a Octopus (CODA) - 2022 Q3 - Quarterly Report

Part I - Financial Information Item 1: Financial Statements The unaudited consolidated financial statements detail the company's financial position, operations, and cash flows, showing asset growth and a decline in nine-month net income Consolidated Balance Sheets The balance sheet shows total assets increased to $47.2 million driven by cash, with stable liabilities and growing stockholders' equity Consolidated Balance Sheet Highlights (Unaudited) | Account | July 31, 2022 ($) | October 31, 2021 ($) | | :--- | :--- | :--- | | Assets | | | | Cash | $21,370,920 | $17,747,656 | | Total Current Assets | $37,090,997 | $35,557,159 | | Total Assets | $47,203,976 | $45,465,419 | | Liabilities & Equity | | | | Total Current Liabilities | $4,309,791 | $4,258,460 | | Total Liabilities | $4,412,606 | $4,416,346 | | Total Stockholders' Equity | $42,791,370 | $41,049,073 | Consolidated Statements of Income and Comprehensive Income Q3 2022 saw revenue and net income growth, while nine-month net income declined due to the absence of prior-year PPP loan forgiveness and a tax benefit reversal Q3 2022 vs Q3 2021 Performance (Unaudited) | Metric | Three Months Ended July 31, 2022 ($) | Three Months Ended July 31, 2021 ($) | | :--- | :--- | :--- | | Net Revenues | $6,267,409 | $5,827,375 | | Gross Profit | $4,562,644 | $4,212,409 | | Income from Operations | $2,023,713 | $1,322,822 | | Net Income | $1,768,657 | $1,521,086 | | Diluted EPS | $0.16 | $0.13 | Nine Months 2022 vs 2021 Performance (Unaudited) | Metric | Nine Months Ended July 31, 2022 ($) | Nine Months Ended July 31, 2021 ($) | | :--- | :--- | :--- | | Net Revenues | $17,090,455 | $16,250,910 | | Gross Profit | $11,754,284 | $11,276,935 | | Income from Operations | $3,869,978 | $3,548,703 | | Net Income | $3,597,208 | $4,857,863 | | Diluted EPS | $0.32 | $0.43 | Consolidated Statements of Cash Flows Operating cash flow significantly increased to $6.3 million, contributing to a $3.6 million rise in the cash balance, ending at $21.4 million Cash Flow Summary for Nine Months Ended July 31 (Unaudited) | Activity | 2022 ($) | 2021 ($) | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $6,282,523 | $3,631,489 | | Net Cash Used in Investing Activities | ($1,195,885) | ($838,626) | | Net Cash (Used in) Provided by Financing Activities | ($63,559) | $269,109 | | Net Increase in Cash | $3,623,264 | $4,025,616 | | Cash at End of Period | $21,370,920 | $19,159,905 | Notes to Unaudited Consolidated Financial Statements The notes detail business segments, revenue recognition, and performance, highlighting COVID-19 risks, supply chain issues, and a significant increase in the effective tax rate - The company operates two distinct business units: Marine Technology (Products), selling patented 3D sonar solutions like Echoscope®, and Marine Engineering (Services), acting as a sub-contractor to prime defense contractors[22] - The company continues to face risks from the COVID-19 pandemic, including supply chain disruptions and travel restrictions impacting customer engagement and product demonstrations[87][88][89] - The effective tax rate for the nine months ended July 31, 2022, was 9.6%, a significant increase from (14.2%) in the prior year, primarily due to US subsidiaries utilizing net operating loss carryforwards and becoming tax-paying entities[92] Revenue by Segment - Nine Months Ended July 31, 2022 | Segment | Net Revenues ($) | % of Total | | :--- | :--- | :--- | | Marine Technology (Products) | $11,319,314 | 66.2% | | Marine Engineering (Services) | $5,771,141 | 33.8% | | Total | $17,090,455 | 100% | Revenue by Geography - Nine Months Ended July 31, 2022 | Region | Net Revenues ($) | % of Total | | :--- | :--- | :--- | | Americas | $7,360,269 | 43.1% | | Europe | $3,511,455 | 20.5% | | Australia/Asia | $4,477,178 | 26.2% | | Middle East/Africa | $1,741,553 | 10.2% | | Total | $17,090,455 | 100% | Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2022 revenue and operating income growth, highlighting challenges from supply chain disruptions, inflation, and currency effects, while affirming strong liquidity Factors Affecting our Business The company faces significant operational challenges including severe supply chain disruptions, high inflation, adverse currency translation from a strong USD, and skilled personnel shortages - The company faces significant supply chain challenges, including high component unavailability, lead times of six months to a year, and price increases exceeding 100%, particularly impacting the Services Business[108][109] - High inflation in key operating countries (US: 8.5%, UK: 10.1%) is increasing operational costs and wage pressures[112][113] - The strengthening U.S. dollar negatively impacts foreign subsidiary results, with the British Pound falling 11.8% and the Euro falling 12.6% against the USD in Q3 2022[114] - The company is experiencing skill shortages in critical areas such as sales, marketing, and software development, exacerbated by inflationary wage pressures[115] Results of Operations Q3 2022 saw revenue and operating income growth, while nine-month net income declined due to the absence of prior-year PPP loan forgiveness and a tax benefit reversal, compounded by foreign currency translation losses Q3 2022 vs Q3 2021 Revenue by Segment | Segment | Q3 2022 Revenue ($) | Q3 2021 Revenue ($) | % Change | | :--- | :--- | :--- | :--- | | Products Business | $4,004,557 | $3,845,051 | +4.1% | | Services Business | $2,262,852 | $1,982,324 | +14.2% | | Total | $6,267,409 | $5,827,375 | +7.6% | - Q3 2022 operating income increased by 53% to $2.0 million, driven by 7.6% revenue growth and a 12.1% decrease in total operating expenses[158] Nine Months 2022 vs 2021 Revenue by Segment | Segment | 9M 2022 Revenue ($) | 9M 2021 Revenue ($) | % Change | | :--- | :--- | :--- | :--- | | Products Business | $11,319,314 | $11,777,739 | -3.9% | | Services Business | $5,771,141 | $4,473,171 | +29.0% | | Total | $17,090,455 | $16,250,910 | +5.2% | - Nine-month net income fell by 26.0% YoY, primarily due to a prior-year $649k PPP loan forgiveness benefit and a $603k tax benefit, contrasting with a $384k tax expense in the current period[188] - Comprehensive income for the nine-month period was significantly impacted by a foreign currency translation loss of $2.8 million, compared to a gain of $964k in the prior year, due to the strengthening USD[189] Liquidity and Capital Resources The company maintains a strong liquidity position with $32.8 million in working capital and $21.4 million in cash, supported by $6.3 million in operating cash flow and an undrawn $4.0 million credit line - The company has working capital of $32.8 million and cash of $21.4 million as of July 31, 2022[119][190] - The company has an undrawn $4.0 million revolving line of credit available until November 2022[192] - The company's $8.0 million term loan with HSBC was fully satisfied on December 28, 2021[191] Item 3: Quantitative and Qualitative Disclosures about Market Risks This disclosure is not required for smaller reporting companies - Disclosure is not required for smaller reporting companies[200] Item 4: Controls and Procedures Management concluded that disclosure controls and procedures were effective as of July 31, 2022, with no material changes to internal controls over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of July 31, 2022[202] - No material changes to internal controls over financial reporting occurred during the reporting period[204] Part II - Other Information Item 1: Legal Proceedings The company is not aware of any legal proceedings expected to have a material adverse effect on its business, financial condition, or operating results - The company is not aware of any legal proceedings expected to have a material adverse effect on its business[206] Item 1A: Risk Factors This disclosure is not required for smaller reporting companies - Disclosure is not required for smaller reporting companies[207] Item 2: Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None reported[207] Item 6: Exhibits The report lists filed exhibits, including CEO/CFO certifications and Inline XBRL documents - Exhibits filed include CEO and CFO certifications and Inline XBRL data files[210]