22 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
unaudited condensed financial statements, and with the Company's audited
financial statements and discussion for the fiscal year ended
Executive Summary
The Company's performance has stayed steady through the three quarters, with a
slight increase in sales, managing cost of sales numbers, and strong investment
returns. This is due to the continuation of our quality
Results of Operations ? Net sales were$3,589,000 for the quarter endedJanuary 31, 2020 , which is a 3.88% increase from the corresponding quarter last year. Year-to-date net sales were$10,852,000 atJanuary 31, 2020 , which is a 2.85% increase from the same period last year. The steady growth in sales is due to our ongoing commitment to outstanding customer service and our ability to customize products. The Company is also seeing growth since a major competitor closed its doors at the end of 2019. ? Cost of goods sold was 51.04% of net sales for the quarter endedJanuary 31, 2020 and was 51.29% for the same quarter last year. Year-to-date cost of goods sold percentages were 50.33% for the current nine months and 51.81% for the corresponding nine months last year, which is just slightly over the target of less than 50% for both the quarter and year-to-date results. Management has seen increases in labor and materials costs and initiated a price increase that started inJanuary 2020 . ? Operating expenses increased by$72,000 for the quarter as they increased by$107,000 for the nine-months endedJanuary 31, 2020 as compared to the corresponding periods last year. These increased costs are primarily due to increased commissions and wages for raises and the hiring of more employees. 23 ? Income from operations for the quarter endedJanuary 31, 2020 was at$834,000 which is a 0.24% increase from the corresponding quarter last year, which had income from operations of$832,000 . Income from operations for the nine months endedJanuary 31, 2020 was at$2,690,000 , which is a 7.99% increase from the corresponding nine months last year, which had income from operations of$2,491,000 . ? Other income and expenses are up$373,000 when comparing to the current quarter to the same quarter last year. Comparatively, there is an increase of$808,000 in other income and expenses for the year-to-date numbers. The majority of activity in these accounts consists of investment interest, dividends, and gain or loss on sale of investments, but the biggest factor is that unrealized gains and losses are now being shown in the income statement starting this current fiscal year. ? Overall, net income for the quarter endedJanuary 31, 2020 was up$191,000 , or 16.28%, from the same quarter last year. Similarly, net income for the nine-month period endedJanuary 31, 2020 was up$737,000 , or 28.80%, from the same period in the prior year. ? Earnings per common share for quarter endedJanuary 31, 2020 were$0.28 per share and$0.67 per share for the year-to-date numbers. EPS for the quarter and nine months endedJanuary 31, 2019 were$0.24 per share and$0.52 per share, respectively.
Liquidity and capital resources
Operating ? Net cash increased$774,000 during the nine months endedJanuary 31, 2020 as compared to an increase of$295,000 during the corresponding period last year. ? Accounts receivable decreased$460,000 for the nine months endedJanuary 31, 2020 compared with a$514,000 decrease for the same period last year. The current year decrease is a result of improved sales and collections of accounts receivable improved over last year. An analysis of accounts receivable shows that there were only 0.30% that were over 90 days atJanuary 31, 2020 . ? Inventories increased$506,000 during the current nine-month period as compared to an increase of$999,000 last year. The smaller increase in the current year is primarily due to increased sales, not having a stockpile of finished goods, and some issues with getting some vital raw materials in a timely manner. ? Prepaid expenses saw a$43,000 decrease for the current nine months, primarily due to inventory being delivered that had been paid for in advance. The prior nine months showed a$164,000 decrease in prepaid expenses. ? Income tax overpayment for the nine months endedJanuary 31, 2020 decreased$142,000 , as the overpayment showed an increase of$106,000 for the same period the prior year. The main reason for the current decrease is that the Company has generated additional income without the need to increase income tax estimates. ? Accounts payable shows a$16,000 increase for the current nine-month period endedJanuary 31, 2020 as compared to a$35,000 decrease for the prior nine-month period. 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 did not have any cash flow change for the current nine-month period as compared to a$36,000 decrease for the nine-month period endedJanuary 31, 2019 . 24 Investing ? As for our investment activities, the Company spent approximately$468,000 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$88,000 . ? Additionally, the Company continues to purchase marketable securities, which include municipal bonds and quality stocks. During the nine-month period endedJanuary 31, 2020 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 endedJanuary 31, 2020 was$640,000 compared to$839,000 spent in the prior nine-month period. The Company continues 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 endedJanuary 31, 2020 , the Company purchased$71,000 worth of treasury stock. This is in comparison to$62,000 spent in the same nine months period the prior year. ? The company paid out dividends of$1,802,000 during the nine months endingJanuary 31, 2020 . These dividends were paid during the second quarter. The company declared a dividend of$0.40 per share of common stock onSeptember 30, 2019 and these dividends were paid byOctober 31, 2019 . As for the prior year numbers, dividends paid was$1,752,000 for the nine months endingJanuary 31, 2019 . A dividend of$0.38 per common share was declared and paid during the second fiscal quarter last year. The following is a list of ratios to help analyzeGeorge Risk Industries' performance: As of January 31, 2020 January 31, 2019 Working capital (current assets - current liabilities)$ 39,119,000 $ 35,493,000 Current ratio (current assets / current liabilities) 16.831 16.299 Quick ratio ((cash + investments + AR) / current liabilities) 14.597 13.963 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:
? 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. 25 ? 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 our work on high security switches. We have a triple biased high security switch design and an adjustable magnet design was completed for recessed mounting applications. This is ready to be sent to in for electrical listing testing. ? We have introduced the 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. ? 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 access 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 Device's product. It is 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. ? Another LSDI product is new lighted Bullnose tip 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 for 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. 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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28GEORGE RISK INDUSTRIES, INC. PART I. FINANCIAL INFORMATION
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