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George Risk Industries (RSKIA)

Filed: 20 Sep 21, 12:07pm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended July 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 or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employers

Identification No.)

 

802 South 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 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, a small 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
  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

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

The number of shares of the Registrant’s Common Stock outstanding, as of September 17, 2021 was 4,946,456.

 

 

 

 

 

 

GEORGE RISK INDUSTRIES, INC.

 

PART I. FINANCIAL INFORMATION

 

ITEM 1: Financial Statements

 

The unaudited financial statements for the three-month period ended July 31, 2021 are attached hereto.

 

2

 

 

GEORGE RISK INDUSTRIES, INC.

CONDENSED BALANCE SHEETS

 

  July 31, 2021  April 30, 2021 
  (unaudited)    
ASSETS        
Current Assets:        
Cash and cash equivalents $8,331,000  $7,326,000 
Investments and securities, at fair value  34,085,000   33,337,000 
Accounts receivable:        
Trade, net of $15,622 and $9,947 doubtful account allowance  3,652,000   3,812,000 
Other  13,000   16,000 
Inventories, net  6,166,000   5,622,000 
Prepaid expenses  554,000   405,000 
Total Current Assets  52,801,000   50,518,000 
         
Property and Equipment, net, at cost  1,668,000   1,704,000 
         
Other Assets        
Investment in Limited Land Partnership, at cost  320,000   320,000 
Projects in process  240,000   200,000 
Other  7,000    
Total Other Assets  567,000   520,000 
         
Intangible assets, net  1,363,000   1,394,000 
         
TOTAL ASSETS $56,399,000  $54,136,000 

 

See accompanying notes to the condensed financial statements

 

3

 

 

GEORGE RISK INDUSTRIES, INC.

CONDENSED BALANCE SHEETS

(continued)

 

  July 31, 2021  April 30, 2021 
  (unaudited)    
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current Liabilities        
Accounts payable, trade $241,000  $477,000 
Dividends payable  2,073,000   2,080,000 
Accrued expenses:        
Payroll and related expenses  455,000   359,000 
Property taxes  3,000    
Income tax payable  628,000   81,000 
Total Current Liabilities  3,400,000   2,997,000 
         
Long-Term Liabilities        
Deferred income taxes  2,842,000   2,735,000 
Total Long-Term Liabilities  2,842,000   2,735,000 
         
Total Liabilities  6,242,000   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  115,000   108,000 
Retained earnings  51,495,000   49,749,000 
Less: treasury stock, 3,556,425 and 3,556,412 shares, at cost  (4,336,000)  (4,336,000)
Total Stockholders’ Equity  50,157,000   48,404,000 
         
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $56,399,000  $54,136,000 

 

See accompanying notes to the condensed financial statements

 

4

 

 

GEORGE RISK INDUSTRIES, INC.

CONDENSED INCOME STATEMENTS

FOR THE THREE MONTHS ENDED JULY 31, 2021 AND 2020

(Unaudited)

 

  July 31, 2021  July 31, 2020 
       
Net Sales $4,955,000  $4,047,000 
Less: Cost of Goods Sold  (2,318,000)  (1,952,000)
Gross Profit  2,637,000   2,095,000 
         
Operating Expenses:        
General and Administrative  349,000   313,000 
Sales  740,000   567,000 
Engineering  18,000   29,000 
Total Operating Expenses  1,107,000   909,000 
         
Income From Operations  1,530,000   1,186,000 
         
Other Income (Expense)        
Other  1,000   12,000 
Dividend and Interest Income  176,000   156,000 
Unrealized gain (loss) on equity securities  420,000   2,114,000 
Gain (Loss) on Sale of Investments  220,000   (28,000)
Total Other Income (Expense)  817,000   2,254,000 
         
Income Before Provisions for Income Taxes  2,347,000   3,440,000 
         
Provisions for Income Taxes        
Current Expense  498,000   349,000 
Deferred tax expense  103,000   599,000 
Total Income Tax Expense  601,000   948,000 
         
Net Income $1,746,000  $2,492,000 
         
Basic Earnings Per Share of Common Stock $0.35  $0.50 
Diluted Earnings Per Share of Common Stock $0.35  $0.50 
         
Weighted Average Number of Common Shares Outstanding  4,946,460   4,949,927 
Weighted Average Number of Shares Outstanding (Diluted)  4,966,960   4,970,427 

 

See accompanying notes to the condensed financial statements

 

5

 

 

GEORGE RISK INDUSTRIES, INC.

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED JULY 31, 2021 AND 2020

(Unaudited)

 

  July 31, 2021  July 31, 2020 
       
Net Income $1,746,000  $2,492,000 
         
Other Comprehensive Income, Net of Tax        
Unrealized gain on debt securities:        
Unrealized holding gains arising during period  11,000   149,000 
Income tax expense related to other comprehensive income  (4,000)  (44,000)
Other Comprehensive Income  7,000   105,000 
         
Comprehensive Income $1,753,000  $2,597,000 

 

See accompanying notes to the condensed financial statements

 

6

 

 

GEORGE RISK INDUSTRIES, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED JULY 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            
Purchases of common stock, shares            
Unrealized gain, net of tax effect            
                 
Net Income            
                 
Balances, July 31, 2020  4,100  $99,000   8,502,881  $850,000 

 

  Preferred Stock  

Common Stock

Class A

 
  Shares  Amount  Shares  Amount 
Balances, April 30, 2021  4,100  $99,000   8,502,881  $850,000 
Balance  4,100  $99,000   8,502,881  $850,000 
                 
Purchases of common stock            
                 
Unrealized gain, net of tax effect            
                 
Net Income            
                 
Balances, July 31, 2021  4,100  $99,000   8,502,881  $850,000 
Balance  4,100  $99,000   8,502,881  $850,000 

 

See accompanying notes to the condensed financial statements

 

7

 

 

GEORGE RISK INDUSTRIES, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITIY

FOR THE THREE MONTHS ENDED JULY 31, 2021 and 2020

(Unaudited)

 

          Accumulated       
    Treasury Stock  Other       
 Paid-In  (Common Class A)  Comprehensive  Retained    
 Capital  Shares  Amount  Income  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                 
                        
Unrealized gain, net of tax effect          105,000      105,000 
                        
Net Income             2,492,000   2,492,000 
                        
Balances, July 31, 2020$1,934,000   3,552,954  $(4,301,000) $101,000  $43,498,000  $42,181,000 

 

          Accumulated       
    Treasury Stock  Other       
 Paid-In  (Common Class A)  Comprehensive  Retained    
 Capital  Shares  Amount  Income  Earnings  Total 
Balances, April 30, 2021$1,934,000   3,556,412  $(4,336,000) $108,000  $49,749,000  $48,404,000 
Balances$1,934,000   3,556,412  $(4,336,000) $108,000  $49,749,000  $48,404,000 
                        
Purchases of common stock    13             
                        
Unrealized gain, net of tax effect          7,000      7,000 
                        
Net Income             1,746,000   1,746,000 
                        
Balances, July 31, 2021  $1,934,000   3,556,425  $(4,336,000) $115,000  $51,495,000  $50,157,000 
Balances  $1,934,000   3,556,425  $(4,336,000) $115,000  $51,495,000  $50,157,000 

 

See accompanying notes to the condensed financial statements

 

8

 

 

GEORGE RISK INDUSTRIES, INC.

CONDENSED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED JULY 31, 2021 AND 2020

(Unaudited)

 

  July 31, 2021  July 31, 2020 
Cash Flows from Operating Activities:        
Net Income $1,746,000  $2,492,000 
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization  107,000   86,000 
(Gain) loss on sale of investments  (220,000)   
Impairments on investments     27,000 
Unrealized (gain) loss on equity securities  (420,000)  (2,114,000)
Reserve for bad debts  6,000   (5,000)
Reserve for obsolete inventory  5,000   1,000 
Deferred income taxes  103,000   599,000 
Changes in assets and liabilities:        
(Increase) decrease in:        
Accounts receivable  154,000   49,000 
Inventories  (549,000)  (405,000)
Prepaid expenses  (196,000)  94,000 
Employee receivables  2,000   (1,000)
Increase (decrease) in:        
Accounts payable  (236,000)  117,000 
Accrued expenses  99,000   (61,000)
Income tax payable  547,000   346,000 
Net cash from operating activities  1,148,000   1,225,000 
         
Cash Flows From Investing Activities:        
(Purchase) of property and equipment  (40,000)  (95,000)
Proceeds from sale of marketable securities  2,000   14,000 
(Purchase) of marketable securities  (98,000)  (111,000)
Net cash from investing activities  (136,000)  (192,000)
         
Cash Flows From Financing Activities:        
Dividends paid  (7,000)   
Net cash from financing activities  (7,000)   
         
Net Change in Cash and Cash Equivalents $1,005,000  $1,033,000 
         
Cash and Cash Equivalents, beginning of period $7,326,000  $6,458,000 
Cash and Cash Equivalents, end of period $8,331,000  $7,491,000 
         
Supplemental Disclosure for Cash Flow Information:        
Cash payments for:        
Income taxes paid $0  $0 
Interest paid $0  $0 
         
Cash receipts for:        
Income taxes $43,000  $0 

 

See accompanying notes to the condensed financial statements

 

9

 

 

GEORGE RISK INDUSTRIES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JULY 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 condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s April 30, 2021 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 2016-13, “Financial Instruments - Credit Losses (Topic 326),” which was subsequently amended in February 2020 by ASU 2020-02, “Financial Instruments - Credit Losses (Topic 326) and Leases (Topic 842).” The amendments introduce an impairment model that is based on expected credit losses, rather than incurred losses, to estimate credit losses on certain types of financial instruments (e.g., loans and held-to-maturity securities), including certain off-balance sheet financial instruments (e.g., loan commitments). The expected credit losses should consider historical information, current information, and reasonable and supportable forecasts, including estimates of prepayments, over the contractual term. Financial instruments with similar risk characteristics may be grouped together when estimating expected credit losses. The update with amendment is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company does not believe this new guidance will have a material impact on its financial statements and will implement the disclosures related to this update beginning in 2023.

 

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 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.

 

10

 

 

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 November 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 July 31, 2021 and April 30, 2021, investments consisted of the following:

 Schedule of Investments

  

 

 

  Gross  Gross    
Investments at Cost  Unrealized  Unrealized  Fair 
July 31, 2021 Basis  Gains  Losses  Value 
Municipal bonds $5,861,000  $200,000  $(34,000) $6,027,000 
REITs  131,000   14,000   (6,000)  139,000 
Equity securities  17,492,000   9,730,000   (92,000)  27,130,000 
Money markets and CDs  789,000         789,000 
Total $24,273,000  $9,944,000  $(132,000) $34,085,000 

 

     Gross  Gross    
Investments at Cost  Unrealized  Unrealized  Fair 
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 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, no impairment loss was recorded for the quarter ended July 31, 2021. For the prior quarter ended July 31, 2020, an impairment loss of $27,000 was recorded.

 

11

 

 

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 July 31, 2021 the Company had sales of equity securities which yielded gross realized gains of $238,000 and gross realized losses of $8,000. For the same period, sales of debt securities did not yield any gross realized gains, but gross realized losses of $10,000 were recorded. During the quarter ending July 31, 2020, the Company recorded gross realized gains and losses on equity securities of $102,000 and $126,000, respectively, while sales of debt securities did not yield any gross realized gains, but gross realized losses of $4,000 were recorded. The gross realized loss numbers include the impaired figures listed in the previous paragraph.

 

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 July 31, 2021 and April 30, 2021, respectively.

 

Unrealized Loss Breakdown by Investment Type at July 31, 2021

 Schedule of Unrealized Loss Breakdown by Investment

  Less than 12 months  12 months or greater  Total 
Description Fair Value  Unrealized Loss  Fair Value  Unrealized Loss  Fair Value  Unrealized Loss 
Municipal bonds $355,000  $(5,000) $279,000  $(29,000) $634,000  $(34,000)
REITs        22,000   (6,000)  22,000   (6,000)
Equity securities  526,000   (35,000)  499,000   (57,000)  1,025,000   (92,000)
Total $881,000  $(40,000) $800,000  $(92,000) $1,681,000  $(132,000)

 

Unrealized Loss Breakdown by Investment Type at April 30, 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 $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, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at July 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 July 31, 2021.

 

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Note 3: Inventories

 

Inventories at July 31, 2021 and April 30, 2021 consisted of the following:

 Schedule of Inventories

  July 31,  April 30, 
  2021  2021 
       
Raw materials $5,030,000  $4,399,000 
Work in process  574,000   457,000 
Finished goods  742,000   768,000 
Inventory in transit     173,000 
Inventory gross  6,346,000   5,797,000 
Less: allowance for obsolete inventory  (180,000)  (175,000)
Inventories, net $6,166,000  $5,622,000 

 

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Note 4: Business Segments

 

The following is financial information relating to industry segments:

 Schedule of Financial Information Relating to Industry Segments

  July 31, 
  2021  2020 
Net revenue:        
Security alarm products $4,257,000  $3,114,000 
Cable & wiring tools  538,000   800,000 
Other products  160,000   133,000 
Total net revenue $4,955,000  $4,047,000 
         
Income from operations:        
Security alarm products $1,315,000  $912,000 
Cable & wiring tools  166,000   235,000 
Other products  49,000   39,000 
Total income from operations $1,530,000  $1,186,000 
         
Depreciation and amortization:        
Security alarm products $35,000  $22,000 
Cable & wiring tools  31,000   31,000 
Other products  22,000   12,000 
Corporate general  19,000   21,000 
Total depreciation and amortization $107,000  $86,000 
         
Capital expenditures:        
Security alarm products $40,000  $93,000 
Cable & wiring tools      
Other products     2,000 
Corporate general      
Total capital expenditures $40,000  $95,000 

 

  July 31, 2021  April 30, 2021 
Identifiable assets:        
Security alarm products $9,415,000  $8,955,000 
Cable & wiring tools  2,428,000   2,534,000 
Other products  646,000   667,000 
Corporate general  43,910,000   41,980,000 
Total assets $56,399,000  $54,136,000 

 

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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:

Schedule of Basic and Diluted Earnings Per Share 

  For the three months ended July 31, 2021 
  Income  Shares  Per-Share 
  (Numerator)  (Denominator)  Amount 
Net income $1,746,000         
Basic EPS $1,746,000   4,946,460  $.35 
Effect of dilutive Convertible Preferred Stock     20,500    
Diluted EPS $1,746,000   4,966,960  $.35 

 

  For the three months ended July 31, 2020 
  Income  Shares  Per-Share 
  (Numerator)  (Denominator)  Amount 
Net income $2,492,000         
Basic EPS $2,492,000   4,949,927  $.50 
Effect of dilutive Convertible Preferred Stock     20,500    
Diluted EPS $2,492,000   4,970,427  $.50 

 

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 of approximately $17,000 and $13,000 were paid in each of the quarters ending July 31, 2021 and 2020 respectively.

 

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Note 7: 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 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 1Valuation is based upon quoted prices for identical instruments traded in active markets.
   
 Level 2Valuation 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 3Valuation 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 July 31, 2021, our investments consisted of money markets, publicly traded equity securities, real estate investment trusts (REITs) as well as certain state and municipal debt securities. 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 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 table sets 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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Schedule of Assets Measured at Fair Value on Recurring Basis

 

  

Assets Measured at Fair Value on a Recurring Basis as of

July 31, 2021

 
  Level 1  Level 2  Level 3  Total 
Assets:                
Municipal Bonds $  $6,027,000  $  $6,027,000 
REITs     139,000      139,000 
Equity Securities  27,130,000         27,130,000 
Money Markets and CDs  789,000         789,000 
Total fair value of assets measured on a recurring basis $27,919,000  $6,166,000  $  $34,085,000 

 

  

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 

 

Note 8 Subsequent Events

 

None

 

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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 current information becomes available in the future.

 

The following discussion should be read in conjunction with the attached condensed financial statements, and with the Company’s audited financial statements and discussion for the fiscal year ended April 30, 2021.

 

Executive Summary

 

The Company’s performance remained steady during the quarter ended July 31, 2021 as compared to the quarter ended July 31, 2020. Although sales have increased when comparing to the same quarter last year, overall net income is down because unrealized gains on investments aren’t as big as they were for the same quarter last year. The uptick in sales is direct result of the closure of a competitor at the end of calendar year 2019 and having the ability to continue working through the COVID-19 pandemic. As a result of the increased demand, the Company is experiencing a sizable back order log; however, management has been able to increase inventory. Management now intends to focus on ramping up production to meet customer’s needs in a timely manner. Opportunities include continuing to learn and grow with our computer system and to continue looking at businesses that might be a good fit to purchase. We also have new products that are scheduled to enter the marketplace by the end of the calendar year. Challenges in the coming months include continuing to get product out to customers in a timely manner and dealing with 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 for the quarter ended July 31, 2021 showed a 22.44% increase over the same period in the prior year. The Company saw increased sales resulting primarily from a competitor no longer selling competing products and having the ability to continue to work through the COVID-19 pandemic. Management also believes that sales continue to grow due to our ongoing commitment to outstanding customer service and our ability to customize products.
   
 Cost of goods sold decreased from 48.23% of sales in the prior year, to 46.78% in the current quarter, which is inside of Management’s goal to keep labor and other manufacturing expenses within the range of 45 to 50%. The decreased cost of goods sold percentage is a reflection of training initiatives resulting in more efficient production.

 

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 Operating expenses increased by $198,000 when comparing the current year quarter to the same quarter for the prior year; however, the percentage of net sales decreased to 22.34% for the quarter ended July 31, 2020 compared to 22.46% for the corresponding quarter last year. The dollar amount increase is the result of increased personnel and commission expense related to the increase in net sales; however, the Company maintained the ratio of operating expenses to net sales at less than 30%, which is in line with historical ratios.
   
 Income from operations for the quarter ended July 31, 2021 was at $1,530,000, which is a 29.01% increase from the corresponding quarter last year, which had income from operations of $1,186,000.
   
 Other income and expenses showed a $817,000 gain for the quarter ended July 31, 2021 as compared to a $2,254,000 gain for the quarter ended July 31, 2020. For the three months ended July 31, 2021, $420,000 of unrealized gains from equity securities were recorded, compared to the $2,114,000 of unrealized gains from equity securities recorded for the three months ended July 31, 2020. The remainder of the increase is primarily due to dividend and interest income and gains on sales of investments.
   
 The Company’s provision for income taxes showed a decrease of $347,000 from $948,000 in the quarter ended July 31, 2020 to $601,000 for the quarter ended July 31, 2021. This decrease is primarily due to decreased deferred taxes resulting from a much smaller unrealized gain for the current quarter.
   
 In turn, net income for the quarter ended July 31, 2021 was $1,746,000, a 29.94% decrease from the corresponding quarter last year, which showed net income of $2,492,000.
   
 Earnings per share for the quarter ended July 31, 2021 were $0.35 per common share and $0.50 per common share for the quarter ended July 31, 2020.

 

Liquidity and capital resources

 

  Operating
   
 Net cash increased $1,005,000 during the quarter ended July 31, 2021 as compared to an increase of $1,033,000 during the corresponding quarter last year.
   
 Accounts receivable decreased $154,000 for the quarter ending July 31, 2021 compared with a $49,000 decrease for the same quarter last year. The bigger decrease in accounts receivable is directly attributable to an increase in sales and customers being able to pay timely as the COVID-19 pandemic has become a part of our everyday life. Management still has the ability to collect on accounts and to keep past due accounts to a minimum. An analysis of accounts shows that there were only 3.26% that were over 90 days at July 31, 2021.
   
 Inventories increased $549,000 during the current quarter as compared to a $405,000 increase last year. The larger increase is primarily due to the fact that the Company is continuing to buy more raw materials due to increased orders and that the prices of raw materials continue to increase.

 

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 For the quarter ended July 31, 2021 there was a $196,000 increase in prepaid expenses compared to a decrease of $94,000 for the quarter ended July 31, 2020. The current increase is due to more prepayments of raw materials. Lead times and costs have risen on raw materials, making it a challenge to obtain these raw materials.
   
 Accounts payable shows a decrease of $236,000 for the quarter ended July 31, 2021 compared to an increase of $117,000 for the same quarter the year before. The variance is primarily due to timing differences of when product is received. Management strives to pay all payables within terms, unless there is a problem with the merchandise.
   
 Accrued expenses increased $99,000 for the current quarter as compared to a $61,000 decrease for the quarter ended July 31, 2020. The difference in the amounts is primarily due to timing of when payroll periods end.
   
 Income tax payable for the quarter ended July 31, 2021 increased $547,000, compared to a $346,000 increase for the quarter ended July 31, 2020. The current increase is due to larger tax estimates in relation to increased income.
   
  Investing
   
 The Company purchased $40,000 of property and equipment during the current fiscal quarter. In comparison, $95,000 was spent on purchases of property and equipment during the corresponding quarter last year.
   
 The Company continues to purchase marketable securities, which include municipal bonds and quality stocks. Cash spent on purchases of marketable securities for the quarter ended July 31, 2021 was $98,000 compared to $111,000 spent during the quarter ended July 31, 2020. We continue 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 quarterly service fees based on the value of the investments.
   
  Financing
   
 The Company continues to purchase back common stock when the opportunity arises, but for the quarter ended July 31, 2021 and 2020, respectively, the Company did not buyback any treasury stock.

 

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In conjunction with the Company’s Condensed Financial Statements, we have provided the following list of ratios to help analyze George Risk Industries’ performance:

 

  Qtr ended  Qtr ended 
  July 31, 2021  July 31, 2020 
Working capital
(current assets – current liabilities)
 $49,401,000  $40,103,000 
Current ratio
(current assets / current liabilities)
  15.529   11.485 
Quick ratio
((cash + current investments + AR) / current liabilities)
  13.549   9.953 

 

New Product Development

 

The Company and its’ engineering department perpetually work to develop enhancements to current 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 various stages of the development process include:

 

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

An updated version of the pool access alarm (PAA) has met electrical listing testing (ETL) approval and production has started. This next-generation model combines our battery operated DPA series with our hard wired 289 series. A variety of installation options will be available through jumper pin settings.

 

We are currently redesigning our glass break detector switch and water shutoff system to include a brass valve.

   
 Wireless technology is a main area of focus for product development. We are looking into 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 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.

 

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Other Information

 

In addition to researching 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.

 

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 2016-13, “Financial Instruments - Credit Losses (Topic 326),” which was subsequently amended in February 2020 by ASU 2020-02, “Financial Instruments - Credit Losses (Topic 326) and Leases (Topic 842).” The amendments introduce an impairment model that is based on expected credit losses, rather than incurred losses, to estimate credit losses on certain types of financial instruments (e.g., loans and held-to-maturity securities), including certain off-balance sheet financial instruments (e.g., loan commitments). The expected credit losses should consider historical information, current information, and reasonable and supportable forecasts, including estimates of prepayments, over the contractual term. Financial instruments with similar risk characteristics may be grouped together when estimating expected credit losses. The update with amendment is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company does not believe this new guidance will have a material impact on its financial statements and will implement the disclosures related to this update beginning in 2023.

 

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 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.

 

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GEORGE RISK INDUSTRIES, INC.

 

PART I. FINANCIAL INFORMATION

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

This disclosure does not apply.

 

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 July 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, 2021, 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 occur with an outside party. 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 of duties for financial reporting purposes.

 

We continue to operate with a limited number of accounting and financial personnel. For the quarter ending July 31, 2021 the Company did not have a Controller, but management is looking to fill this position as soon as possible. Training will be required 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 sufficient training has taken place 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 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 July 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 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 first quarter of fiscal year 2022.

 

Period Number of shares repurchased
May 1, 2021 – May 31, 2021 -0-
June 1, 2021 – June 30, 2021 -13-
July 1, 2021 – July 31, 2021 -0-

 

Item 3. Defaults upon Senior Securities

 

Not applicable

 

Item 4. Mine Safety Disclosures

 

Not applicable

 

Item 5. Other Information

 

Not applicable

 

Item 6. Exhibits

 

Exhibit No. Description
31.1 Certification of the Chief Executive Officer (Principal Financial and Accounting Officer), as required by Section 302 of the Sarbanes-Oxley Act of 2002.
   
32.1 Certification of the Chief Executive Officer (Principal Financial and Accounting Officer), as required by Section 906 of the Sarbanes-Oxley Act of 2002.
   
101.INS Inline XBRL Instance Document
   
101.SCH Inline XBRL Taxonomy Extension Schema Document
   
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
   
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
   
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

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SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 George Risk Industries, Inc.
 (Registrant)
   
Date September 20, 2021By:/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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