UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarter ended January 31, 2020
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______________ to ________________
Commission File Number: 000-05378
GEORGE RISK INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
| Colorado | 84-0524756 | |
|
(State of incorporation) |
(IRS Employers Identification No.) |
| 802 S. Elm St., Kimball, NE | 69145 | |
| (Address of principal executive offices) | (Zip Code) |
(308) 235-4645
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Class A Common Stock, $0.10 par value | RSKIA | OTC Markets | ||
| Convertible Preferred Stock, $20 stated value | RSKIA | OTC Markets |
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (&232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] 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 [X] | |
| Emerging growth company [ ] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of the Registrant’s Common Stock outstanding, as of March 20, 2020, was 4,950,260.
GEORGE RISK INDUSTRIES, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited financial statements for the three- and nine-month period ended January 31, 2020, are attached hereto.
| 2 |
GEORGE RISK INDUSTRIES, INC.
CONDENSED BALANCE SHEETS
| January 31, 2020 | April 30, 2019 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 5,647,000 | $ | 4,873,000 | ||||
| Investments and securities | 28,178,000 | 27,291,000 | ||||||
| Accounts receivable: | ||||||||
| Trade, net of $993 and $9,321 doubtful account allowance | 2,243,000 | 2,696,000 | ||||||
| Other | 4,000 | 6,000 | ||||||
| Income tax overpayment | 117,000 | 259,000 | ||||||
| Inventories, net | 5,046,000 | 4,583,000 | ||||||
| Prepaid expenses | 356,000 | 282,000 | ||||||
| Total Current Assets | 41,591,000 | 39,990,000 | ||||||
| Property and Equipment, net, at cost | 1,284,000 | 984,000 | ||||||
| Other Assets | ||||||||
| Investment in Limited Land Partnership, at cost | 320,000 | 293,000 | ||||||
| Projects in process | — | 117,000 | ||||||
| Other | 3,000 | 3,000 | ||||||
| Total Other Assets | 323,000 | 413,000 | ||||||
| Intangible Assets, net | 1,548,000 | 1,640,000 | ||||||
| TOTAL ASSETS | $ | 44,746,000 | $ | 43,027,000 | ||||
See accompanying notes to the unaudited condensed financial statements.
| 3 |
GEORGE RISK INDUSTRIES, INC.
CONDENSED BALANCE SHEETS
(continued)
| January 31, 2020 | April 30, 2019 | |||||||
| (unaudited) | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable, trade | $ | 222,000 | $ | 206,000 | ||||
| Dividends payable | 1,892,000 | 1,714,000 | ||||||
| Accrued expenses | 357,000 | 356,000 | ||||||
| Total Current Liabilities | 2,471,000 | 2,276,000 | ||||||
| Long-Term Liabilities | ||||||||
| Deferred income taxes | 1,423,000 | 1,198,000 | ||||||
| Total Long-Term Liabilities | 1,423,000 | 1,198,000 | ||||||
| Total Liabilities | 3,894,000 | 3,474,000 | ||||||
| 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 | 69,000 | 14,000 | ||||||
| Retained earnings | 42,198,000 | 40,883,000 | ||||||
| Less: treasury stock, 3,552,621 and 3,544,271 shares, at cost | (4,298,000 | ) | (4,227,000 | ) | ||||
| Total Stockholders’ Equity | 40,852,000 | 39,553,000 | ||||||
| TOTAL LIABILITES AND STOCKHOLDERS’ EQUITY | $ | 44,746,000 | $ | 43,027,000 | ||||
See accompanying notes to the unaudited condensed financial statements
| 4 |
GEORGE RISK INDUSTRIES, INC.
CONDENSED INCOME STATEMENTS (Unaudited)
| Three months | Nine months | Three months | Nine months | |||||||||||||
| ended | ended | ended | ended | |||||||||||||
| Jan 31, 2020 | Jan 31, 2020 | Jan 31, 2019 | Jan 31, 2019 | |||||||||||||
| Net Sales | $ | 3,589,000 | $ | 10,852,000 | $ | 3,455,000 | $ | 10,551,000 | ||||||||
| Less: Cost of Goods Sold | (1,832,000 | ) | (5,462,000 | ) | (1,772,000 | ) | (5,467,000 | ) | ||||||||
| Gross Profit | 1,757,000 | 5,390,000 | 1,683,000 | 5,084,000 | ||||||||||||
| Operating Expenses | ||||||||||||||||
| General and Administrative | 302,000 | 928,000 | 294,000 | 911,000 | ||||||||||||
| Sales | 587,000 | 1,698,000 | 531,000 | 1,611,000 | ||||||||||||
| Engineering | 34,000 | 66,000 | 21,000 | 57,000 | ||||||||||||
| Rent Paid to Related Parties | — | 8,000 | 5,000 | 14,000 | ||||||||||||
| Total Operating Expenses | 923,000 | 2,700,000 | 851,000 | 2,593,000 | ||||||||||||
| Income From Operations | 834,000 | 2,690,000 | 832,000 | 2,491,000 | ||||||||||||
| Other Income | ||||||||||||||||
| Other | — | 2,000 | 1,000 | 10,000 | ||||||||||||
| Dividend and Interest Income | 423,000 | 782,000 | 471,000 | 816,000 | ||||||||||||
| Unrealized Gain on equity securities | 508,000 | 782,000 | — | — | ||||||||||||
| Gain on Investments | 78,000 | 137,000 | 169,000 | 74,000 | ||||||||||||
| Gain on Sale of Assets | 5,000 | 5,000 | — | — | ||||||||||||
| 1,014,000 | 1,708,000 | 641,000 | 900,000 | |||||||||||||
| Income Before Provisions for Income Taxes | 1,848,000 | 4,398,000 | 1,473,000 | 3,391,000 | ||||||||||||
| Provisions for Income Taxes: | ||||||||||||||||
| Current Expense | 359,000 | 911,000 | 291,000 | 799,000 | ||||||||||||
| Deferred Tax Expense (Benefit) |
125,000 |
191,000 |
9,000 | 33,000 | ||||||||||||
| Total Income Tax Expense | 484,000 | 1,102,000 | 300,000 | 832,000 | ||||||||||||
| Net Income | $ | 1,364,000 | $ | 3,296,000 | $ | 1,173,000 | $ | 2,559,000 | ||||||||
| Income Per Share of Common Stock | ||||||||||||||||
| Basic | $ | 0.28 | $ | 0.67 | $ | 0.24 | $ | 0.52 | ||||||||
| Diluted | $ | 0.27 | $ | 0.66 | $ | 0.24 | $ | 0.51 | ||||||||
| Weighted Average Number of Common Shares Outstanding | ||||||||||||||||
| Basic | 4,950,524 | 4,953,008 | 4,961,018 | 4,963,592 | ||||||||||||
| Diluted | 4,971,024 | 4,973,508 | 4,981,518 | 4,984,092 | ||||||||||||
See accompanying notes to the unaudited condensed financial statements
| 5 |
GEORGE RISK INDUSTRIES, INC.
CONDENSED STATEMENT OF COMPREHENSIVE INCOME (Unaudited)
| Three months | Nine months | Three months | Nine months | |||||||||||||
| ended | ended | ended | ended | |||||||||||||
| Jan 31, 2020 | Jan 31, 2020 | Jan 31, 2019 | Jan 31, 2019 | |||||||||||||
| Net Income | $ | 1,364,000 | $ | 3,296,000 | $ | 1,173,000 | $ | 2,559,000 | ||||||||
| Other Comprehensive Income, Net of Tax | ||||||||||||||||
| Unrealized gain (loss) on securities: | ||||||||||||||||
| Unrealized holding gains (losses) arising during period | 27,000 | 77,000 | 43,000 | (595,000 | ) | |||||||||||
| Reclassification adjustment for gains (losses) included in net income | – | – | (171,000 | ) | (134,000 | ) | ||||||||||
| Income tax benefit (expense) related to other comprehensive income | (8,000 | ) | (22,000 | ) | 37,000 | 210,000 | ||||||||||
| Other Comprehensive Income (Loss) | 19,000 | 55,000 | (91,000 | ) | (519,000 | ) | ||||||||||
| Comprehensive Income | $ | 1,383,000 | $ | 3,351,000 | $ | 1,082,000 | $ | 2,040,000 | ||||||||
See accompanying notes to the unaudited condensed financial statements
| 6 |
GEORGE RISK INDUSTRIES, INC.
CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED JANUARY 31, 2020 AND 2019
(Unaudited)
| Preferred Stock |
Common Stock Class A |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Balances, October 31, 2019 | 4,100 | $ | 99,000 | 8,502,881 | $ | 850,000 | ||||||||||
| Dividend declared at $0.40 per common share outstanding | — | — | — | — | ||||||||||||
| Unrealized gain (loss), net of tax effect | — | — | — | — | ||||||||||||
| Net Income | — | — | — | — | ||||||||||||
| Balances, January 31, 2020 | 4,100 | $ | 99,000 | 8,502,881 | $ | 850,000 | ||||||||||
| Preferred Stock |
Common Stock Class A |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Balances, October 31, 2018 | 4,100 | $ | 99,000 | 8,502,881 | $ | 850,000 | ||||||||||
| Purchases of common stock | — | — | — | — | ||||||||||||
| Unrealized gain (loss), net of tax effect | — | — | — | — | ||||||||||||
| Net Income | — | — | — | — | ||||||||||||
| Balances, January 31, 2019 | 4,100 | $ | 99,000 | 8,502,881 | $ | 850,000 | ||||||||||
See accompanying notes to the unaudited condensed financial statements
| 7 |
GEORGE RISK INDUSTRIES, INC.
CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED JANUARY 31, 2020 AND 2019
(Unaudited)
|
Accumulated
|
||||||||||||||||||||||
| Treasury Stock | Other | |||||||||||||||||||||
| Paid-In | (Common Class A) | Comprehensive | Retained | |||||||||||||||||||
| Capital | Shares | Amount | Income | Earnings | Total | |||||||||||||||||
| $ | 1,934,000 | 3,550,771 | $ | (4,281,000 | ) | $ | 50,000 | $ | 40,834,000 | $ | 39,486,000 | |||||||||||
| — | 1,850 | (17,000 | ) | — | — | (17,000 | ) | |||||||||||||||
| — | — | — | 19,000 | — | 19,000 | |||||||||||||||||
| — | — | — | — | 1,364,000 | 1,364,000 | |||||||||||||||||
| $ | 1,934,000 | 3,552,621 | $ | (4,297,000 | ) | $ | 69,000 | $ | 42,198,000 | $ | 40,852,000 | |||||||||||
| Treasury Stock |
Accumulated Other
|
|||||||||||||||||||||
| Paid-In | (Common Class A) |
Comprehensive |
Retained | |||||||||||||||||||
| Capital | Shares | Amount | Income | Earnings | Total | |||||||||||||||||
| $ | 1,934,000 | 3,541,234 | $ | (4,202,000 | ) | $ | 1,821,000 | $ | 36,246,000 | $ | 36,748,000 | |||||||||||
| — | 937 | (8,000 | ) | — | — | (8,000 | ) | |||||||||||||||
| — | — | — | (91,000 | ) | — | (91,000 | ) | |||||||||||||||
| — | — | — | — | 1,173,000 | 1,173,000 | |||||||||||||||||
| $ | 1,934,000 | 3,542,171 | $ | (4,210,000 | ) | $ | 1,730,000 | $ | 37,419,000 | $ | 37,822,000 | |||||||||||
See accompanying notes to the unaudited condensed financial statements
| 8 |
GEORGE RISK INDUSTRIES, INC.
CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED JANUARY 31, 2020 AND 2019
(Unaudited)
| Preferred Stock | Common Stock Class A | |||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Balances, April 30, 2019 | 4,100 | $ | 99,000 | 8,502,881 | $ | 850,000 | ||||||||||
| Purchases of common stock | — | — | — | — | ||||||||||||
| Dividend declared at $0.40 per common share outstanding | — | — | — | — | ||||||||||||
| Unrealized gain (loss), net of tax effect | — | — | — | — | ||||||||||||
| Net Income | — | — | — | — | ||||||||||||
| Balances, January 31, 2020 | 4,100 | $ | 99,000 | 8,502,881 | $ | 850,000 | ||||||||||
| Preferred Stock | Common Stock Class A | |||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Balances, April 30, 2018 | 4,100 | $ | 99,000 | 8,502,881 | $ | 850,000 | ||||||||||
| Purchases of common stock | — | — | — | — | ||||||||||||
| Dividend declared at $0.38 per common share outstanding | ||||||||||||||||
| Unrealized gain (loss), net of tax effect | — | — | — | — | ||||||||||||
| Net Income | — | — | — | — | ||||||||||||
| Balances, January 31, 2019 | 4,100 | $ | 99,000 | 8,502,881 | $ | 850,000 | ||||||||||
See accompanying notes to the unaudited condensed financial statements
| 9 |
GEORGE RISK INDUSTRIES, INC.
CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED JANUARY 31, 2020 AND 2019
(Unaudited)
| Paid-In |
Treasury Stock (Common Class A) |
Accumulated Other Comprehensive |
Retained | |||||||||||||||||||
|
Capital |
Shares | Amount |
Income |
Earnings |
Total | |||||||||||||||||
| $ | 1,934,000 | 3,544,271 | $ | (4,227,000 | ) | $ | 14,000 | $ | 40,883,000 | $ | 39,553,000 | |||||||||||
| — | 8,350 | (71,000 | ) | — | — | (71,000 | ) | |||||||||||||||
| — | — | — | — | (1,981,000 | ) | (1,981,000 | ) | |||||||||||||||
| — | — | — | 55,000 | — | 55,000 | |||||||||||||||||
| — | — | — | — | 3,296,000 | 3,296,000 | |||||||||||||||||
| $ | 1,934,000 | 3,552,621 | $ | (4,298,000 | ) | $ | 69,000 | $ | 42,198,000 | $ | 40,852,000 | |||||||||||
| Paid-In |
Treasury Stock (Common Class A) |
Accumulated Other Comprehensive |
Retained | |||||||||||||||||||
|
Capital |
Shares | Amount | Income | Earnings | Total | |||||||||||||||||
| $ | 1,934,000 | 3,534,784 | $ | (4,148,000 | ) | $ | 2,249,000 | $ | 36,746,000 | $ | 37,730,000 | |||||||||||
| — | 7,387 | (62,000 | ) | — | — | (62,000 | ) | |||||||||||||||
| — | — | — | — | (1,886,000 | ) | (1,886,000 | ) | |||||||||||||||
| — | — | — | (519,000 | ) | — | (519,000 | ) | |||||||||||||||
| — | — | — | — | 2,559,000 | 2,559,000 | |||||||||||||||||
| $ | 1,934,000 | 3,542,171 | $ | (4,210,000 | ) | $ | 1,730,000 | $ | 37,419,000 | $ | 37,822,000 | |||||||||||
See accompanying notes to the unaudited condensed financial statements
| 10 |
GEORGE RISK INDUSTRIES, INC.
CONDENSED STATEMENT OF CASH FLOWS (Unaudited)
| Nine months | Nine months | |||||||
| ended | ended | |||||||
| Jan 31, 2020 | Jan 31, 2019 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net Income | $ | 3,296,000 | $ | 2,559,000 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 276,000 | 248,000 | ||||||
| (Gain) loss on sale of investments | (178,000 | ) | (142,000 | ) | ||||
| Impairments on investments | 41,000 | 68,000 | ||||||
| Unrealized (gain) loss on equity investments | (782,000 | ) | — | |||||
| Reserve for bad debts | (6,000 | ) | (3,000 | ) | ||||
| Reserve for obsolete inventory | 42,000 | 12,000 | ||||||
| Deferred income taxes |
191,000 |
33,000 | ||||||
| (Gain) loss on sale of assets | (5,000 | ) | — | |||||
| Net book value of assets retired | (17,000 | ) | — | |||||
| Changes in assets and liabilities: | ||||||||
| (Increase) decrease in: | ||||||||
| Accounts receivable | 460,000 | 514,000 | ||||||
| Inventories | (506,000 | ) | (999,000 | ) | ||||
| Prepaid expenses | 43,000 | 164,000 | ||||||
| Other receivables | 2,000 | (2,000 | ) | |||||
| Income tax overpayment | 142,000 | (106,000 | ) | |||||
| Increase (decrease) in: | ||||||||
| Accounts payable | 16,000 | (35,000 | ) | |||||
| Accrued expenses | — | (36,000 | ) | |||||
| Net cash provided by (used in) operating activities | 3,015,000 | 2,275,000 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Proceeds from sale of assets | 7,000 | — | ||||||
| (Purchase) of property and equipment | (468,000 | ) | (88,000 | ) | ||||
| Proceeds from sale of marketable securities | 760,000 | 761,000 | ||||||
| (Purchase) of marketable securities | (640,000 | ) | (839,000 | ) | ||||
| (Purchase) of long-term investment | (27,000 | ) | — | |||||
| Net cash provided by (used in) investing activities | (368,000 | ) | (166,000 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| (Purchase) of treasury stock | (71,000 | ) | (62,000 | ) | ||||
| Dividends paid | (1,802,000 | ) | (1,752,000 | ) | ||||
| Net cash provided by (used in) financing activities | (1,873,000 | ) | (1,814,000 | ) | ||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 774,000 | 295,000 | ||||||
| Cash and Cash Equivalents, beginning of period | 4,873,000 | 4,294,000 | ||||||
| Cash and Cash Equivalents, end of period | $ | 5,647,000 | $ | 4,589,000 | ||||
| Supplemental Disclosure for Cash Flow Information: | ||||||||
| Cash payments for: | ||||||||
| Income taxes | $ | 870,000 | $ | 900,000 | ||||
| Interest paid | $ | — | $ | 1,000 | ||||
| Cash receipts for: | ||||||||
| Income taxes | $ | 159,000 | $ | — | ||||
See accompanying notes to the unaudited condensed financial statements
| 11 |
GEORGE RISK INDUSTRIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JANUARY 31, 2020
Note 1: Unaudited Interim Financial Statements
The accompanying financial statements have been prepared in accordance with the instructions for Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. It is suggested that these unaudited condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s April 30, 2019 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 February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which provides guidance for accounting for leases. ASU 2016-02 requires lessees to classify leases as either finance or operating leases and to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of the lease classification. The lease classification will determine whether the lease expense is recognized based on an effective interest rate method or on a straight-line basis over the term of the lease. Accounting for lessors remains largely unchanged from current GAAP. ASU 2016-02 is effective for the Company beginning May 1, 2019. Early adoption is permitted. In July 2018, the FASB issued ASU No. 2018-10 “Codification Improvements to Topic 842, Leases” (“ASU 2018-10”) and ASU No. 2018-11 “Leases (Topic 842) Targeted Improvements” (“ASU 2018-11”) and ASU 2018-20, “Narrow-Scope Improvements for Lessors”. ASU 2018-10 provides certain amendments that affect narrow aspects of the guidance issued in ASU 2016-02. ASU 2018-11 allows all entities adopting ASU 2016-02 to choose an additional (and optional) transition method of adoption, under which an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. ASU 2018-11 also allows lessors to not separate non-lease components from the associated lease component if certain conditions are met. During the first quarter of 2019, the FASB issued ASU 2019-01, Leases (Topic 842) to amend ASU 2016-02. This amendment exempts both lessees and lessors from having to provide certain prior year interim disclosure information in the fiscal year in which a company adopts the new leases standard. The Company has adopted the ASUs in the first quarter of fiscal year 2020 and the Company’s accounting systems have been upgraded to comply with the requirements of the new standard, however, the adoption of ASU 2016-02 did not have a material impact on the Company’s financial statements and related disclosures because leases are not material to the financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820). The updated guidance improves the disclosure requirements on fair value measurements. The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures. The Company is currently assessing the timing and impact of adopting the updated provisions.
| 12 |
In August 2018, The FASB issued ASU 2018-14 to improve the effectiveness of disclosures for defined benefit plans under ASC 715-20. The ASU applies to employers that sponsor defined benefit pension or other postretirement plans. The FASB issued ASU 2018-14 as part of its disclosure framework project, which has an objective and primary focus to improve the effectiveness of disclosures in the notes to financial statements. As part of the project, during August 2018, the Board also issued a Concepts Statement, which the FASB used as a basis for amending the disclosure requirements for Subtopic 715-20. The guidance is effective or fiscal years ending after December 15, 2020 and early adoption is permitted. The Company is currently assessing the timing and impact of adopting the updated provisions.
In June 2016, the FASB issued ASU 2016-13 (“ASU 2016-13”), Financial Instruments—Credit Losses. Subsequently, the FASB issued ASU 2019-05, Financial Instruments- Credit Losses (Topic 326): Targeted Transition Relief and codification improvements to Topic 326 in ASU 2019-11, ASU 2019-04 and ASU 2018-19. The amendments update guidance on reporting credit losses for financial assets. These amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years. All entities may adopt the amendments through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). The ASU is effective for fiscal years beginning after December 15, 2020. Subsequent to September 30, 2019, the FASB issued ASU 2019-10, “Financial Instruments - Credit Loss (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842),” which defers the effective date for public filers that are considered small reporting companies (“SRC”) as defined by the Securities and Exchange Commission to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Since the Company is an SRC, implementation is not needed until May 1, 2023. The Company will continue to evaluate the effect of adopting ASU 2016-13 will have on the Company’s financial statements and disclosures.
In January 2020, the FASB issued ASU 2020-01, “Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions. ASU 2016-01 made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. For public business entities, the amendments in the ASU are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of ASU 2020-01 to have a material impact on its condensed financial statements.
Revenue Recognition —In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” or “ASC 606”. ASC 606 and all subsequently issued clarifying ASCs replaced most existing revenue recognition guidance in U.S. GAAP. ASC 606 also required expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted the new standard effective November 1, 2019. The effect of this adoption was immaterial to our Financial Statements, and the Company does not expect a material effect to the Financial Statements on an ongoing basis.
| 13 |
The Company recognizes revenue under ASC 606, “Revenue from Contracts with Customers”. The core principle of the new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company applies the following standards and recognizes revenue when (1) it has a firm contract and the parties are committed to perform their respective obligations, (2) the product has been shipped to and accepted by the customer or the service has been provided, (3) the sales price is fixed or determinable and (4) amounts are reasonably assured of collection, including the consideration of the customer’s ability and intention to pay when the amount is due. The Company primarily receives fixed consideration for sales of product. The Company does not have any significant financing components as payment is received at or shortly after the point of sale. Shipping and handling amounts paid by customers are included in revenue. Sales tax and other similar taxes are excluded from revenue.
Revenue is recorded net of provisions for discounts, which are typically agreed to upfront with the customer and do not represent variable consideration. The Company estimates these discounts in the same period that the revenue is recognized for products sales to customers. The amount of revenue recognized represents the amount that will not be subject to a significant future reversal of revenue. All sales to distributors and customers are generally final. In limited instances the Company may accept returned product due to quality. During the current fiscal year, returns have not been material.
The Company’s customers generally pay within 60 days from the receipt of a valid invoice. The Company offers discounts of up to 2% to certain customers for payments made within a specified number of days. These early pay discounts are estimated in the period of sale based on experience with sales to eligible customers. Early pay discounts are recorded as a deduction to the accounts receivable balance presented on the balance sheet.
The Company’s performance obligations are satisfied at the point in time when products are shipped to the customer, which is when the customer has title and the significant risks and rewards of ownership.
| 14 |
Note 2: Investments
The Company has investments in publicly traded equity securities, corporate bonds, state and municipal debt securities, real estate investment trusts, and money markets. Effective with the Company’s adoption of ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, on May 1, 2018, the Company carries all investments in marketable securities at fair value, with unrealized gain or loss on equity securities reported through other income. The investments in debt securities have maturities between April 2020 and January 2044. The Company uses the average cost method to determine the cost of securities sold with any unrealized gains or losses reported in each respective period’s earnings. Dividend and interest income are reported as earned.
As of January 31, 2020 and April 30, 2019, investments consisted of the following:
| Gross | Gross | |||||||||||||||
| Investments at | Cost | Unrealized | Unrealized | Fair | ||||||||||||
| January 31, 2020 | Basis | Gains | Losses | Value | ||||||||||||
| Municipal bonds | $ | 5,402,000 | $ | 156,000 | $ | (43,000 | ) | $ | 5,515,000 | |||||||
| Corporate bonds | 26,000 | — | — | 26,000 | ||||||||||||
| REITs | 89,000 | 3,000 | (9,000 | ) | 83,000 | |||||||||||
| Equity securities | 17,167,000 | 4,870,000 | (241,000 | ) | 21,796,000 | |||||||||||
| Money markets and CDs | 758,000 | — | — | 758,000 | ||||||||||||
| Total | $ | 23,442,000 | $ | 5,029,000 | $ | (293,000 | ) | $ | 28,178,000 | |||||||
| Gross | Gross | |||||||||||||||
| Investments at | Cost | Unrealized | Unrealized | Fair | ||||||||||||
| April 30, 2019 | Basis | Gains | Losses | Value | ||||||||||||
| Municipal bonds | $ | 5,459,000 | $ | 79,000 | $ | (55,000 | ) | $ | 5,483,000 | |||||||
| Corporate bonds | 26,000 | — | — | 26,000 | ||||||||||||
| REITs | 89,000 | 1,000 | (6,000 | ) | 84,000 | |||||||||||
| Equity securities | 16,618,000 | 4,143,000 | (296,000 | ) | 20,465,000 | |||||||||||
| Money markets and CDs | 1,233,000 | — | — | 1,233,000 | ||||||||||||
| Total | $ | 23,425,000 | $ | 4,223,000 | $ | (357,000 | ) | $ | 27,291,000 | |||||||
The Company evaluates all marketable securities for other-than temporary declines in fair value, which are defined as when the cost basis exceeds the fair value for approximately one year. The Company also evaluates the nature of the investment, cause of impairment and number of investments that are in an unrealized position. When an “other-than-temporary” decline is identified, the Company will decrease the cost of the marketable security to the new fair value and recognize a real loss. The investments are periodically evaluated to determine if impairment changes are required. As a result of this standard, management do not record an impairment loss for the quarter, but did record an impairment loss of $41,000 for the nine months ended January 31, 2020. For the corresponding periods last year, management recorded an impairment loss of $36,000 for the quarter, and recorded a loss of $68,000 for the nine months ended January 31, 2019.
| 15 |
The following tables show the investments with unrealized losses that are not deemed to be “other-than-temporarily impaired”, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at January 31, 2020 and April 30, 2019, respectively.
Unrealized Loss Breakdown by Investment Type at January 31, 2020
| Less than 12 months | 12 months or greater | Total | ||||||||||||||||||||||
| Description | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | ||||||||||||||||||
| Municipal bonds | $ | — | $ | — | $ | 401,000 | $ | (43,000 | ) | $ | 401,000 | $ | (43,000 | ) | ||||||||||
| REITs | — | — | 57,000 | (9,000 | ) | 57,000 | (9,000 | ) | ||||||||||||||||
| Equity securities | 445,000 | (48,000 | ) | 1,930,000 | (193,000 | ) | 2,375,000 | (241,000 | ) | |||||||||||||||
| Total | $ | 445,000 | $ | (48,000 | ) | $ | 2,388,000 | $ | (245,000 | ) | $ | 2,833,000 | $ | (293,000 | ) | |||||||||
Unrealized Loss Breakdown by Investment Type at April 30, 2019
| Less than 12 months | 12 months or greater | Total | ||||||||||||||||||||||
| Description | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | ||||||||||||||||||
| Municipal bonds | $ | 772,000 | $ | (4,000 | ) | $ | 580,000 | $ | (50,000 | ) | $ | 1,352,000 | $ | (54,000 | ) | |||||||||
| REITs | — | — | 32,000 | (6,000 | ) | 32,000 | (6,000 | ) | ||||||||||||||||
| Equity securities | 932,000 | (102,000 | ) | 1,652,000 | (195,000 | ) | 2,584,000 | (297,000 | ) | |||||||||||||||
| Total | $ | 1,704,000 | $ | (106,000 | ) | $ | 2,264,000 | $ | (251,000 | ) | $ | 3,968,000 | $ | (357,000 | ) | |||||||||
Municipal Bonds
The unrealized losses on the Company’s investments in municipal bonds were caused by interest rate increases. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. Because the Company has the ability to hold these investments until a recovery of fair value, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at January 31, 2020.
Marketable Equity Securities and REITs
The Company’s investments in marketable equity securities and REITs consist of a wide variety of companies. Investments in these companies include growth, growth income, and foreign investment objectives. The individual holdings have been evaluated, and due to management’s plan to hold on to these investments for an extended period, the Company does not consider these investments to be other-than-temporarily impaired at January 31, 2020.
Note 3: Inventories
Inventories at January 31, 2020 and April 30, 2019 consisted of the following:
| January 31, | April 30, | |||||||
| 2020 | 2019 | |||||||
| Raw materials | $ | 4,102,000 | $ | 3,644,000 | ||||
| Work in process | 468,000 | 389,000 | ||||||
| Finished goods | 609,000 | 641,000 | ||||||
| 5,179,000 | 4,674,000 | |||||||
| Less: allowance for obsolete inventory | (133,000 | ) | (91,000 | ) | ||||
| Totals | $ | 5,046,000 | $ | 4,583,000 | ||||
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Note 4: Business Segments
The following is financial information relating to industry segments:
| Three months | Nine months | Three months | Nine months | |||||||||||||
| ended | ended | ended | ended | |||||||||||||
| Jan 31, 2020 | Jan 31, 2020 | Jan 31, 2019 | Jan 31, 2019 | |||||||||||||
| Net revenue: | ||||||||||||||||
| Security alarm products | $ | 2,909,000 | $ | 8,700,000 | $ | 2,735,000 | $ | 8,103,000 | ||||||||
| Cable & wiring tools | 547,000 | 1,680,000 | 576,000 | 1,929,000 | ||||||||||||
| Other products | 133,000 | 472,000 | 144,000 | 519,000 | ||||||||||||
| Total net revenue | $ | 3,589,000 | $ | 10,852,000 | $ | 3,455,000 | $ | 10,551,000 | ||||||||
| Income from operations: | ||||||||||||||||
| Security alarm products | $ | 669,000 | $ | 2,156,000 | $ | 659,000 | $ | 1,972,000 | ||||||||
| Cable & wiring tools | 129,000 | 417,000 | 138,000 | 415,000 | ||||||||||||
| Other products | 36,000 | 117,000 | 35,000 | 104,000 | ||||||||||||
| Total income from operations | $ | 834,000 | $ | 2,690,000 | $ | 832,000 | $ | 2,491,000 | ||||||||
| Depreciation and amortization: | ||||||||||||||||
| Security alarm products | $ | (22,000 | ) | $ | 72,000 | $ | 37,000 | $ | 57,000 | |||||||
| Cable & wiring tools | 31,000 | 92,000 | 30,000 | 92,000 | ||||||||||||
| Other products | 34,000 | 50,000 | — | 55,000 | ||||||||||||
| Corporate general | 50,000 | 62,000 | 14,000 | 44,000 | ||||||||||||
| Total depreciation and amortization | $ | 93,000 | $ | 276,000 | $ | 81,000 | $ | 248,000 | ||||||||
| Capital expenditures: | ||||||||||||||||
| Security alarm products | $ | — | $ | 178,000 | $ | 35,000 | $ | 35,000 | ||||||||
| Cable & wiring tools | — | — | — | — | ||||||||||||
| Other products | 18,000 | 18,000 | 37,000 | 37,000 | ||||||||||||
| Corporate general | 272,000 | 272,000 | 16,000 | 16,000 | ||||||||||||
| Total capital expenditures | $ | 290,000 | $ | 468,000 | $ | 88,000 | $ | 88,000 | ||||||||
| January 31, 2020 | April 30, 2019 | |||||||
| Identifiable assets: | ||||||||
| Security alarm products | $ | 6,478,000 | $ | 6,179,000 | ||||
| Cable & wiring tools | 2,676,000 | 2,713,000 | ||||||
| Other products | 733,000 | 842,000 | ||||||
| Corporate general | 34,859,000 | 33,293,000 | ||||||
| Total assets | $ | 44,746,000 | $ | 43,027,000 | ||||
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Note 5: Earnings per Share
Basic and diluted earnings per share, assuming convertible preferred stock was converted for each period presented, are:
| For the three months ended January 31, 2020 | ||||||||||||
| Income | Shares | Per-share | ||||||||||
| (Numerator) | (Denominator) | Amount | ||||||||||
| Net Income | $ | 1,364,000 | ||||||||||
| Basic EPS | $ | 1,364,000 | 4,950,524 | $ | 0.2755 | |||||||
| Effect of dilutive securities: | ||||||||||||
| Convertible preferred stock | — | 20,500 | ||||||||||
| Diluted EPS | $ | 1,364,000 | 4,971,024 | $ | 0.2744 | |||||||
| For the nine months ended January 31, 2020 | ||||||||||||
| Income | Shares | Per-share | ||||||||||
| (Numerator) | (Denominator) | Amount | ||||||||||
| Net Income | $ | 3,296,000 | ||||||||||
| Basic EPS | $ | 3,296,000 | 4,953,008 | $ | 0.6655 | |||||||
| Effect of dilutive securities: | ||||||||||||
| Convertible preferred stock | — | 20,500 | ||||||||||
| Diluted EPS | $ | 3,296,000 | 4,973,508 | $ | 0.6627 | |||||||
| For the three months ended January 31, 2019 | ||||||||||||
| Income | Shares | Per-share | ||||||||||
| (Numerator) | (Denominator) | Amount | ||||||||||
| Net Income | $ | 1,173,000 | ||||||||||
| Basic EPS | $ | 1,173,000 | 4,961,018 | $ | 0.2364 | |||||||
| Effect of dilutive securities: | ||||||||||||
| Convertible preferred stock | — | 20,500 | ||||||||||
| Diluted EPS | $ | 1,173,000 | 4,981,518 | $ | 0.2355 | |||||||
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| For the nine months ended January 31, 2019 | ||||||||||||
| Income | Shares | Per-share | ||||||||||
| (Numerator) | (Denominator) | Amount | ||||||||||
| Net Income | $ | 2,559,000 | ||||||||||
| Basic EPS | $ | 2,559,000 | 4,963,592 | $ | 0.5156 | |||||||
| Effect of dilutive securities: | ||||||||||||
| Convertible preferred stock | — | 20,500 | ||||||||||
| Diluted EPS | $ | 2,559,000 | 4,984,092 | $ | 0.5134 | |||||||
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 corporation. The Plan is intended to be qualified under Section 401(k) of the Internal Revenue Code of 1986, as amended. Matching contributions by the Company of approximately $14,000 and $2,000 were paid during both the quarters ending January 31, 2020 and 2019, respectively. Likewise, the Company paid matching contributions of approximately $23,000 during the nine-month period ending January 31, 2020 and $7,000 during the corresponding period the prior fiscal year.
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Note 7: Fair Value Measurements
Generally accepted accounting principles in the United States of America (US GAAP) defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions, and credit risk.
US GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurements). The levels of the fair value hierarchy under US GAAP are described below:
| Level 1 | Valuation is based upon quoted prices for identical instruments traded in active markets. | |
| Level 2 | Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. | |
| Level 3 | Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques. |
Investments and Marketable Securities
As of January 31, 2020, our investments consisted of money markets, certificates of deposit, publicly traded equity securities, real estate investment trusts (REITS) as well as certain state and municipal debt securities and corporate bonds. Our marketable securities are valued using third-party broker statements. The value of the investments is derived from quoted market information. The inputs to the valuation are generally classified as Level 1 given the active market for these securities, however, if an active market does not exist, which is the case for municipal bonds and REITs, the inputs are recorded as Level 2.
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Fair Value Hierarchy
The following tables set forth our assets and liabilities measured at fair value on a recurring basis and a non-recurring basis by level within the fair value hierarchy. As required by US GAAP, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
|
Assets Measured at Fair Value on a Recurring Basis as of
January 31, 2020 |
||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets: | ||||||||||||||||
| Municipal Bonds | $ | — | $ | 5,515,000 | $ | — | $ | 5,515,000 | ||||||||
| Corporate Bonds | 26,000 | — | — | 26,000 | ||||||||||||
| REITs | — | 83,000 | — | 83,000 | ||||||||||||
| Equity Securities | 21,796,000 | — | — | 21,796,000 | ||||||||||||
| Money Markets and CDs | 758,000 | — | — | 758,000 | ||||||||||||
| Total fair value of assets measured on a recurring basis | $ | 22,580,000 | $ | 5,598,000 | $ | — | $ | 28,178,000 | ||||||||
|
Assets Measured at Fair Value on a Recurring Basis as of
April 30, 2019 |
||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets: | ||||||||||||||||
| Municipal Bonds | $ | — | $ | 5,483,000 | $ | — | $ | 5,483,000 | ||||||||
| Corporate Bonds | 26,000 | — | — | 26,000 | ||||||||||||
| REITs | — | 84,000 | — | 84,000 | ||||||||||||
| Equity Securities | 20,465,000 | — | — | 20,465,000 | ||||||||||||
| Money Markets and CDs | 1,233,000 | — | — | 1,233,000 | ||||||||||||
| Total fair value of assets measured on a recurring basis | $ | 21,724,000 | $ | 5,567,000 | $ | — | $ | 27,291,000 | ||||||||
Note 8: Related Party Transactions
The Company purchased a building that it previously leased from Bonita Risk. Bonita Risk is a director and an employee of the Company and is the majority holder of George Risk Industries, Inc. stock. This building contains the Company’s sales and accounting departments, maintenance department, engineering department and some production facilities. This purchase price of the building was $200,000 and the transaction happened during the Company’s third fiscal quarter.
Note 9: Subsequent Events
During and subsequent to the third quarter of the current fiscal year, the world has been impacted by the spread of the coronavirus (COVID-19). It has created significant economic uncertainty and volatility. The extent to which the coronavirus pandemic impacts our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; the impact of the pandemic on economic activity and actions taken in response; the effect on our clients and client demand for our services and solutions; our ability to sell and provide our services and solutions, including as a result of travel restrictions and people working from home; the ability of our clients to pay for our services and solutions; and any closures of our and our clients’ offices and facilities. Any of these events could materially adversely affect our business, financial condition, results of operations and/or stock price.
The Company manufactures and supplies “essential” products and services to many critical industries, so our production facilities will continue to operate. The health and safety of our employees and their families remains our top priority. Therefore, we have implemented many Center for Disease Control protocols to keep them safe while the Company continues to produce products and provide service to our customers. While we are operating in a rapidly changing environment, we also continue to hear positive news from our raw material suppliers.
| 21 |
GEORGE RISK INDUSTRIES, INC.
PART I. FINANCIAL INFORMATION
Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations
| 22 |
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q, includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), which are subject to the “safe harbor” created by those sections. Any statements herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, words such as “may,” “will,” “could,” “would,” “should,” “anticipate,” “expect,” “intend,” “believe,” “estimate,” “project” or “continue,” and the negatives of such terms are intended to identify forward-looking statements. The information included herein represents our estimates and assumptions as of the date of this filing. Unless required by law, we undertake no obligation to update publicly any forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
The following discussion should be read in conjunction with the attached unaudited condensed financial statements, and with the Company’s audited financial statements and discussion for the fiscal year ended April 30, 2019.
Executive Summary
The Company’s performance has stayed steady through the three quarters, with a slight increase in sales, managing cost of sales numbers, and strong investment returns. This is due to the continuation of our quality USA made products with the ability for customization, our notable customer service, and the purchase of the assets of Labor Saving Devices, Inc. Opportunities include gaining business from a competitor that is getting out of the security switch business and to continue looking at businesses that might be a good fit to purchase. New challenges the Company has endured over the nine months of this fiscal year include continuing to get product out to customers in a timelier manner and to fill the stockroom with inventory to get back to shipping out core products the same day. Also, the price of raw materials has increased with the execution of tariffs by the US government and other factors. The COVID-19 virus is also a concern for management as availability to get raw materials may be hampered by the pandemic. But management continues to work at keeping operations flowing as efficient as possible with the hopes of getting the facilities running leaner and more profitable than ever before.
Results of Operations
| ● | Net sales were $3,589,000 for the quarter ended January 31, 2020, which is a 3.88% increase from the corresponding quarter last year. Year-to-date net sales were $10,852,000 at January 31, 2020, which is a 2.85% increase from the same period last year. The steady growth in sales is due to our ongoing commitment to outstanding customer service and our ability to customize products. The Company is also seeing growth since a major competitor closed its doors at the end of 2019. | |
| ● | Cost of goods sold was 51.04% of net sales for the quarter ended January 31, 2020 and was 51.29% for the same quarter last year. Year-to-date cost of goods sold percentages were 50.33% for the current nine months and 51.81% for the corresponding nine months last year, which is just slightly over the target of less than 50% for both the quarter and year-to-date results. Management has seen increases in labor and materials costs and initiated a price increase that started in January 2020. | |
| ● | Operating expenses increased by $72,000 for the quarter as they increased by $107,000 for the nine-months ended January 31, 2020 as compared to the corresponding periods last year. These increased costs are primarily due to increased commissions and wages for raises and the hiring of more employees. |
| 23 |
| ● | Income from operations for the quarter ended January 31, 2020 was at $834,000 which is a 0.24% increase from the corresponding quarter last year, which had income from operations of $832,000. Income from operations for the nine months ended January 31, 2020 was at $2,690,000, which is a 7.99% increase from the corresponding nine months last year, which had income from operations of $2,491,000. | |
| ● | Other income and expenses are up $373,000 when comparing to the current quarter to the same quarter last year. Comparatively, there is an increase of $808,000 in other income and expenses for the year-to-date numbers. The majority of activity in these accounts consists of investment interest, dividends, and gain or loss on sale of investments, but the biggest factor is that unrealized gains and losses are now being shown in the income statement starting this current fiscal year. | |
| ● | Overall, net income for the quarter ended January 31, 2020 was up $191,000, or 16.28%, from the same quarter last year. Similarly, net income for the nine-month period ended January 31, 2020 was up $737,000, or 28.80%, from the same period in the prior year. | |
| ● | Earnings per common share for quarter ended January 31, 2020 were $0.28 per share and $0.67 per share for the year-to-date numbers. EPS for the quarter and nine months ended January 31, 2019 were $0.24 per share and $0.52 per share, respectively. |
Liquidity and capital resources
Operating
| ● | Net cash increased $774,000 during the nine months ended January 31, 2020 as compared to an increase of $295,000 during the corresponding period last year. | |
| ● | Accounts receivable decreased $460,000 for the nine months ended January 31, 2020 compared with a $514,000 decrease for the same period last year. The current year decrease is a result of improved sales and collections of accounts receivable improved over last year. An analysis of accounts receivable shows that there were only 0.30% that were over 90 days at January 31, 2020. | |
| ● | Inventories increased $506,000 during the current nine-month period as compared to an increase of $999,000 last year. The smaller increase in the current year is primarily due to increased sales, not having a stockpile of finished goods, and some issues with getting some vital raw materials in a timely manner. | |
| ● | Prepaid expenses saw a $43,000 decrease for the current nine months, primarily due to inventory being delivered that had been paid for in advance. The prior nine months showed a $164,000 decrease in prepaid expenses. | |
| ● | Income tax overpayment for the nine months ended January 31, 2020 decreased $142,000, as the overpayment showed an increase of $106,000 for the same period the prior year. The main reason for the current decrease is that the Company has generated additional income without the need to increase income tax estimates. | |
| ● | Accounts payable shows a $16,000 increase for the current nine-month period ended January 31, 2020 as compared to a $35,000 decrease for the prior nine-month period. The company strives to pay all invoices within terms, and the variance in increases is primarily due to the timing of receipt of products and payment of invoices. | |
| ● | Accrued expenses did not have any cash flow change for the current nine-month period as compared to a $36,000 decrease for the nine-month period ended January 31, 2019. |
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Investing
| ● | As for our investment activities, the Company spent approximately $468,000 on acquisitions of property and equipment for the current nine-month period, in comparison with the corresponding nine months last year, where there was activity of $88,000. | |
| ● | Additionally, the Company continues to purchase marketable securities, which include municipal bonds and quality stocks. During the nine-month period ended January 31, 2020 there was quite a bit of buy/sell activity in the investment accounts. Net cash spent on purchases of marketable securities for the nine-month period ended January 31, 2020 was $640,000 compared to $839,000 spent in the prior nine-month period. The Company continues to use “money manager” accounts for most stock transactions. By doing this, the Company gives an independent third-party firm, who are experts in this field, permission to buy and sell stocks at will. The Company pays a quarterly service fee based on the value of the investments. |
Financing
| ● | The Company continues to purchase back common stock when the opportunity arises. For the nine-month period ended January 31, 2020, the Company purchased $71,000 worth of treasury stock. This is in comparison to $62,000 spent in the same nine months period the prior year. | |
| ● | The company paid out dividends of $1,802,000 during the nine months ending January 31, 2020. These dividends were paid during the second quarter. The company declared a dividend of $0.40 per share of common stock on September 30, 2019 and these dividends were paid by October 31, 2019. As for the prior year numbers, dividends paid was $1,752,000 for the nine months ending January 31, 2019. A dividend of $0.38 per common share was declared and paid during the second fiscal quarter last year. |
The following is a list of ratios to help analyze George Risk Industries’ performance:
| As of | ||||||||
| January 31, 2020 | January 31, 2019 | |||||||
|
Working capital (current assets – current liabilities) |
$ | 39,119,000 | $ | 35,493,000 | ||||
|
Current ratio (current assets / current liabilities) |
16.831 | 16.299 | ||||||
|
Quick ratio ((cash + investments + AR) / current liabilities) |
14.597 | 13.963 | ||||||
New Product Development
The Company and its engineering department continue to develop enhancements to product lines, develop new products which complement existing products, and look for products that are well suited to our distribution network and manufacturing capabilities. Items currently in the development process include:
| ● | A new face plate for our pool alarms is nearing completion. The innovative design is slim in style and will also allow the homeowner to change the plate to match their décor. |
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| ● | An updated version of the pool access alarm is currently going through electrical listing testing. This next-generation model combines our battery operated DPA series with our hard wired 289 series. A variety of installation options will be available through jumper pin settings. | |
| ● | We continue our work on high security switches. We have a triple biased high security switch design and an adjustable magnet design was completed for recessed mounting applications. This is ready to be sent to in for electrical listing testing. | |
| ● | We have introduced the GR1840 Oval Metal Door Channel Magnet. This is a direct replacement for the obsolete Interlogix magnet. This magnet fits into the top channel of a metal door and does not require drilling into the door core. We have also paired this with several of our ¾” and 1” steel door contacts. | |
| ● | Wireless technology is a main area of focus for product development. We are considering adding wireless technology to some of our current products. A wireless contact switch is in the final stages of development. Also, we are working on wireless versions of our pool access alarm and environmental sensors that will be easy to install in current construction. We are also concentrating on making products compatible with Wi-Fi, smartphone technology and the increasing popular Z-Wave standard for wireless home automation. | |
| ● | We are ready to launch a new Labor Saving Device’s product. It is a 12” adjustable hole cutter which compliments the popular 10” hole cutter. Using a standard drill, this tool allows you to drill various size holes in the ceiling for speakers and canned lights. The dust bin, which buts against the ceiling, keeps the ceiling material and dust enclosed making for a clean, time saving installation. | |
| ● | Another LSDI product is new lighted Bullnose tip in a variety of colors (red, green and blue) to go along with the standard clear lights. These colored lights are placed on FiberFuse wire running rods which allows for easy location of the rod ends in dark places such as attics and crawlspaces. The rods can be color coded for wire paths running into different rooms. Larger batteries add to the longevity of these new lights. |
Other Information
In addition to researching and developing new products, management is always open to the possibility of acquiring a business or product line that would complement our existing operations. Due to the Company’s strong cash position, management believes this could be achieved without the need for outside financing. The intent is to utilize the equipment, marketing techniques and established customers to deliver new products and increase sales and profits.
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 February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which provides guidance for accounting for leases. ASU 2016-02 requires lessees to classify leases as either finance or operating leases and to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of the lease classification. The lease classification will determine whether the lease expense is recognized based on an effective interest rate method or on a straight-line basis over the term of the lease. Accounting for lessors remains largely unchanged from current GAAP. ASU 2016-02 is effective for the Company beginning November 1, 2019. Early adoption is permitted. In July 2018, the FASB issued ASU No. 2018-10 “Codification Improvements to Topic 842, Leases” (“ASU 2018-10”) and ASU No. 2018-11 “Leases (Topic 842) Targeted Improvements” (“ASU 2018-11”). ASU 2018-10 provides certain amendments that affect narrow aspects of the guidance issued in ASU 2016-02. ASU 2018-11 allows all entities adopting ASU 2016-02 to choose an additional (and optional) transition method of adoption, under which an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. ASU 2018-11 also allows lessors to not separate non-lease components from the associated lease component if certain conditions are met. The Company adopted the ASUs in the first quarter of 2019 and the Company’s accounting systems will be upgraded to comply with the requirements of the new standard, however, the adoption of ASU 2016-02 will not have a material impact on the Company’s financial statements and related disclosures.
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In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02). Under existing U.S. GAAP, the effects of changes in tax rates and laws on deferred tax balances are recorded as a component of income tax expense in the period in which the law was enacted. When deferred tax balances related to items originally recorded in accumulated other comprehensive income (loss) are adjusted, certain tax effects become stranded in accumulated other comprehensive income. The amendments in ASU 2018-02 allow a reclassification from accumulated other comprehensive income (loss) to retained earnings (accumulated deficit) for stranded income tax effects resulting from the Tax Cuts and Jobs Act (the Tax Act). The amendments in this ASU also require certain disclosures about stranded income tax effects. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption in any period is permitted. The Company has not yet adopted ASU 2018-02 and is currently evaluating the potential impact of adopting the applicable guidance on the Company’s financial statements and related disclosures.
In July 2018, the FASB issued ASU No. 2018-09, “Codification Improvements” (“ASU 2018-09”). ASU 2018-09 provides amendments to a wide variety of topics in the FASB’s Accounting Standards Codification, which applies to all reporting entities within the scope of the affected accounting guidance. The transition and effective date guidance are based on the facts and circumstances of each amendment. Some of the amendments in ASU 2018-09 do not require transition guidance and were effective upon issuance of ASU 2018-09. However, many of the amendments do have transition guidance with effective dates for annual periods beginning after December 15, 2018. We are currently evaluating the potential impact of adopting the applicable guidance; however we do not believe that the adoption of ASU 2018-09 will have a material impact on the Company’s financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820). The updated guidance improves the disclosure requirements on fair value measurements. The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures. The Company is currently assessing the timing and impact of adopting the updated provisions.
In August 2018, The FASB issued ASU 2018-14 to improve the effectiveness of disclosures for defined benefit plans under ASC 715-20. The ASU applies to employers that sponsor defined benefit pension or other postretirement plans. The FASB issued ASU 2018-14 as part of its disclosure framework project, which has an objective and primary focus to improve the effectiveness of disclosures in the notes to financial statements. As part of the project, during August 2018, the Board also issued a Concepts Statement, which the FASB used as a basis for amending the disclosure requirements for Subtopic 715-20. The guidance is effective for fiscal years ending after December 15, 2020, and early adoption is permitted. The Company is currently assessing the timing and impact of adopting the updated provisions.
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In June 2016, the FASB issued ASU 2016-13(“ASU 2016-13”), Financial Instruments—Credit Losses. Subsequently, the FASB issued ASU 2019-05, Financial Instruments- Credit Losses (Topic 326): Targeted Transition Relief and codification improvements to Topic 326 in ASU 2019-11, ASU 2019-04 and ASU 2018-19. The amendments update guidance on reporting credit losses for financial assets. These amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years. All entities may adopt the amendments through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). The ASU is effective for fiscal years beginning after December 15, 2020. Subsequent to September 30, 2019, the FASB issued ASU 2019-10, “Financial Instruments - Credit Loss (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842),” which defers the effective date for public filers that are considered small reporting companies (“SRC”) as defined by the Securities and Exchange Commission to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Since the Company is an SRC, implementation is not needed until May 1, 2023. The Company will continue to evaluate the effect of adopting ASU 2016-13 will have on the Company’s financial statements and disclosures.
In January 2020, the FASB issued ASU 2020-01, “Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions. ASU 2016-01 made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. For public business entities, the amendments in the ASU are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of ASU 2020-01 to have a material impact on its condensed financial statements.
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GEORGE RISK INDUSTRIES, INC.
PART I. FINANCIAL INFORMATION
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable
Item 4. Controls and Procedures
Our management, under the supervision and with the participation of our chief executive officer (also working as our chief financial officer), evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of January 31, 2020. Based on that evaluation, our chief executive officer (also working as our chief financial officer) 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.
We continue to operate with a limited number of accounting and financial personnel. A new accounting professional was hired in 2018 to fill the Controller position. Continued 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.
Despite the material weaknesses in financial reporting noted above, we believe that our condensed 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
There was no change in our internal control over financial reporting during the fiscal quarter ended January 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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GEORGE RISK INDUSTRIES, INC.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 1A. Risk Factors
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information relating to the Company’s repurchase of common stock for the third quarter of fiscal year 2020.
| Period | Number of shares repurchased | ||||
| November 1, 2019 – November 30, 2019 | 1,350 | ||||
| December 1, 2019 – December 31, 2019 | 200 | ||||
| January 1, 2020 – January 31, 2020 | 300 | ||||
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| George Risk Industries, Inc. | |||
| (Registrant) | |||
| Date | March 23, 2020 | 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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