GEORGE RISK INDUSTRIES, INC. - Quarter Report: 2021 January (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended January 31, 2021
[ ] TRANSITION REPORT PURSUANT TO 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)
| Colorado | 84-0524756 | |
| (State of incorporation) | (IRS Employers Identification No.) |
| 802 S. Elm St., Kimball, NE | 69145 | |
| (Address of principal executive offices) | (Zip Code) |
(308) 235-4645
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Class A Common Stock, $0.10 par value | RSKIA | OTC Markets | ||
| Convertible Preferred Stock, $20 stated value | RSKIA | OTC Markets |
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes [X] 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.
| Large accelerated filer [ ] | Accelerated filer [ ] | |
| Non-accelerated filer [ ] | Smaller reporting company [X] | |
| Emerging growth company [ ] |
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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of the Registrant’s Common Stock outstanding, as of March 17, 2021, was 4,946,902.
GEORGE RISK INDUSTRIES, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited financial statements for the three- and nine-month period ended January 31, 2021, are attached hereto.
| 2 |
| GEORGE RISK INDUSTRIES, INC. | ||||||||
| CONDENSED BALANCE SHEETS | ||||||||
| January 31, 2021 | April 30, 2020 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 6,936,000 | $ | 6,458,000 | ||||
| Investments and securities | 30,880,000 | 25,322,000 | ||||||
| Accounts receivable: | ||||||||
| Trade, net of $6,858 and $7,306 doubtful account allowance | 3,340,000 | 2,964,000 | ||||||
| Other | 42,000 | 18,000 | ||||||
| Income tax overpayment | — | 56,000 | ||||||
| Inventories, net | 5,901,000 | 5,103,000 | ||||||
| Prepaid expenses | 160,000 | 516,000 | ||||||
| Total Current Assets | 47,259,000 | 40,437,000 | ||||||
| Property and Equipment, net | 1,686,000 | 1,465,000 | ||||||
| Other Assets | ||||||||
| Investment in Limited Land Partnership, at cost | 320,000 | 320,000 | ||||||
| Projects in process | 51,000 | 21,000 | ||||||
| Other | 1,000 | 2,000 | ||||||
| Total Other Assets | 372,000 | 343,000 | ||||||
| Intangible Assets, net | 1,425,000 | 1,517,000 | ||||||
| TOTAL ASSETS | $ | 50,742,000 | $ | 43,762,000 | ||||
See accompanying notes to the unaudited condensed financial statements.
| 3 |
| GEORGE RISK INDUSTRIES, INC. | ||||||||
| CONDENSED BALANCE SHEETS | ||||||||
| (continued) | ||||||||
| January 31, 2021 | April 30, 2020 | |||||||
| (unaudited) | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable, trade | $ | 498,000 | $ | 187,000 | ||||
| Dividends payable | 2,080,000 | 1,892,000 | ||||||
| Accrued expenses | 504,000 | 450,000 | ||||||
| Income tax payable | 193,000 | — | ||||||
| Notes payable | — | 950,000 | ||||||
| Total Current Liabilities | 3,275,000 | 3,479,000 | ||||||
| Long-Term Liabilities | ||||||||
| Deferred income taxes | 2,058,000 | 699,000 | ||||||
| Total Long-Term Liabilities | 2,058,000 | 699,000 | ||||||
| Total Liabilities | 5,333,000 | 4,178,000 | ||||||
| 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 | 129,000 | (4,000 | ) | |||||
| Retained earnings | 46,726,000 | 41,006,000 | ||||||
| Less: treasury stock, 3,555,779 and 3,552,954 shares, at cost | (4,329,000 | ) | (4,301,000 | ) | ||||
| Total Stockholders’ Equity | 45,409,000 | 39,584,000 | ||||||
| TOTAL LIABILITES AND STOCKHOLDERS’ EQUITY | $ | 50,742,000 | $ | 43,762,000 | ||||
See accompanying notes to the unaudited condensed financial statements
| 4 |
| GEORGE RISK INDUSTRIES, INC. | ||||||||||||||||
| CONDENSED INCOME STATEMENTS FOR THE THREE AND NINE MONTHS ENDED JANUARY 31, 2021 AND 2020 (Unaudited) | ||||||||||||||||
| Three months | Three months | Nine months | Nine months | |||||||||||||
| ended | ended | ended | ended | |||||||||||||
| Jan 31, 2021 | Jan 31, 2020 | Jan 31, 2021 | Jan 31, 2020 | |||||||||||||
| Net Sales | $ | 4,633,000 | $ | 3,589,000 | $ | 13,327,000 | $ | 10,852,000 | ||||||||
| Less: Cost of Goods Sold | (2,385,000 | ) | (1,832,000 | ) | (6,631,000 | ) | (5,462,000 | ) | ||||||||
| Gross Profit | 2,248,000 | 1,757,000 | 6,696,000 | 5,390,000 | ||||||||||||
| Operating Expenses | ||||||||||||||||
| General and Administrative | 362,000 | 302,000 | 1,040,000 | 928,000 | ||||||||||||
| Sales | 639,000 | 587,000 | 1,809,000 | 1,698,000 | ||||||||||||
| Engineering | 31,000 | 34,000 | 81,000 | 66,000 | ||||||||||||
| Rent Paid to Related Parties | — | — | — | 8,000 | ||||||||||||
| Total Operating Expenses | 1,032,000 | 923,000 | 2,930,000 | 2,700,000 | ||||||||||||
| Income From Operations | 1,216,000 | 834,000 | 3,766,000 | 2,690,000 | ||||||||||||
| Other Income | ||||||||||||||||
| Other | 952,000 | — | 1,008,000 | 2,000 | ||||||||||||
| Dividend and Interest Income | 317,000 | 423,000 | 608,000 | 782,000 | ||||||||||||
| Unrealized Gain on equity securities | 2,654,000 | 508,000 | 4,653,000 | 782,000 | ||||||||||||
| Gain on Investments | 250,000 | 78,000 | 293,000 | 137,000 | ||||||||||||
| Gain on Sale of Assets | — | 5,000 | 4,000 | 5,000 | ||||||||||||
| Total Other Income | 4,173,000 | 1,014,000 | 6,566,000 | 1,708,000 | ||||||||||||
| Income Before Provisions for Income Taxes | 5,389,000 | 1,848,000 | 10,332,000 | 4,398,000 | ||||||||||||
| Provisions for Income Taxes: | ||||||||||||||||
| Current Expense | 199,000 | 359,000 | 1,230,000 | 911,000 | ||||||||||||
| Deferred Tax Expense (Benefit) | 743,000 | 125,000 | 1,303,000 | 191,000 | ||||||||||||
| Total Income Tax Expense | 942,000 | 484,000 | 2,533,000 | 1,102,000 | ||||||||||||
| Net Income | $ | 4,447.000 | $ | 1,364,000 | $ | 7,799,000 | $ | 3,296,000 | ||||||||
| Income Per Share of Common Stock | ||||||||||||||||
| Basic | $ | 0.90 | $ | 0.28 | $ | 1.58 | $ | 0.67 | ||||||||
| Diluted | $ | 0.89 | $ | 0.27 | $ | 1.57 | $ | 0.66 | ||||||||
| Weighted Average Number of Common Shares Outstanding | ||||||||||||||||
| Basic | 4,948,224 | 4,950,524 | 4,949,351 | 4,953,008 | ||||||||||||
| Diluted | 4,968,724 | 4,971,024 | 4,969,851 | 4,973,508 | ||||||||||||
See accompanying notes to the unaudited condensed financial statements
| 5 |
GEORGE RISK INDUSTRIES, INC.
CONDENSED STATEMENT OF COMPREHENSIVE INCOME
FOR THE THREE AND NINE MONTHS ENDED JANUARY 31. 2021 AND 2020
(Unaudited)
| Three months | Three months | Nine months | Nine months | |||||||||||||
| ended | ended | ended | ended | |||||||||||||
| Jan 31, 2021 | Jan 31, 2020 | Jan 31, 2021 | Jan 31, 2020 | |||||||||||||
| Net Income | $ | 4,447,000 | $ | 1,364,000 | $ | 7,799,000 | $ | 3,296,000 | ||||||||
| Other Comprehensive Income, Net of Tax | ||||||||||||||||
| Unrealized gain on debt securities: | ||||||||||||||||
| Unrealized holding gains arising during period | 59,000 | 27,000 | 189,000 | 77,000 | ||||||||||||
| Income tax (expense) related to other comprehensive income | (17,000 | ) | (8,000 | ) | (56,000 | ) | (22,000 | ) | ||||||||
| Other Comprehensive Income | 42,000 | 19,000 | 133,000 | 55,000 | ||||||||||||
| Comprehensive Income | $ | 4,489,000 | $ | 1,383,000 | $ | 7,932,000 | $ | 3,351,000 | ||||||||
See accompanying notes to the unaudited condensed financial statements
| 6 |
| GEORGE RISK INDUSTRIES, INC. | ||||||||||||||||
| CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY | ||||||||||||||||
| FOR THE THREE MONTHS ENDED JANUARY 31, 2021 AND 2020 (Unaudited) | ||||||||||||||||
| Preferred Stock | Common Stock Class A | |||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Balances, October 31, 2020 | 4,100 | $ | 99,000 | 8,502,881 | $ | 850,000 | ||||||||||
| Purchases of Common Stock | — | — | — | — | ||||||||||||
| Unrealized gain, net of tax effect | — | — | — | — | ||||||||||||
| Net Income | — | — | — | — | ||||||||||||
| Balances, January 31, 2021 | 4,100 | $ | 99,000 | 8,502,881 | $ | 850,000 | ||||||||||
| Preferred Stock | Common Stock Class A | |||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Balances, October 31, 2019 | 4,100 | $ | 99,000 | 8,502,881 | $ | 850,000 | ||||||||||
| Purchases of common stock | — | — | — | — | ||||||||||||
| Unrealized gain, net of tax effect | — | — | — | — | ||||||||||||
| Net Income | — | — | — | — | ||||||||||||
| Balances, January 31, 2020 | 4,100 | $ | 99,000 | 8,502,881 | $ | 850,000 | ||||||||||
See accompanying notes to the unaudited condensed financial statements
| 7 |
| GEORGE RISK INDUSTRIES, INC. | ||||||||||||||||||||||
| CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||
| FOR THE THREE MONTHS ENDED JANUARY 31, 2021 AND 2020 (Unaudited) | ||||||||||||||||||||||
| Paid-In | Treasury Stock (Common Class A) | Accumulated Other Comprehensive | Retained | |||||||||||||||||||
| Capital | Shares | Amount | Income | Earnings | Total | |||||||||||||||||
| $ | 1,934,000 | 3,553,029 | $ | (4,302,000 | ) | $ | 87,000 | $ | 42,279,000 | $ | 40,947,000 | |||||||||||
| — | 2,750 | (27,000 | ) | — | — | (27,000 | ) | |||||||||||||||
| — | — | — | 42,000 | — | 42,000 | |||||||||||||||||
| — | — | — | — | 4,447,000 | 4,447,000 | |||||||||||||||||
| $ | 1,934,000 | 3,555,779 | $ | (4,329,000 | ) | $ | 129,000 | $ | 46,726,000 | $ | 45,409,000 | |||||||||||
| Paid-In | Treasury Stock (Common Class A) | Accumulated Other Comprehensive | Retained | |||||||||||||||||||
| Capital | Shares | Amount | Income | Earnings | Total | |||||||||||||||||
| $ | 1,934,000 | 3,550,771 | $ | (4,281,000 | ) | $ | 50,000 | $ | 40,834,000 | $ | 39,486,000 | |||||||||||
| — | 1,850 | (17,000 | ) | — | — | (17,000 | ) | |||||||||||||||
| — | — | — | 19,000 | — | 19,000 | |||||||||||||||||
| — | — | — | — | 1,364,000 | 1,364,000 | |||||||||||||||||
| $ | 1,934,000 | 3,552,621 | $ | (4,297,000 | ) | $ | 69,000 | $ | 42,198,000 | $ | 40,852,000 | |||||||||||
See accompanying notes to the unaudited condensed financial statements
| 8 |
| GEORGE RISK INDUSTRIES, INC. | ||||||||||||||||
| CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY | ||||||||||||||||
| FOR THE NINE MONTHS ENDED JANUARY 31, 2021 AND 2020 (Unaudited) | ||||||||||||||||
| 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, net of tax effect | — | — | — | — | ||||||||||||
| Net Income | — | — | — | — | ||||||||||||
| Balances, January 31, 2021 | 4,100 | $ | 99,000 | 8,502,881 | $ | 850,000 | ||||||||||
| Preferred Stock | Common Stock Class A | |||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Balances, April 30, 2019 | 4,100 | $ | 99,000 | 8,502,881 | $ | 850,000 | ||||||||||
| Purchases of common stock | — | — | — | — | ||||||||||||
| Dividend declared at $0.40 per common share outstanding | ||||||||||||||||
| Unrealized (loss), net of tax effect | — | — | — | — | ||||||||||||
| Net Income | — | — | — | — | ||||||||||||
| Balances, January 31, 2020 | 4,100 | $ | 99,000 | 8,502,881 | $ | 850,000 | ||||||||||
See accompanying notes to the unaudited condensed financial statements
| 9 |
| GEORGE RISK INDUSTRIES, INC. | ||||||||||||||||||||||
| CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||
| FOR THE NINE MONTHS ENDED JANUARY 31, 2021 AND 2020 (Unaudited) | ||||||||||||||||||||||
| Paid-In | Treasury Stock (Common Class A) | Accumulated Other Comprehensive | Retained | |||||||||||||||||||
| Capital | Shares | Amount | Income | Earnings | Total | |||||||||||||||||
| $ | 1,934,000 | 3,552,954 | $ | (4,301,000 | ) | $ | (4,000 | ) | $ | 41,006,000 | $ | 39,584,000 | ||||||||||
| — | 2,825 | (28,000 | ) | — | — | (28,000 | ) | |||||||||||||||
| — | — | — | — | (2,079,000 | ) | (2,079,000 | ) | |||||||||||||||
| — | — | — | 133,000 | — | 134,000 | |||||||||||||||||
| — | — | — | — | 7,799,000 | 7,799,000 | |||||||||||||||||
| $ | 1,934,000 | 3,555,779 | $ | (4,329,000 | ) | $ | 129,000 | $ | 46,726,000 | $ | 45,409,000 | |||||||||||
| Paid-In | Treasury Stock (Common Class A) | Accumulated Other Comprehensive | Retained | |||||||||||||||||||
| Capital | Shares | Amount | Income | Earnings | Total | |||||||||||||||||
| $ | 1,934,000 | 3,544,271 | $ | (4,227,000 | ) | $ | 14,000 | $ | 40,883,000 | $ | 39,553,000 | |||||||||||
| — | 8,350 | (71,000 | ) | — | — | (71,000 | ) | |||||||||||||||
| — | — | — | — | (1,981,000 | ) | (1,981,000 | ) | |||||||||||||||
| — | — | — | 55,000 | — | 55,000 | |||||||||||||||||
| — | — | — | — | 3,296,000 | 3,296,000 | |||||||||||||||||
| $ | 1,934,000 | 3,552,621 | $ | (4,298,000 | ) | $ | 69,000 | $ | 42,198,000 | $ | 40,852,000 | |||||||||||
See accompanying notes to the unaudited condensed financial statements
| 10 |
| GEORGE RISK INDUSTRIES, INC. | ||||||||
| CONDENSED STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED JANUARY 31,2021 AND 2020 (Unaudited) | ||||||||
| Jan 31, 2021 | Jan 31, 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net Income | $ | 7,799,000 | $ | 3,296,000 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 297,000 | 276,000 | ||||||
| (Gain) on sale of investments | (372,000 | ) | (178,000 | ) | ||||
| Impairments on investments | 79,000 | 41,000 | ||||||
| Unrealized (gain) on equity investments | (4,653,000 | ) | (782,000 | ) | ||||
| Reserve for bad debts | — | (6,000 | ) | |||||
| Reserve for obsolete inventory | 25,000 | 42,000 | ||||||
| Deferred income taxes | 1,303,000 | 191,000 | ||||||
| PPP loan debt forgiveness | (950,000 | ) | — | |||||
| (Gain) on sale of assets | (4,000 | ) | (5,000 | ) | ||||
| Net book value of assets retired | — | (17,000 | ) | |||||
| Changes in assets and liabilities: | ||||||||
| (Increase) decrease in: | ||||||||
| Accounts receivable | (376,000 | ) | 460,000 | |||||
| Inventories | (823,000 | ) | (506,000 | ) | ||||
| Prepaid expenses | 327,000 | 43,000 | ||||||
| Other receivables | (24,000 | ) | 2,000 | |||||
| Income tax overpayment | — | 142,000 | ||||||
| Increase (decrease) in: | ||||||||
| Accounts payable | 311,000 | 16,000 | ||||||
| Accrued expenses | 54,000 | — | ||||||
| Income tax payable | 249,000 | — | ||||||
| Net cash from operating activities | 3,242,000 | 3,015,000 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Proceeds from sale of assets | 4,000 | 7,000 | ||||||
| (Purchase) of property and equipment | (426,000 | ) | (468,000 | ) | ||||
| Proceeds from sale of marketable securities | 18,000 | 760,000 | ||||||
| (Purchase) of marketable securities | (440,000 | ) | (640,000 | ) | ||||
| (Purchase) of long-term investment | — | (27,000 | ) | |||||
| Net cash from investing activities | (844,000 | ) | (368,000 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| (Purchase) of treasury stock | (28,000 | ) | (71,000 | ) | ||||
| Dividends paid | (1,892,000 | ) | (1,802,000 | ) | ||||
| Net cash from financing activities | (1,920,000 | ) | (1,873,000 | ) | ||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | 478,000 | 774,000 | ||||||
| Cash and Cash Equivalents, beginning of period | 6,458,000 | 4,873,000 | ||||||
| Cash and Cash Equivalents, end of period | $ | 6,936,000 | $ | 5,647,000 | ||||
| Supplemental Disclosure for Cash Flow Information: | ||||||||
| Cash payments for: | ||||||||
| Income taxes | $ | 975,000 | $ | 870,000 | ||||
| Interest paid | $ | — | $ | — | ||||
| Cash receipts for: | ||||||||
| Income taxes | $ | — | $ | 159,000 | ||||
See accompanying notes to the unaudited condensed financial statements
| 11 |
GEORGE RISK INDUSTRIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JANUARY 31, 2021
| Note 1: | Unaudited Interim Financial Statements |
The accompanying financial statements have been prepared in accordance with the instructions for Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. It is suggested that these unaudited condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s April 30, 2020 annual report on Form 10-K. In the opinion of management, all adjustments, consisting only of normal recurring adjustments considered necessary for a fair presentation, have been included. Operating results for any quarter are not necessarily indicative of the results for any other quarter or for the full year.
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.
Recently Issued Accounting Pronouncements — In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which requires entities to use a forward looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. The FASB has subsequently issued updates to the standard to provide additional clarification on specific topics. Topic 326 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We have applied this guidance, as of May 1, 2020, using a modified-retrospective approach. The application of this guidance did not require a cumulative effect adjustment to retained earnings and did not have a material effect on our financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820). The updated guidance improves the disclosure requirements on fair value measurements. The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures. We applied this guidance, as of May 1, 2020. The application of this guidance did not have a material effect on our disclosures.
In January 2020, the FASB issued ASU 2020-01, “Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions. ASU 2016-01 made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. For public business entities, the amendments in the ASU are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of ASU 2020-01 to have a material impact on its financial statements.
There are no other new accounting pronouncements that are expected to have a significant impact on our financial statements.
| 12 |
| Note 2: | Investments |
The Company has investments in publicly traded equity securities, state and municipal debt securities, real estate investment trusts, and money markets. The investments in debt securities, which include municipal bonds and bond funds, mature between April 2021 and January 2044. The Company uses the average cost method to determine the cost of equity securities sold with any unrealized gains or losses reported in the respective period’s earnings. 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.
As of January 31, 2021 and April 30, 2020, investments consisted of the following:
| Gross | Gross | |||||||||||||||
| Investments at | Cost | Unrealized | Unrealized | Fair | ||||||||||||
| January 31, 2021 | Basis | Gains | Losses | Value | ||||||||||||
| Municipal bonds | $ | 5,748,000 | $ | 222,000 | $ | (40,000 | ) | $ | 5,930,000 | |||||||
| REITs | 131,000 | 1,000 | (20,000 | ) | 112,000 | |||||||||||
| Equity securities | 17,012,000 | 7,048,000 | (155,000 | ) | 23,905,000 | |||||||||||
| Money markets and CDs | 933,000 | — | — | 933,000 | ||||||||||||
| Total | $ | 23,824,000 | $ | 7,271,000 | $ | (215,000 | ) | $ | 30,880,000 | |||||||
| Gross | Gross | |||||||||||||||
| Investments at | Cost | Unrealized | Unrealized | Fair | ||||||||||||
| April 30, 2020 | Basis | Gains | Losses | Value | ||||||||||||
| Municipal bonds | $ | 5,271,000 | $ | 80,000 | $ | (89,000 | ) | $ | 5,262,000 | |||||||
| Corporate bonds | 26,000 | — | — | 26,000 | ||||||||||||
| REITs | 112,000 | — | (44,000 | ) | 68,000 | |||||||||||
| Equity securities | 17,119,000 | 3,446,000 | (1,180,000 | ) | 19,385,000 | |||||||||||
| Money markets and CDs | 581,000 | — | — | 581,000 | ||||||||||||
| Total | $ | 23,109,000 | $ | 3,526,000 | $ | (1,313,000 | ) | $ | 25,322,000 | |||||||
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 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. As a result of this standard, management did not need to record an impairment loss for the quarter, but recorded a loss of $79,000 for the nine months ended January 31, 2021. As for the corresponding periods last year, management did not need to record an impairment loss for the quarter ended January 31, 2020 but did record an impairment loss of $41,000 for the nine-months ended January 31, 2020.
| 13 |
The Company’s investments are actively traded in the stock and bond markets. Therefore, either a realized gain or loss is recorded when a sale happens. For the quarter ended January 31, 2021 the Company had sales of equity securities which yielded gross realized gains of $288,000 and gross realized losses of $35,000. For the same period, sales of debt securities did not yield any gross realized gains, but gross realized losses of $3,000 were recorded. As for the nine-months ended January 31, 2021 the Company had sales of equity securities which yielded gross realized gains of $575,000 and gross realized losses of $272,000. For the same nine-month period, sales of debt securities did not yield any gross realized gains, but gross realized losses of $9,000 were recorded. During the quarter ending January 31, 2020, the Company recorded gross realized gains and losses on equity securities of $97,000 and $17,000, respectively, while sales of debt securities did not yield any gross realized gains, but gross realized losses of $2,000 were recorded. During the nine-months ending January 31, 2020, the Company recorded gross realized gains and losses on equity securities of $317,000 and $178,000, respectively, as well as gross realized gains and losses on debt securities of $3,000 and $5,000, respectively. The gross realized loss numbers include the impaired figures listed in the previous paragraph.
The following tables show 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 January 31, 2021 and April 30, 2020, respectively.
Unrealized Loss Breakdown by Investment Type at January 31, 2021
| Less than 12 months | 12 months or greater | Total | ||||||||||||||||||||||
| Description | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | ||||||||||||||||||
| Municipal bonds | $ | 192,000 | $ | (1,000 | ) | $ | 299,000 | $ | (39,000 | ) | $ | 491,000 | $ | (40,000 | ) | |||||||||
| REITs | 37,000 | (8,000 | ) | 54,000 | (13,000 | ) | 91,000 | (21,000 | ) | |||||||||||||||
| Equity securities | 1,886,000 | (91,000 | ) | 256,000 | (63,000 | ) | 2,142,000 | (154,000 | ) | |||||||||||||||
| Total | $ | 2,115,000 | $ | (100,000 | ) | $ | 609,000 | $ | (115,000 | ) | $ | 2,724,000 | $ | (215,000 | ) | |||||||||
Unrealized Loss Breakdown by Investment Type at April 30, 2020
| Less than 12 months | 12 months or greater | Total | ||||||||||||||||||||||
| Description | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | ||||||||||||||||||
| Municipal bonds | $ | 2,203,000 | $ | (42,000 | ) | $ | 484,000 | $ | (47,000 | ) | $ | 2,687,000 | $ | (89,000 | ) | |||||||||
| REITs | 43,000 | (30,000 | ) | 24,000 | (14,000 | ) | 67,000 | (44,000 | ) | |||||||||||||||
| Equity securities | 5,496,000 | (866,000 | ) | 1,651,000 | (314,000 | ) | 7,147,000 | (1,180,000 | ) | |||||||||||||||
| Total | $ | 7,742,000 | $ | (938,000 | ) | $ | 2,159,000 | $ | (375,000 | ) | $ | 9,901,000 | $ | (1,313,000 | ) | |||||||||
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, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at January 31, 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. The individual holdings have been evaluated, and due to management’s plan to hold on to these investments for an extended period, the Company does not consider these investments to be other-than-temporarily impaired at January 31, 2021.
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| Note 3: | Inventories |
Inventories at January 31, 2021 and April 30, 2020 consisted of the following:
| January 31, | April 30, | |||||||
| 2021 | 2020 | |||||||
| Raw materials | $ | 4,843,000 | $ | 4,233,000 | ||||
| Work in process | 491,000 | 402,000 | ||||||
| Finished goods | 730,000 | 606,000 | ||||||
| 6,064,000 | 5,241,000 | |||||||
| Less: allowance for obsolete inventory | (163,000 | ) | (138,000 | ) | ||||
| Inventories, net | $ | 5,901,000 | $ | 5,103,000 | ||||
| Note 4: | Business Segments |
The following is financial information relating to industry segments:
| Three months | Three months | Nine months | Nine months | |||||||||||||
| ended | ended | ended | ended | |||||||||||||
| Jan 31, 2021 | Jan 31, 2020 | Jan 31, 2021 | Jan 31, 2020 | |||||||||||||
| Net revenue: | ||||||||||||||||
| Security alarm products | $ | 3,876,000 | $ | 2,909,000 | $ | 11,039,000 | $ | 8,700,000 | ||||||||
| Cable & wiring tools | 551,000 | 547,000 | 1,596,000 | 1,680,000 | ||||||||||||
| Other products | 206,000 | 133,000 | 692,000 | 472,000 | ||||||||||||
| Total net revenue | $ | 4,633,000 | $ | 3,589,000 | $ | 13,327,000 | $ | 10,852,000 | ||||||||
| Income from operations: | ||||||||||||||||
| Security alarm products | $ | 1,008,000 | $ | 669,000 | $ | 3,119,000 | $ | 2,156,000 | ||||||||
| Cable & wiring tools | 145,000 | 129,000 | 451,000 | 417,000 | ||||||||||||
| Other products | 63,000 | 36,000 | 196,000 | 117,000 | ||||||||||||
| Total income from operations | $ | 1,216,000 | $ | 834,000 | $ | 3,766,000 | $ | 2,690,000 | ||||||||
| Depreciation and amortization: | ||||||||||||||||
| Security alarm products | $ | 37,000 | $ | (22,000 | ) | $ | 98,000 | $ | 72,000 | |||||||
| Cable & wiring tools | 31,000 | 31,000 | 92,000 | 92,000 | ||||||||||||
| Other products | 19,000 | 34,000 | 47,000 | 50,000 | ||||||||||||
| Corporate general | 21,000 | 50,000 | 60,000 | 62,000 | ||||||||||||
| Total depreciation and amortization | $ | 108,000 | $ | 93,000 | $ | 297,000 | $ | 276,000 | ||||||||
| Capital expenditures: | ||||||||||||||||
| Security alarm products | $ | 65,000 | $ | — | $ | 307,000 | $ | 178.000 | ||||||||
| Cable & wiring tools | — | — | — | — | ||||||||||||
| Other products | — | 18,000 | 113,000 | 18,000 | ||||||||||||
| Corporate general | — | 272,000 | 6,000 | 272,000 | ||||||||||||
| Total capital expenditures | $ | 65,000 | $ | 290,000 | $ | 426,000 | $ | 468,000 | ||||||||
| January 31, 2021 | April 30, 2020 | |||||||
| Identifiable assets: | ||||||||
| Security alarm products | $ | 8,555,000 | $ | 7,150,000 | ||||
| Cable & wiring tools | 2,627,000 | 2,684,000 | ||||||
| Other products | 777,000 | 724,000 | ||||||
| Corporate general | 38,783,000 | 33,204,000 | ||||||
| Total assets | $ | 50,742,000 | $ | 43,762,000 | ||||
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| Note 5: | Earnings per Share |
Basic and diluted earnings per share, assuming convertible preferred stock was converted for each period presented, are:
| For the three months ended January 31, 2021 | ||||||||||||
| Income | Shares | Per-Share | ||||||||||
| (Numerator) | (Denominator) | Amount | ||||||||||
| Net income | $ | 4,447,000 | ||||||||||
| Basic EPS | $ | 4,447,000 | 4,948,224 | $ | .90 | |||||||
| Effect of dilutive Convertible Preferred Stock | – | 20,500 | — | |||||||||
| Diluted EPS | $ | 4,447,000 | 4,968,724 | $ | .89 | |||||||
| For the three months ended January 31, 2020 | ||||||||||||
| Income | Shares | Per-Share | ||||||||||
| (Numerator) | (Denominator) | Amount | ||||||||||
| Net income | $ | 1,364,000 | ||||||||||
| Basic EPS | $ | 1,364,000 | 4,950,524 | $ | .28 | |||||||
| Effect of dilutive Convertible Preferred Stock | – | 20,500 | — | |||||||||
| Diluted EPS | $ | 1,364,000 | 4,971,024 | $ | .27 | |||||||
| For the nine months ended January 31, 2021 | ||||||||||||
| Income | Shares | Per-Share | ||||||||||
| (Numerator) | (Denominator) | Amount | ||||||||||
| Net income | $ | 7,799,000 | ||||||||||
| Basic EPS | $ | 7,799,000 | 4,949,351 | $ | 1.58 | |||||||
| Effect of dilutive Convertible Preferred Stock | – | 20,500 | — | |||||||||
| Diluted EPS | $ | 7,799,000 | 4,969,851 | $ | 1.57 | |||||||
| For the nine months ended January 31, 2020 | ||||||||||||
| Income | Shares | Per-Share | ||||||||||
| (Numerator) | (Denominator) | Amount | ||||||||||
| Net income | $ | 3,296,000 | ||||||||||
| Basic EPS | $ | 3,296,000 | 4,953,008 | $ | .67 | |||||||
| Effect of dilutive Convertible Preferred Stock | – | 20,500 | — | |||||||||
| Diluted EPS | $ | 3,296,000 | 4,973,508 | $ | .66 | |||||||
| Note 6: | 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 by the Company of approximately $16,000 and $14,000 were paid during each quarter ending January 31, 2021 and 2020, respectively. Likewise, the Company paid matching contributions of approximately $46,000 and $23,000 during each nine-month period ending January 31, 2021 and 2020, respectively.
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| Note 7: | Fair Value Measurements |
Generally accepted accounting principles in the United States of America (US GAAP) defines fair value as 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 measurement) 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. |
Investments and Marketable Securities
As of January 31, 2021, our investments consisted of money markets, certificates of deposit, publicly traded equity securities, real estate investment trusts (REITs) as well as certain state and municipal debt securities and corporate bonds. Our marketable securities are valued using third-party broker statements. The value of the investments is derived from quoted market information. The inputs to the valuation are generally 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.
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| Assets Measured at Fair Value on a Recurring Basis as of January 31, 2021 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets: | ||||||||||||||||
| Municipal Bonds | $ | — | $ | 5,930,000 | $ | — | $ | 5,930,000 | ||||||||
| REITs | — | 112,000 | — | 112,000 | ||||||||||||
| Equity Securities | 23,905,000 | — | — | 23,905,000 | ||||||||||||
| Money Markets and CDs | 933,000 | — | — | 933,000 | ||||||||||||
| Total fair value of assets measured on a recurring basis | $ | 24,838,000 | $ | 6,042,000 | $ | — | $ | 30,880,000 | ||||||||
| Assets Measured at Fair Value on a Recurring Basis as of April 30, 2020 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets: | ||||||||||||||||
| Municipal Bonds | $ | — | $ | 5,262,000 | $ | — | $ | 5,262,000 | ||||||||
| Corporate Bonds | 26,000 | — | — | 26,000 | ||||||||||||
| REITs | — | 68,000 | — | 68,000 | ||||||||||||
| Equity Securities | 19,385,000 | — | — | 19,385,000 | ||||||||||||
| Money Markets and CDs | 581,000 | — | — | 581,000 | ||||||||||||
| Total fair value of assets measured on a recurring basis | $ | 19,992,000 | $ | 5,330,000 | $ | — | $ | 25,322,000 | ||||||||
| Note 8 | 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.
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GEORGE RISK INDUSTRIES, INC.
PART I. FINANCIAL INFORMATION
Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q, includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), which are subject to the “safe harbor” created by those sections. Any statements herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, words such as “may,” “will,” “could,” “would,” “should,” “anticipate,” “expect,” “intend,” “believe,” “estimate,” “project” or “continue,” and the negatives of such terms are intended to identify forward-looking statements. The information included herein represents our estimates and assumptions as of the date of this filing. Unless required by law, we undertake no obligation to update publicly any forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
The following discussion should be read in conjunction with the attached unaudited condensed financial statements, and with the Company’s audited financial statements and discussion for the fiscal year ended April 30, 2020.
Executive Summary
The Company’s performance continues to improve through the three quarters of the current fiscal year with the third quarter staying strong. The Company is on track to have a record setting year for sales. This is mainly due the closure of a competitor that got out of the security switch business at the end of calendar year 2019 and having the ability to continue to work through the COVID-19 pandemic. The state of Nebraska, where we are located, has kept businesses open during the pandemic. Additionally, the Company’s products are traditionally tied to the housing market and with that market remaining strong, it in turn helps the Company’s sales growth. Opportunities include keeping up with the business growth. One way we are doing this is by looking into more automation. We also continue to look at businesses that might be a good fit to purchase. We also have new products that have hit the marketplace and a couple more that are scheduled to be introduced by the end of the fiscal year. Challenges in the coming months include continuing to get product out to customers in a timely manner and dealing with the COVID-19 pandemic restrictions. Possible COVID-19 challenges include, but are not limited to, price increases and/or delays in the supply chain, reduced sales, workforce interruptions, and economic conditions impacting the stock market. Management continues to work at keeping operations flowing as efficient as possible with the hopes of getting the facilities running leaner and more profitable than ever before.
Results of Operations
| ● | Net sales were $4,633,000 for the quarter ended January 31, 2021, which is a 29.09% increase from the corresponding quarter last year. Year-to-date net sales were $13,327,000 at January 31, 2021, which is a 22.81% increase from the same period last year. The significant growth in sales is due to our ongoing commitment to outstanding customer service and our ability to customize products. The Company is also seeing continued growth since a major competitor closed its doors at the end of 2019. | |
| ● | Cost of goods sold was 51.48% of net sales for the quarter ended January 31, 2021 and was 51.04% for the same quarter last year. Year-to-date cost of goods sold percentages were 49.76% for the current nine months and 50.33% for the corresponding nine months last year, which is right at the target of less than 50% for both the quarter and year-to-date results. Management continues to train employees for more efficient production and strives to get the best price for raw materials. |
| 19 |
| ● | Operating expenses increased by $109,000 for the quarter as they increased by $230,000 for the nine-months ended January 31, 2021 as compared to the corresponding periods last year. When comparing percentages in relation to net sales, the operating expenses for the quarter ended January 31, 2021 was 22.27% of net sales while it was 25.72% of net sales for the same quarter the prior year. For year-to-date numbers, operating expense were 21.99% and 24.88% of net sales for the nine months ended January 31, 2021 and 2020, respectively. The Company has been able to keep the operating expenses at less than 30% of net sales for many years now; however, the actual dollar amount increase is due to increased commission amounts, related to increased sales, and additional labor costs related to hiring new employees and wage increases. | |
| ● | Income from operations for the quarter ended January 31, 2021 was $1,216,000, a 45.80% increase from the corresponding quarter last year, which had income from operations of $834,000. Income from operations for the nine months ended January 31, 2021 was $3,766,000, which is a 40.00% increase from the corresponding nine months last year, which had income from operations of $2,690,000. | |
| ● | Other income and expenses are up $3,159,000 when comparing the current quarter to the same quarter last year. Comparatively, there is an increase of $4,858,000 in other income and expenses for the year-to-date numbers. The majority of activity in these accounts consists of investment interest, dividends, realized gains or losses on sale of investments, and unrealized gains or losses on equity securities. The majority of the larger than normal increases are from unrealized gains, which is a reflection of the stock market performing well. | |
| ● | Overall, net income for the quarter ended January 31, 2021 was up $3,083,000, or 226.03%, from the same quarter last year. Similarly, net income for the nine-month period ended January 31, 2021 was up $4,503,000, or 136.62%, from the same period in the prior year. | |
| ● | Earnings per common share for quarter ended January 31, 2021 were $0.90 per share and $1.58 per share for the year-to-date numbers. EPS for the quarter and nine months ended January 31, 2020 were $0.28 per share and $0.67 per share, respectively. |
Liquidity and capital resources
Operating
| ● | Net cash increased $478,000 during the nine months ended January 31, 2021 as compared to an increase of $774,000 during the corresponding period last year. | |
| ● | Accounts receivable increased $376,000 for the nine months ended January 31, 2021 compared with a $460,000 decrease for the same period last year. The current year increase is a result of improved sales, partially offset by slower collections of accounts receivable. Multiple receipts were received after the close of the reporting period. An analysis of accounts receivable shows that there were only 3.65% that were over 90 days at January 31, 2021. |
| 20 |
| ● | Inventories increased $823,000 during the current nine-month period compared to an increase of $506,000 last year. The larger increase in the current year is primarily due to an increase in raw material and finished goods. The increase in raw material is a result of having enough supply of material for the increase sales. The increase in finished goods relates to the introduction of a new product, a high security switch. We expect these to be sold soon. | |
| ● | Prepaid expenses saw a $327,000 decrease for the current nine months, primarily due to inventory being delivered that had been paid for in advance. The prior nine months showed a $43,000 decrease in prepaid expenses. | |
| ● | Accounts payable shows a $311,000 increase for the current nine-month period ended January 31, 2021 compared to a $16,000 increase for the prior nine-month period. The company strives to pay all invoices within terms, and the variance in increases is primarily due to the timing of receipt of products and payment of invoices, as well asCOVID-19 related personnel constraints at the end of the current reporting period. | |
| ● | Accrued expenses increased $54,000 for the current nine-month period compared to no change for the nine-month period ended January 31, 2020. The difference in the amounts is primarily due to timing of payroll periods ending. | |
| ● | Income tax payable increased $249,000 for the current nine-month period, compared to a decrease in income tax overpayment for the nine-months ended January 31, 2020. The current increase is largely due to having increased sales and income and not having large enough income tax estimates. | |
| Investing | ||
| ● | As for our investment activities, the Company spent approximately $426,000 on acquisitions of property and equipment for the current nine-month period, in comparison with the corresponding nine months last year, where there was activity of $468,000. | |
| ● | Additionally, the Company continues to purchase marketable securities, which include municipal bonds and quality stocks. During the nine-month period ended January 31, 2021 the buy/sell activity in the investment accounts was high. Net cash spent on purchases of marketable securities for the nine-month period ended January 31, 2021 was $440,000 compared to $640,000 spent in the prior nine-month period. The Company continues to use “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 a quarterly service fee based on the value of the investments. | |
| Financing | ||
| ● | The Company continues to purchase back common stock when the opportunity arises. For the nine-month period ended January 31, 2021, the Company purchased $28,000 worth of treasury stock. This is in comparison to $71,000 spent in the same nine months period the prior year. |
| 21 |
| ● | The company paid out dividends of $1,892,000 during the nine months ending January 31, 2021. These dividends were paid during the second quarter. The company declared a dividend of $0.42 per share of common stock on September 30, 2020 and these dividends were paid by October 31, 2020. As for the prior year numbers, dividends paid was $1,802,000 for the nine months ending January 31, 2020. A dividend of $0.40 per common share was declared and paid during the second fiscal quarter last year. |
The following is a list of ratios to help analyze George Risk Industries’ performance:
| As of | ||||||||
| January 31, 2021 | January 31, 2020 | |||||||
Working capital (current assets – current liabilities) | $ | 43,984,000 | $ | 35,119,000 | ||||
Current ratio (current assets / current liabilities) | 14.430 | 16.831 | ||||||
Quick ratio ((cash + investments + AR) / current liabilities) | 12.567 | 14.597 | ||||||
New Product Development
The Company and its engineering department continue to develop enhancements to product lines, develop new products which complement existing products, and look for products that are well suited to our distribution network and manufacturing capabilities. Items currently in the development process include:
| ● | Explosion proof contacts that will be UL listed for hazardous locations. 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 we are currently waiting on component parts to begin production and field testing. This next-generation model combines our battery operated DPA series with our hard wired 289 series. A variety of installation options will be available through jumper pin settings. | |
| ● | Wireless technology is a main area of focus for product development. We are 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 our pool access alarm and environmental sensors that will be easy to install in current construction. We are also concentrating on making products compatible with Wi-Fi, smartphone technology and the increasing popular Z-Wave standard for wireless home automation. |
Other Information
In addition to researching and developing new products, 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.
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There are no known seasonal trends with any of GRI’s products, since we sell to distributors and OEM manufacturers. Our products are tied to the housing industry and will fluctuate with building trends.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which requires entities to use a forward looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. The FASB has subsequently issued updates to the standard to provide additional clarification on specific topics. Topic 326 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We have applied this guidance, as of May 1, 2020, using a modified-retrospective approach. The application of this guidance did not require a cumulative effect adjustment to retained earnings and did not have a material effect on our financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820). The updated guidance improves the disclosure requirements on fair value measurements. The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures. We applied this guidance, as of May 1, 2020. The application of this guidance did not have a material effect on our disclosures.
In January 2020, the FASB issued ASU 2020-01, “Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions. ASU 2016-01 made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. For public business entities, the amendments in the ASU are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of ASU 2020-01 to have a material impact on its financial statements.
There are no other new accounting pronouncements that are expected to have a significant impact on our financial statements.
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GEORGE RISK INDUSTRIES, INC.
PART I. FINANCIAL INFORMATION
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable
Item 4. Controls and Procedures
Our management, under the supervision and with the participation of our chief executive officer (also working as our chief financial officer), evaluated 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 January 31, 2021. Based on that evaluation, management concluded that the disclosure controls and procedures employed at the Company were not effective to provide reasonable assurance that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.
In our annual report filed on Report 10-K for the year ended April 30, 2020, management identified the following material weakness in our internal control over financial reporting:
| ● | The small size of our Company limits our ability to achieve the desired level of separation of duties for proper internal controls and financial reporting, particularly as it relates to financial reporting to assure material disclosures or implementation of newly issued accounting standards are included. A secondary review over annual and quarterly filings does not occur. Due to the departure of the Controller, the current CEO and CFO roles are being fulfilled by the same individual. We do not have an audit committee. We do not believe we have met the full requirement for separation for financial reporting purposes. |
A Controller was hired by the Company in September 2020. Training is currently happening to fulfill disclosure control and procedure responsibilities, including review procedures for key accounting schedules and timely and proper documentation of material transactions and agreements. Until further sufficient training has been completed for this new Controller, we believe this control deficiency represents material weaknesses in internal control over financial reporting. To mitigate the effects of the material weakness identified in our annual report, the Company contracted with an outside CPA to perform a secondary review of our quarterly report filed on Form 10-Q.
Despite the material weaknesses in financial reporting noted above, we believe that our consolidated financial statements included in this report fairly present our financial position, results of operations and cash flows as of and for the periods presented in all material respects.
We are committed to the establishment of effective internal controls over financial reporting and will place emphasis on quarterly and year-end closing procedures, timely documentation and internal review of accounting and financial reporting consequences of material contracts and agreements, and enhanced review of all schedules and account analyses by experienced accounting department personnel or independent consultants.
Changes in Internal Control over Financial Reporting
Other than those mentioned above, there were no changes in our internal control over financial reporting during the fiscal quarter ended January 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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GEORGE RISK INDUSTRIES, INC.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 1A. Risk Factors
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information relating to the Company’s repurchase of common stock for the third quarter of fiscal year 2021.
| Period | Number of shares repurchased | |||
| November 1, 2020 – November 30, 2020 | 550 | |||
| December 1, 2020 – December 31, 2020 | 1,000 | |||
| January 1, 2021 – January 31, 2021 | 1,200 | |||
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| George Risk Industries, Inc. | ||||
| (Registrant) | ||||
| Date | March 17, 2021 | By: | /s/ Stephanie M. Risk-McElroy | |
| Stephanie M. Risk-McElroy | ||||
President, Chief Executive Officer, Chief Financial Officer and Chairman of the Board | ||||
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