GEORGE RISK INDUSTRIES, INC. - Annual Report: 2020 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10–K

For the fiscal year ended April 30, 2020

For the transition period from __________ to _________

Commission File Number: 000–05378

George Risk Industries, Inc.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number (308) 235–4645

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

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

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

Yes [  ] No [X]

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

Yes [  ] No [X]

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

Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229-405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [ 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.

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. [  ]

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

Yes [  ] No [X]

The aggregate market value, as of August 7, 2020, of the common stock (based on the average of the bid and asked prices of the shares on the OTCM of George Risk Industries, Inc.) held by non-affiliates (assuming, for this purpose, that all directors, officers and owners of 5% or more of the registrant’s common stock are deemed affiliates) was approximately $17,113,000.

The number of outstanding shares of the common stock as of August 7, 2020 was 4,949,927.

Part I

Preliminary Note Regarding Forward-Looking Statements and Currency Disclosure

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

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

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

Item 1 Business

(a) Business Development

George Risk Industries, Inc. (GRI or the Company) was incorporated in 1967 in Colorado. The Company is presently engaged in the design, manufacture, and sale of custom computer keyboards, push button switches, burglar alarm components and systems, pool alarms, EZ Duct wire covers, water sensors and wire and cable installation tools.

Products, Market, and Distribution

The Company designs, manufactures, and sells computer keyboards, push-button switches, burglar alarm components and systems, pool alarms, water sensors, and wire and cable installation tools. The Security sales division, which concentrates on selling products for security purposes, comprises of approximately 95 percent of net revenues and are sold through distributors and alarm dealers/installers.

The security segment has approximately 1,000 current customers. One of the distributors, Ademco, Inc. (previously known as ADI), accounts for approximately 40.2 percent of the Company’s sales of these products. Anixter, Inc. accounts for another 11.9 percent of Company sales. Loss of these distributors would be significant to the Company. However, both companies have purchased from the Company for many years and are expected to continue. Also, the Company has a written agreement with Ademco. This agreement was signed in February 2011 and was initiated by the customer. The contents of the agreement include product terms, purchasing, payment terms, term and termination, product marketing, representations and warranties, product support, mutual confidentiality, indemnification and insurance, and general provisions.

The keyboard segment has approximately 700 customers. Keyboard products are sold to original equipment manufacturers to their specifications and to distributors of off-the-shelf keyboards of proprietary design.

Competition

The Company has intense competition in the keyboard and security/burglar alarm lines.

The security/burglar alarm segment has approximately seven major competitors. The Company competes well based on price, product design, quality, customization and having products made in the USA.

The competitors in the keyboard segment are larger companies with automated production facilities. GRI has emphasized small custom order sales that many of its competitors decline or discourage.

Research and Development

The Company performs research and development for its customers when needed and requested. Costs in connection with such product development have been borne by the customers. Costs associated with the development of new products are expensed as incurred.

Employees

GRI has approximately 175 employees.

Item 2 Properties

The Company owns the manufacturing and the office facilities that it operates in. Total square footage of the plant in Kimball, Nebraska is approximately 50,000 sq. ft. A 7,500 square foot warehouse for raw material storage was purchased in June 2017 when the Company acquired its cable and wiring segment and another 9,600 square foot building was purchased in April 2020 for additional expansion. Additionally, the Company purchased the 15,000 square foot building that it previously leased from Bonita Risk, which has been used mainly for offices, in November 2019. Bonita Risk is a director of the Company.

The Company also owns a building in Gering, NE that is 7,200-sq. ft. in size. This is used for manufacturing. Currently, there are 35 employees at the Gering site.

Item 3 Legal Proceedings

None.

Item 4 Submission of Matters to a Vote of Security Holders

Not applicable.

Part II

Item 5 Market for the Registrant’s Common Equity and Related Stockholders’ Matter

Principal Market

The Company’s Class A Common Stock, which is traded under the ticker symbol RSKIA, is currently quoted on the OTC Bulletin Board by one market maker.

Stock Prices and Dividends Information

On September 30, 2019, a dividend of $.40 per common share was declared for the fiscal year ended April 30, 2020.

For the prior fiscal year, a dividend of $.38 per common share was declared on September 30, 2018.

The number of holders of record of the Company’s Class A Common Stock as of April 30, 2020, was approximately 1,130.

Repurchases of Equity Securities

On September 18, 2008, the Board of Directors approved an authorization for the repurchase of up to 500,000 shares of the Company’s common stock. Purchases can be made in the open market or in privately negotiated transactions. The Board did not specify an expiration date for the authorization.

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

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

Item 6 Selected Financial Data

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

Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Overview

George Risk Industries, Inc. (GRI) (the “Company”) is a diversified manufacturer of electronic components, encompassing the security industry’s widest variety of door and window contact switches, environmental products, wire and cable installation tools, proximity switches and custom keyboards. The security products division comprises the largest portion of GRI sales and products are sold worldwide through distributors, who in turn sell these products to security installation companies. These products are used for residential, commercial, industrial and government installations. International sales accounted for approximately 12.5% of revenues for fiscal year 2020 and 11.4% for 2019.

GRI is known for its quality American made products, top-notch customer service and the willingness to work with customers on their special applications.

GRI owns and operates its main manufacturing plant and offices in Kimball, Nebraska with a satellite plant 40 miles away in Gering, Nebraska.

The Company has substantial marketable securities holdings and these holding have a material impact on the financial results. For the fiscal year ending April 30, 2020, other income (expense) showed a loss of 39.96% of income before income taxes . In comparison, other income accounted for 31.01% of the income before income taxes for the year ending April 30, 2019. Management’s philosophy behind having holdings in marketable securities is to keep the money working and gaining interest on the cash that is not needed to be put back into the business. Over the years, the investments have kept the earnings per share up when the results from operations have not fared as well.

Management is always open to the possibility of acquiring a business that would complement our existing operations, which is exactly what took place in October 2017 when the Company purchased substantially all of the assets from Labor Saving Devices, Inc. (“LSDI”) and Roy Bowling (“Bowling”).

There are no known seasonal trends with any of GRI’s products, since we mostly sell to distributors and original equipment manufacturers (OEMs). The products are tied to the housing industry and will fluctuate with building trends.

Liquidity and Capital Resources

Operating

Net cash increased by $1,585,000 during the year ended April 30, 2020 compared to an increase of $579,000 during the year ended April 30, 2019. Accounts receivable increased by $266,000 during the current year while showing a $155,000 increase in the prior year. The current larger increase in cash flow from accounts receivable is result of increased sales but having delays in payments from customers because of the COVID-19 pandemic. At April 30, 2020, 74.75% of receivables were less than 60 days and 5.70% were over 90 days. In comparison, 72.17% of the receivables were considered current (less than 60 days) and 5.87% of the total were over 90 days past due for the prior year during the same period.

Inventories increased by $567,000 in fiscal year ended April 30, 2020 while the prior year showed an increase of $1,316,000 at year end. The current year increase is a result of having more raw materials on hand since sales have increased.

Prepaid expenses increased by $137,000 while they decreased $207,000 in the current and prior year, respectively. The increase in the current year is due to having more prepayments of raw materials than at year-end last year and having to renew multi-year subscriptions.

Income tax overpayments decreased by $203,000 for the year ended April 30, 2020. The smaller decrease in the current year is a result of having income tax estimates calculated better to match the actual taxable income.

For the year ended April 30, 2020, accounts payable decreased by $19,000 as compared to a decrease of $130,000 for the same period the year before. The change in cash with regards to accounts payable is largely based on timing. Payables are paid within terms and fluctuate based primarily on inventory needs for production. Accrued expenses increased $94,000 for the year ended April 30, 2020, due to increased commissions and having a few more days of accrued payroll compared to the prior year.

Investing

As for investment activities, $731,000 was spent on purchases of property and equipment during the current fiscal year, compared to $154,000 during the year ended April 30, 2019. These capitalized costs mainly consisted of purchases of buildings and machinery and equipment. Additionally, the Company continues to purchase marketable securities, which include municipal bonds and quality stocks. Cash spent on purchases of marketable securities for the year ended April 30, 2020 was $831,000 versus the $942,000 spent for the corresponding period last year. Conversely, net proceeds from the sale of marketable securities were $776,000 and $766,000 at April 30, 2020 and 2019, respectively. The Company uses “money manager” accounts for most stock transactions. By doing this, the Company gives an independent third-party firm, who are experts in this field, permission to buy and sell stocks at will. The Company pays quarterly service fees based on the value of the investments.

Financing

Cash used in financing activities consists of three items. First, for the year ended April 30, 2020, $1,803,000 was spent on the payment of dividends. The Company declared a dividend of $0.40 per share of common stock on September 30, 2019 for the current fiscal year, while a $0.38 per share of common stock dividend was declared on September 30, 2018 and issued in the prior fiscal year. Secondly, the Company continues to purchase back its Class A common stock when the opportunity arises. For the year ended April 30, 2020, the Company purchased $74,000 of treasury stock and $79,000 was bought back for the year ended April 30, 2019. We have been actively searching for stockholders that have been “lost” over the years. The payment of dividends over the last fourteen fiscal years has also prompted many stockholders and/or their relatives and descendants to sell back their stock to the Company. Third, the Company applied for and received a Paycheck Protection Program (PPP) loan in the fourth quarter of fiscal year 2020. With all the uncertainties of the COVID-19 pandemic, management decided that it would be wise to apply for the loan. The Company received $950,000 in loan proceeds in April 2020.

At April 30, 2020, working capital decreased 2.0% in comparison to the previous fiscal year. The Company measures liquidity using the quick ratio, which is the ratio of cash, securities and accounts receivables to current obligations. The Company’s quick ratio decreased to 11.623 for the year ended April 30, 2020 compared to 17.570 for the year ended April 30, 2019.

Results of Operations

GRI completed the fiscal year ending April 30, 2020 with a net profit of 14.21% of net sales. Net sales were at $14,809,000, up 4.84% over the previous fiscal year. The increase in sales is a result of continued growth within our product lines and having a major competitor closed its door at the end of calendar year 2019. Cost of goods sold was 50.00% of net sales for the year ended April 30, 2020 and 51.86% for the same period last year. Management’s goal is to keep the cost of goods sold percentage of less than 50%, but since wages and other expenses continue to increase to stay competitive with the workforce that is the reason why the cost of goods percentage is just past management’s goal. Management also increased prices slightly in January 2020 to offset the growing expenses and cost of raw materials.

Operating expenses were 24.82% of net sales for the year ended April 30, 2020 as compared to 24.73% for the corresponding period last year. Management’s goal is to keep the operating expenses around 30% or less of net sales, so the goal has been met for the current fiscal year. Income from operations for the year ended April 30, 2020 was at $3,730,000, which is a 12.83% increase from the corresponding period last year, which had income from operations of $3,306,000.

Other income and expense results for the fiscal year ended April 30, 2020 produced a loss of ($1,065,000). This is in comparison to a gain of $1,486,000 for the fiscal year ended April 30, 2019. Dividend and interest income was $931,000, which is down 5.10% over the prior year. Dividend and interest income at April 30, 2019 was $981,000. 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). As a result, an unrealized loss of $(1,619,000) was recorded for the fiscal year ended April 30, 2020 and an unrealized gain of $444,000 was recorded for the prior year ended April 30, 2019. Net loss on the sale of investments for the current fiscal year was $(384,000), which is an 729.51% decrease over the prior year. Net gain on the sale of investments for the fiscal year ending April 30, 2019 was $61,000.

Net income for the year ended April 30, 2020 was $2,104,000, which is down 41.52% from the prior year, which produced net income of $3,598,000. Basic and diluted earnings per common share (EPS) for the year ended April 30, 2020 was $0.42 per share. Basic and diluted earnings per common share (EPS) for the year ended April 30, 2019 was $0.73 and $0.72 per share, respectively.

Management is hopeful that sales will continue to increase for the fiscal year ending April 30, 2021. With the purchase of the assets from Labor Saving Devices, Inc., the Company has seen an overall increase in sales, and we have also seen growth in our existing product lines as well with a major competitor going out of business at the end of 2019. Because of this closure, we have seen our orders increase and we are still adjusting to grow to fulfill these orders. Our Security sales division, which is our largest sales generator, is directly tied to the housing industry and we normally experience the same fluctuations. We are always researching and developing new products that will help our sales increase. While only a few new or improved products were successfully launched in fiscal year 2020, we are confident that more new products will be released soon, and we are searching for products that complement our current offerings. Management is always open to the possibility of acquiring a business or product line that would complement our existing operations. Due to the Company’s strong cash position, management believes this could be achieved without the need for outside financing. The intent is to utilize the equipment, marketing techniques and established customers to deliver new products and increase sales and profits.

New product development

The GRI Engineering department continues to develop enhancements to our existing products as well as to develop new products that will continue to secure our position in the industry.

A new face plate for our pool alarms is nearing completion. The innovative design is slim in style and will also allow the homeowner to change the plate to match their décor.

An updated version of the pool access alarm is currently going through electrical listing testing. Since the COVID-19 pandemic has happened, not much testing has progressed. 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.

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.

In the next month we are introducing a couple of new security products. They are listed below:

We have launched our new GR1840 Oval Metal Door Channel Magnet. This is a direct replacement for the obsolete Interlogix magnet. This magnet fits into the top channel of a metal door and does not require drilling into the door core. We have also paired this with several of our ¾” and 1” steel door contacts.

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

Critical Accounting Policies

The discussion and analysis of the financial condition and results of operations are based upon the financial statements, which have been prepared in conformity with generally accepted accounting principles in the United States. The preparation of these financial statements requires the use of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in those financial statements. These judgments can be subjective and complex, and consequently actual results could differ from those estimates. The most critical accounting policies relate to accounts receivable; marketable securities; inventory; income taxes; and segment reporting.

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

The Company records an allowance for doubtful accounts based on an analysis of specifically identified customer balances. The Company has a limited number of customers with individually large amounts due at any given date. Any unanticipated change in any one of these customers’ credit worthiness or other matters affecting the collectability of amounts due from such customers could have a material effect on the results of operations in the period in which such changes or events occur. After all attempts to collect a receivable have failed, the receivable is written off.

Marketable securities—The Company has investments in publicly traded equity securities, state and municipal debt securities, corporate bonds and real-estate investment trusts (REITs). The investments in securities are reported at fair value. The Company uses the average cost method to determine the cost of securities sold and any unrealized gains or losses on equity securities are reported in the respective period’s earnings. Unrealized gains and losses on debt securities are excluded from earnings and reported separately as a component of stockholder’s equity. Dividend and interest income are reported as earned.

In accordance with the Generally Accepted Accounting Principles in the United States (US GAAP), the Company evaluates all marketable securities for other-than temporary declines in fair value. When the cost basis exceeds the fair market value for approximately one year, management evaluates the nature of the investment, cause of impairment and number of investments that are in an unrealized position. When it is determined that a security will probably remain impaired, a recognized loss is booked and the investment is written down to its new fair value. The investments are periodically evaluated to determine if impairment changes are required.

Inventories—Inventories are valued at the lower of cost or net realizable value. Costs are determined using the average cost-pricing method. The Company uses actual costs to price its manufactured inventories, approximating average costs. The reported net value of inventory includes finished saleable products, work-in-process and raw materials that will be sold or used in future periods. Inventory costs include raw materials, direct labor and overhead. The Company’s overhead expenses are applied, based in part, upon estimates of the proportion of those expenses that are related to procuring and storing raw materials as compared to the manufacture and assembly of finished products. These proportions, the method of their application, and the resulting overhead included in ending inventory, are based in part on subjective estimates and approximations and actual results could differ from those estimates.

In addition, the Company records an inventory obsolescence reserve, which represents the cost of the inventory that has had no movement in over two years. There is inherent professional judgment and subjectivity made by management in determining the estimated obsolescence percentage. In addition, and as necessary, the Company may establish specific reserves for future known or anticipated events.

Income Taxes—US GAAP requires use of the assets and liability method; whereby current and deferred tax assets and liabilities are determined based on tax rates and laws enacted as of the balance sheet date. Deferred tax expense represents the change in the deferred tax asset/liability balances.

Segment Reporting and Related Information—The Company designates the internal organization that is used by management for allocating resources and assessing performance as the source of the Company’s reportable segments. US GAAP also requires disclosures about products and services, geographic area and major customers.

Related Party Transactions — The Company purchased a building in November 2019 that was previously leased from Bonita Risk, thus terminating the lease during the fiscal year ended April 30, 2020. Bonita Risk is a director and an employee of the Company and is the majority holder of George Risk Industries, Inc. stock. This building contains the Company’s sales and accounting departments, maintenance department, engineering department and some production facilities. This lease required a minimum payment of $1,535 on a month-to-month basis. The total lease expense for this arrangement was $ 7,675 during the fiscal year ended April 30, 2020 and $18,420 for the fiscal year ended April 30, 2019.

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 $5,167,000 for the year ended April 30, 2020 and $4,224,000 for the year ended April 30, 2019. The Company also received interest income from FirsTier Bank in the amount of approximately $74,600 for the fiscal year ended April 30, 2020 and approximately $63,400 was received for the fiscal year ended April 30, 2019.

Item 8 Financial Statements

Index to Financial Statements

George Risk Industries, Inc.

George Risk Industries, Inc.

Balance Sheets

As of April 30, 2020 and 2019

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

George Risk Industries, Inc.

Balance Sheets (Continued)

As of April 30, 2020 and 2019

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

George Risk Industries, Inc.

Income Statements

For the years ended April 30, 2020 and 2019

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

George Risk Industries, Inc.

Statements of Comprehensive Income

For the years ended April 30, 2020 and 2019

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

George Risk Industries, Inc.

Statements of Stockholders’ Equity

For the Years Ended April 30, 2020 and 2019

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

George Risk Industries, Inc.

Statements of Stockholders’ Equity

For the Years Ended April 30, 2020 and 2019

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

George Risk Industries, Inc.

Statements of Cash Flows

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

George Risk Industries, Inc.

Notes to Financial Statements

April 30, 2020

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, push button switches, burglar alarm components and systems, pool alarms, EZ Duct wire covers, water sensors and wire and cable installation tools.

Nature of Business — The Company is engaged in the design, manufacture, and marketing of custom computer keyboards, push-button switches, proximity sensors, security alarm components, pool alarms, liquid detection sensors, raceway wire covers, wire and cable installation tools and various other sensors and devices.

Cash and Cash Equivalents — The Company considers all investments with a maturity of three months or less to be cash equivalents. The Company maintains its cash in bank deposit accounts, the balances of which at times may exceed 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.

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

The Company records an allowance for doubtful accounts based on an analysis of specifically identified customer balances. The Company has a limited number of customers with individually substantial amounts due at any given date. Any unanticipated change in any one of these customers’ credit worthiness or other matters affecting the collectability of amounts due from such customers could have a material effect on the results of operations in the period in which such changes or events occur. After all attempts to collect a receivable have failed, the receivable is written off. The Company has recorded an allowance for doubtful accounts of $7,306 for the year ended April 30, 2020 and $9,321 for the year ended April 30, 2019. For the fiscal year ended April 30, 2020, bad debt recovery was $156. For the fiscal year ended April 30, 2019, bad debt expense was $3,807.

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.

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

Depreciation expense of $250,000 and $231,000 was charged to operations for the years ended April 30, 2020 and 2019, 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 – Held for Sale — 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 $120,000 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, 2020, the Company had $1,517,000 of net intangible asset costs, while the net intangible assets costs at April 30, 2019 were $1,640,000. Amortization expense was $123,000 for the years ended April 30, 2020 and 2019, respectively.

As of April 30, 2020, future amortization of intangible assets is expected as follows:

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 $174,000 and $223,000 for the years ended April 30, 2020 and 2019, 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 2016, 2017, and 2018. Interest and penalties accrued on uncertain tax positions are recorded as income tax expense.

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

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”) (See the Adoption of New Pronouncements section). 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.

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.

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, 2020, 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.

Recently Issued Accounting Pronouncements — 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 entities to use a forward looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. The FASB has subsequently issued updates to the standard to provide additional clarification on specific topics. Topic 326 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. As a result, we are required to apply this guidance in our fiscal 2021 interim and annual financial statements commencing May 1, 2020. Currently, we do not expect this guidance to impact our results of operations, financial position, or statement of cash flow.

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. We do not expect this guidance to impact our results of operations, financial position, or statement of cash flow.

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 financial statements.

There are no other new accounting pronouncements that are expected to have a significant impact on our financial statements.

Subsequent Events – Management has evaluated all events or transactions that occurred after April 30, 2020 through August 13, 2020, the report date of the financial statements. During and subsequent to the fourth quarter of the current fiscal year, the world has been impacted by the spread of the coronavirus (COVID-19). 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 manufactures and supplies “essential” products and services to many critical industries, so our production facilities will continue to operate. The health and safety of our employees and their families remains our top priority. Therefore, we have implemented many Center 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, we also continue to hear positive news from our raw material suppliers.

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

The Company has investments in publicly traded equity securities, corporate bonds, state and municipal debt securities, REITs, money markets, and certificates of deposits and they are recorded at fair value. The investments in debt securities, which include municipal bonds, bond funds, and corporate bonds, mature between June 2020 and January 2044. 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, 2020 and 2019, investments consisted of the following:

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. 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 equity securities before the adoption of the new standard, from Accumulated Other Comprehensive Income to Retained Earnings.

The Company evaluates all investments for other-than temporary declines in fair value, which are defined as when the cost basis exceeds the fair value for approximately one year. The Company also evaluates the nature of the investment, cause of impairment and number of investments that are in an unrealized position. When other than a temporary decline is identified, the Company will decrease the cost of the investment to the new fair value and recognize a loss. The investments are periodically evaluated to determine if impairment changes are required. As a result of this standard, management recorded impairment losses of $157,000 for the year ended April 30, 2020 and $68,000 for the year ended April 30, 2019.

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, 2020 the Company had sales of equity securities which yielded gross realized gains of $374,000 and gross realized losses of $608,000. For the same period, sales of debt securities yielded gross realized gains of $4,000 and gross realized losses of $154,000. Conversely, the Company recorded gross realized gains on equity securities of $679,000 and gross realized losses of $380,000 for the fiscal year ending April 30, 2019. As for debt securities, gross realized gains were $20,000 and gross realized losses were $258,000 for the fiscal year ending April 30, 2019. The gross realized loss numbers include the impaired figures listed in the previous paragraph. Additionally, proceeds from sales of securities available for sale were $776,000 for the fiscal year ended April 30, 2020 and were $766,000 for the prior fiscal year.

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, 2020 and 2019.

Unrealized Loss Breakdown by Investment Type at April 30, 2020

Unrealized Loss Breakdown by Investment Type at April 30, 2019

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, 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. Management has evaluated the individual holdings and does not consider these investments to be other-than-temporarily impaired at April 30, 2020.

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 $40,000 and $10,000 were paid in each of the fiscal years ending April 30, 2020 and 2019 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, 2020 and 2019.

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, 2020, the Company purchased 8,683 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:

The Company leased a building from Bonita Risk until the Company purchased the building from her in November 2019 for $200,000. Bonita Risk is a majority stockholder, a director and employee of the Company. This building contains the Company’s sales and accounting departments, maintenance department, engineering department and some production facilities. This lease required a minimum payment of $1,535 on a month-to-month basis. The total lease expense for this arrangement per year was $7,675 and $18,420 for the fiscal years ended April 30, 2020 and 2019, respectively.

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 $5,167,000 for the year ended April 30, 2020 and $4,224,000 for the year ended April 30, 2019. The Company also received interest income from FirsTier Bank in the amount of approximately $74,600 for the year ended April 30, 2020 and $63,400 for the year ended April 30, 2019.

Reconciliation of income taxes with Federal and State taxable income:

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

Deferred tax assets (liabilities) consist of the following components at April 30, 2020 and 2019:

The following is financial information relating to industry segments: