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Item 9A. Controls and Procedures

2021-07-07 compared with 2020-06-29 · 50 added, 17 removed, 83 unchanged (45% of the section changed)

1 unchanged sentence

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s principal executive officer (“CEO”) and principal financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report.

Based on this evaluation, the CEO and principal financial officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective to ensure that information that is required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the CEO and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Internal Control Over Financial Reporting

Management’s report on internal control over financial reporting appears on page 21 of the Company’s Annual Report to Shareholders for the year ended March 31, 2020, which is incorporated herein by reference.

This Annual Report on Form 10-K does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting.

Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to the rules of the SEC that permit the Company to provide only management’s report in this Annual Report.

There were no changes in the Company’s internal control over financial reporting that occurred during the fiscal quarter ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

In accordance with Exchange Act Rules 13a-15 and 15d-15, we have evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2021.

Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.

Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of March 31, 2021.

MANAGEMENT ’ S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15(d)-15(f) promulgated under the Securities Exchange Act of 1934, as amended).

We have established disclosure controls and procedures designed to ensure that material information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission and that any material information relating to us is recorded, processed, summarized and reported to our management including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

In designing and evaluating our disclosure controls and procedures, our management recognizes that controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving desired control objectives.

In reaching a reasonable level of assurance, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Rule 13a-15(b) under the Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report and, during the audit process related to the fiscal year ended March 31, 2021, identified a material weakness in our internal control over financial reporting.

Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of March 31, 2021.

Notwithstanding the identified material weakness, the Company's management, including our Chief Executive Officer and Chief Financial Officer, have determined, based on the procedures we have performed, that the audited consolidated financial statements included in this report fairly present in all material respects our financial condition and results of operations as of and for the years ended March 31, 2021 and 2020 in accordance with U.S.

Generally Accepted Accounting Principles.

Material Weakness in Internal Control Over Financial Reporting

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.

During the audit process related to our fiscal year ended March 31, 2021, management, in connection with our independent auditors, identified a material weakness in our controls related to the review of the annual income tax provision prepared by a third-party firm.

Specifically, we did not maintain effective controls to sufficiently review the completeness and accuracy of the annual tax provision.

Our review was not sufficiently detailed to identify a material misstatement in deferred income taxes.

The Company recorded an audit adjustment of approximately $3.5 million impacting the balance sheet items of deferred tax assets and accumulated other comprehensive loss.

The audit adjustment caused the Company to change from a net deferred income tax liability position to a net deferred income tax asset position.

Additionally, the Company’s review of the annual income tax provision did not include a process to sufficiently evaluate deferred tax assets to determine if a valuation allowance was necessary.

The Company has since performed an analysis to consider if a valuation allowance is necessary in relation to the Company’s deferred tax assets and concluded that no valuation allowance is necessary due to anticipated recoverability through future taxable income.

Plan for Remediation of Material Weakness

Our Company is relatively small.

As disclosed in our Form 10-K, we had 93 full-time employees as of March 31, 2021.

Our accounting and finance team consisted of two degreed accountants as of March 31, 2021.

Leading up to, and during the financial statement audit period, considerable time was expended by our accounting and finance team to finalize the asset-based credit facility described in Note 3 and to select our general contractor and equipment manufacturer related to our planned new facility in Sinton, Texas disclosed in Note 5 and to finalize contracts with such parties.

This resulted in the Company falling behind in the timeline necessary to complete the audit process and regulatory filings in a timely manner.

In an effort to meet regulatory deadlines, the Company did not perform a sufficient review of third-party materials.

The Company concludes that the best remediation of the material weakness is an investment in human capital that will allow it to meet its regulatory requirements and growth objectives.

On May 24, 2021, the Company hired an additional degreed accountant.

The timing of this hire in relation to the audit process made it difficult for the hire to have a beneficial impact on the process related to our fiscal year end March 31, 2021.

However, the Company believes the investment in human capital will provide sufficient remediation in future periods and the Company will continue to evaluate the appropriate level of staffing to ensure the controls over financial reporting are adhered to and the Company can meet its regulatory requirements in a timely manner.

We will continue to monitor the design and effectiveness of these procedures and controls and make any further changes the Company determines appropriate.

We believe the additional investment in human capital described above will remediate the material weakness the Company has identified.

However, this material weakness will not be considered remediated until the applicable remedial actions operate effectively for a sufficient period of time

Attestation Report of the Registered Public Accounting Firm

Pursuant to Regulation S-K Item 308(b), this Annual Report on Form 10-K does not include an attestation report of our Company's independent registered public accounting firm regarding internal control over financial reporting.

Changes in Internal Control over Financial Reporting

Except for the matter discussed above, there were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Other Information

9 unchanged sentences

The disclosure required pursuant to Item 201(d) of Regulation S-K is hereby incorporated herein by reference from the Company’s proxy statement in respect of the 2021 Annual Meeting of Shareholders, definitive copies of which are expected to be filed with the SEC on or before 120 days after the end of the Company’s 2021 fiscal year.

Additional information with respect to Item 12 regarding equity compensation plan information relating to the Company is hereby incorporated herein by reference from Note 2 — Equity Compensation Plans and Capital Stock included in the Notes to Consolidated Financial Statements of the Company included in the Company’s Annual Report to Shareholders for the fiscal year ended March 31, 2020.

Additional information with respect to Item 12 regarding equity compensation plan information relating to the Company is hereby incorporated herein by reference fro m Note 2 — Equity Compensation Plans and Capital Stock included in the Notes to Consolidated Financial Statements of the Company included in the Company’s Annual Report to Shareholders for the fiscal year ended March 31, 2021 .

Security Ownership Information

10 unchanged sentences

Consolidated Statements of Operations — Years ended March 31, 2021 and 2020

Consolidated Statements of Comprehensive Income (Loss) — Years ended March 31, 2021 and 2020

Consolidated Statements of Stockholders’ Equity — Years ended March 31, 2021 and 2020

12 unchanged sentences

First Amendment to the Friedman Industries, Incorporated 2016 Restricted Stock Plan (incorporated by reference from Appendix C to the Company’s Form DEF 14A filed on July 26, 2019).

Credit Agreement dated March 4, 2021 (referenced in the Company's Current Report on Form 8-K filed on March 10, 2021).

Line of Credit Note dated March 4, 2021 (referenced in the Company's Current Report on Form 8-K filed on March 10, 2021).

Security Agreement dated March 4, 2021 (referenced in the Company's Current Report on Form 8-K filed on March 10, 2021).

First Amendment to Credit Agreement dated April 12, 2021.

Note Modification Agreement dated April 12, 2021.

Amended and Restated Credit Agreement dated May 19, 2021 (referenced in the Company's Current Report on Form 8-K filed on May 25, 2021).

Pledge and Security Agreement dated May 19, 2021 (referenced in the Company's Current Report on Form 8-K filed on May 25, 2021).

The Company’s Annual Report to Shareholders for the fiscal year ended March 31, 2021.

19 unchanged sentences

President and Chief Executive Officer

June 29, 2020

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Friedman Industries, Incorporated in the capacities and on the dates indicated.

1 unchanged sentence

President and Chief Executive Officer and

June 29, 2020

Director (Principal Executive Officer)

1 unchanged sentence

Chief Financial Officer — Secretary and

June 29, 2020

Treasurer (Principal Financial Officer

and Principal Accounting Officer)

June 29, 2020

/S/ MAX REICHENTHAL

June 29, 2020

Max Reichenthal

/S/ JOEL SPIRA

June 29, 2020

/S/ TIM STEVENSON

June 29, 2020

Tim Stevenson

June 29, 2020

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

8 unchanged sentences

Cash discounts allowed on sales and charged against revenue of $351,270 and $624,413 during fiscal years 2021 and 2020 , respectively.

Accounts receivable written off of $0 and $7,547 and cash discounts taken on sales of $624,413 and $750,059 during fiscal years 2020 and 2019, respectively.

Accounts receivable written off of $49,583 and $0 during fiscal years 2021 and 2020 , respectively.

Cash discounts taken on sales of $351,270 and $624,413 during fiscal years 2021 and 2020 , respectively.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures