10-Q 1 form10-q.htm
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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, 2022

 

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 20, 2022 was 4,930,988.

 

 

 

 
 

 

GEORGE RISK INDUSTRIES, INC.

 

PART I. FINANCIAL INFORMATION

 

ITEM 1: Financial Statements

 

The unaudited financial statements for the three-month period ended July 31, 2022 are attached hereto.

 

2
 

 

GEORGE RISK INDUSTRIES, INC.

CONDENSED BALANCE SHEETS

 

           
   July 31, 2022   April 30, 2022 
   (unaudited)     
ASSETS          
Current Assets:          
Cash and cash equivalents  $7,649,000   $6,078,000 
Investments and securities, at fair value   30,827,000    30,979,000 
Accounts receivable:          
Trade, net of allowance for credit losses of $20,036 and $33,531    3,629,000    4,114,000 
Other   17,000    16,000 
Inventories, net   8,841,000    7,940,000 
Prepaid expenses   1,091,000    1,362,000 
Total Current Assets   52,054,000    50,489,000 
           
Property and Equipment, net, at cost   1,779,000    1,782,000 
           
Other Assets          
Investment in Limited Land Partnership, at cost   344,000    344,000 
Projects in process   92,000    83,000 
Other   8,000    62,000 
Total Other Assets   444,000    489,000 
           
Intangible assets, net   1,240,000    1,271,000 
           
TOTAL ASSETS  $55,517,000   $54,031,000 

 

See accompanying notes to the condensed financial statements

 

3
 

 

GEORGE RISK INDUSTRIES, INC.

CONDENSED BALANCE SHEETS

(continued)

 

   July 31, 2022   April 30, 2022 
   (unaudited)     
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current Liabilities          
Accounts payable, trade  $300,000   $320,000 
Dividends payable   2,296,000    2,296,000 
Accrued expenses:          
Payroll and related expenses   471,000    354,000 
Property taxes   4,000     
Income tax payable   686,000    277,000 
Total Current Liabilities   3,757,000    3,247,000 
           
Long-Term Liabilities          
Deferred income taxes   1,810,000    1,742,000 
Total Long-Term Liabilities   1,810,000    1,742,000 
           
Total Liabilities   5,567,000    4,989,000 
           
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   (117,000)   (137,000)
Retained earnings   51,733,000    50,843,000 
Less: treasury stock, 3,571,893 and 3,571,693 shares, at cost   (4,549,000)   (4,547,000)
Total Stockholders’ Equity   49,950,000    49,042,000 
           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $55,517,000   $54,031,000 

 

See accompanying notes to the condensed financial statements

 

4
 

 

GEORGE RISK INDUSTRIES, INC.

CONDENSED INCOME STATEMENTS

FOR THE THREE MONTHS ENDED JULY 31, 2022 AND 2021

(Unaudited)

 

           
   July 31, 2022   July 31, 2021 
         
Net Sales  $5,210,000   $4,955,000 
Less: Cost of Goods Sold   (2,657,000)   (2,318,000)
Gross Profit   2,553,000    2,637,000 
           
Operating Expenses:          
General and Administrative   332,000    349,000 
Sales   734,000    740,000 
Engineering   21,000    18,000 
Total Operating Expenses   1,087,000    1,107,000 
           
Income From Operations   1,466,000    1,530,000 
           
Other Income (Expense)          
Other   2,000    1,000 
Dividend and Interest Income   184,000    176,000 
Unrealized gain (loss) on equity securities   (189,000)   420,000 
Gain (Loss) on Sale of Investments   (99,000)   220,000 
Total Other Income (Expense)   (102,000)   817,000 
           
Income Before Provisions for Income Taxes   1,364,000    2,347,000 
           
Provisions for Income Taxes          
Current Expense   414,000    498,000 
Deferred tax (benefit) expense   (101,000)   103,000 
Total Income Tax Expense   313,000    601,000 
           
Net Income  $1,051,000   $1,746,000 
           
Basic Earnings Per Share of Common Stock  $0.21   $0.35 
Diluted Earnings Per Share of Common Stock  $0.21   $0.35 
           
Weighted Average Number of Common Shares Outstanding   4,931,022    4,946,460 
Weighted Average Number of Shares Outstanding (Diluted)   4,951,522    4,966,960 

 

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, 2022 AND 2021

(Unaudited)

 

           
   July 31, 2022   July 31, 2021 
         
Net Income  $1,051,000   $1,746,000 
           
Other Comprehensive Income, Net of Tax          
Unrealized gain on debt securities:          
Unrealized holding gains arising during period   29,000    11,000 
Income tax expense related to other comprehensive income   (9,000)   (4,000)
Other Comprehensive Income   20,000    7,000 
           
Comprehensive Income  $1,071,000   $1,753,000 

 

See accompanying notes to the condensed financial statements

 

6
 

 

GEORGE RISK INDUSTRIES, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED JULY 31, 2022 and 2021

(Unaudited)

 

                     
   Preferred Stock  

Common Stock

Class A

 
   Shares   Amount   Shares   Amount 
Balances, April 30, 2021   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 

 

   Preferred Stock  

Common Stock

Class A

 
   Shares   Amount   Shares   Amount 
Balances, April 30, 2022   4,100   $99,000    8,502,881   $850,000 
                     
Prior period adjustment for tax provisions related to depreciation                
                     
Purchases of common stock                
                     
Unrealized gain, net of tax effect                
                     
Net Income                
                     
Balances, July 31, 2022   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, 2022 and 2021

(Unaudited)

 

                              
              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 
                              
Purchases of common stock      13                 
                              
Unrealized gain (loss), 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 

 

              Accumulated         
      Treasury Stock   Other         
  Paid-In   (Common Class A)   Comprehensive   Retained     
  Capital   Shares   Amount   Income   Earnings   Total 
Balances, April 30, 2022 $1,934,000    3,571,693   $(4,547,000)  $(137,000)  $50,843,000   $49,042,000 
                              
Prior period adjustment for tax provisions related to depreciation                  (161,000)   (161,000)
                              
Purchases of common stock      200    (2,000)           (2,000)
                              
Unrealized gain, net of tax effect              20,000        20,000 
                              
Net Income                  1,051,000    1,051,000 
                              
Balances, July 31, 2022 $1,934,000    3,571,893   $(4,549,000)  $(117,000)  $51,733,000   $49,950,000 

 

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, 2022 AND 2021

(Unaudited)

 

           
   July 31, 2022   July 31, 2021 
Cash Flows from Operating Activities:          
Net Income  $1,051,000   $1,746,000 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   108,000    107,000 
(Gain) loss on sale of investments   99,000    (220,000)
Unrealized (gain) loss on equity securities   189,000    (420,000)
Provision for credit losses on accounts receivable   (13,000)   6,000 
Reserve for obsolete inventory   46,000    5,000 
Deferred income taxes   (101,000)   103,000 
Changes in assets and liabilities:          
(Increase) decrease in:          
Accounts receivable   499,000    154,000 
Inventories   (947,000)   (549,000)
Prepaid expenses   317,000    (196,000)
Employee receivables   (1,000)   2,000 
Increase (decrease) in:          
Accounts payable   (21,000)   (236,000)
Accrued expenses   121,000    99,000 
Income tax payable   409,000    547,000 
Net cash from operating activities   1,756,000    1,148,000 
           
Cash Flows From Investing Activities:          
(Purchase) of property and equipment   (74,000)   (40,000)
Proceeds from sale of marketable securities   2,000    2,000 
(Purchase) of marketable securities   (111,000)   (98,000)
Net cash from investing activities   (183,000)   (136,000)
           
Cash Flows From Financing Activities:          
(Purchase) of treasury stock   (2,000)    
Dividends paid       (7,000)
Net cash from financing activities   (2,000)   (7,000)
           
Net Change in Cash and Cash Equivalents  $1,571,000   $1,005,000 
           
Cash and Cash Equivalents, beginning of period  $6,078,000   $7,326,000 
Cash and Cash Equivalents, end of period  $7,649,000   $8,331,000 
           
Supplemental Disclosure for Cash Flow Information:          
Cash payments for:          
Income taxes paid  $0   $0 
Interest paid  $0   $0 
           
Cash receipts for:          
Income taxes  $0   $43,000 

 

See accompanying notes to the condensed financial statements

 

9
 

 

GEORGE RISK INDUSTRIES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JULY 31, 2022

 

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, 2022 annual report on Form 10-K (the “Annual Report”). 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.

 

Significant Accounting Policies — The significant accounting policies used in preparation of these condensed consolidated financial statements are disclosed in our Annual Report, and there have been no changes to the Company’s significant accounting policies during the three months ended July 31, 2022.

 

Prior Period Financial Statement Adjustment – In connection with the preparation of our financial statements, we identified an immaterial misstatement to our financial statements in the Company’s Annual Report. The misstatement is related to a difference in deferred taxes on depreciation for a few years and up through the year ended April 30, 2022. In accordance with Staff Accounting Bulletins No. 99 (“SAB No. 99”) Topic 1.M, “Materiality” and SAB No. 99 Topic 1.N “Considering the Effects of Misstatements when Quantifying Misstatements in the Current Year Financial Statements,” we evaluated the misstatement and determined that the related impact was not consequential to our financial statements for any annual or interim period for fiscal 2022, any other prior period, nor would the cumulative impact of correcting the misstatement be consequential to our results of operations and equity for the fiscal and interim periods of 2023.

 

Recently Issued Accounting Pronouncements — There are no 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 August 2022 and September 2042. The Company uses the average cost method to determine the cost of equity securities sold with any unrealized gains or losses reported in the respective period’s earnings. 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, 2022 and April 30, 2022, investments consisted of the following:

       Gross   Gross     
Investments at  Cost   Unrealized   Unrealized   Fair 
July 31, 2022  Basis   Gains   Losses   Value 
Municipal bonds  $5,538,000   $53,000   $(212,000)  $5,379,000 
REITs   93,000    2,000    (4,000)   91,000 
Equity securities   18,251,000    6,715,000    (443,000)   24,523,000 
Money markets and CDs   834,000            834,000 
Total  $24,716,000   $6,770,000   $(659,000)  $30,827,000 

 

       Gross   Gross     
Investments at  Cost   Unrealized   Unrealized   Fair 
April 30, 2022  Basis   Gains   Losses   Value 
Municipal bonds  $5,625,000   $41,000   $(229,000)  $5,437,000 
REITs   131,000    16,000    (3,000)   144,000 
Equity securities   18,322,000    6,921,000    (473,000)   24,770,000 
Money markets and CDs   628,000            628,000 
Total  $24,706,000   $6,978,000   $(705,000)  $30,979,000 

 

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 quarters ended July 31, 2022 and 2021, respectively.

 

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, 2022 the Company had sales of equity securities which yielded gross realized gains of $197,000 and gross realized losses of $267,000. For the same period, sales of debt securities did not yield any gross realized gains, but gross realized losses of $29,000 were recorded. During the quarter ending July 31, 2021, the Company recorded gross realized gains and losses on equity securities of $238,000 and $8,000, respectively, while sales of debt securities did not yield any gross realized gains, but gross realized losses of $10,000 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, 2022 and April 30, 2022, respectively.

Unrealized Loss Breakdown by Investment Type at July 31, 2022

 

    Less than 12 months, Fair Value    Less than 12 months, Unrealized Loss    12 months or greater, Fair Value    12 months or greater, Unrealized Loss    Total, Fair Value    Total, Unrealized Loss 
             
   Less than 12 months   12 months or greater   Total 
Description  Fair Value   Unrealized Loss   Fair Value   Unrealized Loss   Fair Value   Unrealized Loss 
Municipal bonds  $4,265,000   $(157,000)  $363,000   $(55,000)  $4,628,000   $(212,000)
REITs   17,000    (2,000)   27,000    (2,000)   44,000    (4,000)
Equity securities   4,112,000    (412,000)   185,000    (31,000)   4,297,000    (443,000)
Total  $8,394,000   $(571,000)  $575,000   $(88,000)  $8,969,000   $(659,000)

 

Unrealized Loss Breakdown by Investment Type at April 30, 2022

 

    Less than 12 months, Fair Value    Less than 12 months, Unrealized Loss    12 months or greater, Fair Value    12 months or greater, Unrealized Loss    Total, Fair Value    Total, Unrealized Loss 
             
   Less than 12 months   12 months or greater   Total 
Description  Fair Value   Unrealized Loss   Fair Value   Unrealized Loss   Fair Value   Unrealized Loss 
Municipal bonds  $4,420,000   $(142,000)  $539,000   $(87,000)  $4,959,000   $(229,000)
REITs   18,000    (1,000)   26,000    (2,000)   44,000    (3,000)
Equity securities   4,157,000    (424,000)   274,000    (49,000)   4,431,000    (473,000)
Total  $8,595,000   $(567,000)  $839,000   $(138,000)  $9,434,000   $(705,000)

 

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, 2022 and April 31, 2022.

 

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, 2022 and April 30, 2022.

 

12
 

 

Note 3: Inventories

 

Inventories at July 31, 2022 and April 30, 2022 consisted of the following:

           
   July 31,   April 30, 
   2022   2022 
         
Raw materials  $7,430,000   $6,772,000 
Work in process   727,000    618,000 
Inventory in transit   1,018,000    838,000 
Inventory gross   9,175,000    8,228,000 
Less: allowance for obsolete inventory   (334,000)   (288,000)
Inventories, net  $8,841,000   $7,940,000 

 

13
 

 

Note 4: Business Segments

 

The following is financial information relating to industry segments:

   2022   2021 
   July 31, 
   2022   2021 
Net revenue:          
Security alarm products  $4,502,000   $4,257,000 
Cable & wiring tools   484,000    538,000 
Other products   224,000    160,000 
Total net revenue  $5,210,000   $4,955,000 
           
Income from operations:          
Security alarm products  $1,267,000   $1,315,000 
Cable & wiring tools   136,000    166,000 
Other products   63,000    49,000 
Total income from operations  $1,466,000   $1,530,000 
           
Depreciation and amortization:          
Security alarm products  $48,000   $35,000 
Cable & wiring tools   30,000    31,000 
Other products   18,000    22,000 
Corporate general   12,000    19,000 
Total depreciation and amortization  $108,000   $107,000 
           
Capital expenditures:          
Security alarm products  $74,000   $40,000 
Cable & wiring tools        
Other products        
Corporate general        
Total capital expenditures  $74,000   $40,000 

 

   July 31, 2022   April 30, 2022 
Identifiable assets:          
Security alarm products  $11,975,000   $11,537,000 
Cable & wiring tools   2,397,000    2,509,000 
Other products   803,000    732,000 
Corporate general   40,342,000    39,253,000 
Total assets  $55,517,000   $54,031,000 

 

14
 

 

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 July 31, 2022 
   Income   Shares   Per-Share 
   (Numerator)   (Denominator)   Amount 
Net income  $1,051,000           
Basic EPS  $1,051,000    4,931,022   $.21 
Effect of dilutive Convertible Preferred Stock       20,500     
Diluted EPS  $1,051,000    4,951,522   $.21 

 

   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 

 

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 $16,000 and $17,000 were paid in each of the quarters ending July 31, 2022 and 2021 respectively.

 

15
 

 

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 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 July 31, 2022 and April 30, 2022, 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.

16
 

 

     Level 1     Level 2     Level 3     Total 
   Assets Measured at Fair Value on a Recurring Basis as of
July 31, 2022
 
   Level 1   Level 2   Level 3   Total 
Assets:                    
Municipal Bonds  $   $5,379,000   $   $5,379,000 
REITs       91,000        91,000 
Equity Securities   24,523,000            24,523,000 
Money Markets and CDs   834,000            834,000 
Total fair value of assets measured on a recurring basis  $25,357,000   $5,470,000   $   $30,827,000 

 

     Level 1     Level 2     Level 3     Total 
   Assets Measured at Fair Value on a Recurring Basis as of
April 30, 2022
 
   Level 1   Level 2   Level 3   Total 
Assets:                    
Municipal Bonds  $   $5,437,000   $   $5,437,000 
REITs       144,000        144,000 
Equity Securities   24,770,000            24,770,000 
Money Markets and CDs   628,000            628,000 
Total fair value of assets measured on a recurring basis  $25,398,000   $5,581,000   $   $30,979,000 

 

Note 8: Subsequent Events

 

None

 

17
 

 

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, 2022.

 

Executive Summary

 

The Company’s performance remained steady during the quarter ended July 31, 2022 as compared to the quarter ended July 31, 2021. Although sales have increased when comparing to the same quarter last year, overall net income is down because realized and unrealized gains on investments are showing losses in the current quarter, while for the same quarter last year both of those categories were income amounts. Also, gross profit and income from operations are lower when comparing to the same quarter last year. This is because of increased cost of raw materials and labor. The uptick in sales is mainly due to a price increase that implemented in January 2022. This was done to offset the increases in raw material and labor costs that the Company has incurred to continue to do business. The Company is still feeling the increased demand of having one of our major competitors close its doors at the end of calendar year 2019. The Company still has a considerable back-order log and there has been times that certain raw materials have not been available. Opportunities include focusing on ramping up production to meet customer’s needs to get product to them in a timely manner, which includes looking into more automation, 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 and inflation. 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, 2022 showed a 5.15% 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 implementing a price increase that became effective on January 1, 2022. 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 increased from 46.78% of sales in the prior year, to 51.00% in the current quarter, which is just outside of Management’s goal to keep labor and other manufacturing expenses below 50%. The increased cost of goods sold percentage is a result of inflation that has afflicted the economy recently. Management has seen significant price increases in raw material and has had to raise wages to remain competitive in the job market.

 

18
 

 

  Operating expenses decreased by $20,000 when comparing the current year quarter to the same quarter for the prior year. When comparing percentages in relation to net sales, the operating expenses decreased to 20.86% for the quarter ended July 31, 2022 as compared to 22.34% for the corresponding quarter last year. The dollar amount decrease is the result of decreased general and administration personnel. 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, 2022 was at $1,466,000, which is a 4.18% decrease from the corresponding quarter last year, which had income from operations of $1,530,000.
     
  Other income and expenses showed a $102,000 loss for the quarter ended July 31, 2022 as compared to a $817,000 gain for the quarter ended July 31, 2021. For the three months ended July 31, 2022, $189,000 of unrealized losses from equity securities were recorded, compared to $420,000 of unrealized gains from equity securities recorded for the three months ended July 31, 2021. The remainder of the decrease is primarily due to losses on sales of investments.
     
  The Company’s provision for income taxes showed a decrease of $288,000 from $601,000 in the quarter ended July 31, 2021 to $313,000 for the quarter ended July 31, 2022. This decrease is primarily due to decreased deferred taxes resulting from unrealized losses on equity securities for the current quarter.
     
  In turn, net income for the quarter ended July 31, 2022 was $1,051,000, a 39.81% decrease from the corresponding quarter last year, which showed net income of $1,746,000.
     
  Earnings per share for the quarter ended July 31, 2022 were $0.21 per common share and $0.35 per common share for the quarter ended July 31, 2021.

 

Liquidity and capital resources

 

    Operating
     
  Net cash increased $1,571,000 during the quarter ended July 31, 2022 as compared to an increase of $1,005,000 during the corresponding quarter last year. The details are listed below.
     
  Accounts receivable decreased $499,000 for the quarter ending July 31, 2022 compared with a $154,000 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 timelier.  Management is always working with customers to collect on accounts and to keep past due accounts to a minimum. An analysis of accounts receivable shows that 5.24% of the balance was over 90 days at July 31, 2022.
     
  Inventories increased $947,000 during the current quarter as compared to a $549,000 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 material and labor costs continue to increase.

 

19
 

 

  For the quarter ended July 31, 2022 there was a $317,000 decrease in prepaid expenses compared to an increase of $196,000 for the quarter ended July 31, 2021. The current decrease is due to having inventory delivered during the quarter; therefore, having less money in prepayments of raw materials on the books.
     
  Accounts payable shows a decrease of $21,000 for the quarter ended July 31, 2022 compared to a decrease of $236,000 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 $121,000 for the current quarter as compared to a $99,000 increase for the quarter ended July 31, 2021. The difference in the amounts is primarily due to timing of when payroll periods end and increases in sales commissions and wages.
     
  Income tax payable for the quarter ended July 31, 2022 increased $409,000, compared to a $547,000 increase for the quarter ended July 31, 2021. The current smaller increase is due to smaller tax estimates in relation to the decreased income amount. Also, the corporate income tax rate in Nebraska decreased to 7.5% from 7.81% for the current fiscal year.
     
    Investing
     
  The Company purchased $74,000 of property and equipment during the current fiscal quarter. In comparison, $40,000 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, 2022 was $111,000 compared to $98,000 spent during the quarter ended July 31, 2021. 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. For the quarter ended July 31, 2022 the Company bought back $2,000 worth of treasury stock, but for the quarter ended July 31, 2021, the Company did not buyback any treasury stock.

 

20
 

 

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, 2022   July 31, 2021 
Working capital
(current assets – current liabilities)
  $48,297,000   $49,401,000 
Current ratio
(current assets / current liabilities)
   13.855    15.529 
Quick ratio
((cash + current investments + AR) / current liabilities)
   11.207    13.549 

 

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 such as instant alarm and a seven second delay.
     
  The Company is developing magnetic contacts which are listed under UL 634 Level 2. These sensors are for high security applications such as government buildings, military use, nuclear facilities, and financial institutions.
     
  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 monitoring devices which include glass break detection, tilt sensing and environmental monitoring. A redesign of our brass water valve shut-off system is near completion.

 

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.

 

21
 

 

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, 2022. 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, 2022, 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, 2022, 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, 2022 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 2023.

 

Period   Number of shares repurchased
May 1, 2022 – May 31, 2022   100
June 1, 2022 – June 30, 2022   100
July 1, 2022 – July 31, 2022   -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, 2022 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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