
Income tax expense related to other comprehensive income
|
|
|
(188,000
|
)
|
|
|
125,000
|
|
|
|
(63,000
|
)
|
|
Other Comprehensive Income (Loss)
|
|
$
|
463,000
|
|
|
$
|
(306,000
|
)
|
|
$
|
157,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income
|
|
$
|
1,080,000
|
|
|
$
|
2,000
|
|
|
$
|
1,082,000
|
|
|
|
|
Original
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
Statement of Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, April 30, 2019
|
|
$
|
39,553,000
|
|
|
$
|
—
|
|
|
$
|
39,553,000
|
|
|
Purchase of common stock
|
|
|
(53,000
|
)
|
|
|
—
|
|
|
|
(53,000
|
)
|
|
Unrealized gain (loss), net of tax effect
|
|
|
138,000
|
|
|
|
(103,000
|
)
|
|
|
35,000
|
|
|
Net Income
|
|
|
866,000
|
|
|
|
110,000
|
|
|
|
976,000
|
|
|
Balance, July 31, 2019
|
|
$
|
40,504,000
|
|
|
$
|
7,000
|
|
|
$
|
40,511,000
|
|
|
|
|
Original
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
Statement of Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, April 30, 2018
|
|
$
|
37,730,000
|
|
|
$
|
—
|
|
|
$
|
37,730,000
|
|
|
Purchase of common stock
|
|
|
(5,000
|
)
|
|
|
—
|
|
|
|
(5,000
|
)
|
|
Impact of adoption of ASU 2016-01
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Unrealized gain (loss), net of tax effect
|
|
|
463,000
|
|
|
|
(306,000
|
)
|
|
|
157,000
|
|
|
Net Income
|
|
|
617,000
|
|
|
|
308,000
|
|
|
|
925,000
|
|
|
Balance, July 31, 2018
|
|
$
|
38,805,000
|
|
|
$
|
2,000
|
|
|
$
|
38,807,000
|
|
|
|
|
For the Three Months Ended July 31, 2019
|
|
|
|
|
Original
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
866,000
|
|
|
$
|
110,000
|
|
|
$
|
976,000
|
|
|
Adjustment to reconcile net income to net cash provided operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (gain) loss on equity securities
|
|
|
—
|
|
|
|
(145,000
|
)
|
|
|
(145,000
|
)
|
|
Deferred income taxes
|
|
|
(7,000
|
)
|
|
|
35,000
|
|
|
|
28,000
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
1,139,000
|
|
|
$
|
—
|
|
|
$
|
1,139,000
|
|
|
|
|
For the Three Months Ended July 31, 2018
|
|
|
|
|
Original
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
617,000
|
|
|
$
|
308,000
|
|
|
$
|
925,000
|
|
|
Adjustment to reconcile net income to net cash provided operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (gain) loss on equity securities
|
|
|
—
|
|
|
|
(432,000
|
)
|
|
|
(432,000
|
)
|
|
Deferred income taxes
|
|
|
37,000
|
|
|
|
124,000
|
|
|
|
161,000
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
890,000
|
|
|
$
|
—
|
|
|
$
|
890,000
|
|
|
|
|
For the Three Months Ended July 31,
|
|
|
|
|
Originally
Filed 2019
|
|
|
Adjustment 2019
|
|
|
Restated 2019
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
866,000
|
|
|
$
|
110,000
|
|
|
$
|
976,000
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
|
|
|
4,956,389
|
|
|
|
—
|
|
|
|
4,956,389
|
|
|
Convertible Preferred Stock
|
|
|
20,500
|
|
|
|
—
|
|
|
|
20,500
|
|
|
Weighted average common shares outstanding, diluted
|
|
|
4,976,889
|
|
|
|
—
|
|
|
|
4,976,889
|
|
|
Net Income per share - Basic
|
|
$
|
0.17
|
|
|
$
|
0.03
|
|
|
$
|
0.20
|
|
|
Income per shares - Diluted
|
|
$
|
0.17
|
|
|
$
|
0.03
|
|
|
$
|
0.20
|
|
|
|
|
For the Three Months Ended July 31,
|
|
|
|
|
Originally
Filed 2018
|
|
|
Adjustment 2018
|
|
|
Restated 2018
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
617,000
|
|
|
$
|
308,000
|
|
|
$
|
925,000
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
|
|
|
4,967,580
|
|
|
|
—
|
|
|
|
4,967,580
|
|
|
Convertible Preferred Stock
|
|
|
20,500
|
|
|
|
—
|
|
|
|
20,500
|
|
|
Weighted average common shares outstanding, diluted
|
|
|
4,988,080
|
|
|
|
—
|
|
|
|
4,988,080
|
|
|
Net Income per share - Basic
|
|
$
|
0.12
|
|
|
$
|
0.07
|
|
|
$
|
0.19
|
|
|
Income per shares - Diluted
|
|
$
|
0.12
|
|
|
$
|
0.07
|
|
|
$
|
0.19
|
|
GEORGE
RISK INDUSTRIES, INC.
PART
I. FINANCIAL INFORMATION
Item
2: Management Discussion and Analysis of Financial Condition and Results of Operations
MANAGEMENT
DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Restated)
This
Quarterly Report on Form 10-Q/A, includes forward-looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended (the Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), which
are subject to the “safe harbor” created by those sections. Any statements herein that are not statements of historical
fact may be deemed to be forward-looking statements. For example, words such as “may,” “will,” “could,”
“would,” “should,” “anticipate,” “expect,” “intend,” “believe,”
“estimate,” “project” or “continue,” and the negatives of such terms are intended to identify
forward-looking statements. The information included herein represents our estimates and assumptions as of the date of this filing.
Unless required by law, we undertake no obligation to update publicly any forward-looking statements, or to update the reasons
actual results could differ materially from those anticipated in these forward-looking statements, even if current information
becomes available in the future.
The
following discussion should be read in conjunction with the attached condensed financial statements, and with the Company’s
audited financial statements and discussion for the fiscal year ended April 30, 2019.
Executive
Summary
The
Company’s performance has increased through the first quarter in comparison to the prior quarter last year. In comparison
to the most recent prior quarter, performance has stayed steady with similar sales figures. The main difference between this year’s
quarter and last year’s quarter is that the Company doesn’t have a big back order log and is able to get inventory
in the stockroom which allows the Company to ship products out on timely basis. Opportunities include continuing to learn and
grow with our computer system and to continue looking at businesses that might be a good fit to purchase. Also, we have new products
that are scheduled to enter the marketplace by the end of the calendar year. Challenges in the coming months include continuing
to get product out to customers in a timelier manner. Raw material prices are also a concern with tariffs being levied by the
US government and other factors. Management continues to work at keeping the facilities running leaner and more profitable than
ever before.
Results
of Operations
|
|
●
|
Net
sales showed a 3.59% increase over the same period in the prior year. Management believes that they have been successful at
training employees on the new computer system and production is running smoothly. The Company has also seen some old customers
buying from us again. Management believes that this may be in relation to price increases from our competitors
|
|
|
●
|
Cost
of goods sold saw a decrease from 52.52% of sales in the prior year, to 49.80% in the current quarter, which is inside of
Management’s goal to keep labor and other manufacturing expenses within the range of 45 to 50%. The decreased cost of
goods sold percentage is a reflection of having better training and working more efficiently when making product.
|
|
|
●
|
Operating
expenses have increased by $18,000 when comparing the current quarter to the same quarter for the prior year, but the percentage
in relation to net sales decreased to 24.58% for the quarter ended July 31, 2019 as compared to 24.93% for the corresponding
quarter last year. The Company has been able to keep the operating expenses at less than 30% of net sales for many years now;
however, the actual dollar amount increase is because of increased commission amounts (since sales have increased) and additional
labor costs for hiring new employees and wage increases.
|
|
|
●
|
Income
from operations for the quarter ended July 31, 2019 was at $910,000, which is a 17.72% increase from the corresponding quarter
last year, which had income from operations of $773,000.
|
|
|
●
|
Other
income and expenses showed a $388,000 gain for the quarter ended July 31, 2019 as compared to a $560,000 gain for the quarter
ended July 31, 2018. Investments in marketable securities are presented at fair value and an unrealized gain or loss is recorded
within the statements of operations, a non-cash entry, at each period beginning May 1, 2018 and previously recorded unrealized
gain or loss in other comprehensive income (loss). For the three months ended July 31, 2019, $145,000 of unrealized gains
on equity securities were recorded and $432,000 of unrealized gains on equity securities were recorded for the three months
ended July 31, 2018. The remainder of the increase is primarily due to gains realized from the sale of investments as compared
to losses sustained during the same quarter last year.
|
|
|
●
|
Provision
for income taxes showed a decrease of $79,000, down from $408,000 in the quarter ended July 31, 2018 to $329,000 for the quarter
ended July 31, 2019. The decrease is a direct result of the adoption of ASU 2016-01.
|
|
|
●
|
In
turn, net income for the quarter ended July 31, 2019 was $969,000, a 4.76% increase from the corresponding quarter last year,
which showed net income of $925,000.
|
|
|
●
|
Earnings
per share for the quarter ended July 31, 2019 were $0.20 per common share and $0.19 per common share for the quarter ended
July 31, 2018.
|
Liquidity
and capital resources
Operating
|
|
●
|
Net
cash increased $794,000 during the quarter ended July 31, 2019 as compared to an increase of $653,000 during the corresponding
quarter last year.
|
|
|
●
|
Accounts
receivable decreased $163,000 for the quarter ending July 31, 2019 compared with a $234,000 decrease for the same quarter
last year. The decrease in accounts receivable is directly attributable to the Company’s ability to collect on accounts
and to keep past due accounts to a minimum. An analysis of accounts shows that there were only 5.15% that were over 90 days
at July 31, 2019.
|
|
|
●
|
Inventories
increased $288,000 during the current quarter as compared to a $389,000 increase last year. The smaller increase is primarily
due to the fact that the Company selling more finished goods at a slightly faster rate than it is replenishing raw materials.
|
|
|
●
|
At
the quarter ended July 31, 2019 there was a $79,000 decrease in prepaid expenses and at July 31, 2018, there was a $166,000
decrease. The current decrease is due to capitalizing some projects in process.
|
|
|
●
|
Accounts
payable shows an increase of $55,000 for the quarter ended July 31, 2019 compared to a decrease of $7,000 for the same quarter
the year before, primarily due to timing issues. Management strives to pay all payables within terms, unless there is a problem
with the merchandise.
|
|
|
●
|
Accrued
expenses decreased $66,000 for the current quarter as compared to a $172,000 decrease for the quarter ended July 31, 2018.
The difference in the amounts is primarily due to timing issues of when pay periods end.
|
|
|
●
|
Income
tax payable for the quarter ended July 31, 2019 increased $289,000, while there was a $244,000 decrease towards income tax
overpayment for the quarter ended July 31, 2018. The current increase is due to waiting on tax refunds to be sent and not
having to pay income tax estimates yet.
|
Investing
|
|
●
|
As
for our investment activities, the Company purchased $169,000 of property and equipment during the current fiscal quarter.
In comparison with the corresponding quarter last year, there were not any purchases of property 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 quarter ended July 31, 2019 was $132,000 compared to $233,000 spent during the quarter ended
July 31, 2018. We continue to use “money manager” accounts for most stock transactions. By doing this, the Company
gives an independent third party firm, who are experts in this field, permission to buy and sell stocks at will. The Company
pays a quarterly service fee based on the value of the investments.
|
Financing
|
|
●
|
Furthermore,
the Company continues to purchase back common stock when the opportunity arises. For the quarter ended July 31, 2019, the
Company purchased $53,000 worth of treasury stock, along with the $5,000 spent in the same period the prior year.
|
The
following is a list of ratios to help analyze George Risk Industries’ performance:
|
|
|
Qtr ended
|
|
|
Qtr ended
|
|
|
|
|
July 31, 2019
|
|
|
July 31, 2018
|
|
|
Working capital
|
|
|
|
|
|
|
|
|
|
(current assets – current liabilities)
|
|
$
|
38,750,000
|
|
|
$
|
36,894,000
|
|
|
Current ratio
|
|
|
|
|
|
|
|
|
|
(current assets / current liabilities)
|
|
|
17.882
|
|
|
|
18.760
|
|
|
Quick ratio
|
|
|
|
|
|
|
|
|
|
((cash + investments + AR) / current liabilities)
|
|
|
15.622
|
|
|
|
16.567
|
|
New
Product Development
The
Company and its’ engineering department perpetually work to develop enhancements to current product lines, develop new products
which complement existing products, and look for products that are well suited to our distribution network and manufacturing capabilities.
Items currently in various stages of the development process include:
|
|
●
|
A
new face plate for our pool alarms is nearing completion. The innovative design is slim in style and will also allow the homeowner
to change the plate to match their décor.
|
|
|
●
|
A
new 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.
|
|
|
●
|
Work
continues on high security switches. They have a triple biased high security switch design nearly complete and an adjustable
magnet design was completed for recessed mounting applications.
|
|
|
●
|
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.
|
|
|
●
|
We
are ready to launch a new product in our cable and wiring tools segment, The Grabbit GR5. This is an ultra-compact, lightweight
telescoping pole that extends 5’ to grab or push a wire. The GR5 is the newest member of the Grabbit family - joining
the 10’, 12’ and 18’ versions. The Grabbits are an indispensable tool when running wire through drop ceilings
and difficult-to-access areas. A Z-tip, J-tip and LED light are included with the Grabbits which are interchangeable depending
on the situation.
|
Other
Information
In
addition to researching developing new products, management is always open to the possibility of acquiring a business or product
line that would complement our existing operations. Due to the Company’s strong cash position, management believes this
could be achieved without the need for outside financing. The intent is to utilize the equipment, marketing techniques and established
customers to deliver new products and increase sales and profits.
There
are no known seasonal trends with any of GRI’s products, since we sell to distributors and OEM manufacturers. Our products
are tied to the housing industry and will fluctuate with building trends.
Recently
Issued Accounting Pronouncements
In
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 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 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.
GEORGE
RISK INDUSTRIES, INC.
PART
I. FINANCIAL INFORMATION