UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarter ended January 31, 2017
[ ] Transition report under 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 small business issuer as specified in its charter)
| Colorado | 84-0524756 | |
| (State of incorporation) | (IRS 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)
Check whether the issuer (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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [ ] No [X]
Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company in Rule 12b-2 of the Exchange Act.
| Large accelerated filer [ ] | Accelerated filer [ ] |
| Non-accelerated filer [ ] | Smaller reporting company [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of the Registrant's Common Stock outstanding, as of March 16, 2017, was 4,945,425.
Transitional Small Business Disclosure Format: Yes [X] No [ ]
GEORGE RISK INDUSTRIES, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited financial statements for the three and nine month period ended January 31, 2017, are attached hereto.
| 2 |
GEORGE RISK INDUSTRIES, INC.
CONDENSED BALANCE SHEETS
| January 31, 2017 | April 30, 2016 | |||||||
| (unaudited) | ||||||||
ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 5,998,000 | $ | 5,918,000 | ||||
| Investments and securities | 25,456,000 | 24,530,000 | ||||||
| Accounts receivable: | ||||||||
| Trade, net of $261 and $74 doubtful account allowance | 1,749,000 | 1,912,000 | ||||||
| Other | 6,000 | - | ||||||
| Income tax overpayment | 242,000 | 199,000 | ||||||
| Inventories | 2,533,000 | 2,964,000 | ||||||
| Prepaid expense | 162,000 | 68,000 | ||||||
| Total Current Assets | $ | 36,146,000 | $ | 35,591,000 | ||||
| Property and Equipment, net, at cost | 763,000 | 756,000 | ||||||
| Other Assets | ||||||||
| Investment in Limited Land Partnership, at cost | 273,000 | 253,000 | ||||||
| Projects in process | 23,000 | 68,000 | ||||||
| Total Other Assets | $ | 296,000 | $ | 321,000 | ||||
| TOTAL ASSETS | $ | 37,205,000 | $ | 36,668,000 | ||||
See accompanying notes to the condensed financial statements.
| 3 |
GEORGE RISK INDUSTRIES, INC.
CONDENSED BALANCE SHEETS
(continued)
| January 31, 2017 | April 30, 2016 | |||||||
| (unaudited) | ||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable, trade | $ | 51,000 | $ | 31,000 | ||||
| Dividends payable | 1,417,000 | 1,255,000 | ||||||
| Accrued expenses: | ||||||||
| Payroll and related expenses | 246,000 | 320,000 | ||||||
| Property taxes | 2,000 | - | ||||||
| Deferred income taxes | 389,000 | 87,000 | ||||||
| Total Current Liabilities | $ | 2,105,000 | $ | 1,693,000 | ||||
| Long-Term Liabilities | ||||||||
| Deferred income taxes | 161,000 | 191,000 | ||||||
| Total Long-Term Liabilities | $ | 161,000 | $ | 191,000 | ||||
| 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 | 1,736,000 | 1,736,000 | ||||||
| Accumulated other comprehensive income | 759,000 | 347,000 | ||||||
| Retained earnings | 35,631,000 | 35,337,000 | ||||||
| Less: treasury stock, 3,557,156 and 3,481,021 shares, at cost | (4,136,000 | ) | (3,585,000 | ) | ||||
| Total Stockholders' Equity | $ | 34,939,000 | $ | 34,784,000 | ||||
| TOTAL LIABILITES AND STOCKHOLDERS' EQUITY | $ | 37,205,000 | $ | 36,668,000 | ||||
See accompanying notes to the condensed financial statements
| 4 |
GEORGE RISK INDUSTRIES, INC.
CONDENSED INCOME STATEMENTS (Unaudited)
| Three months | Nine months | Three months | Nine months | |||||||||||||
| ended | ended | ended | ended | |||||||||||||
| Jan 31, 2017 | Jan 31, 2017 | Jan 31, 2016 | Jan 31, 2016 | |||||||||||||
| Net Sales | $ | 2,645,000 | $ | 8,194,000 | $ | 2,680,000 | $ | 8,310,000 | ||||||||
| Less: Cost of Goods Sold | (1,229,000 | ) | (3,899,000 | ) | (1,316,000 | ) | (3,864,000 | ) | ||||||||
| Gross Profit | $ | 1,416,000 | $ | 4,295,000 | $ | 1,364,000 | $ | 4,446,000 | ||||||||
| Operating Expenses | ||||||||||||||||
| General and Administrative | 223,000 | 664,000 | 227,000 | 643,000 | ||||||||||||
| Sales | 461,000 | 1,432,000 | 448,000 | 1,428,000 | ||||||||||||
| Engineering | 17,000 | 59,000 | 31,000 | 68,000 | ||||||||||||
| Rent Paid to Related Parties | 5,000 | 14,000 | 4,000 | 14,000 | ||||||||||||
| Total Operating Expenses | $ | 706,000 | $ | 2,169,000 | $ | 710,000 | $ | 2,153,000 | ||||||||
| Income From Operations | 710,000 | 2,126,000 | 654,000 | 2,293,000 | ||||||||||||
| Other Income (Expense) | ||||||||||||||||
| Other | 1,000 | 11,000 | 5,000 | 13,000 | ||||||||||||
| Dividend and Interest Income | 332,000 | 650,000 | 437,000 | 746,000 | ||||||||||||
| Gain (Loss) on Investments | 51,000 | 136,000 | (242,000 | ) | (288,000 | ) | ||||||||||
| $ | 384,000 | $ | 797,000 | $ | 200,000 | $ | 471,000 | |||||||||
| Income Before Provisions for Income Taxes | 1,094,000 | 2,923,000 | 854,000 | 2,764,000 | ||||||||||||
| Provisions for Income Taxes: | ||||||||||||||||
| Current Expense | 313,000 | 896,000 | 231,000 | 857,000 | ||||||||||||
| Deferred Tax Expense (Benefit) | (11,000 | ) | (24,000 | ) | (12,000 | ) | (23,000 | ) | ||||||||
| Total Income Tax Expense | $ | 302,000 | $ | 872,000 | $ | 219,000 | $ | 834,000 | ||||||||
| Net Income | $ | 792,000 | $ | 2,051,000 | $ | 635,000 | $ | 1,930,000 | ||||||||
| Cash Dividends | ||||||||||||||||
| Common Stock ($0.35 per share) | $ | - | $ | 1,758,000 | ||||||||||||
| Common Stock ($0.34 per share) | $ | - | $ | 1,709,000 | ||||||||||||
| Income Per Share of Common Stock | ||||||||||||||||
| Basic | $ | 0.16 | $ | 0.41 | $ | 0.13 | $ | 0.38 | ||||||||
| Diluted | $ | 0.16 | $ | 0.41 | $ | 0.13 | $ | 0.38 | ||||||||
| Weighted Average Number of Common Shares Outstanding | | | | | | | | | | | | | | | | |
| Basic | 4,945,972 | 4,996,453 | 5,024,103 | 5,024,954 | ||||||||||||
| Diluted | 4,966,472 | 5,016,953 | 5,044,603 | 5,045,454 | ||||||||||||
See accompanying notes to the condensed financial statements
| 5 |
GEORGE RISK INDUSTRIES, INC.
CONDENSED STATEMENT OF COMPREHENSIVE INCOME (Unaudited)
| Three months | Nine months | Three months | Nine months | |||||||||||||
| ended | ended | ended | ended | |||||||||||||
| Jan 31, 2017 | Jan 31, 2017 | Jan 31, 2016 | Jan 31, 2016 | |||||||||||||
| Net Income | $ | 792,000 | $ | 2,051,000 | $ | 635,000 | $ | 1,930,000 | ||||||||
| Other Comprehensive Income, Net of Tax Unrealized gain (loss) on securities: | ||||||||||||||||
| Unrealized holding gains (losses) arising during period | 570,000 | 796,000 | (1,385,000 | ) | (2,503,000 | ) | ||||||||||
| Reclassification adjustment for gains(losses) included in net income | (5,000 | ) | (88,000 | ) | 144,000 | 274,000 | ||||||||||
| Income tax benefit (expense) relatedto other comprehensive income | (236,000 | ) | (296,000 | ) | 519,000 | 932,000 | ||||||||||
| Other Comprehensive Income | 329,000 | 412,000 | (722,000 | ) | (1,297,000 | ) | ||||||||||
| Comprehensive Income | $ | 1,121,000 | $ | 2,463,000 | $ | (87,000 | ) | $ | 633,000 | |||||||
See accompanying notes to the condensed financial statements
| 6 |
GEORGE RISK INDUSTRIES, INC.
CONDENSED STATEMENT OF CASH FLOWS (Unaudited)
| Nine months | Nine months | |||||||
| ended | ended | |||||||
| Jan 31, 2017 | Jan 31, 2016 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net Income | $ | 2,051,000 | $ | 1,930,000 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 138,000 | 187,000 | ||||||
| (Gain) loss on sale of investments | (149,000 | ) | 219,000 | |||||
| Impairments on investments | 13,000 | 69,000 | ||||||
| Reserve for bad debts | - | 1,000 | ||||||
| Reserve for obsolete inventory | 5,000 | 10,000 | ||||||
| Deferred income taxes | (24,000 | ) | (23,000 | ) | ||||
| Changes in assets and liabilities: | ||||||||
| (Increase) decrease in: | ||||||||
| Accounts receivable | 163,000 | 369,000 | ||||||
| Inventories | 426,000 | (502,000 | ) | |||||
| Prepaid expenses | (93,000 | ) | 29,000 | |||||
| Other receivables | (5,000 | ) | (1,000 | ) | ||||
| Income tax overpayment | (43,000 | ) | (263,000 | ) | ||||
| Increase (decrease) in: | ||||||||
| Accounts payable | 20,000 | 2,000 | ||||||
| Accrued expenses | (72,000 | ) | (86,000 | ) | ||||
| Net cash provided by (used in) operating activities | $ | 2,430,000 | $ | 1,941,000 | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Other assets manufactured | 45,000 | 53,000 | ||||||
| (Purchase) of property and equipment | (146,000 | ) | (119,000 | ) | ||||
| Proceeds from sale of marketable securities | 586,000 | 63,000 | ||||||
| (Purchase) of marketable securities | (668,000 | ) | (783,000 | ) | ||||
| (Purchase) of long-term investment | (20,000 | ) | - | |||||
| Collection of loans to employees | - | 1,000 | ||||||
| Net cash provided by (used in) investing activities | $ | (203,000 | ) | $ | (785,000 | ) | ||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| (Purchase) of treasury stock | (551,000 | ) | (14,000 | ) | ||||
| Dividends paid | (1,596,000 | ) | (1,553,000 | ) | ||||
| Net cash provided by (used in) financing activities | $ | (2,147,000 | ) | $ | (1,567,000 | ) | ||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | $ | 80,000 | $ | (411,000 | ) | |||
| Cash and Cash Equivalents, beginning of period | $ | 5,918,000 | $ | 5,691,000 | ||||
| Cash and Cash Equivalents, end of period | $ | 5,998,000 | $ | 5,280,000 | ||||
| Supplemental Disclosure for Cash Flow Information: | ||||||||
| Cash payments for: | ||||||||
| Income taxes | $ | 1,059,000 | $ | 1,115,000 | ||||
| Interest paid | $ | 0 | $ | 0 | ||||
| Cash receipts for: | ||||||||
| Income taxes | $ | 125,000 | $ | 0 | ||||
See accompanying notes to the condensed financial statements
| 7 |
GEORGE RISK INDUSTRIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JANUARY 31, 2017
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, 2016 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.
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 funds. The investments in securities are classified as available-for-sale securities, and are reported at fair value. Available-for-sale investments in debt securities mature between July 2017 and November 2048. The Company uses the average cost method to determine the cost of securities sold and the amount reclassified out of accumulated other comprehensive income into earnings. Unrealized gains and losses are excluded from earnings and reported separately as a component of stockholders' equity. Dividend and interest income are reported as earned.
As of January 31, 2017 and April 30, 2016, investments consisted of the following:
| Gross | Gross | |||||||||||||||
| Investments at | Cost | Unrealized | Unrealized | Fair | ||||||||||||
| January 31, 2017 | Basis | Gains | Losses | Value | ||||||||||||
| Municipal bonds | $ | 5,853,000 | $ | 85,000 | $ | (320,000 | ) | $ | 5,618,000 | |||||||
| Corporate bonds | $ | 129,000 | $ | 1,000 | $ | - | $ | 130,000 | ||||||||
| REITs | $ | 64,000 | $ | 8,000 | $ | - | $ | 72,000 | ||||||||
| Equity securities | $ | 15,655,000 | $ | 1,992,000 | $ | (462,000 | ) | $ | 17,185,000 | |||||||
| Money markets and CDs | $ | 2,451,000 | $ | - | $ | - | $ | 2,451,000 | ||||||||
| Total | $ | 24,152,000 | $ | 2,086,000 | $ | (782,000 | ) | $ | 25,456,000 | |||||||
| 8 |
| Gross | Gross | |||||||||||||||
| Investments at | Cost | Unrealized | Unrealized | Fair | ||||||||||||
| April 30, 2016 | Basis | Gains | Losses | Value | ||||||||||||
| Municipal bonds | $ | 6,489,000 | $ | 133,000 | $ | (239,000 | ) | $ | 6,383,000 | |||||||
| Corporate bonds | $ | 130,000 | $ | - | $ | (4,000 | ) | $ | 126,000 | |||||||
| REITs | $ | 42,000 | $ | 4,000 | $ | (2,000 | ) | $ | 44,000 | |||||||
| Equity securities | $ | 14,796,000 | $ | 1,187,000 | $ | (484,000 | ) | $ | 15,499,000 | |||||||
| Money markets and CDs | $ | 2,478,000 | $ | - | $ | - | $ | 2,478,000 | ||||||||
| Total | $ | 23,935,000 | $ | 1,324,000 | $ | (729,000 | ) | $ | 24,530,000 | |||||||
The Company evaluates all marketable securities for other-than temporary declines in fair value, which are defined as when the cost basis exceeds the fair value for approximately one year. The Company also evaluates the nature of the investment, cause of impairment and number of investments that are in an unrealized position. When an "other-than-temporary" decline is identified, the Company will decrease the cost of the marketable security to the new fair value and recognize a real loss. The investments are periodically evaluated to determine if impairment changes are required. As a result of this standard, management did not record an impairment loss during the quarter, but did record a loss of $13,000 for the nine months ended January 31, 2017. For the corresponding periods last year, management recorded impairment losses of $46,000 for the quarter ended January 31, 2016, and recorded impairment losses of $69,000 for the nine months ended January 31, 2016.
The following tables show the investments with unrealized losses that are not deemed to be "other-than-temporarily impaired", aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at January 31, 2017 and April 30, 2016, respectively.
Unrealized Loss Breakdown by Investment Type at January 31, 2017
| Less than 12 months | 12 months or greater | Total | ||||||||||||||||||||||
| Description | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | ||||||||||||||||||
| Municipal bonds | $ | 1,405,000 | $ | (40,000 | ) | $ | 1,801,000 | $ | (281,000 | ) | $ | 3,206,000 | $ | (321,000 | ) | |||||||||
| Corporate bonds | - | - | - | - | - | - | ||||||||||||||||||
| REITs | - | - | $ | 28,000 | - | $ | 28,000 | - | ||||||||||||||||
| Equity securities | $ | 1,341,000 | $ | (86,000 | ) | $ | 3,368,000 | $ | (375,000 | ) | $ | 4,709,000 | $ | (461,000 | ) | |||||||||
| Total | $ | 2,746,000 | $ | (126,000 | ) | $ | 5,197,000 | $ | (656,000 | ) | $ | 7,943,000 | $ | (782,000 | ) | |||||||||
| 9 |
Unrealized Loss Breakdown by Investment Type at April 30, 2016
| Less than 12 months | 12 months or greater | Total | ||||||||||||||||||||||
| Description | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | ||||||||||||||||||
| Municipal bonds | $ | 3,129,000 | $ | (215,000 | ) | $ | 609,000 | $ | (24,000 | ) | $ | 3,738,000 | $ | (239,000 | ) | |||||||||
| Corporate bonds | - | - | $ | 27,000 | $ | (4,000 | ) | $ | 27,000 | $ | (4,000 | ) | ||||||||||||
| REITs | $ | 27,000 | $ | (2,000 | ) | - | - | $ | 27,000 | $ | (2,000 | ) | ||||||||||||
| Equity securities | $ | 5,018,000 | $ | (323,000 | ) | $ | 1,171,000 | $ | (161,000 | ) | $ | 6,189,000 | $ | (484,000 | ) | |||||||||
| Total | $ | 8,174,000 | $ | (54,000 | ) | $ | 1,807,000 | $ | (189,000 | ) | $ | 9,981,000 | $ | (729,000 | ) | |||||||||
Municipal Bonds
The unrealized losses on the Company's investments in municipal bonds were caused by interest rate increases. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. Because the Company has the ability to hold these investments until a recovery of fair value, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at January 31, 2017.
Corporate Bonds
The Company's unrealized loss on investments in corporate bonds relates to one bond. The contractual term of this investment does not permit the issuer to settle the security at a price less than the amortized cost of the investment. Because the Company has the ability to hold this investment until a recovery of fair value, which may be maturity, the Company does not consider this investment to be other-than-temporarily impaired at January 31, 2017.
Marketable Equity Securities and REITs
The Company's investments in marketable equity securities and REITs consist of a wide variety of companies. Investments in these companies include growth, growth income, and foreign investment objectives. The individual holdings have been evaluated, and due to management's plan to hold on to these investments for an extended period, the Company does not consider these investments to be other-than-temporarily impaired at January 31, 2017.
| 10 |
Note 3: Inventories
Inventories at January 31, 2017 and April 30, 2016 consisted of the following:
| January 31, 2017 | April 30, 2016 | |||||||
| Raw materials | $ | 1,733,000 | $ | 1,948,000 | ||||
| Work in process | 448,000 | 641,000 | ||||||
| Finished goods | 430,000 | 448,000 | ||||||
| 2,611,000 | 3,037,000 | |||||||
| Less: allowance for obsolete inventory | (78,000 | ) | (73,000 | ) | ||||
| Totals | $ | 2,533,000 | $ | 2,964,000 | ||||
| 11 |
Note 4: Business Segments
The following is financial information relating to industry segments:
| Three months | Nine months | Three months | Nine months | |||||||||||||
| ended | ended | ended | ended | |||||||||||||
| Jan 31, 2017 | Jan 31, 2017 | Jan 31, 2016 | Jan 31, 2016 | |||||||||||||
| Net revenue: | ||||||||||||||||
| Security alarm products | $ | 2,214,000 | $ | 6,955,000 | $ | 2,272,000 | $ | 7,134,000 | ||||||||
| Other products | 431,000 | 1,239,000 | 408,000 | 1,176,000 | ||||||||||||
| Total net revenue | $ | 2,645,000 | $ | 8,194,000 | $ | 2,680,000 | $ | 8,310,000 | ||||||||
| Income from operations: | ||||||||||||||||
| Security alarm products | 603,000 | 1,805,000 | 554,000 | 1,944,000 | ||||||||||||
| Other products | 107,000 | 321,000 | 100,000 | 349,000 | ||||||||||||
| Total income from operations | $ | 710,000 | $ | 2,126,000 | $ | 654,000 | $ | 2,293,000 | ||||||||
| Depreciation and amortization: | ||||||||||||||||
| Security alarm products | 7,000 | 29,000 | 4,000 | 12,000 | ||||||||||||
| Other products | 27,000 | 80,000 | 92,000 | 152,000 | ||||||||||||
| Corporate general | 13,000 | 29,000 | 12,000 | 23,000 | ||||||||||||
| Total depreciation and amortization | $ | 47,000 | $ | 138,000 | $ | 108,000 | $ | 187,000 | ||||||||
| Capital expenditures: | ||||||||||||||||
| Security alarm products | - | - | - | 24,000 | ||||||||||||
| Other products | 16,000 | 130,000 | 84,000 | 84,000 | ||||||||||||
| Corporate general | 10,000 | 16,000 | 8,000 | 11,000 | ||||||||||||
| Total capital expenditures | $ | 26,000 | $ | 146,000 | $ | 92,000 | $ | 119,000 | ||||||||
| January 31, 2017 | April 30, 2016 | |||||||
| Identifiable assets: | ||||||||
| Security alarm products | 3,470,000 | 4,203,000 | ||||||
| Other products | 1,370,000 | 1,142,000 | ||||||
| Corporate general | 32,365,000 | 31,323,000 | ||||||
| Total assets | $ | 37,205,000 | $ | 36,668,000 | ||||
| 12 |
Note 5 Earnings per Share
Basic and diluted earnings per share, assuming convertible preferred stock was converted for each period presented, are:
| For the three months ended January 31, 2017 | ||||||||||||
| Income (Numerator) | Shares (Denominator) | Per-share Amount | ||||||||||
| Net Income | $ | 792,000 | ||||||||||
| Basic EPS | $ | 792,000 | 4,945,972 | $ | 0.1601 | |||||||
| Effect of dilutive securities: | 0 | 20,500 | ||||||||||
| Convertible preferred stock | ||||||||||||
| Diluted EPS | $ | 792,000 | 4,966,472 | $ | 0.1595 | |||||||
| For the nine months ended January 31, 2017 | ||||||||||||
| Income (Numerator) | Shares (Denominator) | Per-share Amount | ||||||||||
| Net Income | $ | 2,051,000 | ||||||||||
| Basic EPS | 2,051,000 | 4,996,453 | $ | 0.4105 | ||||||||
| Effect of dilutive securities: | ||||||||||||
| Convertible preferred stock | 0 | 20,500 | ||||||||||
| Diluted EPS | $ | 2,051,000 | 5,016,953 | $ | 0.4088 | |||||||
| For the three months ended January 31, 2016 | ||||||||||||
| Income (Numerator) | Shares (Denominator) | Per-share Amount | ||||||||||
| Net Income | $ | 635,000 | ||||||||||
| Basic EPS | $ | 635,000 | 5,024,103 | $ | 0.1264 | |||||||
| Effect of dilutive securities: | ||||||||||||
| Convertible preferred stock | 0 | 20,500 | ||||||||||
| Diluted EPS | $ | 635,000 | 5,044,603 | $ | 0.1259 | |||||||
| For the nine months ended January 31, 2016 | ||||||||||||
| Income (Numerator) | Shares (Denominator) | Per-share Amount | ||||||||||
| Net Income | $ | 1,930,000 | ||||||||||
| Basic EPS | $ | 1,930,000 | 5,024,954 | $ | 0.3841 | |||||||
| Effect of dilutive securities: | ||||||||||||
| Convertible preferred stock | 0 | 20,500 | ||||||||||
| Diluted EPS | $ | 1,930,000 | 5,045,454 | $ | 0.3825 | |||||||
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 quarters ending January 31, 2017 and 2016, respectively. Likewise, the Company paid matching contributions of approximately $7,000 during the nine-month period ending January 31, 2017 and $8,000 during the corresponding period the prior fiscal year.
| 13 |
Note 7: Fair Value Measurements
Generally accepted accounting principles in the United States of America (US GAAP) defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions, and credit risk.
US GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurements). The levels of the fair value hierarchy under US GAAP are described below:
| Level 1 | Valuation is based upon quoted prices for identical instruments traded in active markets. | |
| Level 2 | Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. | |
| Level 3 | Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques. |
Investments and Marketable Securities
As of January 31, 2017, our investments consisted of money markets, 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 tables set forth our assets and liabilities measured at fair value on a recurring basis and a non-recurring basis by level within the fair value hierarchy. As required by US GAAP, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
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| Assets
Measured at Fair Value on a Recurring Basis as of January 31, 2017 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets: | ||||||||||||||||
| Municipal Bonds | $ | - | $ | 5,618,000 | $ | - | $ | 5,618,000 | ||||||||
| Corporate Bonds | $ | 130,000 | $ | - | $ | - | $ | 130,000 | ||||||||
| REITs | $ | - | $ | 72,000 | $ | - | $ | 72,000 | ||||||||
| Equity Securities | $ | 17,185,000 | $ | - | $ | - | $ | 17,185,000 | ||||||||
| Money Markets and CDs | $ | 2,451,000 | $ | - | $ | - | $ | 2,451,000 | ||||||||
| Total fair value of assets measured on a recurring basis | $ | 19,766,000 | $ | 5,690,000 | $ | - | $ | 25,456,000 | ||||||||
| Assets
Measured at Fair Value on a Recurring Basis as of April 30, 2016 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets: | ||||||||||||||||
| Municipal Bonds | $ | - | $ | 6,383,000 | $ | - | $ | 6,383,000 | ||||||||
| Corporate Bonds | $ | 126,000 | $ | - | $ | - | $ | 126,000 | ||||||||
| REITs | $ | - | $ | 44,000 | $ | - | $ | 44,000 | ||||||||
| Equity Securities | $ | 15,499,000 | $ | - | $ | - | $ | 15,499,000 | ||||||||
| Money Markets and CDs | $ | 2,478,000 | $ | - | $ | - | $ | 2,478,000 | ||||||||
| Total fair value of assets measured on a recurring basis | $ | 18,103,000 | $ | 6,427,000 | $ | - | $ | 24,530,000 | ||||||||
Note 8 Subsequent Events
None
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GEORGE RISK INDUSTRIES, INC.
PART I. FINANCIAL INFORMATION
Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations
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MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q, includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), which are subject to the "safe harbor" created by those sections. Any statements herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, words such as "may," "will," "could," "would," "should," "anticipate," "expect," "intend," "believe," "estimate," "project" or "continue," and the negatives of such terms are intended to identify forward-looking statements. The information included herein represents our estimates and assumptions as of the date of this filing. Unless required by law, we undertake no obligation to update publicly any forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
The following discussion should be read in conjunction with the attached condensed consolidated financial statements, and with the Company's audited financial statements and discussion for the fiscal year ended April 30, 2016.
Executive Summary
The Company's performance has remained steady through the three quarters, with only a slight reduction in sales and greatly improved investment returns. New challenges the Company has endured over the nine months of this fiscal year include the increase in the minimum wage requirements, implementation of new hardware and software systems which will enhance productivity and communication throughout the organization, and getting new products to the marketplace.
Results of Operations
| ● | Net sales were $2,645,000 for the quarter ended January 31, 2017, which is only a 1.3% decrease from the corresponding quarter last year. Year-to-date net sales were $8,194,000 at January 31, 2017, which is a 1.4% decrease from the same period last year. The slight variation in sales shows the stability of the Company and loyalty of its customer base. Our ongoing commitment to outstanding customer service and customization of products are a few of the many reasons sales remained relatively constant. New competition and the inability to bring new products to market in a timelier manner are a few of the reasons why management believes it has not been able to increase sales in a timelier manner. | |
| ● | Cost of goods sold was 46.4% of net sales for the quarter ended January 31, 2017 and was 49.1% for the same quarter last year. Year-to-date cost of goods sold percentages were 47.6% for the current nine months and 46.5% for the corresponding nine months last year, keeping within the target of less than 50% for both the quarter and year-to-date results. | |
| ● | Operating expenses declined by $4,000 for the quarter but increased by $16,000 for the nine-months ended January 31, 2017 as compared to the corresponding periods last year. | |
| ● | Income from operations for the quarter ended January 31, 2017 was at $710,000 which is an 8.56% increase from the corresponding quarter last year, which had income from operations of $654,000. Income from operations for the nine months ended January 31, 2017 was at $2,126,000, which is a 7.28% decrease from the corresponding nine months last year, which had income from operations of $2,293,000. |
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| ● | Other income and expenses are up when comparing to the current quarter and nine-month periods the prior year, with an increase of $184,000 in the current quarter and an increase of $326,000 for the current year-to-date. The majority of activity in these accounts consists of investment interest, dividends, and gain or loss on sale of investments. With the recent uptick in the performance of the stock market, decisions were made to sell holdings and take the realized gain and dividends and interest payments exceeded expectations. | |
| ● | Overall, net income for the quarter ended January 31, 2017 was up $157,000, or 24.47%, from the same quarter last year. Similarly, net income for the nine-month period ended January 31, 2017 was up $121,000, or 6.27%, from the same period in the prior year. | |
| ● | Earnings per common share for quarter ended January 31, 2017 were $0.16 per share and $0.41 per share for the year-to-date numbers. EPS for the quarter and nine months ended January 31, 2016 were $0.13 per share and $0.38 per share, respectively. |
Liquidity and capital resources
Operating
| ● | Net cash increased $80,000 during the nine months ended January 31, 2017 as compared to a decrease of $411,000 during the corresponding period last year. | |
| ● | Accounts receivable decreased $163,000 for the nine months ended January 31, 2017 compared with a $369,000 decrease for the same period last year. The smaller current year decrease is a result of a small decrease in sales and the Company's ongoing ability to continue to collect on accounts receivable in a timely manner. Management believes that only approximately $261 of accounts over 90 days have a possibility of being uncollectible. | |
| ● | Inventories decreased $426,000 during the current nine month period as compared to an increase of $502,000 last year. The current decrease is primarily due to the fact that there have been declines in sales, and that reduces the amount of goods that need to be purchased and stocked in the warehouse. This decrease is offset by price increases from various vendors. | |
| ● | Prepaid expenses saw a $93,000 increase for the current nine months, primarily due to the prepayment of inventory the Company purchased to get better pricing. Conversely, the prior nine months showed a $29,000 decrease in prepaid expenses. | |
| ● | Income tax overpayment for the nine months ended January 31, 2017 increased $43,000, as the overpayment also showed an increase of 263,000 for the same period the prior year. The main reason for the increases is that the Company gets an extension on its income tax returns and are waiting on refunds at this point in time. | |
| ● | Accounts payable shows increases for both nine month periods at $20,000 and $2,000, respectively. The company strives to pay all invoices within terms, and the variance in increases is primarily due to the timing of receipt of products and payment of invoices. | |
| ● | Accrued expenses decreased $72,000 for the current nine month period as compared to an $86,000 decrease for the nine month period ended January 31, 2016. |
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Investing
| ● | As for our investment activities, the Company spent approximately $146,000 on acquisitions of property and equipment for the current nine month period, in comparison with the corresponding nine months last year, where there was activity of $119,000. In addition, the Company has disbursed $45,000 towards assets manufactured on site for the current nine-month period. | |
| ● | Additionally, the Company continues to purchase marketable securities, which include municipal bonds and quality stocks. During the nine month period ended January 31, 2017 there was quite a bit of buy/sell activity in the investment accounts. Net cash spent on purchases of marketable securities for the nine month period ended January 31, 2017 was $668,000 compared to $783,000 spent in the prior nine month period. 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 nine month period ended January 31, 2017, the Company purchased $551,000 worth of treasury stock. This includes one purchase of over 75,000 shares that was acquired during the current quarter. This is in comparison to $14,000 spent in the same nine months period the prior year. | |
| ● | The company paid out dividends of $1,596,000 during the nine months ending January 31, 2017. These dividends were paid during the second quarter. The company declared a dividend of $0.35 per share of common stock on September 30, 2016 and these dividends were paid by October 31, 2016. As for the prior year numbers, dividend paid was $1,553,000 for the nine months ending January 31, 2016. A dividend of $0.34 per common share was declared and paid during the second fiscal quarter last year. |
The following is a list of ratios to help analyze George Risk Industries' performance:
| For the quarter ended | ||||||||
| January 31, 2017 | January 31, 2016 | |||||||
| Working capital | ||||||||
| (current assets – current liabilities) | $ | 34,041,000 | $ | 32,523,000 | ||||
| Current ratio | ||||||||
| (current assets / current liabilities) | 17.171 | 21.493 | ||||||
| Quick ratio | ||||||||
| ((cash + investments + AR) / current liabilities) | 15.773 | 19.147 | ||||||
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New Product Development
The Company and its engineering department continue to develop enhancements to product lines, develop new products which complement existing products, and look for products that are well suited to our distribution network and manufacturing capabilities. Items currently in the development process include:
| ● | Wireless contact switches, Wi-Fi to enable monitoring of sensors from a smartphone, pool alarms and environmental sensors are in development | |
| ● | A redesign of our top selling resistor pack. The new design will be more automated which will allow us to produce more in a shorter timeframe. | |
| ● | Redesign of the connectors in our raceway line has gone through molding and is going through product safety standards testing approval. The original raceway line connectors were not fire rated and high voltage rated compliant. | |
| ● | Slim-line face plate for pool alarms that will also allow homeowner to change the plate to match their decor | |
| ● | Triple biased High Security Switch | |
| ● | Redesign of our Current Controller is complete and now is going through the U.L. approval process. The new design will allow us to manufacture a 15-amp version that would automatically turn on a whole room of lights and a 220-volt version for international markets. 12 and 24-volt versions are also being developed in response to many requests to turn on LED lighting. | |
| ● | Redesign for the cover of the 29-Series terminal switch | |
| ● | New float water sensor that will monitor water levels in livestock tanks and sump pumps | |
| ● | Fuel level monitor – With fuel theft being a major problem around the world, we are crafting a monitor to tie into the security system to alarm if tanks or trucks are tampered with. | |
| ● | A new version of our 200-36 overhead door switch line up is nearing completion. The modified version, part #200-36UF, is for universal fit that allows an installer to replace an existing competitor's switch without drilling new holes into the cement or adjusting the location. The modified case has an additional mounting hole along with reshaped mounting holes. | |
| ● | The smaller size custom power transfer device (PTDC) has been completed. The PTDC series offer a secure way to channel electrical wiring from the door frame to the door and are used for powering exit bars, locks, electric strikes etc. We will offer two different end pieces; 0.218" inside diameter and 0.313" inside diameter which will allow different sizes or wire to be looped through the custom length armored cable. |
Other Information
In addition to researching and developing new products, management is always open to the possibility of acquiring a business or product line that would complement our existing operations. Due to the Company's strong cash position, management believes this could be achieved without the need for outside financing. The intent is to utilize the equipment, marketing techniques and established customers to deliver new products and increase sales and profits.
There are no known seasonal trends with any of GRI's products, since we sell to distributors and OEM manufacturers. Our products are tied to the housing industry and will fluctuate with building trends.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers. The objective of this update is to provide a robust framework for addressing revenue recognition issues and, upon its effective date, replaces almost all existing revenue recognition guidance. This update is effective in annual reporting periods beginning after December 15, 2017 and the interim periods within that year. The Company is evaluating the impact of this update on the Company's financial statements.
In January 2015, the FASB issued Accounting Standards Update No. 2015-04, "Requirement that All Deferred Income Tax Assets and Liabilities Be Presented as Non-Current in a Classified Balance Sheet". The objective of this update is to require deferred tax liabilities and assets be classified entirely as non-current in a classified balance sheet. This update is effective in annual reporting periods beginning after December 15, 2016 and the interim periods within that year. The Company is evaluating the impact of this update on the Company's financial statements.
In February of 2016, the FASB issued ASU 2016-02 Leases . Under the new guidance, lessees will be required to recognize so-called right-of-use assets and liabilities for most leases having lease terms of 12 months or more. This update is effective in annual reporting periods beginning after December 31, 2019 and the interim periods starting thereafter. The Company is evaluating the impact of this update on the Company's financial statements.
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GEORGE RISK INDUSTRIES, INC.
PART I. FINANCIAL INFORMATION
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable
Item 4. Controls and Procedures
Our management, under the supervision and with the participation of our chief executive officer (also working as our chief financial officer), evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of January 31, 2017. Based on that evaluation, our chief executive officer (also working as our chief financial officer) concluded that the disclosure controls and procedures employed at the Company were not effective to provide reasonable assurance that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.
We continue to operate with a limited number of accounting and financial personnel. Although we added the services of a controller during 2014, more 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. We believe these control deficiencies represent material weaknesses in internal control over financial reporting.
Despite the material weaknesses in financial reporting noted above, we believe that our consolidated financial statements included in this report fairly present our financial position, results of operations and cash flows as of and for the periods presented in all material respects.
We are committed to the establishment of effective internal controls over financial reporting and will place emphasis on quarterly and year-end closing procedures, timely documentation and internal review of accounting and financial reporting consequences of material contracts and agreements, and enhanced review of all schedules and account analyses by experienced accounting department personnel or independent consultants.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting during the fiscal quarter ended January 31, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| 21 |
GEORGE RISK INDUSTRIES, INC.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 1A. Risk Factors
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information relating to the Company's repurchase of common stock for the third quarter of fiscal year 2017.
| Period | Number of shares repurchased | |||
| November 1, 2016 – November 30, 2016 | 75,410 | |||
| December 1, 2016 – December 31, 2016 | 300 | |||
| January 1, 2017 – January 31, 2017 | 225 | |||
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. |
| 22 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| George Risk Industries, Inc. | ||
| (Registrant) | ||
| Date March 16, 2017 | By: | /s/ Stephanie M. Risk-McElroy |
| Stephanie M. Risk-McElroy | ||
| President, Chief Executive Officer, Chief Financial Officer | ||
| and Chairman of the Board | ||
| 23 |