GEORGE RISK INDUSTRIES, INC. : Discussion and analysis by management of the financial position and operating results (Form 10-Q)
MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE FINANCIAL POSITION AND RESULTS OF
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 these sections. All statements contained in this document that are not statements of historical fact can be considered as forward-looking statements. For example, words such as “may”, “will”, “could”, “should”, “should”, “anticipate”, “expect”, “intend”, “believe”, “estimate” “,” Plan “or” continue “and the negative aspects of these terms are intended to identify forward-looking statements. The information included herein represents our estimates and assumptions at the date of this filing. Except as required by law, we do not undertake to publicly update any forward-looking statements or to update the reasons why actual results could differ materially from those anticipated in such forward-looking statements, even if current information becomes available in the future.
The following discussion should be read in conjunction with the accompanying condensed financial statements, as well as the audited financial statements and analysis of the Company for the year ended.
The Company’s performance remained stable during the quarter ended
compared to the quarter ended
Results of Operations ? Net sales for the quarter ended
July 31, 2021showed a 22.44% increase over the same period in the prior year. The Company saw increased sales resulting primarily from a competitor no longer selling competing products and having the ability to continue to work through the COVID-19 pandemic. Management also believes that sales continue to grow due to our ongoing commitment to outstanding customer service and our ability to customize products. ? Cost of goods sold decreased from 48.23% of sales in the prior year, to 46.78% 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 $198,000when comparing the current year quarter to the same quarter for the prior year; however, the percentage of net sales decreased to 22.34% for the quarter ended July 31, 2020compared to 22.46% 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, 2021was at $1,530,000, which is a 29.01% increase from the corresponding quarter last year, which had income from operations of $1,186,000. ? Other income and expenses showed a $817,000gain for the quarter ended July 31, 2021as compared to a $2,254,000gain for the quarter ended July 31, 2020. For the three months ended July 31, 2021, $420,000of unrealized gains from equity securities were recorded, compared to the $2,114,000of unrealized gains from equity securities recorded for the three months ended July 31, 2020. The remainder of the increase is primarily due to dividend and interest income and gains on sales of investments. ? The Company's provision for income taxes showed a decrease of $347,000from $948,000in the quarter ended July 31, 2020to $601,000for the quarter ended July 31, 2021. This decrease is primarily due to decreased deferred taxes resulting from a much smaller unrealized gain for the current quarter. ? In turn, net income for the quarter ended July 31, 2021was $1,746,000, a 29.94% decrease from the corresponding quarter last year, which showed net income of $2,492,000. ? Earnings per share for the quarter ended July 31, 2021were $0.35per common share and $0.50per common share for the quarter ended July 31, 2020.
Liquidity and capital resources
Operating ? Net cash increased
$1,005,000during the quarter ended July 31, 2021as compared to an increase of $1,033,000during the corresponding quarter last year. ? Accounts receivable decreased $154,000for the quarter ending July 31, 2021compared with a $49,000decrease for the same quarter last year. The bigger decrease in accounts receivable is directly attributable to an increase in sales and customers being able to pay timely as the COVID-19 pandemic has become a part of our everyday life. 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 3.26% that were over 90 days at July 31, 2021. ? Inventories increased $549,000during the current quarter as compared to a $405,000increase last year. The larger increase is primarily due to the fact that the Company is continuing to buy more raw materials due to increased orders and that the prices of raw materials continue to increase. 19 ? For the quarter ended July 31, 2021there was a $196,000increase in prepaid expenses compared to a decrease of $94,000for the quarter ended July 31, 2020. The current increase is due to more prepayments of raw materials. Lead times and costs have risen on raw materials, making it a challenge to obtain these raw materials. ? Accounts payable shows a decrease of $236,000for the quarter ended July 31, 2021compared to an increase of $117,000for the same quarter the year before. The variance is primarily due to timing differences of when product is received. Management strives to pay all payables within terms, unless there is a problem with the merchandise. ? Accrued expenses increased $99,000for the current quarter as compared to a $61,000decrease for the quarter ended July 31, 2020. The difference in the amounts is primarily due to timing of when payroll periods end. ? Income tax payable for the quarter ended July 31, 2021increased $547,000, compared to a $346,000increase for the quarter ended July 31, 2020. The current increase is due to larger tax estimates in relation to increased income. Investing ? The Company purchased $40,000of property and equipment during the current fiscal quarter. In comparison, $95,000was 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, 2021was $98,000compared to $111,000spent during the quarter ended July 31, 2020. 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 quarterly service fees based on the value of the investments. Financing ? The Company continues to purchase back common stock when the opportunity arises, but for the quarter ended July 31, 2021and 2020, respectively, the Company did not buyback any treasury stock. 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, 2021 July 31, 2020 Working capital (current assets - current liabilities) $ 49,401,000 $ 40,103,000Current ratio (current assets / current liabilities) 15.529 11.485 Quick ratio ((cash + current investments + AR) / current liabilities) 13.549 9.953 New Product Development
The Company and its engineering department are constantly working to develop improvements to current product lines, develop new products that complement existing products and seek products that are well suited to our distribution network and manufacturing capabilities. Items currently at various stages of the development process include:
? Explosion proof contacts that will be UL listed for hazardous locations are in development. There has been demand from our customers for this type of high security magnetic reed switch. ? An updated version of the pool access alarm (PAA) has met electrical listing testing (ETL) approval and production has started. 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 are currently redesigning our glass break detector switch and water shutoff system to include a brass valve. ? 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. 21 Other Information
In addition to researching the development of new products, management is always open to the possibility of acquiring a business or a range of products that would complement our existing operations. Due to the Company’s strong cash position, management believes this could be achieved without the need for external financing. The intention is to use 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 as we sell to distributors and OEMs. Our products are related to the housing industry and fluctuate according to construction trends.
Recently published accounting position papers
(Subject 321), Investments –
There are no other new accounting pronouncements that are expected to have a material impact on our financial statements.
GEORGE RISK INDUSTRIES, INC.PART I. FINANCIAL INFORMATION
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