GEORGE RISK INDUSTRIES, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains 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. All statements contained 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 these terms are intended to identify forward-looking statements. The information contained in this document represents our estimates and assumptions as of the date of this filing. Except as required by law, we undertake no obligation to publicly update any forward-looking statements or to update why actual results could differ materially from those anticipated in such forward-looking statements, even if new information become available in the future.
The following analysis should be read in conjunction with the accompanying unaudited condensed financial statements and the audited financial statements and analysis of the Company for the year ended
The Company’s operating performance continues to improve in all three quarters of the current fiscal year, with third quarter sales down slightly compared to the second quarter of the current fiscal year. This is mainly due to the inability to obtain all the raw materials necessary to complete the manufacture of our products and to maintain personnel at our sites. The Company is on track for another record year in terms of sales. In addition, the Company’s products are traditionally linked to the housing market and, as this market remains strong, it in turn contributes to the growth of the Company’s sales. Opportunities include tracking business growth and finding ways to get our products to our customers faster. One of the ways to do this is to consider more automation. We also continue to look for companies that may be good candidates for purchase. We also have new products that have hit the market and a few more that are expected to be introduced by the end of the fiscal year. Challenges for the coming months include continuing to deliver products to customers in a timely manner and managing restrictions related to the COVID-19 pandemic. Possible challenges related to COVID-19 include, but are not limited to, price increases and/or supply chain delays, reduced sales, labor disruptions, and economics that impact the stock market. Management continues to work to keep operations running as efficiently as possible in hopes of optimizing the operation of the facilities and making them more profitable than ever.
Results of Operations ? Net sales were
$5,054,000for the quarter ended January 31, 2022, which is a 9.09% increase from the corresponding quarter last year. Year-to-date net sales were $15,252,000at January 31, 2022, which is a 14.44% increase from the same period last year. The significant growth in sales is due to our ongoing commitment to outstanding customer service and our ability to customize products. The Company is also seeing continued growth since a major competitor closed its doors at the end of 2019 and having the ability to continue to work through the COVID-19 pandemic. ? Cost of goods sold was 56.61% of net sales for the quarter ended January 31, 2022and was 51.48% for the same quarter last year. Year-to-date cost of goods sold percentages were 51.85% for the current nine months and 49.76% for the corresponding nine months last year. The current cost of goods sold percentages are right outside of Management's goal of keeping labor and other manufacturing expenses at less than 50% for both the quarter and year-to-date results. Management continues to work with and train employees to work more efficiently. Raw material prices have soared over the current fiscal year and a significant wage increase went into effect for the company at the beginning of the second quarter of the current fiscal year. Management offset some of these added expenses by implementing a 10% price increase effective January 1, 2022. 20 ? Operating expenses increased by $17,000for the quarter and they increased by $316,000for the nine-months ended January 31, 2022as compared to the corresponding periods last year. When comparing percentages in relation to net sales, the operating expenses for the quarter ended January 31, 2022was 20.76% of net sales while it was 22.27% of net sales for the same quarter the prior year. For year-to-date numbers, operating expense were 21.28% and 21.99% of net sales for the nine months ended January 31, 2022and 2021, 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 due to increased commission amounts, related to increased sales, and additional labor costs related to hiring new employees and wage increases. ? Income from operations for the quarter ended January 31, 2022was $1,144,000, a 5.92% decrease from the corresponding quarter last year, which had income from operations of $1,216,000. Income from operations for the nine months ended January 31, 2022was $4,098,000, which is an 8.82% increase from the corresponding nine months last year, which had income from operations of $3,766,000. ? Other expenses for the quarter ended January 31, 2022was $1,085,000, which is a $5,258,000decrease from the $4,173,000other income from the same quarter last year. Comparatively, there is a decrease of $5,971,000in other income for the year-to-date numbers. Most of the activity in these accounts consists of investment interest, dividends, real gains or losses on sale of investments, and unrealized gains or losses on equity securities. The main reason for the decrease in the current quarter and year-to-date numbers is unrealized gain and loss on equity securities. The Company is at the mercy of the stock market when it comes to these figures and the COVID-19 pandemic and other economic reasons have influenced those numbers. ? Overall, net income for the quarter ended January 31, 2022was down $4,286,000, or 96.38%, from the same quarter last year. Similarly, net income for the nine-month period ended January 31, 2022was down $4,204,000, or 53.90%, from the same period in the prior year. ? Earnings per common share for quarter ended January 31, 2022were $0.03per share and $0.73per share for the year-to-date numbers. EPS for the quarter and nine months ended January 31, 2021were $0.90per share and $1.58per share, respectively. 21
Cash and capital resources
Operating ? Net cash decreased
$938,000during the nine months ended January 31, 2022as compared to an increase of $478,000during the corresponding period last year. ? Accounts receivable decreased $91,000for the nine months ended January 31, 2022compared with a $376,000increase for the same period last year. The current year decrease is a result of improved sales offset by slightly slower collections of accounts receivable. An analysis of accounts receivable shows that there were 6.61% that were over 90 days at January 31, 2022. ? Inventories increased $1,465,000during the current nine-month period compared to an increase of $823,000last year. The larger increase in the current year is due to increases in the cost of raw materials and having more raw materials on hand to supply the increase in sales. ? Prepaid expenses saw a $1,089,000increase for the current nine months, primarily due to having more prepayments for inventory and prepaying for some machines that will aid in our production process. The prior nine months showed a $327,000decrease in prepaid expenses. ? Accounts payable shows a $176,000decrease for the current nine-month period ended January 31, 2022compared to a $311,000increase 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 increased $130,000for the current nine-month period compared to a $54,000increase for the nine-month period ended January 31, 2021. The difference in the amounts is primarily due to increased sales commissions and wages. ? Income tax payable increased $163,000for the current nine-month period, compared to an increase of $249,000in income tax payable for the nine-months ended January 31, 2021. The current increase is largely due to having increased sales and income and not having large enough income tax estimates. Investing ? As for our investment activities, the Company spent approximately $164,000on 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 $426,000. ? Additionally, the Company continues to purchase marketable securities, which include municipal bonds and quality stocks. During the nine-month period ended January 31, 2022the buy/sell activity in the investment accounts was high. Net cash spent on purchases of marketable securities for the nine-month period ended January 31, 2022was $640,000compared to $440,000spent 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. 22
Financing ? The Company continues to purchase back common stock when the opportunity arises. For the nine-month period ended
January 31, 2022, the Company purchased $35,000worth of treasury stock. This is in comparison to $28,000spent in the same nine months period the prior year. ? The company paid out dividends of $2,256,000during the nine months ending January 31, 2022. These dividends were paid during the second quarter. The company declared a dividend of $0.50per share of common stock on September 30, 2021and these dividends were paid by October 31, 2021. As for the prior year numbers, dividends paid was $1,892,000for the nine months ending January 31, 2021. A dividend of $0.42per 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: As of January 31, 2022 January 31, 2021 Working capital (current assets - current liabilities) $ 48,186,000 $ 43,984,000Current ratio (current assets / current liabilities) 15.470 14.430 Quick ratio ((cash + investments + AR) / current liabilities) 12.987 12.567 New Product Development
The Company and its engineering department continue to develop enhancements to product lines, develop new products that complement existing products, and seek out products that are well suited to our distribution network and manufacturing capabilities. Items currently under development include:
? Explosion proof contacts that will be UL listed for hazardous locations. 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 are available through jumper pin settings such as instant alarm and seven second delay. ? 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 monitoring devices which include glass break detection, tilt sensing and environmental monitoring. A redesign of our brass water valve shut-off system is near completion. ? The Company is developing magnetic contacts which are listed under UL 634 Level 2. These sensors are for high security applications such as government buildings, military use, nuclear facilities, and financial institutions. 23
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 external financing. The intent is to use established equipment, marketing techniques and customers to deliver new products and increase sales and profits.
There are no known seasonal trends with GRI products since we sell to distributors and OEMs. Our products are related to the housing industry and will fluctuate with building trends.
Recently issued accounting pronouncements
(Subject 321), Investments –
No other new accounting pronouncements are expected to have a material impact on our financial statements.
GEORGE RISK INDUSTRIES, INC.PART I. FINANCIAL INFORMATION
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