NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
OCTOBER
31, 2022
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 complete 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, 2022 annual report on Form 10-K. In the opinion of management, all adjustments, consisting only of normal recurring 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.
Accounting
Estimates—The preparation of these financial statements requires the use of estimates and assumptions including the carrying
value of assets. The estimates and assumptions result in approximate rather than exact amounts.
Significant
Accounting Policies — The significant accounting policies used in preparation of these condensed consolidated financial statements
are disclosed in our Annual Report, and there have been no changes to the Company’s significant accounting policies during the
six months ended October 31, 2022.
There
are no new accounting pronouncements that are expected to have a significant impact on our financial statements.
Note
2 Investments
The
Company has investments in publicly traded equity securities, state and municipal debt securities, real estate investment trusts, and
money markets. The investments in debt securities, which include municipal bonds and bond funds, mature between August 2023 and September
2042. The Company uses the average cost method to determine the cost of equity securities sold with any unrealized gains or losses reported
in the respective period’s earnings. Unrealized gains and losses on debt securities are excluded from earnings and reported separately
as a component of stockholder’s equity. Dividend and interest income are reported as earned.
As
of October 31, 2022 and April 30, 2022, investments consisted of the following:
Schedule of Investments
| |
| | |
Gross | | |
Gross | | |
| |
Investments at | |
Cost | | |
Unrealized | | |
Unrealized | | |
Fair | |
October 31, 2022 | |
Basis | | |
Gains | | |
Losses | | |
Value | |
Municipal bonds | |
$ | 5,515,000 | | |
$ | 35,000 | | |
$ | (397,000 | ) | |
$ | 5,153,000 | |
REITs | |
| 93,000 | | |
| — | | |
| (15,000 | ) | |
| 78,000 | |
Equity securities | |
| 18,107,000 | | |
| 6,178,000 | | |
| (900,000 | ) | |
| 23,385,000 | |
Money markets and CDs | |
| 992,000 | | |
| — | | |
| — | | |
| 992,000 | |
Total | |
$ | 24,707,000 | | |
$ | 6,213,000 | | |
$ | (1,312,000 | ) | |
$ | 29,608,000 | |
| |
| | |
Gross | | |
Gross | | |
| |
Investments at | |
Cost | | |
Unrealized | | |
Unrealized | | |
Fair | |
April 30, 2022 | |
Basis | | |
Gains | | |
Losses | | |
Value | |
Municipal bonds | |
$ | 5,625,000 | | |
$ | 41,000 | | |
$ | (229,000 | ) | |
$ | 5,437,000 | |
REITs | |
| 131,000 | | |
| 16,000 | | |
| (3,000 | ) | |
| 144,000 | |
Equity securities | |
| 18,322,000 | | |
| 6,921,000 | | |
| (473,000 | ) | |
| 24,770,000 | |
Money markets and CDs | |
| 628,000 | | |
| — | | |
| — | | |
| 628,000 | |
Total | |
$ | 24,706,000 | | |
$ | 6,978,000 | | |
$ | (705,000 | ) | |
$ | 30,979,000 | |
Marketable
securities that are classified as equity securities are carried at fair value on the balance sheets with changes in fair value recorded
as an unrealized gain or (loss) in the statements of income in the period of the change. Upon the disposition of a marketable security,
the Company records a realized gain or (loss) on the Company’s statements of income.
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, there were no impairment losses recorded for either of
the quarter or the six months ended October 31, 2022 and 2021.
The
Company’s investments are actively traded in the stock and bond markets. Therefore, either a realized gain or loss is recorded
when a sale happens. For the quarter ended October 31, 2022 the Company had sales of equity securities which yielded gross realized gains
of $89,000 and gross realized losses of $187,000. For the same period, sales of debt securities did not yield any gross realized gains,
but gross realized losses of $12,000 were recorded. As for the six-months ended October 31, 2022 the Company had sales of equity securities
which yielded gross realized gains of $285,000 and gross realized losses of $453,000. For the same six-month period, sales of debt securities
did not yield any gross realized gains, but gross realized losses of $41,000 were recorded. During the quarter ending October 31, 2021,
the Company recorded gross realized gains and losses on equity securities of $106,000 and $26,000, respectively, while sales of debt
securities did not yield any gross realized gains or losses. During the six-months ending October 31, 2021, the Company recorded gross
realized gains and losses on equity securities of $343,000 and $33,000, respectively, while sales of debt securities did not yield any
gross realized gains, but gross realized losses of $10,000 were recorded. The gross realized loss numbers include the impaired figures
listed in the previous paragraph.
The
following table shows the investments with unrealized losses that are not deemed to be “other-than-temporarily impaired”,
aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at
October 31, 2022 and April 30, 2022, respectively.
Unrealized
Loss Breakdown by Investment Type at October 31, 2022
Schedule of Unrealized Loss Breakdown by Investment
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
Less than 12 months | | |
12 months or greater | | |
Total | |
Description | |
Fair Value | | |
Unrealized Loss | | |
Fair Value | | |
Unrealized Loss | | |
Fair Value | | |
Unrealized Loss | |
Municipal bonds | |
$ | 4,423,000 | | |
$ | (305,000 | ) | |
$ | 458,000 | | |
$ | (92,000 | ) | |
$ | 4,881,000 | | |
$ | (397,000 | ) |
REITs | |
| 53,000 | | |
| (12,000 | ) | |
| 25,000 | | |
| (3,000 | ) | |
| 78,000 | | |
| (15,000 | ) |
Equity securities | |
| 5,383,000 | | |
| (813,000 | ) | |
| 345,000 | | |
| (87,000 | ) | |
| 5,728,000 | | |
| (900,000 | ) |
Total | |
$ | 9,859,000 | | |
$ | (1,130,000 | ) | |
$ | 828,000 | | |
$ | (182,000 | ) | |
$ | 10,687,000 | | |
$ | (1,312,000 | ) |
Unrealized
Loss Breakdown by Investment Type at April 30, 2022
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
Less than 12 months | | |
12 months or greater | | |
Total | |
Description | |
Fair Value | | |
Unrealized Loss | | |
Fair Value | | |
Unrealized Loss | | |
Fair Value | | |
Unrealized Loss | |
Municipal bonds | |
$ | 4,420,000 | | |
$ | (142,000 | ) | |
$ | 539,000 | | |
$ | (87,000 | ) | |
$ | 4,959,000 | | |
$ | (229,000 | ) |
REITs | |
| 18,000 | | |
| (1,000 | ) | |
| 26,000 | | |
| (2,000 | ) | |
| 44,000 | | |
| (3,000 | ) |
Equity securities | |
| 4,157,000 | | |
| (424,000 | ) | |
| 274,000 | | |
| (49,000 | ) | |
| 4,431,000 | | |
| (473,000 | ) |
Total | |
$ | 8,595,000 | | |
$ | (567,000 | ) | |
$ | 839,000 | | |
$ | (138,000 | ) | |
$ | 9,434,000 | | |
$ | (705,000 | ) |
Municipal
Bonds
The
unrealized losses on the Company’s investments in municipal bonds were caused by interest rate increases. The contractual terms
of these investments 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 October 31, 2022 and April 30, 2022
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 on to these investments for an extended period, the Company does not consider these investments to be other-than-temporarily
impaired at October 31, 2022 and April 30, 2022.
Note
3 Inventories
Inventories
at October 31, 2022 and April 30, 2022 consisted of the following:
Schedule of Inventories
| |
| | | |
| | |
| |
October 31, | | |
April 30, | |
| |
2022 | | |
2022 | |
| |
| | |
| |
Raw materials | |
$ | 8,347,000 | | |
$ | 6,772,000 | |
Work in process | |
| 618,000 | | |
| 618,000 | |
Finished Goods | |
| 1,017,000 | | |
| 838,000 | |
Inventory gross | |
| 9,982,000 | | |
| 8,228,000 | |
Less: allowance for obsolete inventory | |
| (340,000 | ) | |
| (288,000 | ) |
Inventories, net | |
$ | 9,642,000 | | |
$ | 7,940,000 | |
Note
4 Business Segments
The
following is financial information relating to industry segments:
Schedule of Financial Information Relating to Industry Segments
| |
| | | |
| | | |
| | | |
| | |
| |
Three months | | |
Three months | | |
Six months | | |
Six months | |
| |
ended | | |
ended | | |
ended | | |
ended | |
| |
Oct 31, 2022 | | |
Oct 31, 2021 | | |
Oct 31, 2022 | | |
Oct 31, 2021 | |
Net revenue: | |
| | | |
| | | |
| | | |
| | |
Security alarm products | |
$ | 4,864,000 | | |
$ | 4,546,000 | | |
$ | 9,367,000 | | |
$ | 8,803,000 | |
Cable & wiring tools | |
| 591,000 | | |
| 518,000 | | |
| 1,074,000 | | |
| 1,056,000 | |
Other products | |
| 162,000 | | |
| 180,000 | | |
| 386,000 | | |
| 340,000 | |
Total net revenue | |
$ | 5,617,000 | | |
$ | 5,244,000 | | |
$ | 10,827,000 | | |
$ | 10,199,000 | |
| |
| | | |
| | | |
| | | |
| | |
Income from operations: | |
| | | |
| | | |
| | | |
| | |
Security alarm products | |
$ | 1,309,000 | | |
$ | 1,229,000 | | |
$ | 2,577,000 | | |
$ | 2,550,000 | |
Cable & wiring tools | |
| 150,000 | | |
| 147,000 | | |
| 296,000 | | |
| 306,000 | |
Other products | |
| 54,000 | | |
| 48,000 | | |
| 106,000 | | |
| 98,000 | |
Total income from operations | |
$ | 1,513,000 | | |
$ | 1,424,000 | | |
$ | 2,979,000 | | |
$ | 2,954,000 | |
| |
| | | |
| | | |
| | | |
| | |
Depreciation and amortization: | |
| | | |
| | | |
| | | |
| | |
Security alarm products | |
$ | 47,000 | | |
$ | 39,000 | | |
$ | 95,000 | | |
$ | 74,000 | |
Cable & wiring tools | |
| 31,000 | | |
| 31,000 | | |
| 62,000 | | |
| 62,000 | |
Other products | |
| 18,000 | | |
| 19,000 | | |
| 36,000 | | |
| 42,000 | |
Corporate general | |
| 15,000 | | |
| 16,000 | | |
| 26,000 | | |
| 35,000 | |
Total depreciation and amortization | |
$ | 111,000 | | |
$ | 105,000 | | |
$ | 219,000 | | |
$ | 213,000 | |
| |
| | | |
| | | |
| | | |
| | |
Capital expenditures: | |
| | | |
| | | |
| | | |
| | |
Security alarm products | |
$ | — | | |
$ | — | | |
$ | 74,000 | | |
$ | 40,000 | |
Cable & wiring tools | |
| — | | |
| — | | |
| — | | |
| — | |
Other products | |
| 135,000 | | |
| — | | |
| 135,000 | | |
| — | |
Corporate general | |
| — | | |
| — | | |
| — | | |
| — | |
Total capital expenditures | |
$ | 135,000 | | |
$ | — | | |
$ | 209,000 | | |
$ | 40,000 | |
| |
| | | |
| | |
|
October 31, 2022 | |
April 30, 2022 |
Identifiable assets: | |
| | | |
| | |
Security alarm products | |
$ | 12,996,000 | | |
$ | 11,537,000 | |
Cable & wiring tools | |
| 2,568,000 | | |
| 2,509,000 | |
Other products | |
| 872,000 | | |
| 732,000 | |
Corporate general | |
| 35,674,000 | | |
| 39,253,000 | |
Total assets | |
$ | 52,110,000 | | |
$ | 54,031,000 | |
Note
5 Earnings per Share
Basic
and diluted earnings per share, assuming convertible preferred stock was converted for each period presented, are:
Schedule
of Basic and Diluted Earnings Per Share
| |
For the three months ended October 31, 2022 | |
| |
Income | | |
Shares | | |
Per-Share | |
| |
(Numerator) | | |
(Denominator) | | |
Amount | |
Net income | |
$ | 607,000 | | |
| | | |
| | |
Basic EPS | |
$ | 607,000 | | |
| 4,930,964 | | |
$ | .12 | |
Effect of dilutive Convertible Preferred Stock | |
| – | | |
| 20,500 | | |
| — | |
Diluted EPS | |
$ | 607,000 | | |
| 4,951,464 | | |
$ | .12 | |
| |
For the three months ended October 31, 2021 | |
| |
Income | | |
Shares | | |
Per-Share | |
| |
(Numerator) | | |
(Denominator) | | |
Amount | |
Net income | |
$ | 1,688,000 | | |
| | | |
| | |
Basic EPS | |
$ | 1,688,000 | | |
| 4,945,130 | | |
$ | .34 | |
Effect of dilutive Convertible Preferred Stock | |
| – | | |
| 20,500 | | |
| — | |
Diluted EPS | |
$ | 1,688,000 | | |
| 4,965,630 | | |
$ | .34 | |
| |
For the six months ended October 31, 2022 | |
| |
Income | | |
Shares | | |
Per-Share | |
| |
(Numerator) | | |
(Denominator) | | |
Amount | |
Net income | |
$ | 1,659,000 | | |
| | | |
| | |
Basic EPS | |
$ | 1,659,000 | | |
| 4,930,993 | | |
$ | .34 | |
Effect of dilutive Convertible Preferred Stock | |
| – | | |
| 20,500 | | |
| — | |
Diluted EPS | |
$ | 1,659,000 | | |
| 4,951,493 | | |
$ | .34 | |
| |
| | | |
| | | |
| | |
| |
For the six months ended October 31, 2021 | |
| |
Income | | |
Shares | | |
Per-Share | |
| |
(Numerator) | | |
(Denominator) | | |
Amount | |
Net income | |
$ | 3,434,000 | | |
| | | |
| | |
Basic EPS | |
$ | 3,434,000 | | |
| 4,945,795 | | |
$ | .69 | |
Effect of dilutive Convertible Preferred Stock | |
| – | | |
| 20,500 | | |
| — | |
Diluted EPS | |
$ | 3,434,000 | | |
| 4,966,295 | | |
$ | .69 | |
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 Company. The Plan is intended to
be qualified under Section 401(k) of the Internal Revenue Code of 1986, as amended. It is funded by voluntary pre-tax and Roth (taxable)
contributions from eligible employees who may contribute a percentage of their eligible compensation, limited and subject to statutory
limits. Employees are eligible to participate in the Plan when they have attained the age of 21 and completed one thousand hours of service
in any plan year with the Company. Upon leaving the Company, each participant is 100% vested with respect to the participants’
contributions while the Company’s matching contributions are vested over a six-year period in accordance with the Plan document.
Contributions are invested, as directed by the participant, in investment funds available under the Plan. Matching contributions by the
Company of approximately $13,000 and $15,000 were paid during each quarter ending October 31, 2022 and 2021, respectively. Likewise,
the Company paid matching contributions of approximately $29,000 and $33,000 during each six-month period ending October 31, 2022 and
2021, respectively.
Note
7 Fair Value Measurements
The
carrying value of the Company’s cash and cash equivalents, accounts receivable and accounts payable approximate their fair value
due to their short-term nature. The fair value of our investments is determined utilizing market-based information. Fair value is 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 inherent 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 measurement) and
the lowest priority to unobservable 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 instruments traded in active markets. |
|
|
|
|
Level
2 |
Valuation
is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets
that are not active, and model-based valuation techniques for which all significant 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. |
Investments
and Marketable Securities
As
of October 31, 2022 and April 30, 2022, our investments consisted of money markets, publicly traded equity securities, real estate investment
trusts (REITs) as well as certain state and municipal debt securities. The 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 bonds and REITs, the inputs are recorded as Level 2.
Fair
Value Hierarchy
The
following table sets 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.
Schedule of Assets Measured at Fair Value on Recurring Basis
| |
| | | |
| | | |
| | | |
| | |
| |
Assets Measured at Fair Value on a Recurring Basis as of
October 31, 2022 | |
| |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
Assets: | |
| | | |
| | | |
| | | |
| | |
Municipal Bonds | |
$ | — | | |
$ | 5,153,000 | | |
$ | — | | |
$ | 5,153,000 | |
REITs | |
| — | | |
| 78,000 | | |
| — | | |
| 78,000 | |
Equity Securities | |
| 23,385,000 | | |
| — | | |
| — | | |
| 23,385,000 | |
Money Markets and CDs | |
| 992,000 | | |
| — | | |
| — | | |
| 992,000 | |
Total fair value of assets measured on a recurring basis | |
$ | 24,377,000 | | |
$ | 5,231,000 | | |
$ | — | | |
$ | 29,608,000 | |
| |
| | | |
| | | |
| | | |
| | |
| |
Assets Measured at Fair Value on a Recurring Basis as of
April 30, 2022 | |
| |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
Assets: | |
| | | |
| | | |
| | | |
| | |
Municipal Bonds | |
$ | — | | |
$ | 5,437,000 | | |
$ | — | | |
$ | 5,437,000 | |
REITs | |
| — | | |
| 144,000 | | |
| — | | |
| 144,000 | |
Equity Securities | |
| 24,770,000 | | |
| — | | |
| — | | |
| 24,770,000 | |
Money Markets and CDs | |
| 628,000 | | |
| — | | |
| — | | |
| 628,000 | |
Total fair value of assets measured on a recurring basis | |
$ | 25,398,000 | | |
$ | 5,581,000 | | |
$ | — | | |
$ | 30,979,000 | |
Note
8 Subsequent Events
None
GEORGE
RISK INDUSTRIES, INC.
PART
I. FINANCIAL INFORMATION