GEORGE RISK INDUSTRIES, INC. 10-K

Item 8 Financial Statements Index to Financial Statements George Risk Industries, Inc. Page Report of Independent Registered Public Accounting Firm (PCAOB: 457 ) F-2 Balance Sheets—April 30, 2022 and 2021 F-4 Statements of Income For the Years Ended April 30, 2022 and 2021 F-6 Statements of Comprehensive Income For the Years Ended April 30, 2022 and 2021 F-7 Statements of Changes in Stockholders’ Equity For the Years Ended April 30, 2022 and 2021 F-8 Statements of Cash Flows For the Years Ended April 30, 2022 and 2021 F-10 Notes to Financial Statements F-11 F- 1 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. F- 2 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: ● We evaluated management’s significant accounting policies related to various elements of revenue recognition. ● We performed analytical procedures to test the reasonableness of recorded balances. ● For a sample of transactions, we inspected source documents, including customer contracts or purchase orders, third-party shipping information, invoices, and relevant communication. ● Evaluated contractual terms in customer arrangements that impact management determination of the variable consideration related to the products and related recognition of revenue on a sample basis. 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. ● We evaluated management’s significant accounting policies related to the identification of other than temporary impairment. ● Valuation specialists, with specialized skills and knowledge, were involved in the assessment of the fair values for a sample of Level 2 investments. ● We performed testing over a sample of securities to determine if conclusions reached by management regarding other than temporary impairment were appropriate. Haynie & Company We have served as the Company’s auditor since 1992. Salt Lake City, UT August 12, 2022 F- 3 George Risk Industries, Inc. Balance Sheets As of April 30, 2022 and 2021 2022 2021 ASSETS Current Assets: Cash and cash equivalents $ 6,078,000 $ 7,326,000 Investments and securities 30,979,000 33,337,000 Accounts receivable: Trade, net of allowance for credit losses of $ 33,531 and $ 9,947 for 2022 and 2021, respectively 4,114,000 3,812,000 Other 16,000 16,000 Inventories, net 7,940,000 5,622,000 Prepaid expenses 1,362,000 405,000 Total Current Assets 50,489,000 50,518,000 Property and Equipment, at cost, net 1,782,000 1,704,000 Other Assets Investment in Limited Land Partnership, at cost 344,000 320,000 Projects in process 83,000 200,000 Other 62,000 — Total Other Assets 489,000 520,000 Intangible Assets, net 1,271,000 1,394,000 TOTAL ASSETS $ 54,031,000 $ 54,136,000 The accompanying notes are an integral part of these financial statements. F- 4 George Risk Industries, Inc. Balance Sheets (Continued) As of April 30, 2022 and 2021 2022 2021 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Accounts payable, trade $ 320,000 $ 477,000 Dividends payable 2,296,000 2,080,000 Accrued expenses: Payroll and related expenses 354,000 359,000 Income tax payable 277,000 81,000 Total Current Liabilities 3,247,000 2,997,000 Long-Term Liabilities Deferred income taxes 1,742,000 2,735,000 Total Long-Term Liabilities 1,742,000 2,735,000 Total Liabilities 4,989,000 5,732,000 Commitments and Contingencies — — Stockholders’ Equity Convertible preferred stock, 1,000,000 shares authorized, Series 1—noncumulative, $ 20 stated value, 25,000 shares authorized, 4,100 issued and outstanding 99,000 99,000 Common stock, Class A, $ .10 par value, 10,000,000 shares authorized, 8,502,881 shares issued and outstanding 850,000 850,000 Additional paid-in capital 1,934,000 1,934,000 Accumulated other comprehensive income (loss) ( 137,000 ) 108,000 Retained earnings 50,843,000 49,749,000 Less: treasury stock, 3,571,693 and 3,556,412 shares, at cost ( 4,547,000 ) ( 4,336,000 ) Total Stockholders’ Equity 49,042,000 48,404,000 TOTAL LIABILITES AND STOCKHOLDERS’ EQUITY $ 54,031,000 $ 54,136,000 The accompanying notes are an integral part of these financial statements. F- 5 George Risk Industries, Inc. Income Statements For the years ended April 30, 2022 and 2021 Year ended Year ended April 30, 2022 April 30, 2021 Net Sales $ 20,735,000 $ 18,505,000 Less: Cost of Goods Sold ( 10,720,000 ) ( 9,176,000 ) Gross Profit 10,015,000 9,329,000 Operating Expenses: General and Administrative 1,426,000 1,443,000 Selling 2,857,000 2,479,000 Engineering 84,000 101,000 Total Operating Expenses 4,367,000 4,023,000 Income From Operations 5,648,000 5,306,000 Other Income (Expense) Other Income 16,000 1,009,000 Dividend and Interest Income 1,027,000 757,000 Unrealized Gain (Loss) on Equity Securities ( 2,764,000 ) 7,007,000 Gain on Sale of Investment 414,000 363,000 Gain on Sale of Assets — 4,000 Total Other Income (Expense) ( 1,307,000 ) 9,140,000 Income Before Provisions for Income Taxes 4,341,000 14,446,000 Provisions for Income Taxes Current Expense 1,669,000 1,636,000 Deferred tax (benefit) expense ( 894,000 ) 1,988,000 Total Income Tax Expense 775,000 3,624,000 Net Income $ 3,566,000 $ 10,822,000 Earnings Per Share of Common Stock Basic $ 0.72 $ 2.19 Diluted $ 0.72 $ 2.18 Weighted Average Number of Common Shares Outstanding (Basic) 4,941,825 4,948,710 Weighted Average Number of Common Shares Outstanding (Diluted) 4,962,325 4,969,210 The accompanying notes are an integral part of these financial statements. F- 6 George Risk Industries, Inc. Statements of Comprehensive Income For the years ended April 30, 2022 and 2021 Year ended Year ended April 30, 2022 April 30, 2021 Net Income $ 3,566,000 $ 10,822,000 Other Comprehensive Income (Loss), Net of Tax Unrealized gain (loss) on debt securities: Unrealized holding gains (losses) arising during period ( 344,000 ) 160,000 Income tax (expense) benefit related to other comprehensive income 99,000 ( 48,000 ) Other Comprehensive Income (Loss) ( 245,000 ) 112,000 Comprehensive Income $ 3,321,000 $ 10,934,000 The accompanying notes are an integral part of these financial statements. F- 7 George Risk Industries, Inc. Statements of Stockholders’ Equity For the Years Ended April 30, 2022 and 2021 Preferred Stock Common Stock Class A Shares Amount Shares Amount Balances, April 30, 2020 4,100 $ 99,000 8,502,881 $ 850,000 Purchases of common stock — — — — Dividend declared at $ 0.42 per common share outstanding — — — — Unrealized gain (loss), net of tax effect — — — — Net Income — — — — Balances, April 30, 2021 4,100 99,000 8,502,881 850,000 Purchases of common stock — — — — Dividend declared at $ 0.50 per common share outstanding — — — — Unrealized gain (loss), net of tax effect — — — — Net Income — — — — Balance, April 30, 2022 4,100 $ 99,000 8,502,881 $ 850,000 The accompanying notes are an integral part of these financial statements. F- 8 George Risk Industries, Inc. Statements of Stockholders’ Equity For the Years Ended April 30, 2022 and 2021 Capital Shares Amount Income (Loss) Earnings Total Paid-In Treasury Stock (Common Class A) Accumulated Other Comprehensive Retained Capital Shares Amount Income (Loss) Earnings Total Balances, April 30, 2020 $ 1,934,000 3,552,954 $ ( 4,301,000 ) $ ( 4,000 ) $ 41,006,000 $ 39,584,000 Purchases of common stock — 3,458 ( 35,000 ) — — ( 35,000 ) Dividend declared at $0.50 per common share outstanding — — — — ( 2,079,000 ) ( 2,079,000 ) Unrealized gain (loss), net of tax effect — — — 112,000 — 112,000 Net Income — — — — 10,822,000 10,822,000 Balance 1,934,000 3,556,412 ( 4,336,000 ) 108,000 49,749,000 48,404,000 Purchases of common stock — 15,281 ( 211,000 ) — — ( 211,000 ) Dividend declared — — — — ( 2,472,000 ) ( 2,472,000 ) Unrealized gain (loss), net of tax effect — — — ( 245,000 ) — ( 245,000 ) Net Income — — — — 3,566,000 3,566,000 Balance $ 1,934,000 3,571,693 $ ( 4,547,000 ) $ ( 137,000 ) $ 50,843,000 $ 49,042,000 The accompanying notes are an integral part of these financial statements. F- 9 George Risk Industries, Inc. Statements of Cash Flows Year ended Year ended April 30, 2022 April 30, 2021 Cash Flows From Operating Activities: Net Income $ 3,566,000 $ 10,822,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 435,000 401,000 Realized (gain) on sale of investments ( 414,000 ) ( 442,000 ) Impairment on investments — 79,000 Unrealized (gain) loss on equity securities 2,764,000 ( 7,007,000 ) PPP loan forgiven — ( 950,000 ) Provision for credit losses on accounts receivable 24,000 3,000 Reserve for obsolete inventory 113,000 37,000 (Gain) on sale of assets — ( 4,000 ) Deferred income taxes ( 894,000 ) 1,988,000 Changes in assets and liabilities: (Increase) decrease in: Accounts receivable ( 326,000 ) ( 850,000 ) Inventories ( 2,430,000 ) ( 557,000 ) Prepaid expenses ( 903,000 ) ( 67,000 ) Other receivables — 2,000 Increase (decrease) in: Accounts payable ( 157,000 ) 291,000 Accrued expenses ( 5,000 ) ( 91,000 ) Income tax payable 196,000 137,000 Net cash from operating activities 1,969,000 3,792,000 Cash Flows From Investing Activities: Proceeds from sale of assets — 4,000 (Purchase) of property and equipment ( 390,000 ) ( 517,000 ) Proceeds from sale of marketable securities 452,000 21,000 (Purchase) of marketable securities ( 787,000 ) ( 506,000 ) (Purchase) of long-term investment ( 24,000 ) — Net cash from investing activities ( 749,000 ) ( 998,000 ) Cash Flows From Financing Activities: (Purchase) of treasury stock ( 211,000 ) ( 35,000 ) Dividends paid ( 2,257,000 ) ( 1,891,000 ) Net cash from financing activities ( 2,468,000 ) ( 1,926,000 ) Net Change in Cash and Cash Equivalents ( 1,248,000 ) 868,000 Cash and Cash Equivalents, beginning of year 7,326,000 6,458,000 Cash and Cash Equivalents, end of year $ 6,078,000 $ 7,326,000 Supplemental Disclosure for Cash Flow Information: Cash payments for: Income taxes paid $ 1,575,000 $ 1,540,000 Interest expense — — Cash receipts for: Income taxes $ 114,000 $ 52,000 The accompanying notes are an integral part of these financial statements. F- 10 George Risk Industries, Inc. Notes to Financial Statements April 30, 2022 1. Nature of Business and Summary of Significant Accounting Policies George Risk Industries, Inc. (GRI or the Company) was incorporated in 1967 in Colorado. The Company is presently engaged in the design, manufacture, and sale of custom computer keyboards, proximity switches, security alarm components and systems, pool access alarms, EZ Duct wire covers, water sensors, electronic switching devices, high security switches, and wire and cable installation tools. Nature of Business — The Company is engaged in the design, manufacture, and marketing of custom computer keyboards, proximity sensors, security alarm components, pool access alarms, liquid detection sensors, raceway wire covers, wire and cable installation tools and various other sensors and devices. Cash and Cash Equivalents — The Company considers all investments with a maturity of three months or less to be cash equivalents. The Company maintains its cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. The Company continually monitors its banking relationships and consequently has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents. Accounts Receivable and Allowance for Estimated Credit Losses — Accounts receivable are customer obligations due under normal trade terms. The Company sells its products to security alarm distributors, alarm installers, and original equipment manufacturers. The Company extends credit to its customers based on their credit worthiness, and performs continuing credit evaluations of its customers’ financial condition. If the Company believes the extension of credit is not advisable, other payment methods such as prepayments are required. Balances deemed uncollectible by the Company are written off against our allowance for credit loss accounts. The Company maintains an allowance for estimated credit losses related to accounts receivable for future expected credit losses resulting from the inability or unwillingness of our customers to make required payments. We estimate our allowance for credit losses based on relevant information such as historical experience, current conditions, and future expectation of specifically identified customer balances. This allowance is adjusted as appropriate to reflect current conditions. The Company has recorded an allowance for estimated credit losses of $ 33,531 for the year ended April 30, 2022 and $ 9,947 for the year ended April 30, 2021. The provision for credit losses on accounts receivable was $ 24,199 for the fiscal year ended April 30, 2022, and $ 1,828 for the fiscal year ended April 30, 2021. Concentrations of Credit Risk — The Company has a limited number of customers with individually substantial amounts due at any given date. Any unanticipated change in any one of these customers’ credit worthiness or other matters affecting the collectability of amounts due from such customers could have a material effect on the results of operations in the period in which such changes or events occur. Inventories — Inventories are stated at the lower of cost or net realized value. Cost is determined using the average cost-pricing method. The Company uses actual costs to price its manufactured inventories, approximating average costs. F- 11 1. Nature of Business and Summary of Significant Accounting Policies, continued Property and Equipment — Property and equipment are recorded at cost. Depreciation is calculated based on the following estimated useful lives using the straight-line method: Schedule of Property and Equipment Classification Useful Life in Years 2022 Cost 2021 Cost Dies, jigs, and molds 3 – 7 $ 1,855,000 $ 1,844,000 Machinery and equipment 5 – 10 2,224,000 2,064,000 Furniture and fixtures 5 – 10 222,000 196,000 Improvements 5 – 32 541,000 361,000 Buildings 20 – 39 1,151,000 1,151,000 Automotive 3 – 5 110,000 110,000 Software 2 – 5 425,000 425,000 Land N/A 80,000 80,000 Total 6,608,000 6,231,000 Property and equipment, gross 6,608,000 6,231,000 Accumulated depreciation ( 4,826,000 ) ( 4,527,000 ) Property and equipment, net $ 1,782,000 $ 1,704,000 Depreciation expense of $ 312,000 and $ 278,000 was charged to operations for the years ended April 30, 2022 and 2021, respectively. Maintenance and repairs are charged to expense as incurred, and expenditures for major improvements are capitalized. When assets are retired or otherwise disposed of, the property accounts are relieved of costs and accumulated depreciation and any resulting gain or loss is credited or charged to operations. Investment in Limited Land Partnership — In November 2002, the Company purchased 6.67% of a prime 22-acre land parcel for development in Winter Park-Grand County, CO for investment purposes for a total of $ 200,000 . The goal was to hold the property for resale(s) in 2 - 5 years, but many efforts to sell the property have not materialized. Over the years, there have been a total of $ 144,000 of additional contributions to aid in improvements and recurring expenses such as debt service, utilities, taxes, maintenance, insurance and professional fees. Management has evaluated this investment and does not believe there is any impairment and that the full cost will be recovered when sold. Intangible Assets — Intangible assets are amortized on a straight-line basis over their estimated useful lives, unless it is determined their lives to be indefinite. The two intangible assets currently being amortized are (1) a non-compete agreement with a useful live of 5 years and (2) intellectual property with a useful live of 15 years. As of April 30, 2022, the Company had $ 1,271,000 of net intangible asset costs, while the net intangible assets costs at April 30, 2021 were $ 1,394,000 . Amortization expense was $ 123,000 for the years ended April 30, 2022 and 2021, respectively. F- 12 1. Nature of Business and Summary of Significant Accounting Policies, continued As of April 30, 2022, future amortization of intangible assets is expected as follows: Schedule of Future Amortization of Intangible Assets Fiscal year end Amortization amount 2023 $ 122,000 2024 $ 121,000 2025 $ 121,000 2026 $ 121,000 2027 $ 121,000 Thereafter $ 665,000 Total $ 1,271,000 Basic and Diluted Earnings per Share — The Company computes earnings per share in accordance with ASC 260-10-45 Earnings per Share, which requires presentation of both basic and diluted earnings per share on the face of the statement of income. Basic earnings per share is computed by dividing net earnings available to common stockholders by the weighted average number of outstanding common shares during the period. Diluted earnings per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive earnings per share excludes all potential common shares if their effect is anti-dilutive. Advertising — Advertising costs are expensed as incurred and are included in selling expenses. Advertising expense amounted to $ 162,000 and $ 67,000 for the years ended April 30, 2022 and 2021, respectively. Income Taxes — Deferred tax assets and liabilities are recorded for the future consequences of events that have been recognized in the Company’s financial statements or tax returns. Measurement of the deferred tax items is based on enacted tax laws. In the event the future consequences of differences between financial reporting bases and tax bases of the Company’s assets or liabilities result in a deferred tax asset, we evaluate the probability of realizing the future benefits comprising that asset and record a valuation allowance if considered necessary. Accounting standards prescribe a recognition threshold and a measurement attribute for the financial statement recognition and measurement of the positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. A “more likely than not” tax position is measured as the largest amount of benefit that is greater than a fifty percent likelihood of being realized upon ultimate settlement, or else a full reserve is established against the tax asset or a liability is recorded. Tax years open for examination by taxing authorities are 2018, 2019, and 2020. Interest and penalties accrued on uncertain tax positions are recorded as income tax expense. It has been determined that the Company does not have uncertain tax positions on its tax returns for the years 2021, 2020, and prior. Based on evaluation of the 2022 transactions and events, the Company does not have any material uncertain tax positions that require measurement. F- 13 1. Nature of Business and Summary of Significant Accounting Policies, continued Accounting Estimates — The preparation of these financial statements requires the use of estimates and assumptions including the carrying value of assets. The estimates and assumptions result in approximate rather than exact amounts. Fair Value of Financial Instruments — Certain financial instruments are required to be recorded at fair value. Changes in assumptions or estimation methods could affect the fair value estimates; however, we do not believe any such changes would have a material impact on our financial condition, results of operations or cash flows. Other financial instruments, including cash equivalents, certain investments and short-term debt, are recorded at cost, which approximates fair value. The fair values of long-term debt and financial instruments are disclosed in Note 11. Investments — The accounting policies for the Company’s principal investments are as follows: Debt Securities and Equity Securities: Effective May 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2016-01 “Financial Instruments-Overall (ASC Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). As a result, the Company measures its equity securities at fair value and recognizes any changes in fair value in net income. Prior to adoption, equity securities were designated as available-for-sale and reported at fair value with unrealized capital gains (losses) recorded in Accumulated other comprehensive income (loss) (“AOCI”). The Company’s debt securities are currently designated as available-for-sale. Available-for-sale securities are reported at fair value and unrealized capital gains (losses) on these securities are recorded directly in AOCI and presented net of related changes in deferred income taxes. Purchases and sales of debt securities and equity securities are recorded on the trade date. Investment gains and losses on sales of securities are generally determined on a first-in-first-out (“FIFO”) basis. The Company evaluates all marketable securities for other-than temporary declines in fair value, which are defined as when the cost basis exceeds the fair value for approximately one year. The Company also evaluates the nature of the investment, cause of impairment and number of investments that are in an unrealized position. When an “other-than-temporary” decline is identified, the Company will decrease the cost of the marketable security to the new fair value and recognize a real loss. The investments are periodically evaluated to determine if impairment changes are required. Revenue Recognition — Effective May 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers.” The Company recognizes product revenue using a five-step approach to determine the amount and timing of revenue to be recognized. The five-step approach requires (1) identifying the contract with the customer, (2) identifying the performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations in the contract and (5) recognizing revenue when performance obligations are satisfied. The Company recognizes revenue for product sales upon transfer of title to the customer. Customer purchase orders and/or contracts are generally used to determine the existence of an arrangement. Shipping documents and the completion of any customer acceptance requirements, when applicable, are used to verify product delivery or that services have been rendered. The Company assesses whether a price is fixed or determinable based upon the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. Payments received from customers in advance of product shipment or revenue recognition are treated as deferred revenues and recognized when the product is shipped. F- 14 1. Nature of Business and Summary of Significant Accounting Policies, continued Variable Consideration — The Company measures revenue as the amount of consideration for which it expects to be entitled in exchange for transferring goods. Certain customers may receive cash and/or non-cash incentives such as cash rebates, customer discounts (such as volume or trade discounts), which are accounted for as variable consideration. In some cases, the Company must apply judgment, including contractual rates and historical payment trends, when estimating variable consideration. Product Returns — In the normal course of business, the Company may allow customers to return product per the provisions in a sale agreement. Estimated product returns are recorded as a reduction in reported revenues with offsetting entries recorded in the balance sheet quarterly based upon historical product return experience, adjusted for known trends, to arrive at the amount of consideration expected to receive. Product Warranties — In the normal course of business, the Company offers warranties for a variety of its products. The specific terms and conditions of the warranties vary depending upon the specific product and markets in which the products were sold. The Company accrues for the estimated cost of product warranty at the time of sale based on historical experience. Shipping and Handling Costs — The Company considers all shipping and handling to be fulfillment activities and not a separate performance obligation. Shipping and handling costs are recorded as cost of sales. Research and Development Costs — Generally, costs related to the research, design, and development of products are charged to engineering expense as incurred. Certain research and development costs are recognized under assets in the balance sheet. Comprehensive Income — US GAAP requires disclosure of total non-stockholder changes in equity in interim periods and additional disclosures of the components of non-stockholder changes in equity on an annual basis. Total non-stockholder changes in equity include all changes in equity during a period except those resulting from fiscal investments by and distributions to stockholders. Segment Reporting and Related Information — The Company designates the internal organization that is used by management for allocating resources and assessing performance as the source of the Company’s reportable segments. US GAAP also requires disclosures about products and services, geographic area and major customers. At April 30, 2022, the Company operated in three segments organized by security line products, cable and wiring tools (Labor Saving Devices - LSDI) products, and all other products. See Note 9 for further segment information disclosures. F- 15 1. Nature of Business and Summary of Significant Accounting Policies, continued Recently Issued Accounting Pronouncements — In January 2020, the FASB issued ASU 2020-01, “Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions. ASU 2016-01 made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. ASU 2020-01 deals with changes in the significant influence of derivative and investments, of which the Company has none and became effective for the Company in the first quarter of 2021. The adoption of this standard did not have any impact on the Company’s condensed financial statements. There are no other new accounting pronouncements that are expected to have a significant impact on our financial statements. Recently Adopted Accounting Standards — In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326),” Effective May 1, 2021, we adopted ASU 2016-13, which requires financial assets measured at amortized cost, such as our trade receivables, to be presented net of expected credit losses, which may be estimated based on relevant information such as historical experience, current conditions, and future expectations for each pool of similar financial assets. We adopted ASU 2016-13 using the modified retrospective method, whereby the guidance was applied prospectively as of the date of adoption and prior periods are not restated. The cumulative effect of adoption was not material. F- 16 1. Nature of Business and Summary of Significant Accounting Policies, continued Subsequent Events – Management has evaluated all events or transactions that occurred after April 30, 2022 through July 29, 2022, the report date of the financial statements. During this period, the Company did not have any material recognizable subsequent events. 2. Inventories Inventories at April 30, 2022 and 2021, consisted of the following: Schedule of Inventories 2022 2021 Raw materials $ 6,772,000 $ 4,399,000 Work in process 618,000 457,000 Finished goods 838,000 768,000 Inventory in transit — 173,000 inventory gross 8,228,000 5,797,000 Less: allowance for obsolete inventory ( 288,000 ) ( 175,000 ) Inventories, net $ 7,940,000 $ 5,622,000 F- 17 3. Investments The Company has investments in publicly traded equity securities, state and municipal debt securities, REITs, and money markets and they are recorded at fair value. The investments in debt securities, which include municipal bonds and bond funds, mature between August 2022 and September 2042 . The Company uses the average cost method to determine the cost of equity securities sold with any unrealized gains or losses reported in the respective period’s earnings. Dividend and interest income are reported as earned. As of April 30, 2022 and 2021, investments consisted of the following: Schedule of Investments Gross Gross Investments at Cost Unrealized Unrealized Reported April 30, 2022 Basis Gains Losses Value Municipal bonds $ 5,625,000 $ 41,000 $ ( 229,000 ) $ 5,437,000 REITs $ 131,000 $ 16,000 $ ( 3,000 ) $ 144,000 Equity securities $ 18,322,000 $ 6,921,000 $ ( 473,000 ) $ 24,770,000 Money Markets and CDs $ 628,000 $ - $ - $ 628,000 Total $ 24,706,000 $ 6,978,000 $ ( 705,000 ) $ 30,979,000 Gross Gross Investments at Cost Unrealized Unrealized Reported April 30, 2021 Basis Gains Losses Value Municipal bonds $ 5,854,000 $ 198,000 $ ( 43,000 ) $ 6,009,000 REITs $ 131,000 $ 11,000 $ ( 5,000 ) $ 137,000 Equity securities $ 17,199,000 $ 9,294,000 $ ( 74,000 ) $ 26,419,000 Money Markets and CDs $ 772,000 $ - $ - $ 772,000 Total $ 23,956,000 $ 9,503,000 $ ( 122,000 ) $ 33,337,000 Marketable securities that are classified as equity securities are carried at fair value on the balance sheets with changes in fair value recorded as an unrealized gain or (loss) in the statements of income in the period of the change. Upon the disposition of a marketable security, the Company records a realized gain or (loss) on the Company’s statements of income. The Company evaluates all investments for other-than temporary declines in fair value, which are defined as when the cost basis exceeds the fair value for approximately one year. The Company also evaluates the nature of the investment, cause of impairment and number of investments that are in an unrealized position. When other than a temporary decline is identified, the Company will decrease the cost of the investment to the new fair value and recognize a loss. The investments are periodically evaluated to determine if impairment changes are required. As a result of this standard, management did not have to record any impairment losses for the year ended April 30, 2022, but management did record an impairment loss of $ 79,000 for the year ended April 30, 2021. The Company’s investments are actively traded in the stock and bond markets. Therefore, there is either a realized gain or loss that is recorded when a sale happens. For the fiscal year ended April 30, 2022 the Company had sales of equity securities which yielded gross realized gains of $ 661,000 and gross realized losses of $ 221,000 . For the same period, there were not any sales of debt securities for gross realized gains, but sales of debt securities yielded gross realized losses of $ 26,000 . Conversely, the Company recorded gross realized gains on equity securities of $ 666,000 and gross realized losses of $ 290,000 for the fiscal year ending April 30, 2021. As for debt securities, there were not any sales of debt securities for gross realized gains, but sales of debt securities yielded gross realized losses of $ 13,000 for the fiscal year ending April 30, 2021. The gross realized loss numbers include the impaired figures listed in the previous paragraph. Additionally, proceeds from sales of securities available for sale were $ 452,000 for the fiscal year ended April 30, 2022 and were $ 21,000 for the prior fiscal year. F- 18 3. Investments, continued The following table shows the investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at April 30, 2022 and 2021. Unrealized Loss Breakdown by Investment Type at April 30, 2022 Schedule of Unrealized Loss Breakdown by Investment Description Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss Less than 12 months 12 months or greater Total Description Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss Municipal bonds $ 4,420,000 $ ( 142,000 ) $ 539,000 $ ( 87,000 ) $ 4,959,000 $ ( 229,000 ) REITs $ 18,000 $ ( 1,000 ) $ 26,000 $ ( 2,000 ) $ 44,000 $ ( 3,000 ) Equity securities $ 4,157,000 $ ( 424,000 ) $ 274,000 $ ( 49,000 ) $ 4,431,000 $ ( 473,000 ) Total $ 8,595,000 $ ( 567,000 ) $ 839,000 $ ( 138,000 ) $ 9,434,000 $ ( 705,000 ) Unrealized Loss Breakdown by Investment Type at April 30, 2021 Description Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss Less than 12 months 12 months or greater Total Description Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss Municipal bonds $ 390,000 $ ( 6,000 ) $ 365,000 $ ( 37,000 ) $ 755,000 $ ( 43,000 ) REITs $ — $ — $ 23,000 $ ( 5,000 ) $ 23,000 $ ( 5,000 ) Equity securities $ 340,000 $ ( 35,000 ) $ 377,000 $ ( 39,000 ) $ 717,000 $ ( 74,000 ) Total $ 730,000 $ ( 41,000 ) $ 765,000 $ ( 81,000 ) $ 1,495,000 $ ( 122,000 ) Municipal Bonds The unrealized losses on the Company’s investments in municipal bonds were caused by interest rate increases. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. Because the Company has the ability to hold these investments until a recovery of fair value occurs, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at April 30, 2022 and 2021. Marketable Equity Securities and REITs The Company’s investments in marketable equity securities and REITs consist of a wide variety of companies. Investments in these companies include growth, growth income, and foreign investment objectives. Management has evaluated the individual holdings and does not consider these investments to be other-than-temporarily impaired at April 30, 2022 and 2021. F- 19 4. Retirement Benefit Plan On January 1, 1998, the Company adopted the George Risk Industries, Inc. Retirement Savings Plan (the “Plan”). The Plan is a defined contribution savings plan designed to provide retirement income to eligible employees of the Company. The Plan is intended to be qualified under Section 401(k) of the Internal Revenue Code of 1986, as amended. It is funded by voluntary pre-tax and Roth (taxable) contributions from eligible employees who may contribute a percentage of their eligible compensation, limited and subject to statutory limits. Employees are eligible to participate in the Plan when they have attained the age of 21 and completed one thousand hours of service in any plan year with the Company . Upon leaving the Company, each participant is 100 % vested with respect to the participants’ contributions while the Company’s matching contributions are vested over a six-year period in accordance with the Plan document. Contributions are invested, as directed by the participant, in investment funds available under the Plan. Matching contributions of approximately $ 63,000 and $ 61,000 were paid in each of the fiscal years ending April 30, 2022 and 2021, respectively. 5. Stockholders’ Equity 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. F- 20 6. Earnings Per Share Basic and diluted earnings per share, assuming convertible preferred stock was converted for each period presented are: Schedule of Basic and Diluted Earnings Per Share April 30, 2022 Income Shares Per-Share (Numerator) (Denominator) Amount Net income $ 3,566,000 Basic EPS $ 3,566,000 4,941,825 $ 0.72 Effect of dilutive Convertible Preferred Stock – 20,500 — Diluted EPS $ 3,566,000 4,962,325 $ 0.72 April 30, 2021 Income Shares Per-Share (Numerator) (Denominator) Amount Net income $ 10,822,000 Basic EPS $ 10,822,000 4,948,710 $ 2.19 Effect of dilutive Convertible Preferred Stock – 20,500 ( .01 ) Diluted EPS $ 10,822,000 4,969,210 $ 2.18 7. Commitments, Contingencies, and Related Party Transactions One of the directors of the board, Joel Wiens, is the principal shareholder of FirsTier Bank. FirsTier Bank is the financial institution the Company uses for its day to day banking operations. Year end balances of accounts held at this bank are $ 5,058,000 for the year ended April 30, 2022 and $ 6,885,000 for the year ended April 30, 2021. The Company also received interest income from FirsTier Bank in the amount of approximately $ 58,800 for the year ended April 30, 2022 and $ 54,800 for the year ended April 30, 2021. From time to time, the Company may be involved in litigation in the ordinary course of business. The Company is not currently involved in any litigation that we believe could have a material adverse effect on its financial condition or results of operations. The world has been impacted by the spread of the coronavirus (COVID-19) since early 2020. It has created significant economic uncertainty and volatility. The extent to which the coronavirus pandemic impacts our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; the impact of the pandemic on economic activity and actions taken in response; the effect on our clients and client demand for our services and solutions; our ability to sell and provide our services and solutions, including as a result of travel restrictions and people working from home; the ability of our clients to pay for our services and solutions; and any closures of our and our clients’ offices and facilities. Any of these events could materially adversely affect our business, financial condition, results of operations and/or stock price. The Company has been able to continue to operate through the pandemic. The health and safety of our employees and their families remains our top priority. Therefore, we have implemented many Centers of Disease Control protocols to keep our employees safe while the Company continues to produce products and provide service to our customers. While we are operating in a rapidly changing environment, the Company has experienced delays in receiving raw material supplies in a timely manner. F- 21 8. Income Taxes The Company utilizes the liability method of accounting for income taxes. The liability method measures the expected income tax impact of future income and deductions implicit in the Balance Sheets. The income tax provision for the fiscal year ended April 30, 2022 and 2021 consisted of the following: Schedule of Income Tax Provision Year Ended April 30, 2022 2021 Current: Federal $ 1,202,000 1,203,000 State 467,000 433,000 Deferred: Federal ( 652,000 ) 1,449,000 State ( 242,000 ) 539,000 Total income tax provision $ 775,000 $ 3,624,000 Reconciliation of income taxes with Federal and State taxable income: Schedule of Reconciliation of Income Taxes with Federal and State Taxable Income 2022 2021 Income before income taxes $ 4,341,000 $ 14,446,000 State income tax deduction ( 477,000 ) ( 433,000 ) Interest and dividend income ( 524,000 ) ( 387,000 ) Nondeductible expenses and timing differences 3,120,000 ( 7,763,000 ) Taxable income $ 6,460,000 $ 5,863,000 The following schedule reconciles the provision for income taxes to the amount computed by applying the statutory rate to income before income taxes: Schedule of Statutory Rate to Income Before Income Taxes 2022 2021 Income tax provision at statutory rate $ 1,251,000 $ 4,162,000 Increase (decrease) income taxes resulting from: State income taxes ( 138,000 ) ( 125,000 ) Interest and dividend income ( 151,000 ) ( 112,000 ) Deferred taxes ( 894,000 ) 1,988,000 Other temporary and permanent differences 707,000 ( 2,289,000 ) Income tax expense $ 775,000 $ 3,624,000 Federal tax rate 21.00 % 21.00 % State tax rate 7.81 % 7.81 % Blended statutory rate 28.81 % 28.81 % Deferred tax assets (liabilities) consist of the following components at April 30, 2022 and 2021: Summary of Deferred Tax Assets (Liabilities) 2022 2021 Deferred tax assets (liabilities): Depreciation $ ( 67,000 ) $ ( 124,000 ) Inventory valuation 83,000 50,000 Allowance for doubtful accounts 10,000 3,000 Accrued vacation 39,000 38,000 Accumulated unrealized (gain)/loss on investments ( 1,807,000 ) ( 2,702,000 ) Net deferred tax assets (liabilities) $ ( 1,742,000 ) $ ( 2,735,000 ) F- 22 9. Business Segments The following is financial information relating to industry segments: Schedule of Financial Information Relating to Industry Segments Quarter ended Year ended Year ended April 30, April 30, April 30, 2022 2022 2021 (Unaudited) Net revenue: Security alarm products $ 4,653,000 $ 17,833,000 $ 15,650,000 Cable & wiring tools 576,000 2,130,000 2,237,000 Other products 253,000 772,000 618,000 Total net revenue $ 5,482,000 $ 20,735,000 $ 18,505,000 Income from operations: Security alarm products 1,315,000 4,858,000 4,487,000 Cable & wiring tools 163,000 580,000 642,000 Other products 72,000 210,000 177,000 Total income from operations $ 1,550,000 $ 5,648,000 $ 5,306,000 Depreciation and amortization: Security alarm products 52,000 173,000 139,000 Cable & wiring tools 31,000 123,000 123,000 Other products 18,000 78,000 61,000 Corporate general 15,000 62,000 78,000 Total depreciation and amortization $ 116,000 $ 436,000 $ 401,000 Capital expenditures: Security alarm products 213,000 366,000 275,000 Cable & wiring tools — — — Other products — 11,000 242,000 Corporate general 13,000 13,000 — Total capital expenditures $ 226,000 $ 390,000 $ 517,000 April 30, 2022 April 30, 2021 Identifiable assets: Security alarm products 11,537,000 8,955,000 Cable & wiring tools 2,509,000 2,534,000 Other products 732,000 667,000 Corporate general 39,253,000 41,980,000 Total assets $ 54,031,000 $ 54,136,000 F- 23 10. Concentrations The Company maintains the majority of its cash balance in a financial institution in Kimball, Nebraska. Accounts at this institution are insured by the Federal Deposit Insurance Corporation for up to $ 250,000 . For the years ended April 30, 2022 and 2021, the Company had uninsured balances of $ 5,256,000 , and $ 6,773,000 , respectively. Management believes that this financial institution is financially sound and the risk of loss is minimal. Management also has cash funds with Wells Fargo Bank with uninsured balances of $ 769,000 and $ 190,000 for the years ending April 30, 2022 and 2021, respectively. Management believes that this financial institution is financially sound and the risk of loss is minimal. The Company has sales to a security alarm distributor representing 35 % of total sales for the year ended April 30, 2022 and 40 % of total sales for the year ended April 30, 2021. This distributor accounted for 50 % and 55 % of accounts receivable at April 30, 2022 and 2021, respectively. Security switch sales made up 86 % of total sales for the fiscal year ended April 30, 2022 and 85 % of total sales for the fiscal year ended April 30, 2021. 11. Fair Value Measurements The carrying value of the Company’s cash and cash equivalents, accounts receivable and accounts payable approximate their fair value due to their short-term nature. The fair value of our investments is determined utilizing market-based information. Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions, and credit risk. US GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The levels of the fair value hierarchy under US GAAP are described below: Level 1 Valuation is based upon quoted prices for identical instruments traded in active markets. Level 2 Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. Level 3 Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques. F- 24 11. Fair Value Measurements, continued Investments and Marketable Securities As of April 30, 2022 and 2021, The Company’s investments consisted of money markets, publicly traded equity securities, REITs as well as certain state and municipal bonds. The marketable securities are valued using third-party broker statements. The value of the majority of securities is derived from quoted market information. The inputs to the valuation are classified as Level 1 given the active market for these securities; however, if an active market does not exist, which is the case for municipal bonds and REITs; the inputs are recorded as Level 2. Fair Value Hierarchy The following tables set forth our assets and liabilities measured at fair value on a recurring basis and a non-recurring basis by level within the fair value hierarchy. As required by US GAAP, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Schedule of Assets Measured at Fair Value on Recurring Basis Level 1 Level 2 Level 3 Total Assets Measured at Fair Value on a Recurring Basis as of April 30, 2022 Level 1 Level 2 Level 3 Total Assets: Municipal Bonds — $ 5,437,000 — $ 5,437,000 REITs — $ 144,000 — $ 144,000 Equity Securities $ 24,770,000 — — $ 24,770,000 Money Markets and CDs $ 628,000 — — $ 628,000 Total fair value of assets measured on a recurring basis $ 25,398,000 $ 5,581,000 — $ 30,979,000 Level 1 Level 2 Level 3 Total Assets Measured at Fair Value on a Recurring Basis as of April 30, 2021 Level 1 Level 2 Level 3 Total Assets: Municipal Bonds — $ 6,009,000 — $ 6,009,000 REITs — $ 137,000 — $ 137,000 Equity Securities $ 26,419,000 — — $ 26,419,000 Money Markets and CDs $ 772,000 — — $ 772,000 Total fair value of assets measured on a recurring basis $ 27,191,000 $ 6,146,000 — $ 33,337,000 12. Paycheck Protection Program Loan On April 15, 2020, the Company received loan proceeds of approximately $ 950,000 (the “PPP Loan”) from FirsTier Bank, pursuant to the Paycheck Protection Program under Division A, Title I of the CARES Act, which was enacted March 27, 2020. The PPP Loan, which was in the form of a Note dated April 15, 2020 issued to the Company, matures on April 15, 2022 and bears interest at a rate of 1 % per annum . The Company used the proceeds of the PPP Loan for qualifying expenses. On December 3, 2020, the Company received notice from the lender that the entire amount of the PPP loan was forgiven. In January 2021 it was determined that PPP loan forgiveness was not taxable. The loan forgiveness amount is included in the “Other” line of the Other Income (Expense) section of the income statement. F- 25 Item 9 Disagreements on Accounting and Financial Disclosures There were no disagreements with accountants on accounting and financial disclosure.