GEORGE RISK INDUSTRIES, INC. 10-K

Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations Executive Overview George Risk Industries, Inc. (“GRI” or the “Company”) is a diversified manufacturer of electronic components, encompassing the security industry’s widest variety of door and window contact switches, environmental products, wire and cable installation tools, proximity switches and custom keyboards. The security products division comprises the largest portion of GRI sales and products are sold worldwide through distributors, who in turn sell these products to security installation companies. These products are used for residential, commercial, industrial and government installations. International sales accounted for approximately 10.3% of revenues for fiscal year 2024 and 11.1% for 2023. GRI is known for its quality American made products, top-notch customer service and the willingness to work with customers on their special applications. GRI owns and operates its main manufacturing plant and offices in Kimball, Nebraska with a satellite plant 40 miles away in Gering, Nebraska. The Company has substantial marketable securities holdings, and these holdings have a material impact on the financial results. For the year ending April 30, 2024, net other income accounted for 39.08% of income before income taxes. In comparison, for the year ending April 30, 2023, net other income accounted for 12.98% of the income before income taxes. Management’s philosophy behind having holdings in marketable securities is to keep the money working and to gain interest on the cash that is not needed to be put back into the business. Over the years, the investments have kept the earnings per share up when the results from operations have not fared as well. Management is always open to the possibility of acquiring a business that would complement our existing operations, such as the October 2017 purchase of substantially all of the assets from Labor Saving Devices, Inc. (“LSDI”) and Roy Bowling. There are no known seasonal trends with any of GRI’s products, since the Company mostly sells to distributors and original equipment manufacturers. The products are tied to the housing industry and will fluctuate with building trends. Liquidity and Capital Resources Operating Net cash increased by $2,169,000 during the year ended April 30, 2024, compared to a decrease of $1,135,000 during the year ended April 30, 2023. Accounts receivable increased by $417,000 during the current fiscal year compared to a $627,000 decrease in the prior fiscal year. The current fiscal year increase in cash flow from accounts receivable is the result of a combination of slightly faster collection of accounts receivable and increased sales. The average collection time in days for the year ended April 30, 2024, is 66 days, compared to 65 days for the year ended April 30, 2023. As of April 30, 2024, 68.12% of receivables were aged less than 60 days (“Current”) and 8.53% were aged over 90 days. In comparison, 79.90% of the receivables were considered Current and 4.95% were over 90 days past due at April 30, 2023. 6 Inventories increased by $93,000 for the year ended April 30, 2024, compared to an increase of $3,604,000 for the year ended April 30, 2023. The smaller current fiscal year increase is a result of having slightly less raw materials on hand and an increase in raw material costs. In turn, with material and labor costs rising, the work in process inventory has increased while the finished goods inventory has decreased since there were more sales than the previous fiscal year. Prepaid expenses and other assets decreased by $418,000 and $761,000 in the current and prior fiscal years, respectively. The current fiscal year’s decrease is due to not having as many prepayments for raw materials than at the last fiscal year-end and not having to renew multi-year subscriptions in the current fiscal year. For the year ended April 30, 2024, accounts payable decreased by $254,000 compared to an increase of $226,000 for the year ended April 30, 2023. The change in cash with regards to accounts payable is largely based on timing. Payables are paid within terms and fluctuate based primarily on inventory needs for production. Accrued expenses increased $41,000 for the year ended April 30, 2024, due to having more accrued payroll calculated as compared to the year ended April 30, 2023. The Company had an increase in cash flow towards income tax payable of $508,000 for the year ended April 30, 2024, compared to a decrease of $680,000 in cash flow towards income tax receivable for the year ended April 30, 2023. The current fiscal year income tax payable is the result of timing between recording and paying the income tax liability. The receivable in the 2023 fiscal year was due to an overpayment of tax liability. Investing As for investment activities, $378,000 was spent on purchases of property and equipment during the year ended April 30, 2024, compared to $548,000 during the year ended April 30, 2023. These capitalized costs mainly consisted of purchases of machinery and equipment and making capital improvements. Additionally, the Company continues to purchase marketable securities, which include municipal bonds and quality stocks. Cash spent on purchases of marketable securities for the year ended April 30, 2024, was $699,000 versus $764,000 spent for the year ended April 30, 2023. Conversely, net proceeds from the sale of marketable securities were $527,000 and $25,000 at April 30, 2024 and 2023, respectively. The Company uses “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 Cash used in financing activities consists of two items. First, for the year ended April 30, 2024, $2,915,000 was spent on the payment of dividends. The Company declared a dividend of $0.65 per share of common stock on September 30, 2023, for the current fiscal year, while a $0.60 per share of common stock dividend was declared on September 30, 2022 and issued in the prior fiscal year. Second, the Company continues to purchase back its Class A common stock when the opportunity arises. For the year ended April 30, 2024, the Company purchased $391,000 of treasury stock and $7,000 was bought back for the year ended April 30, 2023. In an effort to repurchase its Class A Common Stock, the Company has been actively searching for stockholders that have been “lost” over the years. As of April 30, 2024, working capital showed a year-over -year increase of 10.04%. The Company measures liquidity using the quick ratio, which is the ratio of cash, securities and accounts receivables to current obligations. The Company’s quick ratio increased to 12.118 for the year ended April 30, 2024, compared to 11.135 for the year ended April 30, 2023. 7 Results of Operations GRI completed the year ending April 30, 2024 with a net profit of 34.72% of net sales. Net sales for the current fiscal year were $21,767,000, up 8.95% over the previous fiscal year. The increase in sales is a result of a strengthening economy in which inflation leveled up as compared to the previous year. Cost of goods sold was 50.2% of net sales for the year ended April 30, 2024, and 53.08% for the same period last year. Management aims to keep the cost of goods sold percentage within 50% and was just slightly over that percentage for the current year. Management strives to be as efficient as possible as wages and material costs continue to increase. Management offset some of these added expenses by implementing a 2.5% price increase effective January 1, 2024, and a price increase of 10% that was effective on January 1, 2023. Operating expenses were 20.91% of net sales for the year ended April 30, 2024, compared to 21.59% for the year ended April 30 ,2023. Management’s goal is to keep the operating expenses around 25% or less of net sales, so the goal has been met for the current fiscal year. Income from operations for the year ended April 30, 2024 was $6,289,000, which is a 24.29% increase from the year ended April 30, 2023, which had income from operations of $5,060,000. Other income and expense results for the year ended April 30, 2024, produced net other income of $4,034,000, compared to a net other income of $755,000 for the year ending April 30, 2023. Dividend and interest income was $1,116,000 for the current fiscal year, which is up 4.49% over the $1,068,000 dividend and interest income for the prior fiscal year. Investments in marketable securities are presented at fair value and an unrealized gain or loss is recorded within the statements of operations, a non-cash entry. As a result, an unrealized gain of $2,771,000 was recorded for the year ending April 30, 2024, and an unrealized loss of $31,000 was recorded for the year ending April 30, 2023. Net gain on the sale of investments for the current fiscal year was $148,000, which is a 150.86% increase over the net loss on the sale of investments of $291,000 for the prior fiscal year. Net income for the year ended April 30, 2024 was $7,558,000, which is up 58.88% from the $4,757,000 net income for the year ended April 30, 2023. Basic earnings per common share (“EPS”) for the year ended April 30, 2024, was $1.54 per share, and the diluted earnings per common share for the same period was $1.53. Basic and diluted EPS for the year ended April 30, 2023, was $0.96 per share. Management is hopeful that sales will continue to increase for the fiscal year ending April 30, 2025. Opportunities for Management include focusing on finding ways to get our products out to our customers in a timelier manner. One way we are doing this is by looking into more automation. Challenges facing Management include obtaining certain raw materials and the increased costs of most raw materials because of inflation. The Company also struggles to get enough workers to fill production needs. Our Security sales division, which is our largest sales generator, is directly tied to the housing industry and we normally experience the same fluctuations. We are always researching and developing new products that will help our sales increase. Although there were not any new products to hit the market during fiscal year 2024, we are confident that there will be more released soon, and we are searching for products that complement our current offerings. 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. 8 New product development The GRI Engineering department continues to develop enhancements to our existing products as well as to develop new products that will continue to secure our position in the industry. 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. 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. Research is being done on updating our small profile glass break detector, in addition to looking at development of programmable temperature and humidity sensors with built-in hysteresis. An expansion of the GR3045 panic switch is in the works to include single pull, double throw (SPDT) versions, latching, and non-latching with LED indicator lights. A miniature profile overhead door contact based on the popular 4532 is also in development. 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. Critical Accounting Policies The discussion and analysis of the financial condition and results of operations are based upon the financial statements, which have been prepared in conformity with generally accepted accounting principles in the United States. The preparation of these financial statements requires the use of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses reported in those financial statements. These judgments can be subjective and complex, and consequently actual results could differ from those estimates. The most critical accounting policies relate to accounts receivable; marketable securities; inventory; income taxes; and segment reporting. Accounts receivable —Accounts receivable are customer obligations due under normal trade terms. The Company sells its products to security alarm distributors, alarm installers, and original equipment manufacturers. Management performs continuing credit evaluations of its customers’ financial condition, and the Company generally does not require collateral. The Company records an allowance for credit losses based on an analysis of specifically identified customer balances. The Company has a limited number of customers with individually large amounts due at any given date. Any unanticipated change in any one of these customers’ credit worthiness or other matters affecting the collectability of amounts due from such customers could have a material effect on the results of operations in the period in which such changes or events occur. After all attempts to collect a receivable have failed, the receivable is written off. 9 Marketable securities— The Company has investments in publicly traded equity securities, state and municipal debt securities, and real-estate investment trusts (REITs). The investments in securities are reported at fair value. The Company uses the average cost method to determine the cost of securities sold and any unrealized gains or losses on equity securities are 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. In accordance with the Generally Accepted Accounting Principles in the United States (“US GAAP”), the Company evaluates all marketable securities for other-than temporary declines in fair value. When the cost basis exceeds the fair market value for approximately one year, management evaluates the nature of the investment, cause of impairment and number of investments that are in an unrealized loss position. When it is determined that a security will likely remain impaired, a recognized loss is recorded and the investment is written down to its new fair value. The investments are periodically evaluated to determine if impairment changes are required. Inventories —Inventories are valued at the lower of cost or net realizable value. Costs are determined using the average cost-pricing method. The Company uses actual costs to price its manufactured inventories, approximating average costs. The reported net value of inventory includes finished saleable products, work-in-process and raw materials that will be sold or used in future periods. Inventory costs include raw materials, direct labor and overhead. The Company’s overhead expenses are applied, based in part, upon estimates of the proportion of those expenses that are related to procuring and storing raw materials as compared to the manufacture and assembly of finished products. These proportions, the method of their application, and the resulting overhead included in ending inventory, are based in part on subjective estimates and approximations and actual results could differ from those estimates. In addition, the Company records an inventory obsolescence reserve, which represents the cost of the inventory that has had no movement in over two years. There is inherent professional judgment and subjectivity made by management in determining the estimated obsolescence percentage. In addition, and as necessary, the Company may establish specific reserves for future known or anticipated events. Income Taxes —US GAAP requires use of the assets and liability method; whereby current and deferred tax assets and liabilities are determined based on tax rates and laws enacted as of the balance sheet date. Deferred tax expense represents the change in the deferred tax asset/liability balances. Segment Reporting and Related Information —The Company designates the internal organization that is used by management for allocating resources and assessing performance as the source of the Company’s reportable segments. US GAAP also requires disclosures about products and services, geographic area, and major customers. Related Party Transactions — One of the directors of the board, Joel Wiens, is the principal shareholder of FirsTier Bank. FirsTier Bank is the financial institution the Company uses for its day-to-day banking operations. The year end balances of accounts held at this bank were $6,712,000 and $4,637,000 for the years ended April 30, 2024 and 2023, respectively. The Company also received interest income from FirsTier Bank in the amount of approximately $170,000 for the year ended April 30, 2024, and approximately $103,000 was received for the year ended April 30, 2023. 10