a Octopus (CODA) - 2019 Q1 - Quarterly Report

PART I - Financial Information Financial Statements The company's unaudited statements show a significant turnaround with net income reaching $1.24 million from a prior-year loss Consolidated Balance Sheets Total assets grew to $31.1 million and stockholders' equity increased to $26.0 million as of January 31, 2019 Consolidated Balance Sheet Highlights (as of Jan 31, 2019 vs. Oct 31, 2018) | Metric | Jan 31, 2019 (Unaudited) | Oct 31, 2018 | | :--- | :--- | :--- | | Total Current Assets | $19,907,816 | $18,122,307 | | Cash and Cash Equivalents | $8,801,189 | $7,512,422 | | Total Assets | $31,057,332 | $28,736,611 | | Total Current Liabilities | $3,931,152 | $3,241,211 | | Total Liabilities | $5,028,069 | $4,349,661 | | Total Stockholders' Equity | $26,029,263 | $24,386,950 | Consolidated Statements of Income and Comprehensive Income Net revenues grew 88.8% year-over-year to $5.76 million, resulting in a net income of $1.24 million Income Statement Summary (Three Months Ended Jan 31) | Metric | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | Net Revenues | $5,758,508 | $3,050,557 | +88.8% | | Gross Profit | $3,533,072 | $2,104,450 | +67.9% | | Income (Loss) from Operations | $1,342,471 | $(71,846) | Turnaround | | Net Income (Loss) | $1,239,013 | $(167,939) | Turnaround | | Diluted EPS | $0.12 | $(0.02) | Turnaround | Consolidated Statement of Changes in Stockholders' Equity Stockholders' equity increased to $26.03 million, driven by net income and foreign currency translation adjustments - Stockholders' equity increased by $1.64 million during the quarter, mainly due to net income of $1,239,013 and other comprehensive income of $297,855[13] Consolidated Statements of Cash Flows The company generated $2.42 million in cash from operations, ending the period with a cash balance of $8.80 million Cash Flow Summary (Three Months Ended Jan 31) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $2,418,625 | $(160,337) | | Net Cash used in Investing Activities | $(919,135) | $(245,822) | | Net Cash (used in) from Financing Activities | $(508,578) | $4,587,664 | | Net Increase in Cash | $1,288,767 | $5,137,442 | | Cash at End of Period | $8,801,189 | $11,988,981 | Notes to (Unaudited) Consolidated Financial Statements Key notes detail revenue recognition adoption, customer concentration, debt reduction, and subsequent real estate transactions - The company adopted the new revenue recognition standard, Topic 606, concluding it had no material effect on revenue reporting[19] - For the three months ended January 31, 2019, two customers accounted for 45% of net revenues ($2,616,171)[49] - Total loans and notes payable decreased significantly to $1.41 million from $2.02 million, primarily due to the repayment of a $500,000 CEO loan[51] - Subsequent to the quarter's end, the company sold a residential property for $725,000 and contracted to purchase a new business property for $684,000[82][83] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong Q1 2019 results to an 88.8% revenue increase driven by both Products and Services segments Consolidated Results of Operations Revenue grew 88.8% YoY, driven by a 191% increase in the Services Segment, though gross margin declined due to sales mix Segment Revenue Growth (Q1 2019 vs Q1 2018) | Segment | Q1 2019 Revenue | Q1 2018 Revenue | Growth | | :--- | :--- | :--- | :--- | | Products Segment | $2,829,536 | $2,042,942 | +39% | | Services Segment | $2,928,972 | $1,007,615 | +191% | | Total | $5,758,508 | $3,050,557 | +88.8% | - The increase in Services Segment revenue was due to receiving backlog defense contracts for calendar years 2017 and 2018[108][112] - Gross margin percentage declined to 61.4% from 69.0% YoY, reflecting a sales mix shift toward lower-margin services[113] - R&D expenses decreased 14.8% YoY due to the finalization of the Thermite® Octal development, but are expected to increase in fiscal 2019[114] Liquidity and Capital Resources The company maintained a strong liquidity position with $16.0 million in working capital and significantly reduced its debt - As of January 31, 2019, the company had working capital of $16.0 million and stockholders' equity of $26.0 million[127] - Overall loan indebtedness was reduced to $1.41 million from $6.91 million in the prior-year quarter, causing a 75.6% drop in interest expense[121][129] Inflation and Foreign Currency Unhedged foreign currency exposure negatively impacted net income by approximately $69,390 and net assets by $1.19 million Impact of Foreign Currency Fluctuations (Q1 2019) | Metric | Effect of Currency Change | | :--- | :--- | | Revenues | $(199,898) | | Net Income | $(69,390) | | Net Assets | $(1,185,878) | - The company operates in multiple currencies and does not currently hedge its currency exposure, making it subject to risks from exchange rate fluctuations[133][134] Quantitative and Qualitative Disclosures about Market Risks This disclosure is not required for smaller reporting companies - Not required for smaller reporting companies[138] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls - Based on an evaluation as of January 31, 2019, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[140] - There were no material changes in internal controls over financial reporting during the quarter[142] PART II - Other Information Legal Proceedings The company is not aware of any legal proceedings that would have a material adverse effect on the business - The company is not currently aware of any material legal proceedings[143] Risk Factors This disclosure is not required for smaller reporting companies - Not required for smaller reporting companies[144] Unregistered Sales of Equity Securities and Use of Proceeds The company issued 23,965 shares of common stock for $105,446 in a private placement exempt from registration - On November 16, 2018, the company issued 23,965 shares of common stock at $4.40 per share, raising $105,446 in an unregistered sale[144][145] Other Items (3, 4, 5, 6) The company reports no defaults on senior securities, notes mine safety is not applicable, and lists filed exhibits - Item 3: No defaults upon senior securities[146] - Item 4: Mine Safety Disclosures are not applicable[147] - Item 6 lists exhibits filed, including CEO/CFO certifications and XBRL documents[148]