Item 8.01 - Other Events
On October 17, 2019, the Audit Committee of the Board of
Directors (the “Audit Committee”) of National Presto Industries, Inc. (the “Company”), after discussion
with management of the Company and BDO USA LLP (“BDO”), the Company’s independent registered public accounting
firm, concluded that Management’s Assessment of Internal Control over Financial Reporting included in Item 9A of the Company’s
Form 10-K, and BDO’s opinion relating to the effectiveness of the Company’s internal control over financial reporting
as of December 31, 2018, should no longer be relied upon for the reason described below.
In May 2019, BDO was chosen for Public Company Accounting
Oversight Board (“PCAOB”) inspection related to their audit of the Company for the year ended December 31, 2018, and
as part of that inspection, the PCAOB questioned whether revenue should be recognized over time (prior to invoicing and shipment),
rather than at a point in time (as control passes to the customer, generally at time of invoicing and shipment), with respect to
certain of the Company’s Defense segment products. At BDO’s request, the Company reexamined the documentation that
had been gathered to support its point in time pattern of revenue recognition, and found instances where the documentation was
incomplete, especially as it related to alternative use of the products produced under the contracts. Further, the Company did
not consider the impact of certain termination clauses in its contracts with customers that might create a legal right for payment
for work completed prior to the contract termination that would include a reasonable profit margin.
Because of the failure to fully document alternative use
of Defense segment products and consider certain contract clauses mentioned above, the Company’s management has concluded
that there was a material weakness in its internal control over financial reporting and, as a result, that the Company’s
internal controls over financial reporting were not effective, as of December 31, 2018. In addition, the Company’s Chief
Executive Officer and Treasurer (principal financial officer) have concluded that the Company’s disclosure controls and procedures
were not effective as of December 31, 2018 due to the material weakness in internal control over financial reporting described
above, and that Management’s Assessment of Internal Control over Financial Reporting included in Item 9A of the Company’s
Form 10-K, and BDO’s opinion relating to the effectiveness of the Company’s internal control over financial reporting
as of December 31, 2018, should no longer be relied upon.
The Company assessed the potential impact of the aforementioned
incomplete documentation and failure to consider certain contract clauses on the Company’s 2018 annual and interim consolidated
financial statements, as well as previously filed interim consolidated financial statements for 2019 and determined that there
was no resulting material misstatement in such previously filed financial statements, as the amount of revenue from contracts that
would qualify for the over time pattern of revenue recognition was immaterial to the consolidated financial statements for all
periods. Additionally, BDO has not withdrawn its audit report on the consolidated financial statements included in the 2018 Form
10-K.
The Company intends to amend its Annual Report on Form 10-K for the year ended December 31, 2018, as well as its Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 to reflect management’s and BDO’s current assessment
of internal control over financial reporting as of the period covered by the report. The amendments will also describe the Company’s
plans and efforts to strengthen its internal control over financial reporting, which will entail providing more robust documentation
of alternate uses and analysis of the potential impact of contract termination clauses. The Company also intends to file its Quarterly
Report on Form 10-Q for the quarter ended June 30, 2019 as soon as practicable following the amendments described above.
Cautionary Statement Regarding Forward-Looking Statements
This filing contains “forward looking statements”
made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995 that are subject to certain
risks and uncertainties, as well as assumptions, that could cause actual results to differ materially from historical results and
those presently anticipated or projected. Forward-looking statements in this filing include the Company’s expectations as
to the anticipated timing of the filing of the Company’s amended Form 10-K for the year ended December 31, 2018 and the Company’s
amended Form 10-Q for the quarter ended March 31, 2019, as well as the filing of the Company’s Form 10-Q for the quarter
ended June 30, 2019. Factors that may cause future results to differ materially from management’s current expectations include,
among other things, that the filing of the amended Forms 10-K and 10-Q may take longer than expected, and remediation of the material
weakness may not be effected in a timely manner. The Company cautions not to place undue reliance on forward-looking statements,
which speak only as of the date hereof. The Company disclaims any obligation to update these forward-looking statements. In addition
to the factors discussed above, other important risk factors are delineated in the Company’s various SEC filings.