GEORGE RISK INDUSTRIES, INC. - Annual Report: 2022 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended April 30, 2022

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to _________

Commission File Number: 000-05378

George Risk Industries, Inc.

(Exact name of registrant as specified in its charter)

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 ☒

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 ☒

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 ☒    No ☐

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

Yes ☒     No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller 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 ☒

The aggregate market value, as of August 11, 2022, 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 $22,807,000.

The number of outstanding shares of the common stock as of August 12, 2022 was 4,930,988.

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, proximity switches, security alarm components and systems, pool access alarms, EZ Duct wire covers, water sensors, electronic switching devices, high security switches and wire and cable installation tools.

Products, Market, and Distribution

The Company designs, manufactures, and sells computer keyboards, proximity switches, security alarm components and systems, pool access alarms, water sensors, electronic switching devices, high security switches, and wire and cable installation tools. The Security sales division, which concentrates on selling products for security purposes, comprises of approximately 96 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 36.6 percent of the Company’s sales of these products. Anixter, Inc. accounts for another 23.7 percent of the security segment of the 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 and proximity switch segment has approximately 300 customers. These products are primarily 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/proximity and security/burglar alarm lines.

The security/burglar alarm segment has approximately six 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/proximity 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. The Company also does R&D for itself to help in the development of new products.

Employees

GRI has approximately 200 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 approximately 36 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, 2021, a dividend of $.50 per common share was declared for the fiscal year ended April 30, 2022.

For the prior fiscal year, a dividend of $.42 per common share was declared on September 30, 2020.

The number of holders of record of the Company’s Class A Common Stock as of April 30, 2022, was approximately 1,108.

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 227,000 shares available to be repurchased under the current resolution.

Item 6 Selected Financial Data

Not Applicable

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 10.7% of revenues for fiscal year 2022 and 11.9% for 2021.

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 holdings have a material impact on the financial results. For the fiscal year ending April 30, 2022, the percentage of other income (expense) was a loss of 30.11% of income before income taxes. In comparison, the percentage of other income (expense) was a gain of 63.27% of the income before income taxes for the year ending April 30, 2021. 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 the Company mostly sells 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 decreased by $1,248,000 during the year ended April 30, 2022 compared to an increase of $868,000 during the year ended April 30, 2021. Accounts receivable increased by $326,000 during the current year while showing a $850,000 increase in the prior year. The current smaller increase in cash flow from accounts receivable is the result of slower collection of accounts receivable. At April 30, 2022, 75.19% of receivables were less than 60 days and 7.86% were over 90 days. In comparison, 77.93% of the receivables were considered current (less than 60 days) and 3.76% of the total were over 90 days past due for the prior year during the same period.

Inventories increased by $2,430,000 in fiscal year ended April 30, 2022, while the prior year showed an increase of $557,000 at year end. The current year increase is a result of having more raw materials on hand since sales have increased and having the raw material costing more than before. In turn, with material and labor costs rising, the work in process and finished goods inventories have also increased.

Prepaid expenses increased by $903,000 while they increased $67,000 in the current and prior year, respectively. The larger 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 in the current year.

For the year ended April 30, 2022, accounts payable decreased by $157,000 as compared to an increase of $291,000 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 decreased $5,000 for the year ended April 30, 2022, due to having slightly less accrued customer liability refund calculated compared to the prior year.

Income tax payable increased by $196,000 for the year ended April 30, 2022, compared to a $137,000 decrease in income tax overpayment for the year ended April 30, 2021. The current increase is largely due to having increased sales and income before tax and not making enough income tax estimates.

Investing

As for investment activities, $390,000 was spent on purchases of property and equipment during the current fiscal year, compared to $517,000 during the year ended April 30, 2021. These capitalized costs mainly consisted of purchases machinery and equipment and making capital improvements. 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, 2022 was $787,000 versus the $506,000 spent for the corresponding period last year. Conversely, net proceeds from the sale of marketable securities were $452,000 and $21,000 at April 30, 2022 and 2021, respectively. The Company uses “money manager” accounts for most stock transactions. By doing this, the Company gives an independent third-party firm, who are experts in this field, permission to buy and sell stocks at will. The Company pays quarterly service fees based on the value of the investments.

Financing

Cash used in financing activities consists of two items. First, for the year ended April 30, 2022, $2,257,000 was spent on the payment of dividends. The Company declared a dividend of $0.50 per share of common stock on September 30, 2021 for the current fiscal year, while a $0.42 per share of common stock dividend was declared on September 30, 2020 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, 2022, the Company purchased $211,000 of treasury stock and $35,000 was bought back for the year ended April 30, 2021. The Company has been actively searching for stockholders that have been “lost” over the years. The payment of dividends over the last sixteen fiscal years has also prompted many stockholders and/or their relatives and descendants to sell back their stock to the Company.

At April 30, 2022, working capital decreased 0.59% 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 15.549 for the year ended April 30, 2022 compared to 16.856 for the year ended April 30, 2021.

Results of Operations

GRI completed the fiscal year ending April 30, 2022 with a net profit of 17.20% of net sales. Net sales were at $20,735,000, up 12.05% over the previous fiscal year. The increase in sales is a result of continued growth within our product lines and having a major competitor close its door at the end of calendar year 2019. Cost of goods sold was 51.70% of net sales for the year ended April 30, 2022 and 49.59% for the same period last year. Management’s goal is to keep the cost of goods sold percentage of less than 50% and was just slightly over that goal for the current fiscal year. Management strives to be as efficient as possible since wages and material costs continue to increase, due to the increased inflation in our economy. Management offset some of these added expenses by implementing a 10% price increase effective January 1, 2022.

Operating expenses were 21.06% of net sales for the year ended April 30, 2022 as compared to 21.74% 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, 2022 was at $5,648,000, which is a 6.45% increase from the corresponding period last year, which had income from operations of $5,306,000.

Other income and expense results for the fiscal year ended April 30, 2022 produced a loss of $(1,307,000). This is in comparison to a gain of $9,140,000 for the fiscal year ended April 30, 2021. Dividend and interest income was $1,027,000, which is up 35.67% over the prior year. Dividend and interest income at April 30, 2021 was $757,000. 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. As a result, an unrealized loss of $(2,764,000) was recorded for the fiscal year ended April 30, 2022 and an unrealized gain of $7,007,000 was recorded for the prior year ended April 30, 2021. Net gain on the sale of investments for the current fiscal year was $414,000, which is a 14.05% increase over the prior year. Net gain on the sale of investments for the fiscal year ending April 30, 2021 was $363,000.

Net income for the year ended April 30, 2022 was $3,566,000, which is down 67.05% from the prior year, which produced net income of $10,822,000. Basic and diluted earnings per common share (EPS) for the year ended April 30, 2022 was $0.72 per share. Basic and diluted earnings per common share (EPS) for the year ended April 30, 2021 was $2.19 and $2.18 per share, respectively.

Management is hopeful that sales will continue to increase for the fiscal year ending April 30, 2023. 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. Management is also having challenges in getting certain raw materials and the cost of the raw materials continue to increase because of inflation. The Company also struggles to get enough workers to fill production needs. 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 2022, 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.

Explosion proof contacts that will be UL listed for hazardous locations are in development. There has been demand from our customers for this type of high security magnetic reed switch.

An updated version of the pool access alarm (PAA) has met electrical listing testing (ETL) approval and production has started. 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 such as instant alarm and a seven second delay.

Wireless technology is a main area of focus for product development. We are considering 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 monitoring devices which include glass break detection, tilt sensing and environmental monitoring. A redesign of our brass water valve shut-off system is near completion.

The Company is developing magnetic contacts which are listed under UL 634 Level 2. These sensors are for high security applications such as government buildings, military use, nuclear facilities, and financial institutions.

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, 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 loss position. When it is determined that a security will likely 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 — One of the directors of the board, Joel Wiens, is the principal shareholder of FirsTier Bank. FirsTier Bank is the financial institution the Company uses for its day-to-day banking operations. Year end balances of accounts held at this bank are $5,058,000 for the year ended April 30, 2022 and $6,885,000 for the year ended April 30, 2021. The Company also received interest income from FirsTier Bank in the amount of approximately $58,800 for the fiscal year ended April 30, 2022 and approximately $54,800 was received for the fiscal year ended April 30, 2021.

Item 8 Financial Statements

Index to Financial Statements

George Risk Industries, Inc.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of George Risk Industries

Opinion on the Financial Statements

We have audited the accompanying balance sheets of George Risk Industries, Inc. (the Company) as of April 30, 2022, and 2021, and the related statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the two-year period ended April 30, 2022, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of April 30, 2022, and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended April 30, 2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Critical Audit Matter – Revenue Recognition – Refer to Note 1 of the Financial Statements

Critical Audit Matter Description

The Company primarily generates revenue through non-complex sales transactions that require limited judgement. However, there are instances in which revenue contracts contain complexities that are subject to critical judgement around when the performance obligation is satisfied. These specific elements of revenue are variable considerations and returns and allowances.

Consideration in contracts with customers is variable due to anticipated reductions such as discounts, rebates, and allowances. Accordingly, revenues are recorded net of estimated variable consideration and returns and allowances, based on known or expected adjustments.

This matter was considered a critical audit matter as there is a high degree of auditor effort in performing procedures and evaluation audit evidence related to contractual terms in customer arrangements to determine the amounts of consideration.

How the Critical Audit Matter was Addressed in the Audit

Our principal procedures related to the Company’s revenue recognition for these specific elements are the following:

Critical Audit Matter – Valuation of Investments – Refer to Note 1 and Note 3 of the Financial Statements

Critical Audit Matter Description

The Company has investments in publicly traded equity securities, state and municipal debt securities, REITS, and money markets and they are recorded at fair value. Some of these investments are Level 2 investments and can be hard to value. In addition, as the securities held at fair value, management must assess securities that are in a significant unrealized loss position for other than temporary impairment. For these securities, management must make difficult and subjective judgements about the ability of the issuer to be able to meet its obligations under terms of the security. These judgements can have a significant impact on the Company’s reported earnings if they should prove to be significantly inaccurate.

How the Critical Audit Matter was Addressed in the Audit

Our principal procedures related to the Company’s process for debt securities valuations as well as the process for equity securities other than temporary impairment evaluation included.

 Haynie & Company

George Risk Industries, Inc.

Balance Sheets
As of April 30, 2022 and 2021

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

George Risk Industries, Inc.
Balance Sheets (Continued)
As of April 30, 2022 and 2021

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

George Risk Industries, Inc.
Income Statements
For the years ended April 30, 2022 and 2021

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, 2022 and 2021

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, 2022 and 2021

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, 2022 and 2021

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, 2022

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

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

Cash and Cash Equivalents — The Company considers all investments with a maturity of three months or less to be cash equivalents. The Company maintains its cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. The Company continually monitors its banking relationships and consequently has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.

Accounts Receivable and Allowance for Estimated Credit Losses — Accounts receivable are customer obligations due under normal trade terms. The Company sells its products to security alarm distributors, alarm installers, and original equipment manufacturers. The Company extends credit to its customers based on their credit worthiness, and performs continuing credit evaluations of its customers’ financial condition. If the Company believes the extension of credit is not advisable, other payment methods such as prepayments  are required. Balances deemed uncollectible by the Company are written off against our allowance for credit loss accounts.

The Company maintains an allowance for estimated credit losses related to accounts receivable for future expected credit losses resulting from the inability or unwillingness of our customers to make required payments. We estimate our allowance for credit losses based on relevant information such as historical experience, current conditions, and future expectation of specifically identified customer balances. This allowance is adjusted as appropriate to reflect current conditions. The Company has recorded an allowance for estimated credit losses of $33,531 for the year ended April 30, 2022 and $9,947 for the year ended April 30, 2021. The provision for credit losses on accounts receivable was $24,199 for the fiscal year ended April 30, 2022, and $1,828 for the fiscal year ended April 30, 2021.

Concentrations of Credit Risk — The Company has a limited number of customers with individually substantial amounts due at any given date. Any unanticipated change in any one of these customers’ credit worthiness or other matters affecting the collectability of amounts due from such customers could have a material effect on the results of operations in the period in which such changes or events occur.

Inventories — Inventories are stated at the lower of cost or net realized value. Cost is determined using the average cost-pricing method. The Company uses actual costs to price its manufactured inventories, approximating average costs.

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

Schedule of Property and Equipment 

Depreciation expense of $312,000 and $278,000 was charged to operations for the years ended April 30, 2022 and 2021, respectively.

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

Investment in Limited Land Partnership — In November 2002, the Company purchased 6.67% of a prime 22-acre land parcel for development in Winter Park-Grand County, CO for investment purposes for a total of $200,000. The goal was to hold the property for resale(s) in 2-5 years, but many efforts to sell the property have not materialized. Over the years, there have been a total of $144,000 of additional contributions to aid in improvements and recurring expenses such as debt service, utilities, taxes, maintenance, insurance and professional fees. Management has evaluated this investment and does not believe there is any impairment and that the full cost will be recovered when sold.

Intangible Assets — Intangible assets are amortized on a straight-line basis over their estimated useful lives, unless it is determined their lives to be indefinite. The two intangible assets currently being amortized are (1) a non-compete agreement with a useful live of 5 years and (2) intellectual property with a useful live of 15 years. As of April 30, 2022, the Company had $1,271,000 of net intangible asset costs, while the net intangible assets costs at April 30, 2021 were $1,394,000. Amortization expense was $123,000 for the years ended April 30, 2022 and 2021, respectively.

As of April 30, 2022, future amortization of intangible assets is expected as follows:

Schedule of Future Amortization of Intangible Assets

Basic and Diluted Earnings per Share — The Company computes earnings per share in accordance with ASC 260-10-45 Earnings per Share, which requires presentation of both basic and diluted earnings per share on the face of the statement of income. Basic earnings per share is computed by dividing net earnings available to common stockholders by the weighted average number of outstanding common shares during the period. Diluted earnings per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive earnings per share excludes all potential common shares if their effect is anti-dilutive.

Advertising — Advertising costs are expensed as incurred and are included in selling expenses. Advertising expense amounted to $162,000 and $67,000 for the years ended April 30, 2022 and 2021, respectively.

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

Accounting standards prescribe a recognition threshold and a measurement attribute for the financial statement recognition and measurement of the positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. A “more likely than not” tax position is measured as the largest amount of benefit that is greater than a fifty percent likelihood of being realized upon ultimate settlement, or else a full reserve is established against the tax asset or a liability is recorded. Tax years open for examination by taxing authorities are 2018, 2019, and 2020. Interest and penalties accrued on uncertain tax positions are recorded as income tax expense.

It has been determined that the Company does not have uncertain tax positions on its tax returns for the years 2021, 2020, and prior. Based on evaluation of the 2022 transactions and events, the Company does not have any material uncertain tax positions that require measurement.

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

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

Investments — The accounting policies for the Company’s principal investments are as follows: Debt Securities and Equity Securities: Effective May 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2016-01 “Financial Instruments-Overall (ASC Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). As a result, the Company measures its equity securities at fair value and recognizes any changes in fair value in net income. Prior to adoption, equity securities were designated as available-for-sale and reported at fair value with unrealized capital gains (losses) recorded in Accumulated other comprehensive income (loss) (“AOCI”). The Company’s debt securities are currently designated as available-for-sale. Available-for-sale securities are reported at fair value and unrealized capital gains (losses) on these securities are recorded directly in AOCI and presented net of related changes in deferred income taxes. Purchases and sales of debt securities and equity securities are recorded on the trade date. Investment gains and losses on sales of securities are generally determined on a first-in-first-out (“FIFO”) basis.

The Company evaluates all marketable securities for other-than temporary declines in fair value, which are defined as when the cost basis exceeds the fair value for approximately one year. The Company also evaluates the nature of the investment, cause of impairment and number of investments that are in an unrealized position. When an “other-than-temporary” decline is identified, the Company will decrease the cost of the marketable security to the new fair value and recognize a real loss. The investments are periodically evaluated to determine if impairment changes are required. 

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

Variable Consideration — The Company measures revenue as the amount of consideration for which it expects to be entitled in exchange for transferring goods. Certain customers may receive cash and/or non-cash incentives such as cash rebates, customer discounts (such as volume or trade discounts), which are accounted for as variable consideration. In some cases, the Company must apply judgment, including contractual rates and historical payment trends, when estimating variable consideration.

Product Returns — In the normal course of business, the Company may allow customers to return product per the provisions in a sale agreement. Estimated product returns are recorded as a reduction in reported revenues with offsetting entries recorded in the balance sheet quarterly based upon historical product return experience, adjusted for known trends, to arrive at the amount of consideration expected to receive.

Product Warranties — In the normal course of business, the Company offers warranties for a variety of its products. The specific terms and conditions of the warranties vary depending upon the specific product and markets in which the products were sold. The Company accrues for the estimated cost of product warranty at the time of sale based on historical experience.

Shipping and Handling Costs — The Company considers all shipping and handling to be fulfillment activities and not a separate performance obligation. Shipping and handling costs are recorded as cost of sales.

Research and Development Costs — Generally, costs related to the research, design, and development of products are charged to engineering expense as incurred. Certain research and development costs are recognized under assets in the balance sheet.

Comprehensive Income — US GAAP requires disclosure of total non-stockholder changes in equity in interim periods and additional disclosures of the components of non-stockholder changes in equity on an annual basis. Total non-stockholder changes in equity include all changes in equity during a period except those resulting from fiscal investments by and distributions to stockholders.

Segment Reporting and Related Information — The Company designates the internal organization that is used by management for allocating resources and assessing performance as the source of the Company’s reportable segments. US GAAP also requires disclosures about products and services, geographic area and major customers. At April 30, 2022, the Company operated in three segments organized by security line products, cable and wiring tools (Labor Saving Devices - LSDI) products, and all other products. See Note 9 for further segment information disclosures.

Recently Issued Accounting Pronouncements — In January 2020, the FASB issued ASU 2020-01, “Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions. ASU 2016-01 made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. ASU 2020-01 deals with changes in the significant influence of derivative and investments, of which the Company has none and became effective for the Company in the first quarter of 2021. The adoption of this standard did not have any impact on the Company’s condensed financial statements.

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

Recently Adopted Accounting Standards — In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326),” Effective May 1, 2021, we adopted ASU 2016-13, which requires financial assets measured at amortized cost, such as our trade receivables, to be presented net of expected credit losses, which may be estimated based on relevant information such as historical experience, current conditions, and future expectations for each pool of similar financial assets. We adopted ASU 2016-13 using the modified retrospective method, whereby the guidance was applied prospectively as of the date of adoption and prior periods are not restated. The cumulative effect of adoption was not material.

Subsequent Events – Management has evaluated all events or transactions that occurred after April 30, 2022 through July 29, 2022, the report date of the financial statements. During this period, the Company did not have any material recognizable subsequent events.

Inventories at April 30, 2022 and 2021, consisted of the following:

Schedule of Inventories

The Company has investments in publicly traded equity securities, state and municipal debt securities, REITs, and money markets and they are recorded at fair value. The investments in debt securities, which include municipal bonds and bond funds, mature between August 2022 and September 2042. The Company uses the average cost method to determine the cost of equity securities sold with any unrealized gains or losses reported in the respective period’s earnings. Dividend and interest income are reported as earned.

As of April 30, 2022 and 2021, investments consisted of the following:

Schedule of Investments  

Marketable securities that are classified as equity securities are carried at fair value on the balance sheets with changes in fair value recorded as an unrealized gain or (loss) in the statements of income in the period of the change. Upon the disposition of a marketable security, the Company records a realized gain or (loss) on the Company’s statements of income.

The Company evaluates all investments for other-than temporary declines in fair value, which are defined as when the cost basis exceeds the fair value for approximately one year. The Company also evaluates the nature of the investment, cause of impairment and number of investments that are in an unrealized position. When other than a temporary decline is identified, the Company will decrease the cost of the investment to the new fair value and recognize a loss. The investments are periodically evaluated to determine if impairment changes are required. As a result of this standard, management did not have to record any impairment losses for the year ended April 30, 2022, but management did record an impairment loss of $79,000 for the year ended April 30, 2021.

The Company’s investments are actively traded in the stock and bond markets. Therefore, there is either a realized gain or loss that is recorded when a sale happens. For the fiscal year ended April 30, 2022 the Company had sales of equity securities which yielded gross realized gains of $661,000 and gross realized losses of $221,000. For the same period, there were not any sales of debt securities for gross realized gains, but sales of debt securities yielded gross realized losses of $26,000. Conversely, the Company recorded gross realized gains on equity securities of $666,000 and gross realized losses of $290,000 for the fiscal year ending April 30, 2021. As for debt securities, there were not any sales of debt securities for gross realized gains, but sales of debt securities yielded gross realized losses of $13,000 for the fiscal year ending April 30, 2021. The gross realized loss numbers include the impaired figures listed in the previous paragraph. Additionally, proceeds from sales of securities available for sale were $452,000 for the fiscal year ended April 30, 2022 and were $21,000 for the prior fiscal year.

The following table shows the investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at April 30, 2022 and 2021.

Unrealized Loss Breakdown by Investment Type at April 30, 2022

Schedule of Unrealized Loss Breakdown by Investment 

Unrealized Loss Breakdown by Investment Type at April 30, 2021

Municipal Bonds

The unrealized losses on the Company’s investments in municipal bonds were caused by interest rate increases. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. Because the Company has the ability to hold these investments until a recovery of fair value occurs, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at April 30, 2022 and 2021.

Marketable Equity Securities and REITs

The Company’s investments in marketable equity securities and REITs consist of a wide variety of companies. Investments in these companies include growth, growth income, and foreign investment objectives. Management has evaluated the individual holdings and does not consider these investments to be other-than-temporarily impaired at April 30, 2022 and 2021.

On January 1, 1998, the Company adopted the George Risk Industries, Inc. Retirement Savings Plan (the “Plan”). The Plan is a defined contribution savings plan designed to provide retirement income to eligible employees of the Company. The Plan is intended to be qualified under Section 401(k) of the Internal Revenue Code of 1986, as amended. It is funded by voluntary pre-tax and Roth (taxable) contributions from eligible employees who may contribute a percentage of their eligible compensation, limited and subject to statutory limits. Employees are eligible to participate in the Plan when they have attained the age of 21 and completed one thousand hours of service in any plan year with the Company. Upon leaving the Company, each participant is 100% vested with respect to the participants’ contributions while the Company’s matching contributions are vested over a six-year period in accordance with the Plan document. Contributions are invested, as directed by the participant, in investment funds available under the Plan. Matching contributions of approximately $63,000 and $61,000 were paid in each of the fiscal years ending April 30, 2022 and 2021, respectively.

Preferred Stock—Each share of the Series #1 preferred stock is convertible at the option of the holder into five shares of Class A common stock and is also redeemable at the option of the board of directors at $20 per share. The holders of the convertible preferred stock shall be entitled to a dividend at a rate up to $1 per share annually, payable quarterly as declared by the board of directors. No dividends were declared or paid during the two years ended April 30, 2022 and 2021.

Convertible preferred stock without par value may be issued from time to time as determined by the board of directors. Shares of different series shall be of equal rank but may vary as to terms and conditions.

Class A Common Stock—The holders of the Class A common stock are entitled to receive dividends as declared by the board of directors. No dividends may be paid on the Class A common stock until the holders of the Series #1 preferred stock have been paid. A dividend for the four prior quarters and provision has been made for the full dividend in the current fiscal year.

During the fiscal year ended April 30, 2022, the Company purchased 15,281 shares of Class A common stock. This was initiated by stockholders contacting the Company.

Stock Transfer Agent—The Company does not have an independent stock transfer agent. The Company maintains all stock records.

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

Schedule of Basic and Diluted Earnings Per Share 

One of the directors of the board, Joel Wiens, is the principal shareholder of FirsTier Bank. FirsTier Bank is the financial institution the Company uses for its day to day banking operations. Year end balances of accounts held at this bank are $5,058,000 for the year ended April 30, 2022 and $6,885,000 for the year ended April 30, 2021. The Company also received interest income from FirsTier Bank in the amount of approximately $58,800 for the year ended April 30, 2022 and $54,800 for the year ended April 30, 2021.

From time to time, the Company may be involved in litigation in the ordinary course of business. The Company is not currently involved in any litigation that we believe could have a material adverse effect on its financial condition or results of operations.

The world has been impacted by the spread of the coronavirus (COVID-19) since early 2020. It has created significant economic uncertainty and volatility. The extent to which the coronavirus pandemic impacts our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; the impact of the pandemic on economic activity and actions taken in response; the effect on our clients and client demand for our services and solutions; our ability to sell and provide our services and solutions, including as a result of travel restrictions and people working from home; the ability of our clients to pay for our services and solutions; and any closures of our and our clients’ offices and facilities. Any of these events could materially adversely affect our business, financial condition, results of operations and/or stock price.

The Company has been able to continue to operate through the pandemic. The health and safety of our employees and their families remains our top priority. Therefore, we have implemented many Centers of Disease Control protocols to keep our employees safe while the Company continues to produce products and provide service to our customers. While we are operating in a rapidly changing environment, the Company has experienced delays in receiving raw material supplies in a timely manner.

The Company utilizes the liability method of accounting for income taxes. The liability method measures the expected income tax impact of future income and deductions implicit in the Balance Sheets. The income tax provision for the fiscal year ended April 30, 2022 and 2021 consisted of the following:

Schedule of Income Tax Provision