George Risk Industries, Inc.: Form 10-Q for the period ended Jan 31, 2025

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 unaudited condensed financial statements, and with the Company’s audited financial statements and discussion for the fiscal year ended April 30, 2024.

Executive Summary

The Company’s performance in operations has remained steady through the three quarters of the current fiscal year with the third quarter dipping slightly in sales over the second quarter of the current fiscal year. This is mainly due to the fact that our business is tied to the housing market and the winter months usually show a slowdown. Opportunities include keeping up with business growth and 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. We also continue to look at businesses that might be a good fit to purchase. We also continue to work on new products that will be a good fit for our industry and business. Challenges in the coming months include getting products out to customers in a timely manner and dealing with the ongoing effects of inflation. Management continues to work at keeping operations flowing as efficiently as possible with the hopes of getting the facilities running leaner and more profitable than ever before.

Results of Operations

• Net sales were $4,912,000 for the quarter ended January 31, 2025, which is an 8.94% decrease from the corresponding quarter last year. Year-to-date net sales were $16,306,000 as of January 31, 2024, which is a 0.81% increase from the same period last year. The decrease in sales in the current quarter is a result of our seasonal slow-down during the winter months, the lingering effects of inflation, and some uneasiness that has been felt from the presidential election, especially regarding possible tariffs. We continue to operate our business with our ongoing commitment to outstanding customer service and our ability to customize products.
• Cost of goods sold was 53.22% of net sales for the quarter ended January 31, 2025 and was 50.69% for the same quarter last year. Year-to-date cost of goods sold was 51.20% of net sales for the current nine months and 50.36% for the corresponding nine months last year. The current quarter and year-to-date cost of goods sold percentages have risen to be just outside Management’s goal of keeping labor and other manufacturing expenses at less than 50%. This is due to increases in wages and material costs. Management continues to work with and train employees to work more efficiently. Management offset a portion of these added expenses by implementing a 5% price increase effective February 1, 2025.

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• Operating expenses decreased by $40,000 for the quarter as they increased by $148,000 for the nine months ended January 31, 2025, compared to the corresponding periods last year. When comparing percentages in relation to net sales, the operating expenses for the quarter ended January 31, 2025, were 22.43% of net sales compared to 21.17% of net sales for the same quarter the prior year. For year-to-date numbers, operating expenses were 21.49% and 20.75% of net sales for the nine months ended January 31, 2025 and 2024, respectively. The Company has been able to keep the operating expenses at less than 25% of net sales for many years; however, the actual dollar amount increase for the year-to-date numbers is due to increased commission amounts, related to increased sales, and additional labor costs related to wage increases.
• Income from operations for the quarter ended January 31, 2025, was $1,196,000, a 21.21% decrease from the corresponding quarter last year, which had income from operations of $1,518,000. Income from operations for the nine months ended January 31, 2025, was $4,453,000, which is a 4.73% decrease from the corresponding nine months last year, which had income from operations of $4,674,000.
• Other income and expenses for the quarter ended January 31, 2025, shows income of $1,065,000, which is a $2,264,000 decrease from the corresponding quarter last year, which had income of $3,329,000. Conversely, there is an increase of $1,112,000 in 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 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. The main reason for the increase in the year-to-date numbers is that the Company has been able to sell investments for gains during this period, as compared to losses for the same period last year.
• Overall, net income for the quarter ended January 31, 2025, decreased $1,632,000, or 50.39%, from the same quarter last year. Conversely, net income for the nine-month period ended January 31, 2025, increased $970,000, or 17.45%, from the same period in the prior year.
• Earnings per common share for the quarter ended January 31, 2025, were $0.33 per share and $1.33 per share for the year-to-date numbers. EPS for the quarter and nine months ended January 31, 2024, were $0.66 per share and $1.13 per share, respectively.

Liquidity and capital resources

Operating

• Net cash decreased $1,532,000 during the nine months ended January 31, 2025, compared to an increase of $428,000 during the corresponding period last year.
• Accounts receivable decreased $193,000 for the nine months ended January 31, 2025, compared with a $554,000 increase for the same period last year. The current year’s decrease is a result of the decreased sales during the quarter and while there has been a slight uptick in collections of accounts receivable. An analysis of accounts receivable shows that 11.25% of the receivables were over 90 days as of January 31, 2025.

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The Company and its engineering department continue to develop enhancements to 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 the development process include:

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.

Our management, under the supervision and with the participation of our chief executive officer (also working as our chief financial officer), evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of January 31, 2025. Based on that evaluation, management concluded that the disclosure controls and procedures employed at the Company were not effective to provide reasonable assurance that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

In our annual report filed on Report 10-K for the year ended April 30, 2024, management identified the following material weakness in our internal control over financial reporting:

• The small size of our Company limits our ability to achieve the desired level of separation of duties for proper internal controls and financial reporting, particularly as it relates to financial reporting to ensure material disclosures or implementation of newly issued accounting standards are included. We have hired a Controller, and a secondary review of annual and quarterly filings does occur with an outside CPA. However, the current CEO and CFO roles are being fulfilled by the same individual and we do not have an audit committee. We do not believe we have met the full requirement for separation of duties for financial reporting purposes.

Despite the material weaknesses in financial reporting noted above, we believe that our financial statements included in this report fairly present our financial position, results of operations and cash flows as of and for the periods presented in all material respects.

We are committed to the establishment of effective internal controls over financial reporting and will place emphasis on quarterly and year-end closing procedures, timely documentation, and internal review of accounting and financial reporting consequences of material contracts and agreements, and enhanced review of all schedules and account analyses by experienced accounting department personnel or independent consultants.

We will continue to follow the standards for the Public Company Accounting Oversight Board (United States) for internal control over financial reporting to include procedures that:

• Pertain to the maintenance of records in reasonable detail that fairly reflect the transactions and dispositions of the Company’s assets;
• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the Board of Directors; and
• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Changes in Internal Control over Financial Reporting

Other than those mentioned above, there were no changes in our internal control over financial reporting during the fiscal quarter ended January 31, 2025, which have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.