GEORGE RISK INDUSTRIES, INC. 10-Q

ITEM 1: Financial Statements The unaudited financial statements for the three-month period ended July 31, 2021 are attached hereto. 2 GEORGE RISK INDUSTRIES, INC. CONDENSED BALANCE SHEETS July 31, 2021 April 30, 2021 (unaudited) ASSETS Current Assets: Cash and cash equivalents $ 8,331,000 $ 7,326,000 Investments and securities, at fair value 34,085,000 33,337,000 Accounts receivable: Trade, net of $ 15,622 and $ 9,947 doubtful account allowance 3,652,000 3,812,000 Other 13,000 16,000 Inventories, net 6,166,000 5,622,000 Prepaid expenses 554,000 405,000 Total Current Assets 52,801,000 50,518,000 Property and Equipment, net, at cost 1,668,000 1,704,000 Other Assets Investment in Limited Land Partnership, at cost 320,000 320,000 Projects in process 240,000 200,000 Other 7,000 — Total Other Assets 567,000 520,000 Intangible assets, net 1,363,000 1,394,000 TOTAL ASSETS $ 56,399,000 $ 54,136,000 See accompanying notes to the condensed financial statements 3 GEORGE RISK INDUSTRIES, INC. CONDENSED BALANCE SHEETS (continued) July 31, 2021 April 30, 2021 (unaudited) LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Accounts payable, trade $ 241,000 $ 477,000 Dividends payable 2,073,000 2,080,000 Accrued expenses: Payroll and related expenses 455,000 359,000 Property taxes 3,000 — Income tax payable 628,000 81,000 Total Current Liabilities 3,400,000 2,997,000 Long-Term Liabilities Deferred income taxes 2,842,000 2,735,000 Total Long-Term Liabilities 2,842,000 2,735,000 Total Liabilities 6,242,000 5,732,000 Commitments and contingencies — — 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 1,934,000 1,934,000 Accumulated other comprehensive income 115,000 108,000 Retained earnings 51,495,000 49,749,000 Less: treasury stock, 3,556,425 and 3,556,412 shares, at cost ( 4,336,000 ) ( 4,336,000 ) Total Stockholders’ Equity 50,157,000 48,404,000 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 56,399,000 $ 54,136,000 See accompanying notes to the condensed financial statements 4 GEORGE RISK INDUSTRIES, INC. CONDENSED INCOME STATEMENTS FOR THE THREE MONTHS ENDED JULY 31, 2021 AND 2020 (Unaudited) July 31, 2021 July 31, 2020 Net Sales $ 4,955,000 $ 4,047,000 Less: Cost of Goods Sold ( 2,318,000 ) ( 1,952,000 ) Gross Profit 2,637,000 2,095,000 Operating Expenses: General and Administrative 349,000 313,000 Sales 740,000 567,000 Engineering 18,000 29,000 Total Operating Expenses 1,107,000 909,000 Income From Operations 1,530,000 1,186,000 Other Income (Expense) Other 1,000 12,000 Dividend and Interest Income 176,000 156,000 Unrealized gain (loss) on equity securities 420,000 2,114,000 Gain (Loss) on Sale of Investments 220,000 ( 28,000 ) Total Other Income (Expense) 817,000 2,254,000 Income Before Provisions for Income Taxes 2,347,000 3,440,000 Provisions for Income Taxes Current Expense 498,000 349,000 Deferred tax expense 103,000 599,000 Total Income Tax Expense 601,000 948,000 Net Income $ 1,746,000 $ 2,492,000 Basic Earnings Per Share of Common Stock $ 0.35 $ 0.50 Diluted Earnings Per Share of Common Stock $ 0.35 $ 0.50 Weighted Average Number of Common Shares Outstanding 4,946,460 4,949,927 Weighted Average Number of Shares Outstanding (Diluted) 4,966,960 4,970,427 See accompanying notes to the condensed financial statements 5 GEORGE RISK INDUSTRIES, INC. CONDENSED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED JULY 31, 2021 AND 2020 (Unaudited) July 31, 2021 July 31, 2020 Net Income $ 1,746,000 $ 2,492,000 Other Comprehensive Income, Net of Tax Unrealized gain on debt securities: Unrealized holding gains arising during period 11,000 149,000 Income tax expense related to other comprehensive income ( 4,000 ) ( 44,000 ) Other Comprehensive Income 7,000 105,000 Comprehensive Income $ 1,753,000 $ 2,597,000 See accompanying notes to the condensed financial statements 6 GEORGE RISK INDUSTRIES, INC. STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE THREE MONTHS ENDED JULY 31, 2021 and 2020 (Unaudited) Preferred Stock Common Stock Class A Shares Amount Shares Amount Balances, April 30, 2020 4,100 $ 99,000 8,502,881 $ 850,000 Purchases of common stock — — — — Purchases of common stock, shares — — — — Unrealized gain, net of tax effect — — — — Net Income — — — — Balances, July 31, 2020 4,100 $ 99,000 8,502,881 $ 850,000 Preferred Stock Common Stock Class A Shares Amount Shares Amount Balances, April 30, 2021 4,100 $ 99,000 8,502,881 $ 850,000 Balance 4,100 $ 99,000 8,502,881 $ 850,000 Purchases of common stock — — — — Unrealized gain, net of tax effect — — — — Net Income — — — — Balances, July 31, 2021 4,100 $ 99,000 8,502,881 $ 850,000 Balance 4,100 $ 99,000 8,502,881 $ 850,000 See accompanying notes to the condensed financial statements 7 GEORGE RISK INDUSTRIES, INC. STATEMENTS OF STOCKHOLDERS’ EQUITIY FOR THE THREE MONTHS ENDED JULY 31, 2021 and 2020 (Unaudited) Accumulated Treasury Stock Other Paid-In (Common Class A) Comprehensive Retained Capital Shares Amount Income Earnings Total Balances, April 30, 2020 $ 1,934,000 3,552,954 $ ( 4,301,000 ) $ ( 4,000 ) $ 41,006,000 $ 39,584,000 Purchases of common stock — — — — — — Unrealized gain, net of tax effect — — — 105,000 — 105,000 Net Income — — — — 2,492,000 2,492,000 Balances, July 31, 2020 $ 1,934,000 3,552,954 $ ( 4,301,000 ) $ 101,000 $ 43,498,000 $ 42,181,000 Accumulated Treasury Stock Other Paid-In (Common Class A) Comprehensive Retained Capital Shares Amount Income Earnings Total Balances, April 30, 2021 $ 1,934,000 3,556,412 $ ( 4,336,000 ) $ 108,000 $ 49,749,000 $ 48,404,000 Balances $ 1,934,000 3,556,412 $ ( 4,336,000 ) $ 108,000 $ 49,749,000 $ 48,404,000 Purchases of common stock — 13 — — — — Unrealized gain, net of tax effect — — — 7,000 — 7,000 Net Income — — — — 1,746,000 1,746,000 Balances, July 31, 2021 $ 1,934,000 3,556,425 $ ( 4,336,000 ) $ 115,000 $ 51,495,000 $ 50,157,000 Balances $ 1,934,000 3,556,425 $ ( 4,336,000 ) $ 115,000 $ 51,495,000 $ 50,157,000 See accompanying notes to the condensed financial statements 8 GEORGE RISK INDUSTRIES, INC. CONDENSED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED JULY 31, 2021 AND 2020 (Unaudited) July 31, 2021 July 31, 2020 Cash Flows from Operating Activities: Net Income $ 1,746,000 $ 2,492,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 107,000 86,000 (Gain) loss on sale of investments ( 220,000 ) — Impairments on investments — 27,000 Unrealized (gain) loss on equity securities ( 420,000 ) ( 2,114,000 ) Reserve for bad debts 6,000 ( 5,000 ) Reserve for obsolete inventory 5,000 1,000 Deferred income taxes 103,000 599,000 Changes in assets and liabilities: (Increase) decrease in: Accounts receivable 154,000 49,000 Inventories ( 549,000 ) ( 405,000 ) Prepaid expenses ( 196,000 ) 94,000 Employee receivables 2,000 ( 1,000 ) Increase (decrease) in: Accounts payable ( 236,000 ) 117,000 Accrued expenses 99,000 ( 61,000 ) Income tax payable 547,000 346,000 Net cash from operating activities 1,148,000 1,225,000 Cash Flows From Investing Activities: (Purchase) of property and equipment ( 40,000 ) ( 95,000 ) Proceeds from sale of marketable securities 2,000 14,000 (Purchase) of marketable securities ( 98,000 ) ( 111,000 ) Net cash from investing activities ( 136,000 ) ( 192,000 ) Cash Flows From Financing Activities: Dividends paid ( 7,000 ) — Net cash from financing activities ( 7,000 ) — Net Change in Cash and Cash Equivalents $ 1,005,000 $ 1,033,000 Cash and Cash Equivalents, beginning of period $ 7,326,000 $ 6,458,000 Cash and Cash Equivalents, end of period $ 8,331,000 $ 7,491,000 Supplemental Disclosure for Cash Flow Information: Cash payments for: Income taxes paid $ 0 $ 0 Interest paid $ 0 $ 0 Cash receipts for: Income taxes $ 43,000 $ 0 See accompanying notes to the condensed financial statements 9 GEORGE RISK INDUSTRIES, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS JULY 31, 2021 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, 2021 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. Recently Issued Accounting Pronouncements — In June 2016 the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326),” which was subsequently amended in February 2020 by ASU 2020-02, “Financial Instruments - Credit Losses (Topic 326) and Leases (Topic 842).” The amendments introduce an impairment model that is based on expected credit losses, rather than incurred losses, to estimate credit losses on certain types of financial instruments (e.g., loans and held-to-maturity securities), including certain off-balance sheet financial instruments (e.g., loan commitments). The expected credit losses should consider historical information, current information, and reasonable and supportable forecasts, including estimates of prepayments, over the contractual term. Financial instruments with similar risk characteristics may be grouped together when estimating expected credit losses. The update with amendment is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company does not believe this new guidance will have a material impact on its financial statements and will implement the disclosures related to this update beginning in 2023. In January 2020, the FASB issued ASU 2020-01, “Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions. ASU 2016-01 made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. ASU 2020-01 became effective for the Company in the first quarter of 2021. The adoption of this standard did not have any impact on the Company’s condensed financial statements. There are no other new accounting pronouncements that are expected to have a significant impact on our financial statements. 10 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 November 2021 and January 2044. 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 July 31, 2021 and April 30, 2021, investments consisted of the following: Schedule of Investments Gross Gross Investments at Cost Unrealized Unrealized Fair July 31, 2021 Basis Gains Losses Value Municipal bonds $ 5,861,000 $ 200,000 $ ( 34,000 ) $ 6,027,000 REITs 131,000 14,000 ( 6,000 ) 139,000 Equity securities 17,492,000 9,730,000 ( 92,000 ) 27,130,000 Money markets and CDs 789,000 — — 789,000 Total $ 24,273,000 $ 9,944,000 $ ( 132,000 ) $ 34,085,000 Gross Gross Investments at Cost Unrealized Unrealized Fair April 30, 2021 Basis Gains Losses Value Municipal bonds $ 5,854,000 $ 198,000 $ ( 43,000 ) $ 6,009,000 REITs 131,000 11,000 ( 5,000 ) 137,000 Equity securities 17,199,000 9,294,000 ( 74,000 ) 26,419,000 Money markets and CDs 772,000 — — 772,000 Total $ 23,956,000 $ 9,503,000 $ ( 122,000 ) $ 33,337,000 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, no impairment loss was recorded for the quarter ended July 31, 2021. For the prior quarter ended July 31, 2020, an impairment loss of $ 27,000 was recorded. 11 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 July 31, 2021 the Company had sales of equity securities which yielded gross realized gains of $ 238,000 and gross realized losses of $ 8,000 . For the same period, sales of debt securities did not yield any gross realized gains, but gross realized losses of $ 10,000 were recorded. During the quarter ending July 31, 2020, the Company recorded gross realized gains and losses on equity securities of $ 102,000 and $ 126,000 , respectively, while sales of debt securities did not yield any gross realized gains, but gross realized losses of $ 4,000 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 July 31, 2021 and April 30, 2021, respectively. Unrealized Loss Breakdown by Investment Type at July 31, 2021 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 $ 355,000 $ ( 5,000 ) $ 279,000 $ ( 29,000 ) $ 634,000 $ ( 34,000 ) REITs — — 22,000 ( 6,000 ) 22,000 ( 6,000 ) Equity securities 526,000 ( 35,000 ) 499,000 ( 57,000 ) 1,025,000 ( 92,000 ) Total $ 881,000 $ ( 40,000 ) $ 800,000 $ ( 92,000 ) $ 1,681,000 $ ( 132,000 ) Unrealized Loss Breakdown by Investment Type at April 30, 2021 Less than 12 months 12 months or greater Total Description Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss Municipal bonds $ 390,000 $ ( 6,000 ) $ 365,000 $ ( 37,000 ) $ 755,000 $ ( 43,000 ) REITs — — 23,000 ( 5,000 ) 23,000 ( 5,000 ) Equity securities 340,000 ( 35,000 ) 377,000 ( 39,000 ) 717,000 ( 74,000 ) Total $ 730,000 $ ( 41,000 ) $ 765,000 $ ( 81,000 ) $ 1,495,000 $ ( 122,000 ) 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 July 31, 2021. 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 July 31, 2021. 12 Note 3: Inventories Inventories at July 31, 2021 and April 30, 2021 consisted of the following: Schedule of Inventories July 31, April 30, 2021 2021 Raw materials $ 5,030,000 $ 4,399,000 Work in process 574,000 457,000 Finished goods 742,000 768,000 Inventory in transit — 173,000 Inventory gross 6,346,000 5,797,000 Less: allowance for obsolete inventory ( 180,000 ) ( 175,000 ) Inventories, net $ 6,166,000 $ 5,622,000 13 Note 4: Business Segments The following is financial information relating to industry segments: Schedule of Financial Information Relating to Industry Segments July 31, 2021 2020 Net revenue: Security alarm products $ 4,257,000 $ 3,114,000 Cable & wiring tools 538,000 800,000 Other products 160,000 133,000 Total net revenue $ 4,955,000 $ 4,047,000 Income from operations: Security alarm products $ 1,315,000 $ 912,000 Cable & wiring tools 166,000 235,000 Other products 49,000 39,000 Total income from operations $ 1,530,000 $ 1,186,000 Depreciation and amortization: Security alarm products $ 35,000 $ 22,000 Cable & wiring tools 31,000 31,000 Other products 22,000 12,000 Corporate general 19,000 21,000 Total depreciation and amortization $ 107,000 $ 86,000 Capital expenditures: Security alarm products $ 40,000 $ 93,000 Cable & wiring tools — — Other products — 2,000 Corporate general — — Total capital expenditures $ 40,000 $ 95,000 July 31, 2021 April 30, 2021 Identifiable assets: Security alarm products $ 9,415,000 $ 8,955,000 Cable & wiring tools 2,428,000 2,534,000 Other products 646,000 667,000 Corporate general 43,910,000 41,980,000 Total assets $ 56,399,000 $ 54,136,000 14 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 July 31, 2021 Income Shares Per-Share (Numerator) (Denominator) Amount Net income $ 1,746,000 Basic EPS $ 1,746,000 4,946,460 $ .35 Effect of dilutive Convertible Preferred Stock – 20,500 — Diluted EPS $ 1,746,000 4,966,960 $ .35 For the three months ended July 31, 2020 Income Shares Per-Share (Numerator) (Denominator) Amount Net income $ 2,492,000 Basic EPS $ 2,492,000 4,949,927 $ .50 Effect of dilutive Convertible Preferred Stock – 20,500 — Diluted EPS $ 2,492,000 4,970,427 $ .50 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 of approximately $ 17,000 and $ 13,000 were paid in each of the quarters ending July 31, 2021 and 2020 respectively. 15 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 July 31, 2021, 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. 16 Schedule of Assets Measured at Fair Value on Recurring Basis Assets Measured at Fair Value on a Recurring Basis as of July 31, 2021 Level 1 Level 2 Level 3 Total Assets: Municipal Bonds $ — $ 6,027,000 $ — $ 6,027,000 REITs — 139,000 — 139,000 Equity Securities 27,130,000 — — 27,130,000 Money Markets and CDs 789,000 — — 789,000 Total fair value of assets measured on a recurring basis $ 27,919,000 $ 6,166,000 $ — $ 34,085,000 Assets Measured at Fair Value on a Recurring Basis as of April 30, 2021 Level 1 Level 2 Level 3 Total Assets: Municipal Bonds $ — $ 6,009,000 $ — $ 6,009,000 REITs — 137,000 — 137,000 Equity Securities 26,419,000 — — 26,419,000 Money Markets and CDs 772,000 — — 772,000 Total fair value of assets measured on a recurring basis $ 27,191,000 $ 6,146,000 $ — $ 33,337,000 Note 8 Subsequent Events None 17 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 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 current 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 April 30, 2021. Executive Summary The Company’s performance remained steady during the quarter ended July 31, 2021 as compared to the quarter ended July 31, 2020. Although sales have increased when comparing to the same quarter last year, overall net income is down because unrealized gains on investments aren’t as big as they were for the same quarter last year. The uptick in sales is direct result of the closure of a competitor at the end of calendar year 2019 and having the ability to continue working through the COVID-19 pandemic. As a result of the increased demand, the Company is experiencing a sizable back order log; however, management has been able to increase inventory. Management now intends to focus on ramping up production to meet customer’s needs in a timely manner. Opportunities include continuing to learn and grow with our computer system and to continue looking at businesses that might be a good fit to purchase. We also have new products that are scheduled to enter the marketplace by the end of the calendar year. Challenges in the coming months include continuing to get product out to customers in a timely manner and dealing with COVID-19 pandemic restrictions. Possible COVID-19 challenges include, but are not limited to, price increases and/or delays in the supply chain, reduced sales, workforce interruptions, and economic conditions impacting the stock market. Management continues to work at keeping operations flowing as efficient as possible with the hopes of getting the facilities running leaner and more profitable than ever before. Results of Operations ● Net sales for the quarter ended July 31, 2021 showed 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 $198,000 when 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, 2020 compared 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, 2021 was 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 $817,000 gain for the quarter ended July 31, 2021 as compared to a $2,254,000 gain for the quarter ended July 31, 2020. For the three months ended July 31, 2021, $420,000 of unrealized gains from equity securities were recorded, compared to the $2,114,000 of 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 $347,000 from $948,000 in the quarter ended July 31, 2020 to $601,000 for 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, 2021 was $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, 2021 were $0.35 per common share and $0.50 per common share for the quarter ended July 31, 2020. Liquidity and capital resources Operating ● Net cash increased $1,005,000 during the quarter ended July 31, 2021 as compared to an increase of $1,033,000 during the corresponding quarter last year. ● Accounts receivable decreased $154,000 for the quarter ending July 31, 2021 compared with a $49,000 decrease 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 $549,000 during the current quarter as compared to a $405,000 increase 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, 2021 there was a $196,000 increase in prepaid expenses compared to a decrease of $94,000 for 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 $236,000 for the quarter ended July 31, 2021 compared to an increase of $117,000 for 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 $99,000 for the current quarter as compared to a $61,000 decrease 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, 2021 increased $547,000, compared to a $346,000 increase 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 $40,000 of property and equipment during the current fiscal quarter. In comparison, $95,000 was 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, 2021 was $98,000 compared to $111,000 spent 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, 2021 and 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 $ 40,103,000 Current 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 perpetually work to develop enhancements to current product lines, develop new products which complement existing products, and look for products that are well suited to our distribution network and manufacturing capabilities. Items currently in 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 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 In June 2016 the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326),” which was subsequently amended in February 2020 by ASU 2020-02, “Financial Instruments - Credit Losses (Topic 326) and Leases (Topic 842).” The amendments introduce an impairment model that is based on expected credit losses, rather than incurred losses, to estimate credit losses on certain types of financial instruments (e.g., loans and held-to-maturity securities), including certain off-balance sheet financial instruments (e.g., loan commitments). The expected credit losses should consider historical information, current information, and reasonable and supportable forecasts, including estimates of prepayments, over the contractual term. Financial instruments with similar risk characteristics may be grouped together when estimating expected credit losses. The update with amendment is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company does not believe this new guidance will have a material impact on its financial statements and will implement the disclosures related to this update beginning in 2023. In January 2020, the FASB issued ASU 2020-01, “Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions. ASU 2016-01 made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. ASU 2020-01 became effective for the Company in the first quarter of 2021. The adoption of this standard did not have any impact on the Company’s condensed financial statements. There are no other new accounting pronouncements that are expected to have a significant impact on our financial statements. 22 GEORGE RISK INDUSTRIES, INC. PART I. FINANCIAL INFORMATION Item 3. Quantitative and Qualitative Disclosures About Market Risk This disclosure does not apply.