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, 2023
☐ 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 14, 2023 was .
GEORGE RISK INDUSTRIES, INC.
PART I. FINANCIAL INFORMATION
| ITEM 1: | Financial Statements |
The unaudited financial statements for the three-month period ended July 31, 2023 are attached hereto.
| 2 |
GEORGE RISK INDUSTRIES, INC.
CONDENSED BALANCE SHEETS
| July 31, 2023 | April 30, 2023 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 5,554,000 | $ | 4,943,000 | ||||
| Investments and securities, at fair value | 32,992,000 | 31,363,000 | ||||||
| Accounts receivable: | ||||||||
| Trade, net of allowance for credit losses of $21,730 and $17,922 | 3,067,000 | 3,503,000 | ||||||
| Other | 19,000 | 59,000 | ||||||
| Income tax overpayment | 99,000 | 403,000 | ||||||
| Inventories, net | 11,964,000 | 11,443,000 | ||||||
| Prepaid expenses | 1,208,000 | 651,000 | ||||||
| Total Current Assets | 54,903,000 | 52,365,000 | ||||||
| Property and Equipment, net, at cost | 2,111,000 | 1,997,000 | ||||||
| Other Assets | ||||||||
| Investment in Limited Land Partnership, at cost | 344,000 | 344,000 | ||||||
| Projects in process | 20,000 | 83,000 | ||||||
| Other | 1,000 | 13,000 | ||||||
| Total Other Assets | 365,000 | 440,000 | ||||||
| Intangible assets, net | 1,119,000 | 1,149,000 | ||||||
| TOTAL ASSETS | $ | 58,498,000 | $ | 55,951,000 | ||||
See accompanying notes to the condensed financial statements
| 3 |
GEORGE RISK INDUSTRIES, INC.
CONDENSED BALANCE SHEETS
(continued)
| July 31, 2023 | April 30, 2023 | |||||||
| (unaudited) | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable, trade | $ | 496,000 | $ | 546,000 | ||||
| Dividends payable | 2,563,000 | 2,565,000 | ||||||
| Deferred income | 23,000 | 43,000 | ||||||
| Accrued expenses: | ||||||||
| Payroll and related expenses | 439,000 | 421,000 | ||||||
| Property taxes | 4,000 | — | ||||||
| Total Current Liabilities | 3,525,000 | 3,575,000 | ||||||
| Long-Term Liabilities | ||||||||
| Deferred income taxes | 1,995,000 | 1,727,000 | ||||||
| Total Long-Term Liabilities | 1,995,000 | 1,727,000 | ||||||
| Total Liabilities | 5,520,000 | 5,302,000 | ||||||
| Commitments and contingencies | — | — | ||||||
| Stockholders’ Equity | ||||||||
| Convertible preferred stock, shares authorized, Series 1—noncumulative, $ stated value, shares authorized, issued and outstanding | 99,000 | 99,000 | ||||||
| Common stock, Class A, $ par value, shares authorized, shares issued and outstanding | 850,000 | 850,000 | ||||||
| Additional paid-in capital | 1,934,000 | 1,934,000 | ||||||
| Accumulated other comprehensive income | (184,000 | ) | (161,000 | ) | ||||
| Retained earnings | 54,855,000 | 52,481,000 | ||||||
| Less: treasury stock, and shares, at cost | (4,576,000 | ) | (4,554,000 | ) | ||||
| Total Stockholders’ Equity | 52,978,000 | 50,649,000 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 58,498,000 | $ | 55,951,000 | ||||
See accompanying notes to the condensed financial statements
| 4 |
GEORGE RISK INDUSTRIES, INC.
CONDENSED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED JULY 31, 2023 AND 2022
(Unaudited)
| July 31, 2023 | July 31, 2022 | |||||||
| Net Sales | $ | 4,728,000 | $ | 5,210,000 | ||||
| Less: Cost of Goods Sold | (2,462,000 | ) | (2,657,000 | ) | ||||
| Gross Profit | 2,266,000 | 2,553,000 | ||||||
| Operating Expenses: | ||||||||
| General and Administrative | 368,000 | 332,000 | ||||||
| Sales | 689,000 | 734,000 | ||||||
| Engineering | 22,000 | 21,000 | ||||||
| Total Operating Expenses | 1,079,000 | 1,087,000 | ||||||
| Income From Operations | 1,187,000 | 1,466,000 | ||||||
| Other Income (Expense) | ||||||||
| Other | 8,000 | 2,000 | ||||||
| Dividend and Interest Income | 241,000 | 184,000 | ||||||
| Unrealized gain (loss) on equity securities | 1,634,000 | (189,000 | ) | |||||
| Gain on sale of asset | 8,000 | — | ||||||
| (Loss) on Sale of Investments | (118,000 | ) | (99,000 | ) | ||||
| Total Other Income (Expense) | 1,773,000 | (102,000 | ) | |||||
| Income Before Provisions for Income Taxes | 2,960,000 | 1,364,000 | ||||||
| Provisions for Income Taxes | ||||||||
| Current Expense | 310,000 | 414,000 | ||||||
| Deferred tax (benefit) expense | 276,000 | (101,000 | ) | |||||
| Total Income Tax Expense | 586,000 | 313,000 | ||||||
| Net Income | $ | 2,374,000 | $ | 1,051,000 | ||||
| Basic Earnings Per Share of Common Stock | $ | 0.48 | $ | 0.21 | ||||
| Diluted Earnings Per Share of Common Stock | $ | 0.48 | $ | 0.21 | ||||
| Weighted Average Number of Common Shares Outstanding | 4,928,974 | 4,931,022 | ||||||
| Weighted Average Number of Shares Outstanding (Diluted) | 4,949,474 | 4,951,522 | ||||||
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, 2023 AND 2022
(Unaudited)
| July 31, 2023 | July 31, 2022 | |||||||
| Net Income | $ | 2,374,000 | $ | 1,051,000 | ||||
| Other Comprehensive Income, Net of Tax | ||||||||
| Unrealized gain on debt securities: | ||||||||
| Unrealized holding gains (losses) arising during period | (31,000 | ) | 29,000 | |||||
| Income tax (expense) benefit related to other comprehensive income | 8,000 | (9,000 | ) | |||||
| Other Comprehensive Income | (23,000 | ) | 20,000 | |||||
| Comprehensive Income | $ | 2,351,000 | $ | 1,071,000 | ||||
See accompanying notes to the condensed financial statements
| 6 |
GEORGE RISK INDUSTRIES, INC.
STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED JULY 31, 2023 and 2022
(Unaudited)
| Shares | Amount | Shares | Amount | |||||||||||||
| 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 | ||||||||||
| Preferred Stock | Common Stock Class A | |||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Balances, April 30, 2023 | 4,100 | $ | 99,000 | 8,502,881 | $ | 850,000 | ||||||||||
| Purchases of common stock | — | — | — | — | ||||||||||||
| Unrealized gain, net of tax effect | — | — | — | — | ||||||||||||
| Net Income | — | — | — | — | ||||||||||||
| Balances, July 31, 2023 | 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, 2023 and 2022
(Unaudited)
| Capital | Shares | Amount | Income | Earnings | Total | |||||||||||||||||||
| 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 (loss), 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 | |||||||||||
| Accumulated | ||||||||||||||||||||||||
| Treasury Stock | Other | |||||||||||||||||||||||
| Paid-In | (Common Class A) | Comprehensive | Retained | |||||||||||||||||||||
| Capital | Shares | Amount | Income | Earnings | Total | |||||||||||||||||||
| Balances, April 30, 2023 | $ | 1,934,000 | 3,572,338 | $ | (4,554,000 | ) | $ | (161,000 | ) | $ | 52,481,000 | $ | 50,649,000 | |||||||||||
| Purchases of common stock | — | 2,035 | (22,000 | ) | — | — | (22,000 | ) | ||||||||||||||||
| Unrealized gain, net of tax effect | — | — | — | (23,000 | ) | — | (23,000 | ) | ||||||||||||||||
| Unrealized gain (loss), net of tax effect | — | — | — | (23,000 | ) | — | (23,000 | ) | ||||||||||||||||
| Net Income | — | — | — | — | 2,374,000 | 2,374,000 | ||||||||||||||||||
| Balances, July 31, 2023 | $ | 1,934,000 | 3,574,373 | $ | (4,576,000 | ) | $ | (184,000 | ) | $ | 54,855,000 | $ | 52,978,000 | |||||||||||
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, 2023 AND 2022
(Unaudited)
| July 31, 2023 | July 31, 2022 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net Income | $ | 2,374,000 | $ | 1,051,000 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 117,000 | 108,000 | ||||||
| (Gain) loss on sale of investments | 118,000 | 99,000 | ||||||
| Unrealized (gain) loss on equity securities | (1,634,000 | ) | 189,000 | |||||
| Provision for credit losses on accounts receivable | 4,000 | (13,000 | ) | |||||
| Reserve for obsolete inventory | — | 46,000 | ||||||
| Deferred income taxes | 276,000 | (101,000 | ) | |||||
| (Gain) on sale of assets | (8,000 | ) | — | |||||
| Changes in assets and liabilities: | ||||||||
| (Increase) decrease in: | ||||||||
| Accounts receivable | 431,000 | 499,000 | ||||||
| Inventories | (521,000 | ) | (947,000 | ) | ||||
| Prepaid expenses and other current assets | (482,000 | ) | 317,000 | |||||
| Other receivables | 40,000 | (1,000 | ) | |||||
| Income tax overpayment | 304,000 | — | ||||||
| Increase (decrease) in: | ||||||||
| Accounts payable | (50,000 | ) | (21,000 | ) | ||||
| Accrued expenses and other current liabilities | 2,000 | 121,000 | ||||||
| Income tax payable | — | 409,000 | ||||||
| Net cash from operating activities | 971,000 | 1,756,000 | ||||||
| Cash Flows From Investing Activities: | ||||||||
| Proceeds from sale of assets | 8,000 | — | ||||||
| (Purchase) of property and equipment | (201,000 | ) | (74,000 | ) | ||||
| Proceeds from sale of marketable securities | 7,000 | 2,000 | ||||||
| (Purchase) of marketable securities | (150,000 | ) | (111,000 | ) | ||||
| Net cash from investing activities | (336,000 | ) | (183,000 | ) | ||||
| Cash Flows From Financing Activities: | ||||||||
| (Purchase) of treasury stock | (22,000 | ) | (2,000 | ) | ||||
| Dividends paid | (2,000 | ) | — | |||||
| Net cash from financing activities | (24,000 | ) | (2,000 | ) | ||||
| Net Change in Cash and Cash Equivalents | $ | 611,000 | $ | 1,571,000 | ||||
| Cash and Cash Equivalents, beginning of period | $ | 4,943,000 | $ | 6,078,000 | ||||
| Cash and Cash Equivalents, end of period | $ | 5,554,000 | $ | 7,649,000 | ||||
| Supplemental Disclosure for Cash Flow Information: | ||||||||
| Cash payments for: | ||||||||
| Income taxes paid | $ | 0 | $ | 0 | ||||
| Interest paid | $ | 0 | $ | 0 | ||||
| Cash receipts for: | ||||||||
| Income taxes | $ | 0 | $ | 0 | ||||
See accompanying notes to the condensed financial statements
| 9 |
GEORGE RISK INDUSTRIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JULY 31, 2023
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, 2023 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, 2023.
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 2023 and July 2041. 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, 2023 and April 30, 2023, investments consisted of the following:
Schedule of Investments
| Gross | Gross | |||||||||||||||
| Investments at | Cost | Unrealized | Unrealized | Fair | ||||||||||||
| July 31, 2023 | Basis | Gains | Losses | Value | ||||||||||||
| Municipal bonds | $ | 5,363,000 | $ | 43,000 | $ | (240,000 | ) | $ | 5,166,000 | |||||||
| REITs | 93,000 | — | (15,000 | ) | 78,000 | |||||||||||
| Equity securities | 18,677,000 | 8,299,000 | (277,000 | ) | 26,699,000 | |||||||||||
| Money markets and CDs | 1,047,000 | 2,000 | — | 1,049,000 | ||||||||||||
| Total | $ | 25,180,000 | $ | 8,344,000 | $ | (532,000 | ) | $ | 32,992,000 | |||||||
| Gross | Gross | |||||||||||||||
| Investments at | Cost | Unrealized | Unrealized | Fair | ||||||||||||
| April 30, 2023 | Basis | Gains | Losses | Value | ||||||||||||
| Municipal bonds | $ | 5,396,000 | $ | 46,000 | $ | (230,000 | ) | $ | 5,212,000 | |||||||
| REITs | 93,000 | — | (22,000 | ) | 71,000 | |||||||||||
| Equity securities | 18,605,000 | 6,915,000 | (501,000 | ) | 25,019,000 | |||||||||||
| Money markets and CDs | 1,060,000 | 1,000 | — | 1,061,000 | ||||||||||||
| Total | $ | 25,154,000 | $ | 6,962,000 | $ | (753,000 | ) | $ | 31,363,000 | |||||||
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, 2023 and 2022, 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, 2023, the Company had sales of equity securities which yielded gross realized gains of $105,000 and gross realized losses of $218,000. For the same period, sales of debt securities did not yield any gross realized gains, but gross realized losses of $5,000 were recorded. During the quarter ending July 31, 2022, the Company recorded gross realized gains and losses on equity securities of $197,000 and $267,000, respectively, while sales of debt securities did not yield any gross realized gains, but gross realized losses of $29,000 were recorded. The gross realized loss numbers include would include the impaired figures listed in the previous paragraph if there happened to be any.
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, 2023 and April 30, 2023, respectively.
Unrealized Loss Breakdown by Investment Type at July 31, 2023
Schedule of Unrealized Loss Breakdown by Investment
| Less than 12 months | 12 months or greater | Total | ||||||||||||||||||||||
| Description | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | ||||||||||||||||||
| Municipal bonds | $ | 1,480,000 | $ | (29,000 | ) | $ | 3,176,000 | $ | (211,000 | ) | $ | 4,656,000 | $ | (240,000 | ) | |||||||||
| REITs | 41,000 | (4,000 | ) | 37,000 | (11,000 | ) | 78,000 | (15,000 | ) | |||||||||||||||
| Equity securities | 3,455,000 | (66,000 | ) | 1,517,000 | (211,000 | ) | 4,972,000 | (277,000 | ) | |||||||||||||||
| Total | $ | 4,976,000 | $ | (99,000 | ) | $ | 4,730,000 | $ | (433,000 | ) | $ | 9,706,000 | $ | (532,000 | ) | |||||||||
Unrealized Loss Breakdown by Investment Type at April 30, 2023
| Less than 12 months | 12 months or greater | Total | ||||||||||||||||||||||
| Description | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | ||||||||||||||||||
| Municipal bonds | $ | 868,000 | $ | (6,000 | ) | $ | 3,769,000 | $ | (224,000 | ) | $ | 4,637,000 | $ | (230,000 | ) | |||||||||
| REITs | �� | 36,000 | (9,000 | ) | 35,000 | (13,000 | ) | 71,000 | (22,000 | ) | ||||||||||||||
| Equity securities | 3,048,000 | (140,000 | ) | 2,209,000 | (361,000 | ) | 5,257,000 | (501,000 | ) | |||||||||||||||
| Total | $ | 3,952,000 | $ | (155,000 | ) | $ | 6,013,000 | $ | (598,000 | ) | $ | 9,965,000 | $ | (753,000 | ) | |||||||||
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, 2023 and April 31, 2023.
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, 2023 and April 30, 2023.
| 12 |
Note 3: Inventories
Inventories at July 31, 2023 and April 30, 2023 consisted of the following:
Schedule of Inventories
| July 31, | April 30, | |||||||
| 2023 | 2023 | |||||||
| Raw materials | $ | 10,271,000 | $ | 9,886,000 | ||||
| Work in process | 758,000 | 678,000 | ||||||
| Finished goods | 1,323,000 | 1,267,000 | ||||||
| Inventory gross | 12,352,000 | 11,831,000 | ||||||
| Less: allowance for obsolete inventory | (388,000 | ) | (388,000 | ) | ||||
| Inventories, net | $ | 11,964,000 | $ | 11,443,000 | ||||
Note 4: Business Segments
The following is financial information relating to industry segments:
Schedule of Financial Information Relating to Industry Segments
| 2023 | 2022 | |||||||
| July 31, | ||||||||
| 2023 | 2022 | |||||||
| Net revenue: | ||||||||
| Security alarm products | $ | 4,241,000 | $ | 4,502,000 | ||||
| Cable & wiring tools | 328,000 | 484,000 | ||||||
| Other products | 159,000 | 224,000 | ||||||
| Total net revenue | $ | 4,728,000 | $ | 5,210,000 | ||||
| Income from operations: | ||||||||
| Security alarm products | $ | 1,065,000 | $ | 1,267,000 | ||||
| Cable & wiring tools | 82,000 | 136,000 | ||||||
| Other products | 40,000 | 63,000 | ||||||
| Total income from operations | $ | 1,187,000 | $ | 1,466,000 | ||||
| Depreciation and amortization: | ||||||||
| Security alarm products | $ | 49,000 | $ | 48,000 | ||||
| Cable & wiring tools | 30,000 | 30,000 | ||||||
| Other products | 24,000 | 18,000 | ||||||
| Corporate general | 14,000 | 12,000 | ||||||
| Total depreciation and amortization | $ | 117,000 | $ | 108,000 | ||||
| Capital expenditures: | ||||||||
| Security alarm products | $ | 201,000 | $ | 74,000 | ||||
| Cable & wiring tools | — | — | ||||||
| Other products | — | — | ||||||
| Corporate general | — | — | ||||||
| Total capital expenditures | $ | 201,000 | $ | 74,000 | ||||
| July 31, 2023 | April 30, 2023 | |||||||
| Identifiable assets: | ||||||||
| Security alarm products | $ | 14,850,000 | $ | 14,251,000 | ||||
| Cable & wiring tools | 2,161,000 | 2,548,000 | ||||||
| Other products | 952,000 | 981,000 | ||||||
| Corporate general | 40,535,000 | 38,171,000 | ||||||
| Total assets | $ | 58,498,000 | $ | 55,951,000 | ||||
| 13 |
Schedule of Basic and Diluted Earnings Per Share
| For the three months ended July 31, 2023 | ||||||||||||
| Income | Shares | Per-Share | ||||||||||
| (Numerator) | (Denominator) | Amount | ||||||||||
| Net income | $ | 2,374,000 | ||||||||||
| Basic EPS | $ | 2,374,000 | 4,928,974 | $ | ||||||||
| Effect of dilutive Convertible Preferred Stock | — | 20,500 | — | |||||||||
| Diluted EPS | $ | 2,374,000 | 4,949,474 | $ | ||||||||
| 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 | $ | ||||||||
| Effect of dilutive Convertible Preferred Stock | — | 20,500 | — | |||||||||
| Diluted EPS | $ | 1,051,000 | 4,951,522 | $ | ||||||||
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 were paid in each of the quarters ending July 31, 2023 and 2022, respectively.
| 14 |
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, 2023 and April 30, 2023, 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.
Schedule of Assets Measured at Fair Value on Recurring Basis
| 15 |
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets Measured at Fair Value on a Recurring Basis as of July 31, 2023 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets: | ||||||||||||||||
| Municipal Bonds | $ | — | $ | 5,166,000 | $ | — | $ | 5,166,000 | ||||||||
| REITs | — | 78,000 | — | 78,000 | ||||||||||||
| Equity Securities | 26,699,000 | — | — | 26,699,000 | ||||||||||||
| Money Markets and CDs | 1,049,000 | — | — | 1,049,000 | ||||||||||||
| Total fair value of assets measured on a recurring basis | $ | 27,748,000 | $ | 5,244,000 | $ | — | $ | 32,992,000 | ||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets Measured at Fair Value on a Recurring Basis as of April 30, 2023 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets: | ||||||||||||||||
| Municipal Bonds | $ | — | $ | 5,212,000 | $ | — | $ | 5,212,000 | ||||||||
| REITs | — | 71,000 | — | 71,000 | ||||||||||||
| Equity Securities | 25,019,000 | — | — | 25,019,000 | ||||||||||||
| Money Markets and CDs | 1,061,000 | — | — | 1,061,000 | ||||||||||||
| Total fair value of assets measured on a recurring basis | $ | 26,080,000 | $ | 5,283,000 | $ | — | $ | 31,363,000 | ||||||||
Note 8: Subsequent Events
None
| 16 |
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, 2023.
Executive Summary
The Company’s performance remained steady during the quarter ended July 31, 2023 as compared to the quarter ended July 31, 2022. Although sales have decreased when comparing to the same quarter last year, overall net income is up because unrealized gains on investments are showing gains in the current quarter, while for the same quarter last year both of those categories were loss amounts. Also, gross profit and income from operations are lower when comparing to the same quarter last year. This is because of the increased costs of raw materials and labor. The decline in sales is a result of a slowing economy which has seen inflation climb to some of its highest levels in 15 years and, in turn, impacts the housing market, which the Company is directly tied to, negatively. The Company still has a considerable back-order log and there have 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 the ongoing effect of the COVID-19 pandemic and inflation. Possible ongoing effects of COVID-19 include, but are not limited to, price increases and/or delays in the supply chain, reduced sales, and economic conditions impacting the stock market. Management continues to work at keeping operations flowing as efficiently 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, 2023 showed a 9.25% decrease over the same period in the prior year. The Company saw decreased sales resulting primarily from a weakened economy, which has constrained the housing market, and inflation. Management also believes that sales stay at a consistent rate due to our ongoing commitment to outstanding customer service and our ability to customize products. | |
| ● | The cost of goods sold percentage increased from 51.00% of sales in the prior year, to 52.07% 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. |
| 17 |
| ● | Operating expenses decreased by $8,000 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 increased to 22.82% for the quarter ended July 31, 2023 as compared to 20.86% for the corresponding quarter last year. The dollar amount decrease is the result of decreased sales commissions. 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, 2023 was at $1,187,000, which is a 19.03% decrease from the corresponding quarter last year, which had income from operations of $1,466,000. | |
| ● | Other income and expenses showed a $1,773,000 gain for the quarter ended July 31, 2023 as compared to a $102,000 loss for the quarter ended July 31, 2022. For the three months ended July 31, 2023, $1,634,000 of unrealized gains from equity securities were recorded, compared to $189,000 of unrealized losses from equity securities recorded for the three months ended July 31, 2022. The remainder of the increase is primarily due to dividend and interest income paid on investments. | |
| ● | The Company’s provision for income taxes showed an increase of $273,000 from $313,000 in the quarter ended July 31, 2022 to $586,000 for the quarter ended July 31, 2023. This increase is primarily due to increased deferred taxes resulting from unrealized gains on equity securities for the current quarter. | |
| ● | In turn, net income for the quarter ended July 31, 2023 was $2,374,000, a 125.88% increase from the corresponding quarter last year, which showed net income of $1,051,000. | |
| ● | Earnings per share for the quarter ended July 31, 2023 were $0.48 per common share and $0.21 per common share for the quarter ended July 31, 2022. |
Liquidity and capital resources
| Operating | ||
| ● | Net cash increased $611,000 during the quarter ended July 31, 2023 as compared to an increase of $1,571,000 during the corresponding quarter last year. The details are listed below. | |
| ● | Accounts receivable, net decreased $431,000 for the quarter ending July 31, 2023 compared with a $499,000 decrease for the same quarter last year. The smaller decrease in accounts receivable is directly attributable to a decrease in sales and customers being able to pay in a slightly timelier manner. 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 5.14% of the balance was over 90 days at July 31, 2023. | |
| ● | Inventories increased $521,000 during the current quarter as compared to a $947,000 increase last year. The smaller increase is primarily due to the fact that the Company has slowed down on buying raw materials due to decreased orders and that the prices of raw materials have leveled out while labor costs continue to increase. |
| 18 |
| ● | For the quarter ended July 31, 2023, there was a $482,000 increase in prepaid expenses and other current assets compared to a decrease of $317,000 for the quarter ended July 31, 2022. The current increase is due to having to prepay for inventory during the quarter; therefore, having more money in prepayments of raw materials on the books. | |
| Income tax overpayment for the quarter ended July 31, 2023 decreased $304,000, compared to a $409,000 decrease in income tax payable for the quarter ended July 31, 2022. The current decrease is due to decreased income. Also, the corporate income tax rate in Nebraska decreased to 7.25% from 7.5% for the current fiscal year. | ||
| ● | Accounts payable shows a decrease of $50,000 for the quarter ended July 31, 2023 compared to a decrease of $21,000 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 and other current liabilities increased $2,000 for the current quarter as compared to a $121,000 increase for the quarter ended July 31, 2022. The difference in the amounts is primarily due to timing of when payroll periods end and decreases in sales commissions. | |
| Investing | ||
| ● | The Company purchased $201,000 of property and equipment during the current fiscal quarter. In comparison, $74,000 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, 2023 was $150,000 compared to $111,000 spent during the quarter ended July 31, 2022. 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, 2023 the Company bought back $22,000 worth of treasury stock and $2,000 was bought back during the quarter ended July 31, 2022. |
| 19 |
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, 2023 | July 31, 2022 | |||||||
| Working capital (current assets – current liabilities) | $ | 51,378,000 | $ | 48,297,000 | ||||
| Current ratio (current assets / current liabilities) | 15.575 | 13.855 | ||||||
| Quick ratio ((cash + current investments + AR) / current liabilities) | 11.805 | 11.207 | ||||||
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. | |
| ● | 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. | |
| ● | Research is being done on updating our small profile glass break detector, in addition to looking at development of programmable temperature and humidity sensors with built-in hysteresis. | |
| ● | 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 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.
| 20 |
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, 2023. 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, 2023, 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. A part-time Controller was hired in March 2023, but 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. |
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.
We will continue to follow the standards for the Public Company Accounting Oversight Board (United States) for internal control over financial reporting to include procedures that:
| ● | Pertain to the maintenance of records in reasonable detail that fairly reflect the transactions and dispositions of the Company’s assets; | |
| ● | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the Board of Directors; and | |
| ● | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. |
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, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| 21 |
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 2024.
| Period | Number of shares repurchased | |||
| May 1, 2023 – May 31, 2023 | 1,135 | |||
| June 1, 2023 – June 30, 2023 | 400 | |||
| July 1, 2023 – July 31, 2023 | 500 | |||
| 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) |
| 22 |
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 14, 2023 | By: | /s/ Stephanie M. Risk-McElroy |
| Stephanie M. Risk-McElroy | ||
| President, Chief Executive Officer, Chief Financial Officer | ||
| and Chairman of the Board | ||
| 23 |
