Attached files
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 Ex-
change Act of 1934
For the quarter ended January 31, 2016
[ ] Transition report under Section 13 or 15(d) of the Securities Ex-
change 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 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, 2016 was 5,023,810.
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, 2016, are attached hereto.
GEORGE RISK INDUSTRIES, INC.
CONDENSED BALANCE SHEETS
January 31, April 30,
2016 2015
------------ ------------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 5,280,000 $ 5,691,000
Investments and securities 23,468,000 25,266,000
Accounts receivable:
Trade, net of $1,070 and $160
doubtful account allowance 1,638,000 2,007,000
Other 3,000 3,000
Note receivable, current -- 1,000
Income tax overpayment 797,000 534,000
Inventories, net 2,767,000 2,275,000
Prepaid expenses 79,000 108,000
Deferred income taxes 78,000 --
------------ ------------
Total Current Assets $34,110,000 $35,885,000
Property and Equipment, net, at cost 594,000 661,000
Other Assets
Investment in Limited Land Partnership,
at cost 253,000 253,000
Projects in process 3,000 56,000
Other 1,000 1,000
------------ ------------
Total Other Assets $ 257,000 $ 310,000
TOTAL ASSETS $34,961,000 $36,856,000
============ ============
See accompanying notes to the condensed financial statements.
GEORGE RISK INDUSTRIES, INC.
CONDENSED BALANCE SHEETS
January 31, April 30,
2016 2015
------------ ------------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable, trade $ 112,000 $ 110,000
Dividends payable 1,255,000 1,099,000
Accrued expenses:
Payroll and related expenses 217,000 306,000
Property taxes 3,000 --
Deferred income taxes -- 857,000
------------ ------------
Total Current Liabilities $ 1,587,000 $ 2,372,000
Long-Term Liabilities
Deferred income taxes 94,000 115,000
------------ ------------
Total Long-Term Liabilities $ 94,000 $ 115,000
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 (15,000) 1,282,000
Retained earnings 34,182,000 33,960,000
Treasury stock, 3,479,071 and 3,477,156
shares, at cost (3,572,000) (3,558,000)
------------ ------------
Total Stockholders' Equity $33,280,000 $34,369,000
TOTAL LIABILITES AND STOCKHOLDERS' EQUITY $34,961,000 $36,856,000
============ ============
See the companying notes to the condensed financial statements.
GEORGE RISK INDUSTRIES, INC.
CONDENSED INCOME STATEMENTS
(Unaudited)
Three months Nine months Three months Nine months
ended ended ended ended
January 31, January 31, January 31, January 31,
2016 2016 2015 2015
---------------------------------------------------
Net Sales $ 2,680,000 $ 8,310,000 $ 2,828,000 $ 8,847,000
Less: cost of goods sold (1,316,000) (3,864,000) (1,233,000) (4,035,000)
------------ ------------ ------------ ------------
Gross Profit $ 1,364,000 $ 4,446,000 $ 1,595,000 $ 4,812,000
Operating Expenses:
General and
administrative 227,000 643,000 201,000 613,000
Sales 448,000 1,428,000 522,000 1,478,000
Engineering 31,000 68,000 22,000 63,000
Rent paid to related
parties 4,000 14,000 5,000 14,000
------------ ------------ ------------ ------------
Total Operating Expenses $ 710,000 $ 2,153,000 $ 750,000 $ 2,168,000
Income From Operations 654,000 2,293,000 845,000 2,644,000
Other Income (Expense)
Other 5,000 13,000 (1,000) --
Dividend and interest
income 437,000 746,000 406,000 695,000
Gain (loss) on
investments (242,000) (288,000) (54,000) 211,000
Gain (loss) on sale
of assets -- -- 5,000 5,000
------------ ------------ ------------ ------------
$ 200,000 $ 471,000 $ 356,000 $ 911,000
Income Before Provisions
for Income Tax 854,000 2,764,000 1,201,000 3,555,000
Provisions for Income Tax
Current expense 231,000 857,000 498,000 1,081,000
Deferred tax expense
(benefit) (12,000) (23,000) (3,000) 15,000
------------ ------------ ------------ ------------
Total Income Tax Expense $ 219,000 $ 834,000 $ 495,000 $ 1,096,000
Net Income $ 635,000 $ 1,930,000 $ 706,000 $ 2,459,000
============ ============ ============ ============
Cash Dividends
Common Stock ($0.34
per share) $ -- $ 1,709,000
Common Stock ($0.32
per share) $ -- $ 1,609,000
Income Per Share of Common Stock:
Basic $0.13 $0.38 $0.14 $0.49
Assuming Dilution $0.13 $0.38 $0.14 $0.49
Weighted Average Number of
Common Shares Outstanding:
Basic 5,024,103 5,024,954 5,029,575 5,029,709
Diluted 5,044,603 5,045,454 5,050,075 5,050,209
See the accompanying notes to the condensed financial statements.
GEORGE RISK INDUSTRIES, INC.
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three months Nine months Three months Nine months
ended ended ended ended
January 31, January 31, January 31, January 31,
2016 2016 2015 2015
----------------------------------------------------
Net Income $ 635,000 $ 1,930,000 $ 706,000 $ 2,459,000
------------ ------------ ------------ ------------
Other Comprehensive Income, net of tax
Unrealized gain (loss) on securities:
Unrealized holding
gains (losses) arising
during period (1,385,000) (2,503,000) (359,000) 261,000
Reclassification adjustment
for gains (losses) included
in net income 144,000 274,000 (9,000) (640,000)
Income tax benefit (expense)
related to other com-
prehensive income 519,000 932,000 154,000 158,000
------------ ------------ ------------ ------------
Other Comprehensive
Income $ (722,000) $(1,297,000) $ (214,000) $ (221,000)
Comprehensive Income $ (87,000) $ 633,000 $ 492,000 $ 2,238,000
============ ============ ============ ============
See accompanying notes to the condensed financial statements.
GEORGE RISK INDUSTRIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months Nine months
ended ended
January 31, January 31,
2016 2015
---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,930,000 $ 2,459,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 187,000 111,000
(Gain) loss on sale of investments 288,000 (211,000)
(Gain) loss on sales of assets -- (5,000)
Reserve for bad debts 1,000 (3,000)
Reserve for obsolete inventory 10,000 (4,000)
Deferred income taxes (23,000) 15,000
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 369,000 110,000
Inventories (502,000) (161,000)
Prepaid expenses 29,000 9,000
Other receivables (1,000) (3,000)
Income tax overpayment (263,000) (506,000)
Increase (decrease) in:
Accounts payable 2,000 112,000
Accrued expenses (86,000) (46,000)
------------ ------------
Net cash provided by (used in) operating
activities $ 1,941,000 $ 1,877,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Other assets manufactured 53,000 (18,000)
Proceeds from sale of assets -- 5,000
(Purchase) of property and equipment (119,000) (165,000)
Proceeds from sale of marketable securities 63,000 26,000
(Purchase) of marketable securities (783,000) (847,000)
(Purchase) of long-term investment -- (15,000)
Collections of loans to employees 1,000 --
------------ ------------
Net cash provided by (used in) investing
activities $ (785,000) $(1,014,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Purchase) of treasury stock (14,000) (4,000)
Dividends paid (1,553,000) (1,463,000)
------------ ------------
Net cash provided by (used in) financing
activities $(1,567,000) $(1,467,000)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS $ (411,000) $ (604,000)
Cash and cash equivalents, beginning of
period $ 5,691,000 $ 5,872,000
------------ ------------
Cash and cash equivalents, end of period $ 5,280,000 $ 5,268,000
============ ============
Supplemental Disclosure of Cash Flow
Information
Cash payments for:
Income taxes $ 1,115,000 $ 1,556,000
Interest expense $ -- $ 2,000
See accompanying notes to the condensed financial statements.
GEORGE RISK INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2015
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 com-
plete 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, 2015 annual report on Form 10-K.
In the opinion of management, all adjustments, consisting only of normal re-
curring 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 Marketable Securities
The Company has investments in publicly traded equity securities, cor-
porate bonds, state and municipal debt securities, real estate investment
trusts, and money markets funds. The investments in securities are classi-
fied as available-for-sale securities, and are reported at fair value.
Available-for-sale investments in debt securities mature between February
2016 and November 2048. The Company uses the average cost method to deter-
mine the cost of securities sold and the amount reclassified out of accum-
ulated other comprehensive income into earnings. Unrealized gains and losses
are excluded from earnings and reported separately as a component of stock-
holders' equity. Dividend and interest income are reported as earned.
As of January 31, 2016 and April 30, 2015, investments consisted of the
following:
Investments at Gross Gross
January 31, 2016 Cost Unrealized Unrealized Fair
Basis Gains Losses Value
------------ ------------ ------------ ------------
Municipal bonds $ 6,377,000 $ 119,000 $ (268,000) $ 6,228,000
Corporate bonds $ 30,000 $ -- $ (8,000) $ 22,000
REITs $ 72,000 $ -- $ (6,000) $ 66,000
Equity securities $14,423,000 $ 1,049,000 $ (912,000) $14,560,000
Money markets $ 2,592,000 $ -- $ -- $ 2,592,000
------------ ------------ ------------ ------------
Total $23,494,000 $ 1,168,000 $(1,194,000) $23,468,000
Investments at Gross Gross
April 30, 2015 Cost Unrealized Unrealized Fair
Basis Gains Losses Value
------------ ------------ ------------ ------------
Municipal bonds $ 6,546,000 $ 115,000 $ (75,000) $ 6,586,000
Corporate bonds $ 30,000 $ -- $ (1,000) $ 29,000
REITs $ 57,000 $ 6,000 $ (7,000) $ 56,000
Equity securities $14,100,000 $ 2,354,000 $ (189,000) $16,265,000
Money markets $ 2,330,000 $ -- $ -- $ 2,330,000
------------ ------------ ------------ ------------
Total $23,063,000 $ 2,475,000 $ (272,000) $25,266,000
In accordance the US GAAP, 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 im-
pairment losses of $46,000 for the quarter ended January 31, 2016, and re-
corded impairment losses of $69,000 for the nine months ended January 31,
2016. For the corresponding periods last year, management did not record any
impairment losses for the quarter ended January 31, 2015, but did record im-
pairment losses of $8,000 for the nine months ended January 31, 2015.
The following tables show the investments with unrealized losses that
are not deemed to be "other-than-temporarily impaired", aggregated by invest-
ment category and length of time that individual securities have been
in a continuous unrealized loss position at January 31, 2016 and April 30,
2015, respectively.
Unrealized Loss Breakdown by Investment Type at January 31, 2016
Less than 12 months 12 months or greater Total
----------------------- --------------------- ---------------------
Fair Unrealized Fair Unrealized Fair Unrealized
Value Loss Value Loss Value Loss
...........................................................................
Municipal bonds
$2,923,000 $ (245,000) $ 549,000 $ (23,000) $ 3,472,000 $ (268,000)
Corporate bonds
-- -- $ 22,000 $ (8,000) $ 22,000 $ (8,000)
REITs
$ 52,000 $ (6,000) -- -- $ 52,000 $ (6,000)
Equity securities
$6,420,000 $ (618,000) $1,743,000 $(294,000) $ 8,163,000 $ (912,000)
----------- ------------ ----------- ---------- ------------ ------------
Total
$9,395,000 $ (869,000) $2,314,000 $(325,000) $11,709,000 $(1,194,000)
Unrealized Loss Breakdown by Investment Type at April 30, 2015
Less than 12 months 12 months or greater Total
----------------------- --------------------- ---------------------
Fair Unrealized Fair Unrealized Fair Unrealized
Value Loss Value Loss Value Loss
...........................................................................
Municipal bonds
$2,743,000 $ (45,000) $ 680,000 $ (30,000) $ 3,423,000 $ (75,000)
Corporate bonds
29,000 (1,000) $ -- $ -- $ 29,000 $ (1,000)
REITs
$ 21,000 $ (7,000) -- -- $ 21,000 $ (7,000)
Equity securities
$2,044,000 $ (136,000) $ 460,000 $ (53,000) $ 2,504,000 $ (189,000)
----------- ------------ ----------- ---------- ------------ ------------
Total
$4,837,000 $ (189,000) $1,140,000 $ (83,000) $ 5,977,000 $ (272,000)
Municipal Bonds
---------------
The unrealized losses on the Company's investments in municipal bonds were
caused by interest rate increases. The contractual terms of these invest-
ments 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, 2016.
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 invest-
ment. 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, 2016.
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 onto these
investments for an extended period, the company does not consider these in-
vestments to be other-than-temporarily impaired at January 31, 2016.
Note 3 Inventories
Inventories at January 31, 2016 and April 30, 2015 consisted of the
following:
January 31, April 30,
2016 2015
------------ ------------
Raw Materials $ 1,815,000 $ 1,557,000
Work in Process 541,000 466,000
Finished Goods 487,000 318,000
------------ ------------
$ 2,843,000 $ 2,341,000
Less: allowance for obsolete
inventory (76,000) (66,000)
------------ ------------
Net Inventories $ 2,767,000 $ 2,275,000
============ ============
Note 4 Business Segments
The following is financial information relating to industry
segments:
For the quarter ended
January 31,
2016 2015
---------------------------
Net revenue:
Security alarm products 2,272,000 2,239,000
Other products 408,000 589,000
------------ ------------
Total net revenue $ 2,680,000 $ 2,828,000
Income from operations:
Security alarm products 554,000 669,000
Other products 100,000 176,000
------------ ------------
Total income from operations $ 654,000 $ 845,000
Identifiable assets:
Security alarm products 3,263,000 3,901,000
Other products 1,636,000 988,000
Corporate general 30,062,000 30,813,000
------------ ------------
Total assets $34,961,000 $35,702,000
Depreciation and amortization:
Security alarm products 4,000 4,000
Other products 92,000 30,000
Corporate general 12,000 6,000
------------ ------------
Total depreciation and amortization $ 108,000 $ 40,000
Capital expenditures:
Other products 84,000 45,000
Corporate general 8,000 9,000
------------ ------------
Total capital expenditures $ 92,000 $ 54,000
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, 2016
-------------------------------------------
Income Shares Per-share
(Numerator) (Denominator) 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 Shares Per-share
(Numerator) (Denominator) 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
For the three months ended January 31, 2015
-------------------------------------------
Income Shares Per-share
(Numerator) (Denominator) Amount
----------- ------------- -----------
Net Income $ 706,000
===========
Basic EPS $ 706,000 5,029,575 $ 0.1404
Effect of dilutive securities:
Convertible preferred stock 0 20,500
----------- ------------- -----------
Diluted EPS $ 706,000 5,050,075 $ 0.1399
For the nine months ended January 31, 2015
-------------------------------------------
Income Shares Per-share
(Numerator) (Denominator) Amount
----------- ------------- -----------
Net Income $2,459,000
===========
Basic EPS $2,459,000 5,029,709 $ 0.4889
Effect of dilutive securities:
Convertible preferred stock 0 20,500
----------- ------------- -----------
Diluted EPS $2,459,000 5,050,209 $ 0.4869
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 the quarter ending
January 31, 2016 and $3,000 was paid during the corresponding quarter the
prior fiscal year. Likewise, the Company paid matching contributions of
approximately $8,000 during both of the nine-month periods ending January 31,
2016 and 2015, respectively.
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 in-
herent 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 measurements) and the lowest priority to un-
observable 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 in-
struments traded in active markets.
Level 2 - Valuation is based upon quoted prices for similar in-
struments in active markets, quoted prices for identical
or similar instruments in markets that are not active,
and model-based valuation techniques for which all sig-
nificant 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.
Marketable Securities
---------------------
As of January 31, 2016, our investments consisted of money markets, publicly
traded equity securities as well as certain state and municipal debt
securities. Our 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 and corporate bonds,
the inputs are recorded at 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.
Assets Measured at Fair Value on a Recurring Basis
as of January 31, 2016
---------------------------------------------------
Level 1 Level 2 Level 3 Total
------- ------- ------- -------
Assets:
Municipal Bonds $ -- $ 6,228,000 $ -- $ 6,228,000
Corporate Bonds $ 22,000 $ -- $ -- $ 22,000
REITs $ 66,000 $ -- $ -- $ 66,000
Equity Securities $14,560,000 $ -- $ -- $14,560,000
Money Markets $ 2,592,000 $ -- $ -- $ 2,592,000
------------ ------------ ---------- ------------
Total fair value of
assets measured on a
recurring basis $17,240,000 $ 6,228,000 $ -- $23,468,000
============ ============ ========== ============
Assets Measured at Fair Value on a Recurring Basis
as of April 30, 2015
---------------------------------------------------
Level 1 Level 2 Level 3 Total
------- ------- ------- -------
Assets:
Municipal Bonds $ -- $ 6,586,000 $ -- $ 6,586,000
Corporate Bonds $ 29,000 $ -- $ -- $ 29,000
REITs $ 56,000 $ -- $ -- $ 56,000
Equity Securities $16,265,000 $ -- $ -- $16,265,000
Money Markets $ 2,330,000 $ -- $ -- $ 2,330,000
------------ ------------ ---------- ------------
Total fair value of
assets measured on a
recurring basis $18,680,000 $ 6,586,000 $ -- $25,266,000
============ ============ ========== ============
Note 8 Subsequent Events
After doing much research to find what should work best for the
business, the Company has made a down payment on a new ERP software system.
Management is hopeful that this new system will enhance productivity and
communicaiton throughout the organization.
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 obliga-
tion 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, 2015.
Executive Summary
~~~~~~~~~~~~~~~~~
The Company's performance has declined slightly through the three
quarters, with reduced sales and mediocre investment returns. New challenges
the Company has endured over the nine months of this fiscal year include the
burden of regulatory requirements of the Affordable Care Act, and the in-
crease in the minimum wage requirements, as well as selection and
implementation of new hardware and software systems which will enhance
productivity and communication throughout the organization.
Results of Operations
~~~~~~~~~~~~~~~~~~~~~
* Gross profit showed a 7.61% decrease year-to-date over the same period
in the prior year due to a decrease in sales and an increase in cost
of goods sold. Management has found out that there is some new com-
petition in the marketplace, but we expect to strive with our commit-
ment to outstanding customer service and quality manufacturing that
takes place in the United States.
* Cost of goods sold remained steady throughout the nine months ended
January 31, 2016 at 46.50% of sales, compared to 45.61% in the prior
year, keeping well within the target of less than 50%.
* Operating expenses were down approximately $15,000 for the nine month
period ended January 31, 2016 as compared to the corresponding period
last year. The decrease in these expenses are primarily due to de-
creased commissions directly related to the decrease in sales. The
Company has been able to keep the operating expenses at less than 30%
of net sales over the last several years; and the Company has been
adapting to the new costs incurred from the Affordable Care Act and
the State of Nebraska regulatory increase of the minimum wage.
* Income from operations for the nine months ended January 31, 2016 was
at $2,293,000, a 13.28% decrease from the corresponding period last
year, which had income from operations of $2,644,000.
* Other income and expenses decreased, when comparing the current nine
month period to the prior year, with a decrease of $440,000 in the
current year. The majority of activity in these accounts consists of
investment interest, dividends, and gain or loss on sale of invest-
ments.
* Overall net income for the nine month period ended January 31, 2016
was down $529,000, or 21.51%, from the same period in the prior year.
* Earnings per share for the nine months ended January 31, 2016 were
$0.38 per common share and $0.49 per common share for the same period
in the prior year.
Liquidity and capital resources
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Operating
---------
* Net cash decreased $411,000 during the nine months ended January 31,
2016 as compared to a decrease of $604,000 during the corresponding
period last year.
* Accounts receivable decreased $369,000 for the nine months ended
January 31, 2016 compared with an $110,000 decrease for the same
period last year. Approximately $1,070 of accounts over 90 days have
a possibility of being uncollectible.
* Inventories increased during the current and prior nine month periods
showing an increase of $502,000 in the current period compared to a
$161,000 increase in the prior period. These increases are
attributable to past buying trends, since there had been increases in
sales with the last year, and some vendors' price increases.
* Prepaid expenses saw a $29,000 decrease for the current nine months,
primarily due to the recording of the regular monthly expenses of
doing business and only having to renew one service agreements over
the last nine months. Conversely, the prior nine months showed a
$9,000 decrease in prepaid expenses.
* Income tax overpayment for the nine months ended January 31, 2016, in-
creased $263,000, while the overpayment increased $506,000 for the
same period the prior year.
* Accounts payable shows increases for both nine month periods at
$2,000 and $112,000, 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 $86,000 for the current nine month period
as compared to a $46,000 decrease for the nine month period ended
January 31, 2015.
Investing
---------
* As for our investment activities, the Company spent approximately
$119,000 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 $165,000.
* Additionally, the Company continues to purchase marketable securities,
which include municipal bonds and quality stocks. During the nine
month period ended January 31, 2016 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, 2016
was $783,000 compared to $847,000 spent in the prior nine month period.
We continue to use "money manager" accounts for most stock trans-
actions. 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, 2016,
the Company purchased $14,000 worth of treasury stock, as compared to
$4,000 in the same nine months period the prior year.
* The company paid out dividends of $1,553,000 during the nine months
ending January 31, 2016. These dividends were paid during the second
quarter. The company declared a dividend of $0.34 per share of common
stock on September 30, 2015 and these dividends were paid by October
31, 2015. As for the prior year numbers, dividend paid was $1,463,000
for the nine months ending January 31, 2015. A dividend of $0.32 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,
2016 2015
---------------------------
Working capital
(current assets - current liabilities) $ 32,523,000 $ 32,546,000
Current ratio
(current assets / current liabilities) 21.493 16.047
Quick ratio
((cash + investments + AR) / current liabilities)
19.147 14.679
New Product Development
~~~~~~~~~~~~~~~~~~~~~~~
The Company and its' engineering department continue to develop enhance-
ments to product lines, develop new products which complement existing prod-
ucts, 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
* Slim-line face plate for pool alarms that will also allow homeowner to
change the plate to match their decor
* The High Security Switch is near completion with testing being done on
it now.
* The redesign of our Current Controller is complete and is ready to be
sent off for U.L. approval. This will allow us to manufacture several
different versions, including a 15 amp version that would auto-
matically turn on a whole room of lights and a 220-volt version for
international markets. 12 and 24-volt versions are also being de-
veloped in response to many requests to turn on LED lighting.
* Redesign of our very popular, top selling resistor packs. The new de-
sign will be more automated to produce more in a shorter timeframe.
* Modification of our E-Z Duct connectors to be able to be U.L. listed
for fire rating and high voltage.
* Redesign for the cover of the 29-Series terminal switch
* Redesign of our M-4532 overhead door magnet to allow installers to
replace existing competitor magnets with our product.
* 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.
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 tech-
niques and established customers to 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 Com-
pany is evaluating the impact of this update on the Company's financial
statements.
In November 2015, the FASB issued Accounting Standards Update No.
2015-17, Balance Sheet Classification of Deferred Taxes. This update re-
quires an entity to classify deferred tax liabilities and assets as non-
current within a classified statement of financial position. ASU 2015-17 is
effective for annual reporting periods, and interim periods therein,
beginning after December 15, 2016. This update may be applied either
prospectively to all deferred tax liabilities and assets or retrospectively
to all periods presented. Early application is permitted as of the beginning
of the interim or annual reporting period. The Company is evaluating the
impact of this update on the Company's financial statements.
GEORGE RISK INDUSTRIES, INC.
PART I. FINANCIAL INFORMATION
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable
Item 4. Controls and Procedures
(a) Information required by Item 307
Our Chief Executive Officer (also working as our Chief Financial Officer),
after evaluating the effectiveness of the Company's "disclosure controls and
procedures" (as defined in the Securities Exchange Act of 1934 (Exchange Act)
Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by this
quarterly report, has concluded that our disclosure controls and procedures
are effective based on their evaluation of these controls and procedures re-
quired by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.
(b) Information required by Item 308
This disclosure is not yet required.
Item 4A. Controls and Procedures
Evaluation of disclosure controls and procedures:
-------------------------------------------------
As of theend of the period covered by the Quarterly Report on Form 10-Q,
management performed, with the participation of our Chief Executive Officer
(who also serves as our Chief Financial Officer), an evaluation of the
effectiveness of our disclosure controls and procedures as defined in Rules
13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 ("Exchange
Act"). Our disclosure controls and procedures are designed to ensure that
information required to be disclosed in the reports we file or submit under
the Exchange Act is recorded, processed, summarized, and reported within the
time periods specified in the Exchange Act and SEC's rules, and that such
information is accumulated and communicated to our management, including our
Chief Executive Officer, to allow timely decisions regarding required dis-
closures. There are inherent limitations to the effectiveness of any system
of disclosure controls and procedures, including the possiblity of human
error and the circumvention of overriding of the controls and procedures.
Accordingly, even effective disclosure controls and procedures can only pro-
vide reasonable assurance of achieving their control objectives. Our Chief
Executive Officer concluded that, as of January 31, 2016, our disclosure con-
trols and procedures were not effective.
Changes in internal controls over financial reporting:
------------------------------------------------------
The Company's management is responsible for establishing and maintaining
adequate internal controls over financial reporting for the Company. Due to
limited resources, Management conducted an evaluation of internal controls
based on criteria established in Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway
Commission ("COSO"). The results of this evaluation determined that our
internal control over financial reporting was ineffective as of January 31,
2016, due to a material weakness. A material weakness in internal control
over financial reporting is defined as a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such that there
is a reasonable possibility that a material misstatement of the Company's
annual or interim financial statements will not be prevented or detected on
a timely basis. A significant deficiency is a deficiency, or a combination
of deficiencies, in internal control over financial reporting that is less
severe than a material weakness, yet important enough to merit attention by
those responsible for oversight of our financial reporting.
Management's assessment identified the following material weakness in
internal control over financial reporting:
* The small size of our Company limits our ability to achieve the desired
level of separation of internal controls and financial reporting,
particularly as it relates to financial reporting and deferred taxes.
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. Until such time as the Company is able to hire a Con-
troller, we do not believe we meet the full requirement for separation
for financial reporting purposes.
As a result of the material weakness in internal control over financial re-
porting described above, the Company's management has concluded that, as of
January 31, 2016, the Company's internal control over financial reporting was
not effective based on the criteria in Internal Control - Integrated Frame-
work issued by the COSO.
To date, the Company has hired a person to fill the controller position, but
more training will be required to fulfill diclosure control and procedure
responsibilites. We will continue to follow the standards for the Public
Company Accounting Oversight Board (United States) for internal control over
financial reporting to include procedures that:
* Pertain to the maintenance of records in reasonable detail accurately
that fairly reflect the transactions and dispositions of the Company's
assets;
* Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of the financial statements in
accordance with generally accepted accounting principles, and that re-
ceipts and expenditures are being made only in accordance with author-
izations of management and the Board of Directors; and
* Provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the Company's
assets that could have a material effect on the financial statements.
This quarterly report does not include an attestation report of the Corpor-
ation's registered public accounting firm regarding internal control over
financial reporting. Management's report was not subject to attestation by
the Corporation's registered public accounting firm pursuant to Section
404(c) of the Sarbanes-Oxley Act of 2002, as amended, that permits the Cor-
poration to provide only the management?s report in this quarterly report.
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 third quarter of fiscal year 2015.
Period Number of shares repurchased
-------------------------------------- ----------------------------
November 1, 2015 - November 30, 2015 500
December 1, 2015 - December 31, 2015 900
January 1, 2016 - January 31, 2016 -
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
Exhibit No. Description
----------- -----------
31.1 Certification of the Chief Executive Officer (Principal
and Accounting Officer), as required by Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification of the Chief Executive Officer (Principal
and Accounting Officer), as required by Section 906 of
the Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuarnt 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, 2016 By: /s/ Stephanie M. Risk-McElroy
Stephanie M. Risk-McElroy
President, Chief Executive Officer, Chief
Financial Officer and Chairman of the Board
