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 second quarter showing growth over the first
quarter of the current fiscal year. This is mainly due the closure of a
competitor at the end of calendar year 2019 and having the ability to continue
to work through the COVID-19 pandemic. The state of
Results of Operations
? Net sales were
25.26% increase from the corresponding quarter last year. Year-to-date net
sales were
same period last year. The increases in sales are primarily a result of a
competitor no longer selling competing products, as discussed above. Other than
the loss of a competitor, the Company does not believe COVID-19 has had a
significant effect on our net revenue and we do not expect it to have a
significant effect going forward. Also, the ongoing commitment towards
outstanding customer service and customization of products are a few of the
many reasons sales continue to grow.
? Cost of goods sold was 49.37% of net sales for the quarter ended
2020 and was 50.13% for the same quarter last year. Year-to-date cost of goods
sold percentages were 48.83% for the current six months and 49.98% 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.
Management continues to work with and train employees to work more efficiently
and they also work at getting the best price for raw materials.
? Operating expenses were up
six-months ended
year. But when comparing percentages in relation to net sales, the operating
expenses for the quarter ended
it was 24.37% of net sales for the same quarter the prior year. For
year-to-date numbers, operating expense were 21.84% and 24.48% of net sales for
the six months ended
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 ended
year, which had income from operations of
the six months ended
increase from the corresponding six months last year, which had income from
operations of$1,855,000 .
? Other income and expenses are down when comparing the current quarter to the
prior quarter, with a decrease of
other income and expenses are up by
six-month period to the prior six-month period. 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 as opposed to the increase
for the year-to-date numbers is the 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 influenced these numbers.
? Overall, net income for the quarter ended
10.14%, from the same quarter last year. Conversely, net income for the
six-month period ended
same period in the prior year.
? Earnings per common share for quarter ended
share and
six months ended
respectively.
Liquidity and capital resources
Operating ? Net cash decreased$603,000 during the six months endedOctober 31, 2020 as compared to an increase of$339,000 during the corresponding period last year. ? Accounts receivable decreased$32,000 for the six months endedOctober 31, 2020 compared with a$486,000 decrease for the same period last year. The smaller 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 0.27% that were over 90 days atOctober 31, 2020 . ? Inventories increased$637,000 during the current six-month period as compared to a$583,000 increase last year. The bigger increase in the current year is primarily due to being prepared for the increase we have seen in sales. In addition, the Company is keeping more inventory on hand to reduce the likelihood of running into a shortage on some major raw materials, such as we experienced last year. ? Prepaid expenses saw a$73,000 decrease for the current six months, primarily due to less prepayment of raw materials and running through some of our prepaid agreements without needing to renew them. The prior six months showed a$271,000 increase in prepaid expenses. ? Accounts payable shows an increase for the current six-month period of$28,000 while it shows a decrease for the prior six-month periods of$36,000 . 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 decreased$104,000 for the current six-month period as compared to an$11,000 increase for the six-month period endedOctober 31, 2019 . The difference in the amounts is primarily due to timing issues. ? Income tax payable increased$376,000 for the current six-month period, compared to having a decrease in income tax overpayment for the six-months endedOctober 31, 2019 . The current increase is largely due to having increased sales and income and not having income tax estimates large enough. Also, since the Company was notified that the PPP loan was forgiven, the forgiveness amount was included in the income tax expense calculation. Investing ? As for our investment activities, the Company purchased$361,000 of property and equipment during the current six-month period. In comparison,$179,000 was spent on purchases of property and equipment during the corresponding six months last year. ? The Company continues to purchase marketable securities, which include municipal bonds and quality stocks. During the six-month period endedOctober 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 six-month period endedOctober 31, 2020 was$186,000 compared to$250,000 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. The COVID-19 pandemic has had a negative impact on the performance of the stock market, which has affected the real and unrealized gains/losses. Management believes that more realized losses were recorded when investments were sold and more write downs had to be recorded. Financing ? OnApril 15, 2020 , the Company received loan proceeds of approximately$950,000 fromFirsTier Bank , pursuant to the Paycheck Protection Program under Division A, Title I of the CARES Act, which was enactedMarch 27, 2020 . Please refer to Note 8 for more information about the loan. In accordance with the terms of the loan, the Company used the proceeds for qualified operating expenses. As ofDecember 3, 2020 , the liability of this loan has been completely forgiven. ? The Company continues to purchase back its common stock when the opportunity arises. For the six-month period endedOctober 31, 2020 , the Company purchased$1,000 worth of treasury stock, in comparison to$54,000 repurchased in the corresponding six-month period last year. ? The company declared a dividend of$0.42 per share of common stock onSeptember 30, 2020 , which was paid out during the second quarter. This is a slight increase to the dividend of$0.40 , which was declared and paid during the second fiscal quarter last year. The following is a list of ratios to help analyzeGeorge Risk Industries' performance: As of October 31, 2020 October 31, 2019 Working capital (current assets - current liabilities)$ 38,744,000 $ 37,805,000 Current ratio (current assets / current liabilities) 10.901 16.564 Quick ratio ((cash + investments + AR) / current liabilities) 9.317 14.333 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:
? 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 we are currently waiting on component parts to begin
production and field 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.
? 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.
? In the high security realm, the Company has introduced the 2707 Series which is
a triple high biased magnetic reed contact and available in SPDT and DPDT
models. These contacts are resistant to magnetic tamper and defeat. They are
used in applications such as airports, biotechnology labs, manufacturing
plants, banks, military bases, and energy-generation facilities.
? The 3045 Panic Switch contains screw terminals and uses an actuating lever
which can be triggered with only the tip of the finger. It can be installed
under a counter or desk or any similar place. The 3045CT uses 12' extreme
temperature rated wire for installation in refrigerators and freezers. Both
models have a latching LED indicating when the switch is activated and
automatically resets when the lever is closed and is fully re-armed. Latching
LED and UL Listed versions will follow.
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.
Recently Issued Accounting Pronouncements
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In
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There are no other new accounting pronouncements that are expected to have a significant impact on our financial statements.
GEORGE RISK INDUSTRIES, INC. PART I. FINANCIAL INFORMATION
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