UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended July 31, 2020

 

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

 

For the transition period from ______________ to ________________

 

Commission File Number: 000-05378

 

GEORGE RISK INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

 

Colorado   84-0524756
(State 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 [ X ] No [  ]

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, a small reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ]   Accelerated filer [  ]
Non-accelerated filer [  ]   Smaller reporting company [ X ]
    Emerging growth company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [ X ]

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

The number of shares of the Registrant’s Common Stock outstanding, as of September 18, 2020 was 4,949,927.

 

 

 

 
 

 

GEORGE RISK INDUSTRIES, INC.

 

PART I. FINANCIAL INFORMATION

 

ITEM 1: Financial Statements

 

The unaudited financial statements for the three-month period ended July 31, 2020 are attached hereto.

 

2

 

 

GEORGE RISK INDUSTRIES, INC.

CONDENSED BALANCE SHEETS

 

    July 31, 2020     April 30, 2020  
    (unaudited)        
ASSETS            
Current Assets:                
Cash and cash equivalents   $ 7,491,000     $ 6,458,000  
Investments and securities, at fair value     27,657,000       25,322,000  
Accounts receivable:                
Trade, net of $1,913 and $7,306 doubtful account allowance     2,920,000       2,964,000  
Other     19,000       18,000  
Income tax overpayment     —       56,000  
Inventories, net     5,507,000       5,103,000  
Prepaid expenses     334,000       516,000  
Total Current Assets     43,928,000       40,437,000  
                 
Property and Equipment, net, at cost     1,505,000       1,465,000  
                 
Other Assets                
Investment in Limited Land Partnership, at cost     320,000       320,000  
Projects in process     108,000       21,000  
Other     2,000       2,000  
Total Other Assets     430,000       343,000  
                 
Intangible assets, net     1,486,000       1,517,000  
                 
TOTAL ASSETS   $ 47,349,000     $ 43,762,000  

 

See accompanying notes to the condensed financial statements

 

3

 

 

GEORGE RISK INDUSTRIES, INC.

CONDENSED BALANCE SHEETS

(continued)

 

    July 31, 2020     April 30, 2020  
    (unaudited)        
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current Liabilities                
Accounts payable, trade   $ 304,000     $ 187,000  
Dividends payable     1,892,000       1,892,000  
Accrued expenses:                
Payroll and related expenses     386,000       450,000  
Property taxes     3,000       —  
Income tax payable     290,000       —  
Notes payable     950,000       950,000  
Total Current Liabilities     3,825,000       3,479,000  
                 
Long-Term Liabilities                
Deferred income taxes     1,343,000       699,000  
Total Long-Term Liabilities     1,343,000       699,000  
                 
Total Liabilities     5,168,000       4,178,000  
                 
Commitments and contingencies     —       —  
                 
Stockholders’ Equity                
Convertible preferred stock, 1,000,000 shares authorized, Series 1—noncumulative, $20 stated value, 25,000 shares authorized, 4,100 issued and outstanding     99,000       99,000  
Common stock, Class A, $.10 par value, 10,000,000 shares authorized, 8,502,881 shares issued and outstanding     850,000       850,000  
Additional paid-in capital     1,934,000       1,934,000  
Accumulated other comprehensive income     101,000       (4,000 )
Retained earnings     43,498,000       41,006,000  
Less: treasury stock, 3,552,954 and 3,552,954 shares, at cost     (4,301,000 )     (4,301,000 )
Total Stockholders’ Equity     42,181,000       39,584,000  
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 47,349,000     $ 43,762,000  

 

See accompanying notes to the condensed financial statements

 

4

 

 

GEORGE RISK INDUSTRIES, INC.

CONDENSED INCOME STATEMENTS

FOR THE THREE MONTHS ENDED JULY 31, 2020 AND 2019

(Unaudited)

 

    July 31, 2020     July 31, 2019  
             
Net Sales   $ 4,047,000     $ 3,552,000  
Less: Cost of Goods Sold     (1,952,000 )     (1,769,000 )
Gross Profit     2,095,000       1,783,000  
                 
Operating Expenses:                
General and Administrative     313,000       297,000  
Sales     567,000       557,000  
Engineering     29,000       14,000  
Rent Paid to Related Parties     —       5,000  
Total Operating Expenses     909,000       873,000  
                 
Income From Operations     1,186,000       910,000  
                 
Other Income (Expense)                
Other     12,000       1,000  
Dividend and Interest Income     156,000       193,000  
Unrealized gain (loss) on equity securities     2,114,000       145,000  
Gain (Loss) on Sale of Investments     (28,000 )     49,000  
      2,254,000       388,000  
                 
Income Before Provisions for Income Taxes     3,440,000       1,298,000  
                 
Provisions for Income Taxes                
Current Expense     349,000       294,000  
Deferred tax expense     599,000       28,000  
Total Income Tax Expense     948,000       322,000  
                 
Net Income   $ 2,492,000     $ 976,000  
                 
Basic Earnings Per Share of Common Stock   $ 0.50     $ 0.20  
Diluted Earnings Per Share of Common Stock   $ 0.50     $ 0.20  
                 
Weighted Average Number of Common Shares Outstanding     4,949,927       4,956,389  
Weighted Average Number of Shares Outstanding (Diluted)     4,970,427       4,976,889  

 

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, 2020 AND 2019

(Unaudited)

 

    July 31, 2020     July 31, 2019  
             
Net Income   $ 2,492,000     $ 976,000  
                 
Other Comprehensive Income, Net of Tax                
Unrealized gain on debt securities:                
Unrealized holding gains arising during period     149,000       49,000  
Income tax expense related to other comprehensive income     (44,000 )     (14,000 )
Other Comprehensive Income     105,000       35,000  
                 
Comprehensive Income   $ 2,597,000     $ 1,011,000  

 

See accompanying notes to the condensed financial statements

 

6

 

 

GEORGE RISK INDUSTRIES, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED JULY 31, 2020 and 2019

(Unaudited)

 

    Preferred Stock    

Common Stock

Class A

 
    Shares     Amount     Shares     Amount  
Balances, April 30, 2019     4,100     $ 99,000       8,502,881     $ 850,000  
                                 
Purchases of common stock     —       —       —       —  
                                 
Unrealized gain (loss), net of tax effect     —       —       —       —  
                                 
Net Income     —       —       —       —  
                                 
Balances, July 31, 2019     4,100     $ 99,000       8,502,881     $ 850,000  

 

    Preferred Stock    

Common Stock

Class A

 
    Shares     Amount     Shares     Amount  
Balances, April 30, 2020     4,100     $ 99,000       8,502,881     $ 850,000  
                                 
Purchases of common stock     —       —       —       —  
                                 
Unrealized gain (loss), net of tax effect     —       —       —       —  
                                 
Net Income     —       —       —       —  
                                 
Balances, July 31, 2020     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, 2020 and 2019

(Unaudited)

 

                  Accumulated              
      Treasury Stock     Other              
Paid-In     (Common Class A)     Comprehensive     Retained        
Capital     Shares     Amount     Income     Earnings     Total  
$ 1,934,000       3,544,271     $ (4,227,000 )   $ 14,000     $ 40,883,000     $ 39,553,000  
                                             
  —       6,300       (53,000 )     —       —       (53,000 )
                                             
  —       —       —       35,000       —       35,000  
                                             
  —       —       —       —       976,000       976,000  
                                             
$ 1,934,000       3,550,571     $ (4,280,000 )   $ 49,000     $ 41,859,000     $ 40,511,000  

 

                  Accumulated              
      Treasury Stock     Other              
Paid-In     (Common Class A)     Comprehensive     Retained        
Capital     Shares     Amount     Income     Earnings     Total  
$ 1,934,000       3,552,954     $ (4,301,000 )   $ (4,000 )   $ 41,006,000     $ 39,584,000  
                                             
  —       —       —       —       —       —  
                                             
  —       —       —       105,000       —       105,000  
                                             
  —       —       —       —       2,492,000       2,492,000  
                                             
$ 1,934,000       3,552,954     $ (4,301,000 )   $ 101,000     $ 43,498,000     $ 42,181,000  

 

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, 2020 AND 2019

(Unaudited)

 

    July 31, 2020     July 31, 2019  
Cash Flows from Operating Activities:                
Net Income   $ 2,492,000     $ 976,000  
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation and amortization     86,000       89,000  
(Gain) loss on sale of investments     —       (83,000 )
Impairments on investments     27,000       34,000  
Unrealized (gain) loss on equity securities     (2,114,000 )     (145,000 )
Reserve for bad debts     (5,000 )     (2,000 )
Reserve for obsolete inventory     1,000       8,000  
Deferred income taxes     599,000       28,000  
Changes in assets and liabilities:                
(Increase) decrease in:                
Accounts receivable     49,000       163,000  
Inventories     (405,000 )     (288,000 )
Prepaid expenses     94,000       79,000  
Employee receivables     (1,000 )     2,000  
Increase (decrease) in:                
Accounts payable     117,000       55,000  
Accrued expenses     (61,000 )     (66,000 )
Income tax payable     346,000       289,000  
Net cash from operating activities     1,225,000       1,139,000  
                 
Cash Flows From Investing Activities:                
(Purchase) of property and equipment     (95,000 )     (169,000 )
Proceeds from sale of marketable securities     14,000       9,000  
(Purchase) of marketable securities     (111,000 )     (132,000 )
Net cash from investing activities     (192,000 )     (292,000 )
                 
Cash Flows From Financing Activities:                
(Purchase) of treasury stock     —       (53,000 )
Net cash from financing activities     —       (53,000 )
                 
Net Change in Cash and Cash Equivalents   $ 1,033,000     $ 794,000  
                 
Cash and Cash Equivalents, beginning of period   $ 6,458,000     $ 4,873,000  
Cash and Cash Equivalents, end of period   $ 7,491,000     $ 5,667,000  
                 
Supplemental Disclosure for Cash Flow Information:                
Cash payments for:                
Income taxes paid   $ 0     $ 0  
Interest paid   $ 0     $ 0  

 

See accompanying notes to the condensed financial statements

 

9

 

 

GEORGE RISK INDUSTRIES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JULY 31, 2020

 

Note 1: Unaudited Interim Financial Statements

 

The accompanying financial statements have been prepared in accordance with the instructions for Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s April 30, 2020 annual report on Form 10-K. In the opinion of management, all adjustments, consisting only of normal recurring adjustments considered necessary for a fair presentation, have been included. Operating results for any quarter are not necessarily indicative of the results for any other quarter or for the full year.

 

Accounting Estimates—The preparation of these financial statements requires the use of estimates and assumptions including the carrying value of assets. The estimates and assumptions result in approximate rather than exact amounts.

 

Recently Issued Accounting Pronouncements — In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which requires entities to use a forward looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. The FASB has subsequently issued updates to the standard to provide additional clarification on specific topics. Topic 326 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We have applied this guidance, as of May 1, 2020, using a modified-retrospective approach. The application of this guidance did not require a cumulative effect adjustment to retained earnings and did not have a material effect on our 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. We applied this guidance, as of May 1, 2020. The application of this guidance did not have a material effect on our disclosures.

 

In January 2020, the FASB issued ASU 2020-01, “Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions. ASU 2016-01 made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. For public business entities, the amendments in the ASU are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of ASU 2020-01 to have a material impact on its financial statements.

 

There are no other new accounting pronouncements that are expected to have a significant impact on our financial statements.

 

10

 

 

Note 2: Investments

 

The Company has investments in publicly traded equity securities, state and municipal debt securities, real estate investment trusts, and money markets. The investments in debt securities, which include municipal bonds and bond funds, mature between March 2021 and January 2044. The Company uses the average cost method to determine the cost of equity securities sold with any unrealized gains or losses reported in the respective period’s earnings. Unrealized gains and losses on debt securities are excluded from earnings and reported separately as a component of stockholder’s equity. Dividend and interest income are reported as earned.

 

As of July 31, 2020 and April 30, 2020, investments consisted of the following:

 

        Gross     Gross        
Investments at   Cost     Unrealized     Unrealized     Fair  
July 31, 2020   Basis     Gains     Losses     Value  
Municipal bonds   $ 5,284,000     $ 180,000     $ (38,000 )   $ 5,426,000  
REITs     112,000       —       (36,000 )     76,000  
Equity securities     17,101,000       5,000,000       (628,000 )     21,473,000  
Money markets and CDs     682,000       —       —       682,000  
Total   $ 23,179,000     $ 5,180,000     $ (702,000 )   $ 27,657,000  

 

        Gross     Gross        
Investments at   Cost     Unrealized     Unrealized     Fair  
April 30, 2020   Basis     Gains     Losses     Value  
Municipal bonds   $ 5,271,000     $ 80,000     $ (89,000 )   $ 5,262,000  
Corporate bonds     26,000       —       —       26,000  
REITs     112,000       —       (44,000 )     68,000  
Equity securities     17,119,000       3,446,000       (1,180,000 )     19,385,000  
Money markets and CDs     581,000       —       —       581,000  
Total   $ 23,109,000     $ 3,526,000     $ (1,313,000 )   $ 25,322,000  

 

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, management recorded an impairment loss of $27,000 for the quarter ended July 31, 2020. For the prior quarter ended July 31, 2019, an impairment loss of $34,000 was recorded.

 

11

 

 

The Company’s investments are actively traded in the stock and bond markets. Therefore, either a realized gain or loss is recorded when a sale happens. For the quarter ended July 31, 2020 the Company had sales of equity securities which yielded gross realized gains of $102,000 and gross realized losses of $126,000. For the same period, sales of debt securities did not yield any gross realized gains, but gross realized losses of $4,000 were recorded. During the quarter ending July 31, 2019, the Company recorded gross realized gains and losses on equity securities of $153,000 and $104,000, respectively, as well as gross realized gains and losses on debt securities of $3,000 and $3,000, respectively. The gross realized loss numbers include the impaired figures listed in the previous paragraph. Proceeds from sales of securities available for sale were $14,000 for the quarter ended July 31, 2020 and were $9,000 for the same quarter the prior year.

 

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, 2020 and April 30, 2020, respectively.

 

Unrealized Loss Breakdown by Investment Type at July 31, 2020

 

    Less than 12 months     12 months or greater     Total  
Description   Fair Value     Unrealized Loss     Fair Value     Unrealized Loss     Fair Value     Unrealized Loss  
Municipal bonds   $ 62,000     $ —     $ 342,000     $ (38,000 )   $ 404,000     $ (38,000 )
REITs     48,000       (26,000 )     28,000       (10,000 )     76,000       (36,000 )
Equity securities     4,148,000       (478,000 )     1,348,000       (150,000 )     5,496,000       (628,000 )
Total   $ 4,258,000     $ (504,000 )   $ 1,718,000     $ (198,000 )   $ 5,976,000     $ (702,000 )

 

Unrealized Loss Breakdown by Investment Type at April 30, 2020

 

    Less than 12 months     12 months or greater     Total  
Description   Fair Value     Unrealized Loss     Fair Value     Unrealized Loss     Fair Value     Unrealized Loss  
Municipal bonds   $ 2,203,000     $ (42,000 )   $ 484,000     $ (47,000 )   $ 2,687,000     $ (89,000 )
REITs     43,000       (30,000 )     24,000       (14,000 )     67,000       (44,000 )
Equity securities     5,496,000       (866,000 )     1,651,000       (314,000 )     7,147,000       (1,180,000 )
Total   $ 7,742,000     $ (938,000 )   $ 2,159,000     $ (375,000 )   $ 9,901,000     $ (1,313,000 )

 

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, 2020.

 

Marketable Equity Securities and REITs

 

The Company’s investments in marketable equity securities and REITs consist of a wide variety of companies. Investments in these companies include growth, growth income, and foreign investment objectives. The individual holdings have been evaluated, and due to management’s plan to hold on to these investments for an extended period, the Company does not consider these investments to be other-than-temporarily impaired at July 31, 2020.

 

12

 

 

Note 3: Inventories

 

Inventories at July 31, 2020 and April 30, 2020 consisted of the following:

 

    July 31,     April 30,  
    2020     2020  
             
Raw materials   $ 4,657,000     $ 4,233,000  
Work in process     421,000       402,000  
Finished goods     568,000       606,000  
      5,646,000       5,241,000  
Less: allowance for obsolete inventory     (139,000 )     (138,000 )
Inventories, net   $ 5,507,000     $ 5,103,000  

 

13

 

 

Note 4: Business Segments

 

The following is financial information relating to industry segments:

 

    July 31,  
    2020     2019  
Net revenue:                
Security alarm products   $ 3,114,000     $ 2,830,000  
Cable & wiring tools     800,000       536,000  
Other products     133,000       186,000  
Total net revenue   $ 4,047,000     $ 3,552,000  
                 
Income from operations:                
Security alarm products   $ 912,000     $ 725,000  
Cable & wiring tools     235,000       137,000  
Other products     39,000       48,000  
Total income from operations   $ 1,186,000     $ 910,000  
                 
Depreciation and amortization:                
Security alarm products   $ 22,000     $ 23,000  
Cable & wiring tools     31,000       31,000  
Other products     12,000       20,000  
Corporate general     21,000       15,000  
Total depreciation and amortization   $ 86,000     $ 89,000  
                 
Capital expenditures:                
Security alarm products   $ 93,000     $ 169,000  
Cable & wiring tools     —       —  
Other products     2,000       —  
Corporate general     —       —  
Total capital expenditures   $ 95,000     $ 169,000  

 

  July 31, 2020     April 30, 2020  
Identifiable assets:            
Security alarm products   $ 7,391,000     $ 7,150,000  
Cable & wiring tools     3,152,000       2,684,000  
Other products     440,000       724,000  
Corporate general     36,366,000       33,204,000  
Total assets   $ 47,349,000     $ 43,762,000  

 

14

 

 

Note 5: Earnings per Share

 

Basic and diluted earnings per share, assuming convertible preferred stock was converted for each period presented, are:

 

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

 

    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     $ .20  
Effect of dilutive Convertible Preferred Stock     –       20,500       —  
Diluted EPS   $ 976,000       4,976,889     $ .20  

 

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 $13,000 and $2,000 were paid in each of the quarters ending July 31, 2020 and 2019 respectively.

 

15

 

 

Note 7: Fair Value Measurements

 

The carrying value of the Company’s cash and cash equivalents, accounts receivable and accounts payable approximate their fair value due to their short term nature. The fair value of our investments is determined utilizing market based information. Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions, and credit risk.

 

US GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurements). The levels of the fair value hierarchy under US GAAP are described below:

 

  Level 1 Valuation is based upon quoted prices for identical instruments traded in active markets.
     
  Level 2 Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
     
  Level 3 Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

 

Investments and Marketable Securities

 

As of July 31, 2020, our investments consisted of money markets, publicly traded equity securities, real estate investment trusts (REITs) as well as certain state and municipal debt securities. The marketable securities are valued using third-party broker statements. The value of the majority of securities is derived from quoted market information. The inputs to the valuation are generally classified as Level 1 given the active market for these securities, however, if an active market does not exist, which is the case for municipal bonds and REITs, the inputs are recorded as Level 2.

 

Fair Value Hierarchy

 

The following table sets forth our assets and liabilities measured at fair value on a recurring basis and a non-recurring basis by level within the fair value hierarchy. As required by US GAAP, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

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    Assets Measured at Fair Value on a Recurring Basis as of
July 31, 2020 		 
    Level 1     Level 2     Level 3     Total  
Assets:                                
Municipal Bonds   $ —     $ 5,426,000     $ —     $ 5,426,000  
REITs     —       76,000       —       76,000  
Equity Securities     21,473,000       —       —       21,473,000  
Money Markets and CDs     682,000       —       —       682,000  
Total fair value of assets measured on a recurring basis   $ 22,155,000     $ 5,502,000     $ —     $ 27,657,000  

 

    Assets Measured at Fair Value on a Recurring Basis as of
April 30, 2020 		 
    Level 1     Level 2     Level 3     Total  
Assets:                                
Municipal Bonds   $ —     $ 5,262,000     $ —     $ 5,262,000  
Corporate Bonds     26,000       —       —       26,000  
REITs     —       68,000       —       68,000  
Equity Securities     19,385,000       —       —       19,385,000  
Money Markets and CDs     581,000       —       —       581,000  
Total fair value of assets measured on a recurring basis   $ 19,992,000     $ 5,330,000     $ —     $ 25,322,000  

 

Note 8 Notes Payable

 

On April 15, 2020, the Company received loan proceeds of approximately $950,000 (the “PPP Loan”) from FirsTier Bank, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act, which was enacted March 27, 2020. The PPP Loan, which was in the form of a Note dated April 15, 2020 issued to the Company, matures on April 15, 2022 and bears interest at a rate of 1% per annum, payable monthly commencing on November 15, 2020. The Note may be prepaid by the Company at any time prior to maturity with no prepayment penalties. Funds from the PPP Loan may only be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on certain other debt obligations. The Company intends to use the entire PPP Loan amount for qualifying expenses. Under the terms of the PPP, certain amounts of the PPP Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act.

 

Note 9 Subsequent Events

 

None

 

17

 

 

GEORGE RISK INDUSTRIES, INC.

 

PART I. FINANCIAL INFORMATION

 

Item 2: Management Discussion and Analysis of Financial Condition and Results of Operations

 

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This Quarterly Report on Form 10-Q, includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), which are subject to the “safe harbor” created by those sections. Any statements herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, words such as “may,” “will,” “could,” “would,” “should,” “anticipate,” “expect,” “intend,” “believe,” “estimate,” “project” or “continue,” and the negatives of such terms are intended to identify forward-looking statements. The information included herein represents our estimates and assumptions as of the date of this filing. Unless required by law, we undertake no obligation to update publicly any forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if current information becomes available in the future.

 

The following discussion should be read in conjunction with the attached condensed financial statements, and with the Company’s audited financial statements and discussion for the fiscal year ended April 30, 2020.

 

Executive Summary

 

The Company’s performance improved during the quarter ended July 31, 2020 as compared to the quarter ended July 31, 2019. The main reason for the increase is the closure of a competitor at the end of calendar year 2019, resulting in a major uptick in sales. As a result of the increased demand, the Company is experiencing a sizable back order log; however, management has been able to increase inventory. Management now intends to focus on ramping up production to meet customer’s needs in a timely manner. Opportunities include continuing to learn and grow with our computer system and to continue looking at businesses that might be a good fit to purchase. We also have new products that are scheduled to enter the marketplace by the end of the calendar year. Challenges in the coming months include continuing to get product out to customers in a timely manner and dealing with COVID-19 pandemic restrictions. 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

 

  ● Net sales for the quarter ended July 31, 2020 showed a 13.94% increase over the same period in the prior year. The Company saw increased sales resulting primarily from a competitor no longer selling competing products. Management also believes that they have been successful at training employees on the new computer system and production is running smoothly.
     
  ● Cost of goods sold decreased from 49.80% of sales in the prior year, to 48.23% in the current quarter, which is inside of Management’s goal to keep labor and other manufacturing expenses within the range of 45 to 50%. The decreased cost of goods sold percentage is a reflection of training initiatives resulting in more efficient production.

 

18

 

 

  ● Operating expenses increased by $36,000 when comparing the current year quarter to the same quarter for the prior year; however, the percentage of net sales decreased to 22.46% for the quarter ended July 31, 2020 compared to 24.58% for the corresponding quarter last year. The dollar amount increase is the result of increased personnel and commission expense related to the increase in net sales; however, the Company maintained the ratio of operating expenses to net sales at less than 30%, which is in line with historical ratios.
     
  ● Income from operations for the quarter ended July 31, 2019 was at $1,186,000, which is a 30.33% increase from the corresponding quarter last year, which had income from operations of $910,000.
     
  ● Other income and expenses showed a $2,254,000 gain for the quarter ended July 31, 2020 as compared to a $388,000 gain for the quarter ended July 31, 2019. For the three months ended July 31, 2020, $2,114,000 of unrealized gains from equity securities were recorded, compared to the $145,000 of unrealized gains from equity securities recorded for the three months ended July 31, 2019. The remainder of the increase is primarily due to dividend and interest income.
     
  ● The Company’s provision for income taxes showed an increase of $626,000 from $322,000 in the quarter ended July 31, 2019 to $948,000 for the quarter ended July 31, 2020. This increase is primarily due to increased deferred taxes resulting from a much larger unrealized gain for the current quarter.
     
  ● In turn, net income for the quarter ended July 31, 2020 was $2,492,000, a 155.33% increase from the corresponding quarter last year, which showed net income of $976,000.
     
  ● Earnings per share for the quarter ended July 31, 2020 were $0.50 per common share and $0.20 per common share for the quarter ended July 31, 2019.

 

Liquidity and capital resources

 

    Operating
     
  ● Net cash increased $1,033,000 during the quarter ended July 31, 2020 as compared to an increase of $794,000 during the corresponding quarter last year.
     
  ● Accounts receivable decreased $49,000 for the quarter ending July 31, 2020 compared with a $163,000 decrease for the same quarter last year. The smaller decrease in accounts receivable is directly attributable to some of the Company’s customers not paying as timely as before. Management believes this is because of the COVID-19 pandemic. Management still has the ability to collect on accounts and to keep past due accounts to a minimum. An analysis of accounts shows that there were only 0.63% that were over 90 days at July 31, 2020.
     
  ● Inventories increased $405,000 during the current quarter as compared to a $288,000 increase last year. The larger increase is primarily due to the fact that the Company is stocking up on more raw materials due to increased orders. In addition, the Company is keeping more inventory on hand in order to reduce the likelihood of running into a shortage on some major raw materials, such as we experienced last year.

 

19

 

 

  ● For the quarter ended July 31, 2020 there was a $94,000 decrease in prepaid expenses compared to a decrease of $79,000 for the quarter ended July 31, 2019. The current decrease is due to less prepayment of raw materials and running through some of our prepaid agreements without needing to renew them.
     
  ● Accounts payable shows an increase of $117,000 for the quarter ended July 31, 2020 compared to an increase of $55,000 for the same quarter the year before, primarily due to increases in inventory of raw materials and timing issues. Management strives to pay all payables within terms, unless there is a problem with the merchandise.
     
  ● Accrued expenses decreased $61,000 for the current quarter as compared to a $66,000 decrease for the quarter ended July 31, 2019. The difference in the amounts is primarily due to timing issues.
     
  ● Income tax payable for the quarter ended July 31, 2020 increased $346,000, compared to a $289,000 increase for the quarter ended July 31, 2019. The current increase is due to larger tax estimates in relation to increased income.
     
    Investing
     
  ● The Company purchased $95,000 of property and equipment during the current fiscal quarter. In comparison, $169,000 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, 2020 was $111,000 compared to $132,000 spent during the quarter ended July 31, 2019. 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.
     
    Financing
     
  ● The Company continues to purchase back common stock when the opportunity arises. For the quarter ended July 31, 2020, the Company did not buyback any treasury stock, compared to the $53,000 of common stock purchased during the same period the prior year.

 

20

 

 

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

 

    Qtr ended     Qtr ended  
    July 31, 2020     July 31, 2019  

Working capital

(current assets – current liabilities)

  $ 40,103,000     $ 38,750,000  

Current ratio

(current assets / current liabilities)

    11.485       17.882  

Quick ratio

((cash + current investments + AR) / current liabilities)

    9.953       15.622  

 

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:

 

  ● 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.
     
  ● An updated version of the pool access alarm is currently going through electrical listing testing. Since the COVID-19 pandemic has happened, not much testing has progressed 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.
     
  ● 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.
     
  ● In the next months we are introducing a couple of new security products. First, the 2707 Series are triple high biased magnetic reed contacts for high security and are available in SPDT and DPDT models. These contacts are resistant to magnetic tamper and defeat. They are used in applications such as airports, biotechnology labs, manufacturing plants, banks, military bases and energy-generation facilities. Secondly, the 3040 Panic Switch contains screw terminals and uses an actuating lever which can be triggered with only the tip of the finger. It can be installed under a counter or desk or any similar place. The 3040CT uses 12’ extreme temperature rated wire for installation in refrigerators and freezers. Both models have a latching LED indicating when the switch is activated and automatically resets when the lever is closed and is fully re-armed. Latching LED and UL Listed versions are planned to follow.
     
  ● We have launched our new GR1840 Oval Metal Door Channel Magnet. This is a direct replacement for the obsolete Interlogix magnet. This magnet fits into the top channel of a metal door and does not require drilling into the door core. We have also paired this with several of our ¾” and 1” steel door contacts.
     
  ● There have been several new products that have been introduced for our cable and wiring tools segment. First, a 12” adjustable hole cutter which compliments the popular 10” hole cutter. Using a standard drill, this tool allows you to drill various size holes in the ceiling for speakers and canned lights. The dust bin which buts against the ceiling keeps the ceiling material and dust enclosed making for a clean, time saving installation. Secondly, the lighted Bullnose tips come in a variety of colors; red, green and blue to go along with the standard clear lights. These colored lights are placed on FiberFuse wire running rods which allows easy location of the rod ends in dark places such as attics and crawlspaces. The rods can be color coded for wire paths running into different rooms. Larger batteries add to the longevity of these new lights.

 

21

 

 

Other Information

 

In addition to researching developing new products, management is always open to the possibility of acquiring a business or product line that would complement our existing operations. Due to the Company’s strong cash position, management believes this could be achieved without the need for outside financing. The intent is to utilize the equipment, marketing techniques and established customers to deliver new products and increase sales and profits.

 

There are no known seasonal trends with any of GRI’s products, since we sell to distributors and OEM manufacturers. Our products are tied to the housing industry and will fluctuate with building trends.

 

Recently Issued Accounting Pronouncements

 

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which requires entities to use a forward looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. The FASB has subsequently issued updates to the standard to provide additional clarification on specific topics. Topic 326 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We have applied this guidance, as of May 1, 2020, using a modified-retrospective approach. The application of this guidance did not require a cumulative effect adjustment to retained earnings and did not have a material effect on our 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. We applied this guidance, as of May 1, 2020. The application of this guidance did not have a material effect on our disclosures.

 

In January 2020, the FASB issued ASU 2020-01, “Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions. ASU 2016-01 made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. For public business entities, the amendments in the ASU are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of ASU 2020-01 to have a material impact on its financial statements.

 

There are no other new accounting pronouncements that are expected to have a significant impact on our financial statements.

 

22

 

 

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, 2020. 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 ,2020, 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 not occur. Due to the departure of the Controller, the current CEO and CFO roles are being fulfilled by the same individual. We do not have an audit committee. We do not believe we have met the full requirement for separation for financial reporting purposes.

 

We continue to operate with a limited number of accounting and financial personnel. For the quarter ending July 31, 2020 the Company did not have a Controller, but this position was filled in September 2020. Training will be required to fulfill disclosure control and procedure responsibilities, including review procedures for key accounting schedules and timely and proper documentation of material transactions and agreements. Until sufficient training has taken place for this new Controller, we believe this control deficiency represents material weaknesses in internal control over financial reporting. To mitigate the effects of the material weakness identified in our annual report, the Company contracted with an outside CPA to perform a secondary review of our quarterly report filed on Form 10-Q.

 

Despite the material weaknesses in financial reporting noted above, we believe that our financial statements included in this report fairly present our financial position, results of operations and cash flows as of and for the periods presented in all material respects.

 

We are committed to the establishment of effective internal controls over financial reporting and will place emphasis on quarterly and year-end closing procedures, timely documentation and internal review of accounting and financial reporting consequences of material contracts and agreements, and enhanced review of all schedules and account analyses by experienced accounting department personnel or independent consultants.

 

Changes in Internal Control Over Financial Reporting

 

Other than those mentioned above, there were no changes in our internal control over financial reporting during the fiscal quarter ended July 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

23

 

 

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 2021.

 

Period   Number of shares repurchased
May 1, 2020 – May 31, 2020   -0-
June 1, 2020 – June 30, 2020   -0-
July 1, 2020 – July 31, 2020   -0-

 

Item 3. Defaults upon Senior Securities

 

Not applicable

 

Item 4. Mine Safety Disclosures

 

Not applicable

 

Item 5. Other Information

 

Not applicable

 

Item 6. Exhibits

 

Exhibit No.   Description
31.1   Certification of the Chief Executive Officer (Principal Financial and Accounting Officer), as required by Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1   Certification of the Chief Executive Officer (Principal Financial and Accounting Officer), as required by Section 906 of the Sarbanes-Oxley Act of 2002.

 

24

 

 

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 18, 2020 By: /s/ Stephanie M. Risk-McElroy
    Stephanie M. Risk-McElroy
    President, Chief Executive Officer, Chief Financial Officer
    and Chairman of the Board

 

25

 

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