GEORGE RISK INDUSTRIES, INC.
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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 financial statements, and with the Company's audited financial
statements and discussion for the fiscal year ended
Executive Summary
The Company's performance continues to improve through the first half of the
current fiscal year with the first and second quarters presenting almost
identical numbers. This is due to the continuation of our quality
Results of Operations ? Net sales were$3,710,000 for the quarter endedOctober 31, 2019 , which is an 1.17% increase from the corresponding quarter last year. Year-to-date net sales were$7,263,000 atOctober 31, 2019 , which is a 2.35% increase from the same period last year. The increases in sales shows the stability of the Company and loyalty of its customer base. The ongoing commitment towards outstanding customer service and customization of products are a few of the many reasons sales continue to grow. Also, new sales have emerged since GRI acquired the assets of Labor Saving Devices. The Company has been selling this product line for a couple of years now, which has been a factor in the increased sales. ? Cost of goods sold was 50.13% of net sales for the quarter endedOctober 31, 2019 and was 51.62% for the same quarter last year. Year-to-date cost of goods sold percentages were 49.98% for the current six months and 52.07% for the corresponding six months last year. The current cost of goods sold percentages are right at Management's goal of keeping labor and other manufacturing expenses at less than 50% for both the quarter and year-to-date results. Labor costs have decreased because Management has been working with and training employees to work more efficiently. 22 ? Operating expenses were up$16,000 for the quarter and were up$36,000 for the six-months endedOctober 31, 2019 as compared to the corresponding periods last year. But when comparing percentages in relation to net sales, the operating expenses for the quarter endedOctober 31, 2019 was 24.37% of net sales while it was 24.22% of net sales for the same quarter the prior year. For year-to-date numbers, operating expense were 24.48% and 24.55% of net sales for the six months endedOctober 31, 2019 and 2018, respectively. The Company has been able to keep the operating expenses at less than 30% of net sales for many years now; however, the actual dollar amount increase is because of increased commission amounts (since sales have increased) and additional labor costs for hiring new employees and wage increases. ? Income from operations for the quarter endedOctober 31, 2019 was at$946,000 , which is a 6.77% increase from the corresponding quarter last year, which had income from operations of$886,000 . Income from operations for the six months endedOctober 31, 2019 was at$1,855,000 , which is a 11.81% increase from the corresponding six months last year, which had income from operations of$1,659,000 . ? Other income and expenses are up when comparing the current quarter and six-month periods to the prior year, with an increase of$46,000 in the current quarter and an increase of$161,000 for the current year-to-date numbers. Most of the activity in these accounts consists of investment interest, dividends, and gain or loss on sale of investments. The increase is primarily due to increased dividend and interest income and taking gains on the sale of investments. ? Overall, net income for the quarter endedOctober 31, 2019 was up$96,000 , or 12.50%, from the same quarter last year. Similarly, net income for the six-month period endedOctober 31, 2019 was up$343,000 , or 24.75%, from the same period in the prior year. ? Earnings per common share for quarter endedOctober 31, 2019 were$0.17 per share and$0.35 per share for the year-to-date numbers. EPS for the quarter and six months endedOctober 31, 2018 were$0.15 per share and$0.28 per share, respectively.
Liquidity and capital resources
Operating ? Net cash increased$339,000 during the six months endedOctober 31, 2019 as compared to a decrease of$204,000 during the corresponding period last year. ? Accounts receivable decreased$486,000 for the six months endedOctober 31, 2019 compared with a$23,000 decrease for the same period last year. The current year decrease is a result of improved sales and collections on accounts receivable have improved over the last year. An analysis of accounts shows that there were only 0.02% that were over 90 days atOctober 31, 2019 . ? Inventories increased$583,000 during the current six-month period as compared to a$435,000 increase last year. The bigger increase in the current year is primarily due to increased sales and being able to have inventory on hand to get product out to customers in a timely manner. ? Prepaid expenses saw a$271,000 decrease for the current six months, primarily due to inventory being delivered that had to be paid for in advance. The prior six months showed a$168,000 increase in prepaid expenses. ? Income tax overpayment for the period endedOctober 31, 2019 decreased$114,000 , while there was an increase of$97,000 for the same period the prior year. The current decrease is due to making an educated evaluation of the Company's income tax estimates. 23 ? Accounts payable shows decreases for the current and prior six-month periods of$36,000 and$189,000 , respectively. The company strives to pay all invoices within terms, and the variance in the decreases is primarily due to the timing of receipt of products and payment of invoices. ? Accrued expenses increased$11,000 for the current six-month period as compared to a$8,000 increase for the six-month period endedOctober 31, 2018 . The current year increase is due to increased wages and commissions. Investing ? As for our investment activities, the Company purchased$179,000 of property and equipment during the current six-month period. In comparison with the corresponding six months last year, the Company did not buy any fixed assets. ? Additionally, the Company continues to purchase marketable securities, which include municipal bonds and quality stocks. During the six-month period endedOctober 31, 2019 there was quite a bit of buy/sell activity in the investment accounts. Net cash spent on purchases of marketable securities for the six-month period endedOctober 31, 2019 was$250,000 compared to$324,000 spent in the prior six-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 its common stock when the opportunity arises. For the six-month period endedOctober 31, 2019 , the Company purchased$54,000 worth of treasury stock, in comparison to$54,000 repurchased in the corresponding six-month period last year. ? The company declared a dividend of$0.40 per share of common stock onSeptember 30, 2019 , which was paid out during the second quarter. This is a slight increase to the dividend of$0.38 , which was declared and paid during the second fiscal quarter last year. The following is a list of ratios to help analyzeGeorge Risk Industries' performance: As of October 31, 2019 October 31, 2018 Working capital (current assets - current liabilities)$ 37,805,000 $ 34,508,000 Current ratio (current assets / current liabilities) 16.564 16.614 Quick ratio ((cash + investments + AR) / current liabilities) 14.333 14.401 24 New Product Development
The Company and its engineering department continue to develop enhancements to product lines, develop new products that complement existing products, and look for products that are well suited to our distribution network and manufacturing capabilities. Items currently in the development process include:
? A new face plate for our pool alarms is nearing completion. The innovative
design is slim in style and will also allow the homeowner to change the plate
to match their décor.
? An updated version of the pool access alarm is currently going through
electrical listing testing. This next-generation model combines our battery
operated DPA series with our hard wired 289 series. A variety of installation
options will be available through jumper pin settings.
? We continue to work on high security switches. We have a triple biased high
security switch design nearly complete and an adjustable magnet design was
completed for recessed mounting applications.
? Tool and die is currently working on a mold for a new version of the channel
magnet. These magnets fit into the top channel of steel doors; no drilling of
the recessed magnet required.
? Wireless technology is a main area of focus for product development. We are
considering adding wireless technology to some of our current products. A
wireless contact switch is in the final stages of development. Also, we are
working on wireless versions of our Pool Alarm and environmental sensors that
will be easy to install in current construction. We are also concentrating on
making products compatible with Wi-Fi, smartphone technology and the
increasing popular Z-Wave standard for wireless home automation.
? We are ready to launch a new Labor Saving Devices product. It is a 12"
adjustable hole cutter which complements our 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, sits against the
ceiling, keeps the ceiling material and dust enclosed making for a clean, time
saving installation.
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.
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GEORGE RISK INDUSTRIES, INC.
PART I. FINANCIAL INFORMATION© Edgar Online, source
