Optical Cable (OCC) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The unaudited statements show increased assets and liabilities, a Q2 net loss, and negative operating cash flow for H1 2022 Condensed Consolidated Balance Sheets Total assets grew to $41.8 million and liabilities rose to $20.6 million, resulting in a decrease in shareholders' equity to $21.2 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | April 30, 2022 | October 31, 2021 | | :--- | :--- | :--- | | Total current assets | $32,068.6 | $27,565.9 | | Total assets | $41,779.1 | $37,916.5 | | Total current liabilities | $8,429.8 | $6,167.6 | | Total liabilities | $20,603.9 | $15,710.6 | | Total shareholders' equity | $21,175.2 | $22,206.0 | Condensed Consolidated Statements of Operations Net sales increased for the quarter and six-month period, but the company reported net losses due to the absence of a prior-year one-time income item Key Performance Indicators (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $17,200.6 | $15,741.1 | $31,640.9 | $27,617.7 | | Gross profit | $5,033.4 | $4,819.2 | $9,079.3 | $7,128.6 | | Income (loss) from operations | $(21.0) | $261.4 | $(774.4) | $(1,741.0) | | Net income (loss) | $(228.0) | $3,385.2 | $(1,163.8) | $1,243.7 | | Net income (loss) per share | $(0.03) | $0.45 | $(0.16) | $0.17 | Condensed Consolidated Statements of Shareholders' Equity Shareholders' equity decreased to $21.2 million in the six-month period, primarily driven by a net loss of $1.2 million Changes in Shareholders' Equity (Six Months Ended April 30, 2022) | Description | Amount (in thousands) | | :--- | :--- | | Beginning Balance (Oct 31, 2021) | $22,206.0 | | Share-based compensation, net | $133.0 | | Net loss | $(1,163.8) | | Ending Balance (Apr 30, 2022) | $21,175.2 | Condensed Consolidated Statements of Cash Flows Net cash used in operations was $3.0 million, offset by $3.2 million from financing activities, resulting in a slight increase in the company's cash position Summary of Cash Flows (Six Months Ended April 30, in thousands) | Category | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(3,028.0) | $(391.9) | | Net cash used in investing activities | $(112.0) | $(104.9) | | Net cash provided by financing activities | $3,246.8 | $717.0 | | Net increase in cash | $106.8 | $220.1 | | Cash at end of period | $239.0 | $360.9 | Condensed Notes to Condensed Consolidated Financial Statements Notes detail a stock plan amendment, customer concentration, the impact of a prior-year tax credit, and ongoing pandemic-related risks - Shareholders approved an amendment to the 2017 Stock Incentive Plan, adding 350,000 common shares for issuance[21] - As of April 30, 2022, the company had $7.0 million in outstanding borrowings on its Revolver credit facility and $3.3 million in available credit[41] - One national distributor customer accounted for 17.1% of consolidated net sales for the six months ended April 30, 2022[60] - The company qualified for a total of $4.34 million in Employee Retention Tax Credits (ERTC) in fiscal 2021, with a $2.16 million receivable collected post-period[74] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses revenue growth driven by demand, margin pressure from inflation, and the impact of a non-recurring tax credit on net income Overview of COVID-19 Effects Robust demand and a high sales backlog are offset by significant supply chain and labor constraints, though all facilities remain operational - Sales order backlog and product demand remain robust, but the company faces significant supply chain and labor challenges, leading to longer product lead times and constrained production volumes[88] - The company's workforce is classified as a "Defense Industrial Base Essential Critical Infrastructure Workforce," allowing all three facilities to remain open and operational throughout the pandemic[89] Results of Operations Net sales grew for the quarter and six-month period, but gross margin was pressured by inflation, and net income was negatively impacted by a non-recurring tax credit Comparison of Operating Results (in thousands) | Metric | Q2 2022 | Q2 2021 | % Change | H1 2022 | H1 2021 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net sales | $17,201 | $15,741 | 9.3% | $31,641 | $27,618 | 14.6% | | Gross profit | $5,033 | $4,819 | 4.4% | $9,079 | $7,129 | 27.4% | | SG&A expenses | $5,036 | $4,590 | 9.7% | $9,817 | $8,898 | 10.3% | | Net income (loss) | $(228) | $3,385 | (106.7)% | $(1,164) | $1,244 | (193.6)% | - The decrease in net income for Q2 and H1 2022 compared to 2021 was primarily due to the recognition of a $3.4 million Employee Retention Tax Credit (ERTC) as other income in Q2 2021, which did not recur in 2022[125][129][147] - The gross profit margin for Q2 2022 decreased to 29.3% from 30.6% year-over-year, mainly due to rapid inflation increasing raw material costs for orders accepted before the cost hikes[118] Financial Condition, Liquidity and Capital Resources Assets and liabilities increased due to higher inventory and revolver borrowings, while cash from financing offset cash used in operations - Total assets increased by 10.2% to $41.8 million, primarily due to a $2.3 million increase in inventories and a $2.2 million increase in trade accounts receivable[158] - Total liabilities increased by 31.1% to $20.6 million, mainly due to a $3.6 million increase in net borrowings on the Revolver and a $2.0 million increase in accounts payable[159] - Net cash used in operating activities was $3.0 million for the first half of fiscal 2022, compared to $392,000 in the prior year period, largely due to increases in inventory and accounts receivable[165] - As of April 30, 2022, the company had $7.0 million of outstanding borrowings on its Revolver and $3.3 million in available credit[177] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period, April 30, 2022[189] - There were no changes in the company's internal control over financial reporting during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, these controls[189] PART II. OTHER INFORMATION Exhibits This section indexes all exhibits filed with the report, including governance documents, agreements, and required officer certifications - The report includes certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[199][202] - Financial statements and notes are provided in iXBRL format as part of the filing[202] Signatures The report was duly signed and authorized by the CEO and CFO on June 13, 2022 - The Form 10-Q was signed on June 13, 2022, by Neil D. Wilkin, Jr. (CEO) and Tracy G. Smith (CFO)[204]