a Octopus (CODA) - 2019 Q2 - Quarterly Report

PART I - Financial Information Financial Statements The company's financial statements for the period ended April 30, 2019, reflect significant year-over-year growth across assets, revenue, and profitability Consolidated Balance Sheets As of April 30, 2019, the company's balance sheet strengthened significantly, driven by increased assets and stockholders' equity while liabilities decreased Consolidated Balance Sheet Highlights (Unaudited) | Account | April 30, 2019 ($) | October 31, 2018 ($) | Change | | :--- | :--- | :--- | :--- | | Total Assets | 31,948,932 | 28,736,611 | +11.2% | | Cash | 9,257,932 | 7,512,422 | +23.2% | | Total Current Assets | 20,965,165 | 18,122,307 | +15.7% | | Property and Equipment, net | 6,121,877 | 5,246,183 | +16.7% | | Total Liabilities | 3,808,905 | 4,349,661 | -12.4% | | Total Current Liabilities | 2,847,583 | 3,241,211 | -12.1% | | Total Stockholders' Equity | 28,140,027 | 24,386,950 | +15.4% | Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) The company achieved substantial revenue growth and a significant turnaround to net income for both the three and six-month periods ended April 30, 2019 Key Performance Indicators - Income Statement (Unaudited) | Metric | Three Months Ended April 30, 2019 ($) | Three Months Ended April 30, 2018 ($) | YoY Change | Six Months Ended April 30, 2019 ($) | Six Months Ended April 30, 2018 ($) | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net Revenues | 6,783,272 | 3,526,396 | +92.4% | 12,541,780 | 6,576,953 | +90.7% | | Gross Profit | 4,724,662 | 2,585,538 | +82.7% | 8,257,734 | 4,689,988 | +76.1% | | Income (Loss) from Operations | 2,282,753 | (80,569) | N/A | 3,625,224 | (152,415) | N/A | | Net Income (Loss) | 1,973,494 | (77,325) | N/A | 3,212,507 | (245,264) | N/A | | Diluted EPS | 0.18 | (0.01) | N/A | 0.30 | (0.03) | N/A | Consolidated Statements of Changes in Stockholders' Equity Total stockholders' equity significantly increased for the six months ended April 30, 2019, primarily driven by net income and positive foreign currency translation - Total Stockholders' Equity grew from $24,386,950 at October 31, 2018, to $28,140,027 at April 30, 2019[14] - The growth in equity was primarily due to the net income of $3,212,507 for the six-month period[12][14] Consolidated Statements of Cash Flows The company generated substantial cash from operating activities for the six months ended April 30, 2019, leading to a significant overall increase in cash Consolidated Cash Flow Summary (Unaudited) | Cash Flow Activity | Six Months Ended April 30, 2019 ($) | Six Months Ended April 30, 2018 ($) | | :--- | :--- | :--- | | Net Cash from Operating Activities | 3,208,619 | 242,715 | | Net Cash used in Investing Activities | (1,374,714) | (521,594) | | Net Cash used in Financing Activities | (481,231) | (211,029) | | Net Increase in Cash | 1,745,510 | 85,028 | | Cash at End of Period | 9,257,932 | 6,936,567 | Notes to Unaudited Consolidated Financial Statements The notes provide details on accounting policies, revenue recognition, customer concentration, segment performance, tax carryforwards, and subsequent events - The company adopted the new revenue recognition standard, Topic 606, on November 1, 2018, concluding that it did not have a material cumulative effect on financial statements as the previous policy was substantially consistent[19] - For the six months ended April 30, 2019, one customer accounted for $3,209,220, or 26% of net revenues[53] - The company operates in two segments, Marine Technology (Products) and Marine Engineering (Services), with revenues for the six months ended April 30, 2019, almost evenly split at $6,249,719 and $6,292,061 respectively[65][76] - As of October 31, 2018, the company had federal tax Net Operating Loss (NOL) carryforwards of $8,353,186, which will expire between 2028 and 2029[102] - Subsequent to the reporting period, on May 17, 2019, the company received a payment of $166,514 representing short-swing profits recovered from a beneficial owner[108] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the significant revenue growth driven by both Marine Technology and Marine Engineering segments, alongside changes in gross margin, operating income, R&D investments, and the impact of Brexit and foreign currency fluctuations Six-Month Performance Comparison (Current vs. Previous Period) | Metric | Current Six Month Period (ended Apr 30, 2019) ($) | Previous Six Month Period (ended Apr 30, 2018) ($) | YoY Change | | :--- | :--- | :--- | :--- | | Total Revenues | 12,541,780 | 6,576,953 | +90.7% | | - Services Segment Revenue | 6,292,061 | 2,360,720 | +167% | | - Products Segment Revenue | 6,249,719 | 4,216,233 | +48% | | Gross Profit Margin | 65.8% | 71.3% | -5.5 p.p. | | Operating Income (Loss) | 3,625,224 | (152,415) | N/A | | Net Income (Loss) | 3,212,507 | (245,264) | N/A | - The company is developing a first-generation prototype Heads Up Display (HUD) for NAVSEA under a Cooperative Research and Development Agreement (CRADA), with the first prototype approved as 'trial ready' and live trials planned with NASA[145][146] - Management identifies the UK's withdrawal from the EU (Brexit) as a significant concern that could affect its UK operations, which generate a substantial portion of earnings[115][116][121] - Fluctuations in foreign currency, particularly the weakening of the British Pound against the US Dollar, negatively impacted results, decreasing net income by $116,177 and net assets by $938,186 for the six-month period[195][197][198] - As of April 30, 2019, the company had working capital of $18.1 million and significantly reduced its HSBC loan outstanding balance to $1.3 million[186][188] Quantitative and Qualitative Disclosures about Market Risks This section is not applicable as the company qualifies as a smaller reporting company - Disclosure about market risk is not required for smaller reporting companies[200] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of April 30, 2019, due to material weaknesses, with remediation efforts underway through increased accounting staff - Management concluded that disclosure controls and procedures were not effective as of the end of the reporting period[202] - The ineffectiveness is attributed to material weaknesses related to limited staffing and inadequate review procedures[203] - Remediation efforts include increasing the number of accounting staff to improve segregation of duties and financial review[204] PART II - Other Information Legal Proceedings The company is not currently involved in any legal proceedings expected to have a material adverse effect on its business or financial condition - The company is not currently involved in any material lawsuits or legal proceedings[206] Risk Factors This section is not applicable as the company qualifies as a smaller reporting company - Disclosure of Risk Factors is not required for smaller reporting companies[207] Unregistered Sales of Equity Securities and Use of Proceeds During the reporting period, the company issued common stock to a director, exempt from registration under Section 4(2) of the Securities Act of 1933 - On or around February 3, 2019, the company issued 7,143 shares of common stock to a director[207] - The securities were issued pursuant to an exemption from registration requirements under Section 4(2) of the Securities Act[208] Default Upon Senior Securities The company reported no defaults upon senior securities during the period - None[209] Mine Safety Disclosures This section is not applicable to the company - Not Applicable[210] Other Information No information was reported under this item Exhibits The report includes required CEO and CFO certifications and XBRL-related documents filed as exhibits - Exhibits filed include CEO/CFO certifications (Rule 13a-14(a) and Section 906) and XBRL data files[211][212]