NOTES TO CONDENSED FINANCIAL STATEMENTS
JULY 31, 2019
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, 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 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.
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 No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,”
which requires the Company to measure and recognize expected credit losses for financial assets held and not accounted for at
fair value through net income. In November 2018, April 2019 and May 2019, the FASB issued ASU No. 2018-19, “Codification
Improvements to Topic 326, Financial Instruments - Credit Losses,” “ASU No. 2019-04, Codification Improvements to
Topic 326, Financial Instruments - Credit Losses,” “Topic 815, Derivatives and Hedging, and Topic 825, Financial
Instruments,” and “ASU No. 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief,”
which provided additional implementation guidance on the previously issued ASU. The ASU is effective for fiscal years beginning
after December 15, 2020. The ASU requires a modified retrospective adoption method. The Company is still evaluating the impact
of adoption on its financial statements and disclosures.
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 at fair value, with unrealized
gain or loss on equity securities reported through other income. The investments in debt securities have maturities
between September 2019 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 July 31, 2019 and
April 30, 2019, investments consisted of the following:
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
Investments
at
|
|
Cost
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
July
31, 2019
|
|
Basis
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Municipal
bonds
|
|
$
|
5,475,000
|
|
|
$
|
117,000
|
|
|
$
|
(43,000
|
)
|
|
$
|
5,549,000
|
|
|
Corporate
bonds
|
|
|
26,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26,000
|
|
|
REITs
|
|
|
89,000
|
|
|
|
3,000
|
|
|
|
(9,000
|
)
|
|
|
83,000
|
|
|
Equity
securities
|
|
|
16,729,000
|
|
|
|
4,252,000
|
|
|
|
(260,000
|
)
|
|
|
20,721,000
|
|
|
Money
markets and CDs
|
|
|
1,278,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,278,000
|
|
|
Total
|
|
$
|
23,597,000
|
|
|
$
|
4,372,000
|
|
|
$
|
(312,000
|
)
|
|
$
|
27,657,000
|
|
|
|
|
|
|
|
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
|
|
Marketable
securities that are 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 Operations in the period of the change, and debt securities are carried at fair
value on the balance sheet with changes in fair value recorded as unrealized gains or (losses) in the Statement of Comprehensive
Income. Upon the disposition of a marketable security, the Company records a realized gain or (loss) on the Company’s
statements of operations. On April 30, 2019, as a result of the adoption of ASU 2016-01 – Financial Instruments, the
Company reclassified $2,424,000 of net unrealized gains on marketable securities, that were formerly classified as available-for-sale
securities before the adoption of the new standard, from Accumulated Other Comprehensive Income to Retained Earnings.
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 on 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 recorded an impairment loss
of $34,000 for the quarter ended July 31, 2019. For the prior quarter ended July 31, 2018, management did not need to record any
impairment losses.
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, 2019 and April 30, 2019, respectively.
Unrealized Loss Breakdown by Investment Type
at July 31, 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
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
448,000
|
|
|
$
|
(43,000
|
)
|
|
$
|
448,000
|
|
|
$
|
(43,000
|
)
|
|
REITs
|
|
|
—
|
|
|
|
—
|
|
|
|
30,000
|
|
|
|
(9,000
|
)
|
|
|
30,000
|
|
|
|
(9,000
|
)
|
|
Equity securities
|
|
|
1,975,000
|
|
|
|
(147,000
|
)
|
|
|
729,000
|
|
|
|
(113,000
|
)
|
|
|
2,704,000
|
|
|
|
(260,000
|
)
|
|
Total
|
|
$
|
1,975,000
|
|
|
$
|
(147,000
|
)
|
|
$
|
1,207,000
|
|
|
$
|
(165,000
|
)
|
|
$
|
3,182,000
|
|
|
$
|
(312,000
|
)
|
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 July 31, 2019.
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, 2019.
Note 3: Inventories
Inventories at July 31, 2019 and April 30,
2019 consisted of the following:
|
|
|
July 31, 2019
|
|
|
April 30, 2019
|
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
3,878,000
|
|
|
$
|
3,644,000
|
|
|
Work in process
|
|
|
368,000
|
|
|
|
389,000
|
|
|
Finished goods
|
|
|
715,000
|
|
|
|
641,000
|
|
|
|
|
|
4,961,000
|
|
|
|
4,674,000
|
|
|
Less: allowance for obsolete inventory
|
|
|
(98,000
|
)
|
|
|
(91,000
|
)
|
|
Inventories, net
|
|
$
|
4,863,000
|
|
|
$
|
4,583,000
|
|
Note 4: Business Segments
The following is financial information relating
to industry segments:
|
|
|
July 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Net revenue:
|
|
|
|
|
|
|
|
|
|
Security alarm products
|
|
$
|
2,830,000
|
|
|
$
|
2,150,000
|
|
|
Cable & wiring tools
|
|
|
536,000
|
|
|
|
679,000
|
|
|
Other products
|
|
|
186,000
|
|
|
|
600,000
|
|
|
Total net revenue
|
|
$
|
3,552,000
|
|
|
$
|
3,429,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations:
|
|
|
|
|
|
|
|
|
|
Security alarm products
|
|
$
|
725,000
|
|
|
$
|
485,000
|
|
|
Cable & wiring tools
|
|
|
137,000
|
|
|
|
153,000
|
|
|
Other products
|
|
|
48,000
|
|
|
|
135,000
|
|
|
Total income from operations
|
|
$
|
910,000
|
|
|
$
|
773,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
Security alarm products
|
|
$
|
23,000
|
|
|
$
|
10,000
|
|
|
Cable & wiring tools
|
|
|
31,000
|
|
|
|
31,000
|
|
|
Other products
|
|
|
20,000
|
|
|
|
27,000
|
|
|
Corporate general
|
|
|
15,000
|
|
|
|
15,000
|
|
|
Total depreciation and amortization
|
|
$
|
89,000
|
|
|
$
|
83,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
Security alarm products
|
|
$
|
169,000
|
|
|
$
|
—
|
|
|
Cable & wiring tools
|
|
|
—
|
|
|
|
—
|
|
|
Other products
|
|
|
—
|
|
|
|
—
|
|
|
Corporate general
|
|
|
—
|
|
|
|
—
|
|
|
Total capital expenditures
|
|
$
|
169,000
|
|
|
$
|
—
|
|
|
Identifiable assets:
|
|
July 31, 2019
|
|
|
April 30, 2019
|
|
|
Security alarm products
|
|
$
|
6,369,000
|
|
|
$
|
6,179,000
|
|
|
Cable & wiring tools
|
|
|
2,725,000
|
|
|
|
2,713,000
|
|
|
Other products
|
|
|
864,000
|
|
|
|
842,000
|
|
|
Corporate general
|
|
|
34,088,000
|
|
|
|
33,293,000
|
|
|
Total assets
|
|
$
|
44,046,000
|
|
|
$
|
43,027,000
|
|
Note 5: Earnings per Share
Basic and diluted earnings per share, assuming
convertible preferred stock was converted for each period presented, are:
|
|
|
For the three months ended July 31, 2019
|
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per-Share
|
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
Net income
|
|
$
|
976,000
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
976,000
|
|
|
|
4,956,389
|
|
|
$
|
.1969
|
|
|
Effect of dilutive Convertible Preferred Stock
|
|
|
–
|
|
|
|
20,500
|
|
|
|
(.0008
|
)
|
|
Diluted EPS
|
|
$
|
976,000
|
|
|
|
4,976,889
|
|
|
$
|
.1961
|
|
|
|
|
For the three months ended July 31, 2018
|
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per-Share
|
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
Net income
|
|
$
|
617,000
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
617,000
|
|
|
|
4,967,580
|
|
|
$
|
.1242
|
|
|
Effect of dilutive Convertible Preferred Stock
|
|
|
–
|
|
|
|
20,500
|
|
|
|
(.0005
|
)
|
|
Diluted EPS
|
|
$
|
617,000
|
|
|
|
4,988,080
|
|
|
$
|
.1237
|
|
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 $2,000 were paid
during both the quarter ending July 31, 2019 and 2018, respectively.
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 July 31, 2019, our investments consisted
of money markets, certificates of deposits (CDs), publicly traded equity securities, real estate investment trusts (REITs) as
well as certain state and municipal debt securities and corporate bonds. Our marketable securities are valued using third-party
broker statements. The value of the investments is derived from quoted market information. The inputs to the valuation are generally
classified as Level 1 given the active market for these securities, however, if an active market does not exist, which is the
case for municipal bonds and REITs, the inputs are recorded as Level 2.
Fair Value Hierarchy
The following table sets forth our assets
and liabilities measured at fair value on a recurring basis and a non-recurring basis by level within the fair value hierarchy.
As required by US GAAP, assets and liabilities are classified in their entirety based on the lowest level of input that is significant
to the fair value measurement.
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Assets Measured at Fair Value on a Recurring Basis as of
July 31, 2019
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Level 1
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Level 2
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Level 3
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Total
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Assets:
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Municipal Bonds
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$
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—
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$
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5,549,000
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$
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—
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$
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5,549,000
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Corporate Bonds
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26,000
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—
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—
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26,000
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REITs
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—
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83,000
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—
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83,000
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Equity Securities
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20,721,000
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—
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—
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20,721,000
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Money Markets and CDs
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1,278,000
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—
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—
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1,278,000
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Total fair value of assets measured on a recurring basis
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$
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22,025,000
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$
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5,632,000
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$
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—
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$
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27,657,000
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Assets Measured at Fair Value on a Recurring Basis as of
April 30, 2019
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Level 1
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Level 2
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Level 3
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Total
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Assets:
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Municipal Bonds
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$
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—
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$
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5,483,000
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|
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$
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—
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$
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5,483,000
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Corporate Bonds
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26,000
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|
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—
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|
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—
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26,000
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REITs
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—
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84,000
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—
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84,000
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Equity Securities
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20,465,000
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—
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—
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20,465,000
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Money Markets and CDs
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1,233,000
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|
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—
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—
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1,233,000
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Total fair value of assets measured on a recurring basis
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$
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21,724,000
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$
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5,567,000
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$
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—
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$
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27,291,000
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Note 8 Subsequent Events
None
Note 9 Correction of Previously Issued Financial
Statements
Subsequent to the issuance of its Quarterly
Report on SEC Form 10-Q for the three months ended July 31, 2019, the Company discovered an error due to missing a change in accounting
related to other comprehensive income (loss) as reflected in the phase in of ASU 2016-01, which became effective for the Company
on May 1, 2018. Under the new guidance in ASU 2016-01 the Company should record unrealized gains and losses in the value of the
equity securities it owns in the statements of operations, whereas, under previous guidance (and in the Original Form 10-Q) those
unrealized gains and losses were recorded as accumulated other comprehensive income (loss).
This
restatement includes i) recording a one-time adjustment to retained earnings to reclassify the accumulated other comprehensive
loss related to unrealized gains on equity securities as of April 30, 2019 and ii) recording an unrealized gain
on marketable securities representing the value change in the equities for the three months ended July 31, 2019.
No entries to correct for this restatement
have any impact on our cash position, liquidity, or operations.
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/A, 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, 2019.
Executive Summary
The Company’s performance has increased
through the first quarter in comparison to the prior quarter last year. In comparison to the most recent prior quarter, performance
has stayed steady with similar sales figures. The main difference between this year’s quarter and last year’s quarter
is that the Company doesn’t have a big back order log and is able to get inventory in the stockroom which allows the Company
to ship products out on timely basis. Opportunities include continuing to learn and grow with our computer system and to continue
looking at businesses that might be a good fit to purchase. Also, we 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 timelier
manner. Raw material prices are also a concern with tariffs being levied by the US government and other factors. Management continues
to work at keeping the facilities running leaner and more profitable than ever before.
Results of Operations
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Net sales showed a 3.59% increase over the same
period in the prior year. Management believes that they have been successful at training employees on the new computer system
and production is running smoothly. The Company has also seen some old customers buying from us again. Management believes
that this may be in relation to price increases from our competitors
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Cost of goods sold saw a decrease from 52.52% of sales in the
prior year, to 49.80% in the current quarter, which is inside of Management’s goal to keep labor and other manufacturing
expenses within the range of 45 to 50%. The decreased cost of goods sold percentage is a reflection of having better training
and working more efficiently when making product.
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Operating expenses have increased by $18,000 when comparing
the current year quarter to the same quarter for the prior year, but the percentage in relation to net sales decreased to
24.58% for the quarter ended July 31, 2019 as compared to 24.93% for the corresponding quarter last year. The Company has
been able to keep the operating expenses at less than 30% of net sales for many years now; however, the actual dollar amount
increase is because of increased commission amounts (since sales have increased) and additional labor costs for hiring new
employees and wage increases.
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Income from operations for the quarter ended July 31, 2019 was
at $910,000, which is a 17.72% increase from the corresponding quarter last year, which had income from operations of $773,000.
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Other income and expenses showed a $388,000 gain for the quarter
ended July 31, 2019 as compared to a $128,000 gain for the quarter ended July 31, 2018. Investments in marketable securities
are presented at fair value and an unrealized gain or loss is recorded within the statements of operations, a non-cash entry,
at each period beginning May 1, 2018 and previously recorded unrealized gain or loss in other comprehensive income (loss).
For the three months ended July 31, 2019 an unrealized gain was recorded, a non-cash entry, on marketable securities of $145,000.
For the three months ended July 31, 2018 we recorded $463,000 of unrealized gains to other comprehensive income. The remainder
of the increase is primarily due to gains realized from the sale of investments as compared to losses sustained during the
same quarter last year.
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Provision for income taxes showed an increase of $38,000, up
from $284,000 in the quarter ended July 31, 2018 to $322,000 for the quarter ended July 31, 2019. The increase is a direct
result of the adoption of ASU 2016-01.
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In turn, net income for the quarter ended July 31, 2019 was
$976,000, a 58.18% increase from the corresponding quarter last year, which showed net income of $617,000.
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Earnings per share for the quarter ended July 31, 2019 were
$0.20 per common share and $0.12 per common share for the quarter ended July 31, 2018.
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Liquidity and capital resources
Operating
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Net
cash increased $794,000 during the quarter ended July 31, 2019 as compared to an increase of $653,000 during the corresponding
quarter last year.
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Accounts
receivable decreased $163,000 for the quarter ending July 31, 2019 compared with a $234,000 decrease for the same quarter
last year. The decrease in accounts receivable is directly attributable to the Company’s ability to collect on accounts
and to keep past due accounts to a minimum. An analysis of accounts shows that there were only 5.15% that were over 90 days
at July 31, 2019.
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Inventories
increased $288,000 during the current quarter as compared to a $389,000 increase last year. The smaller increase is primarily
due to the fact that the Company selling more finished goods at a slightly faster rate than it is replenishing raw materials.
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At
the quarter ended July 31, 2019 there was a $79,000 decrease in prepaid expenses and at July 31, 2018, there was a $166,000
decrease. The current decrease is due to capitalizing some projects in process.
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●
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Accounts
payable shows an increase of $55,000 for the quarter ended July 31, 2019 compared to a decrease of $7,000 for the same quarter
the year before, primarily due to timing issues. Management strives to pay all payables within terms, unless there is a problem
with the merchandise.
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Accrued
expenses decreased $66,000 for the current quarter as compared to a $172,000 decrease for the quarter ended July 31, 2018.
The difference in the amounts is primarily due to timing issues of when pay periods end.
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Income
tax payable for the quarter ended July 31, 2019 increased $289,000, while there was a $244,000 decrease towards income tax
overpayment for the quarter ended July 31, 2018. The current increase is due to waiting on tax refunds to be sent and not
having to pay income tax estimates yet.
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Investing
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As
for our investment activities, the Company purchased $169,000 of property and equipment during the current fiscal quarter.
In comparison with the corresponding quarter last year, there were not any purchases of property and equipment.
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Additionally,
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, 2019 was $132,000 compared to $233,000 spent during the quarter ended
July 31, 2018. 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 a quarterly service fee based on the value of the investments.
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Financing
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Furthermore,
the Company continues to purchase back common stock when the opportunity arises. For the quarter ended July 31, 2019, the
Company purchased $53,000 worth of treasury stock, along with the $5,000 spent in the same period the prior year.
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The following is a list of ratios to help
analyze George Risk Industries’ performance:
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Qtr ended
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Qtr ended
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July 31, 2019
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July 31, 2018
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Working capital
(current assets – current liabilities)
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$
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38,750,000
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$
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36,894,000
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Current ratio
(current assets / current liabilities)
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17.882
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18.760
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Quick ratio
((cash + investments + AR) / current liabilities)
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15.622
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16.567
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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:
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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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A new 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.
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●
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Work continues on
high security switches. They have a triple biased high security switch design nearly complete and an adjustable magnet design
was completed for recessed mounting applications.
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Wireless technology
is a main area of focus for product development. We are looking into adding wireless technology to some of our current products.
A wireless contact switch is in the final stages of development. Also, we are working on wireless versions of our Pool Alarm
and environmental sensors that will be easy to install in current construction. We are also concentrating on making products
compatible with Wi-Fi, smartphone technology and the increasing popular Z-Wave standard for wireless home automation.
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We are ready to
launch a new product in our cable and wiring tools segment, The Grabbit GR5. This is an ultra-compact, lightweight telescoping
pole that extends 5’ to grab or push a wire. The GR5 is the newest member of the Grabbit family - joining the 10’,
12’ and 18’ versions. The Grabbits are an indispensable tool when running wire through drop ceilings and difficult-to-access
areas. A Z-tip, J-tip and LED light are included with the Grabbits which are interchangeable depending on the situation.
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Other Information
In addition to researching developing new
products, management is always open to the possibility of acquiring a business or product line that would complement our existing
operations. Due to the Company’s strong cash position, management believes this could be achieved without the need for outside
financing. The intent is to utilize the equipment, marketing techniques and established customers to deliver new products and
increase sales and profits.
There are no known seasonal trends with any
of GRI’s products, since we sell to distributors and OEM manufacturers. Our products are tied to the housing industry and
will fluctuate with building trends.
Recently Issued Accounting
Pronouncements
In 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 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.
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 No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,”
which requires the Company to measure and recognize expected credit losses for financial assets held and not accounted for at
fair value through net income. In November 2018, April 2019 and May 2019, the FASB issued ASU No. 2018-19, “Codification
Improvements to Topic 326, Financial Instruments - Credit Losses,” “ASU No. 2019-04, Codification Improvements to
Topic 326, Financial Instruments - Credit Losses,” “Topic 815, Derivatives and Hedging, and Topic 825, Financial
Instruments,” and “ASU No. 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief,”
which provided additional implementation guidance on the previously issued ASU. The ASU is effective for fiscal years beginning
after December 15, 2020. The ASU requires a modified retrospective adoption method. The Company is still evaluating the impact
of adoption on its financial statements and disclosures.
GEORGE RISK INDUSTRIES, INC.
PART I. FINANCIAL INFORMATION