General
Overview
Throughout
these discussions, the following terms shall have the meanings set forth below:
| “Current
Quarter” |
Three-month
period ended April 30, 2023 |
| “Previous
Quarter” |
Three-month
period ended April 30, 2022 |
| “Current
Six-Month Period” |
Six-month period ended April 30, 2023 |
| “Previous
Six-Month Period” |
Six-month
period ended April 30, 2022 |
The
Company operates two distinct businesses. These are:
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● |
the
Marine Technology Business (also referred to in this Form 10-Q as “Products Business”, or “Products Segment”);
and |
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|
|
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● |
the
Marine Engineering Business (also referred to in this Form 10-Q as “Engineering Business”, or “Services Business”
or “Services Segment”). |
Our
Marine Technology Business has operations in the USA, UK and Denmark. This business is an established technology solution provider
to the subsea and underwater imaging, surveying and diving market. It has been operating as a supplier of solutions comprising both hardware
and software products for over 25 years to this market and it owns key proprietary technology including real time volumetric 3D imaging
sonar technology and cutting-edge diving technology, that are used in both the underwater defense and commercial markets. All design,
development and manufacturing of our technology and solutions are performed within the Company.
Our
imaging sonar technology products and solutions marketed under the name of Echoscope® and Echoscope
PIPE® are used primarily in the underwater construction market, offshore wind energy industry (offshore renewables),
offshore oil and gas, forward looking obstacle avoidance, complex underwater mapping, salvage operations, dredging, bridge
inspection, underwater hazard detection, port security, mining, mine counter measures, ship hull scanning, real time threat
detection, fisheries, commercial and defense diving, and marine sciences sectors.
Our
novel diving technology is distributed under the name “CodaOctopus® DAVD” (Diver Augmented Vision Display)
to the global defense and commercial diving markets and is new to the market. The DAVD which embeds a pair of transparent glasses in the Head up Display
(HUD) is used as the data hub for displaying comprehensive real time data to the diver underwater. This also allows both the diver and
the dive supervisor to visualize in real time the same underwater scene. We believe that the DAVD system has the potential to radically transform how diving operations are performed globally
because it provides a fully integrated singular system for topside control and a fully connected HUD system for the diver allowing both
the topside and diver to share a range of critical information including depth (pressure and temperature), compass and head tracking,
real time dive timers and alerts, diver position and navigation, ultra-low light enhanced video system and enhanced digital voice communications.
Limitations of current diving operations are that the diver only shares analog voice communications with the topside and there is no
real time information including real time navigation, tracking and mapping of the dive area available to the diver. The topside must
also manage several independent systems for video, communications, and positioning. The Company’s solution addresses these deficiencies.
Another critical part of our solution is that by using our sonar technology, diving can be performed in zero visibility conditions, a
common problem which besets these operations.
Although
we generate most of our revenues from our real time 3D sonar which includes both proprietary hardware and software, we have a number
of other products which we supply to the marine offshore market such as our inertial navigation systems (F280 Series®)
and our geophysical hardware (DA4G) and software solutions (GeoSurvey and Survey Engine®, which include artificial intelligence based
automatic detection systems). Our customers include offshore service providers to major oil and gas companies, renewable energy companies,
underwater construction companies, law enforcement agencies, ports, mining companies, defense bodies, prime defense contractors, navies,
research institutes and universities and diving companies.
The
Services Business has operations in the USA and UK. It is a trusted Department of Defense (DoD) supplier, and its central business model
is working with Prime Defense Contractors to design and manufacture sub-assemblies for utilization into larger defense mission critical
integrated systems (“MCIS”). An example of such MCIS is the US Close-In-Weapons Support (CIWS) Program for the Phalanx radar-guided
cannon used on combat ships. These proprietary sub-assemblies, once approved within the MCIS program, afford the Services Business the
status of preferred supplier. Such status permits it to supply these sub-assemblies and upgrades in the event of obsolescence or advancement
of technology for the life of the MCIS program. Customers include prime defense contractors such as Raytheon, Northrop Grumman, Thales
Underwater and BAE Systems. The scope of services provided by this business encompasses concept, design, prototype, manufacturing and
support.
Key
Pillars for our Growth Plans
Our
volumetric real time imaging sonar technology and our DAVD are our most promising products for the Company’s near-term growth.
Our
real time 3D/4D/5D/6D imaging sonars are the only underwater imaging sonars which are capable of providing complex seabed mapping, real
time inspection and monitoring and providing 3D/4D/5D/6D data of moving underwater objects irrespective of water conditions including
in zero visibility (which is a common and costly problem in underwater operations). Competing products such as the multibeam sonar can
perform mapping (but not complex mapping) without the ability to perform real time inspection and monitoring of moving objects in 3D
underwater. 3D information is important because it provides the complete detail of the underwater object being imaged (XYZ data), including
the ability to make real time physical measurements. We also believe our Echoscope PIPE® is the only technology that can
generate multiple real time 3D/4D/5D/6D acoustic images using different acoustic parameters such as frequency, field of view, pulse length,
and filters.
In
the industry in which we operate, we are widely considered the leading solution providers for underwater real time 3D visualization.
We
also believe that the DAVD system is poised to radically change the way diving operations are performed globally by providing a
fully integrated suite of sensor data shared in real time by the dive supervisor on the surface and the diver. Current diving is
done largely by voice command missions from the topside using a disparate suite of systems for video data, communications and
positioning.
The
DAVD tethered version is now in early-stage adoption by different teams within the US Navy, such as the underwater construction and salvage
teams and has been moved from the customer’s R&D phase to their operational phase. Operational phase means that the DAVD tethered version is now
a standard item available for purchase and for which budget lines are established within the various user commands within the Navy.
The
DAVD untethered prototype variant, which is the biggest market opportunity in the USA addressing the defense market, was delivered
in our first quarter to our Navy customer for evaluation. This is currently going through testing and evaluation by the customer. As part of their evaluation process, we expect the customer to purchase a small batch of evaluation systems for wider fleet
evaluation. The customer and the Company are currently actively demonstrating the untethered version at various trade
shows.
The
concept of utilizing a pair of transparent glasses in the Head Up Display (HUD) underwater for this purpose, is protected by patent.
All component parts of the DAVD system are proprietary to the Company and include software (4G USE®), Diver Processing
Pack – telemetry system (DPP), Top Side Controller and real time 3D Sonar. The Company benefits from the exclusive license from
the United States Department of the Navy at Naval Surface Warfare Center Panama City Division to utilize the utility patent covering
the concept of using the pair of transparent glasses as a data hub underwater. The DAVD is an “Approved Navy Use” item.
Both
the Marine Technology Business and Engineering Business have established synergies in terms of customers and specialized engineering
skill sets (hardware, firmware and software) encompassing capturing, computing, processing and displaying data in harsh environments.
Both businesses jointly bid for projects for which their common joint skills provide competitive advantage and make them eligible for
such projects.
Factors
Affecting our Business in the Current Quarter
The
following is a short description of some of the most critical and pressing factors that affect our business. For a more detailed discussion
of these and additional factors, refer to our Form 10-K for the fiscal year ended October 31, 2022.
Cumulative
Supply Chain Issues
We
continue to experience shortage of key electronic components in the market and suppliers are still quoting lead times as long as 12
months out for routine components, including FPGAs (Field Programmable Gate Arrays) and significant price increases. The unavailability of components affects our
business in a number of ways, including:
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Our
ability to progress ongoing projects including customer projects, particularly in the Engineering Segment. |
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Significant
increase in prices because demand exceeds supply for these components. |
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Our
ability to manufacture systems in our Products Business. |
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Our
ability to fully utilize our Production staff when critical parts are unavailable. |
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Our
ability to perform outstanding contractual obligations in the Engineering Business. |
Inflation
Inflation
measured as the Consumer Price Index is significant in the countries in which we operate. For the 12-month period to April 2023,
inflation rates were as follows:
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Denmark
5.3% - source: Statistics Denmark, |
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UK
7.8% - source: Office of National Statistics; and |
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USA
4.9% - source: U.S. Bureau of Labor Statistics. |
Inflation
affects our business in several areas including increasing our cost of operations and our bill of material costs for the products
we sell and therefore our overall financial results. See the MD&A section which concerns “Inflation and Foreign Currency”.
Currency
Fluctuations
The
Company has operations in the USA, UK, Denmark, Australia and India. Our consolidated results include the Company’s foreign
subsidiaries’ financial results which are translated into USD, our reporting currency. Revenue and expenses are translated
using the weighted average exchange rates in effect during the reporting period. In the Current Quarter the USD has strengthened
against major currencies including the British Pound, Euro, Danish Kroner and Indian Rupees (the functional currencies of the
Company’s foreign subsidiaries). A significant part of our consolidated results is transacted in British Pounds and Danish
Kroner and translated into USD for reporting purposes. In the Current Quarter, for the purposes of reporting revenues and expenses,
the value of the Pound and Euro (the Danish Kroner is pegged to the Euro) respectively fell 5.4% and 1.1%, against the USD, when
compared to the Previous Quarter. For the reporting of assets and liabilities, the Pound increased 9.2% when compared to the 2022
Fiscal year end and the Danish Kroner increased 11.3% over the same period. The impact of currency fluctuations is discussed more
fully below under the “Inflation and Foreign Currency” section. See also Note 5 (Foreign Currency Translation) to the unaudited
Consolidated Financial Statements.
Skills/Resource
Shortages and Pressure on Salaries and Wages
We
are experiencing skill shortages in areas that are critical to our growth strategy including experienced sales and marketing
personnel, software developers and skilled electronic technicians. The inflationary conditions in the countries in which we operate
(US, the UK, Denmark and India) make it difficult for us to compete for these skills as there is extreme pressure on wages.
Furthermore, as a small business we do not have resilience built into our workforce. As a result, there is an inherent risk in
the face of global skills shortage and higher demand for skills that we could lose skills essential to the
manufacture of our products or continuation of the engineering services we provide.
Concentration
of Business Opportunities Where the Sales Cycle is Long and Unpredictable
The
Services Business revenues are highly concentrated and are largely generated from sub-contracts with Prime Defense Contractors. The sales
cycle is generally protracted, and this may affect quarterly revenues. It is also dependent on the federal government appropriating budget
for defense projects and where the federal government is unable to find consensus in the US Congress, this affects the timely award of
sub-contracts from Prime Defense Contractors to our Services Business, which is reliant on these awards. Furthermore, the Products Business
key opportunities which are critical to its growth strategy are in the Defense Market for both its imaging sonars and the DAVD, both
of which are key pillars of the Company’s growth strategy. Due to the protracted nature of the government procurement process and
cycle for defense spending under federal and/or state budgets, the sales cycle can be long and unpredictable, thus affecting timing of
orders and thus quarterly revenues and our overall growth plans.
Impact
on Revenues and Earnings
We
are uncertain as to the extent of the impact the factors disclosed above and in our Form 10-K, covering the fiscal year ended October
31, 2022, will have on our future financial results.
Impact
on Liquidity, Balance Sheet and Assets
These
factors may adversely impact on our availability of free cash flow, working capital and business prospects. As of April 30, 2023, we
had cash and cash equivalents of $23,455,118 and in the Current Six-Month Period we generated a cash deficit from operations of ($261,033). Based
on our outstanding obligations and our cash balances, we believe we have sufficient working capital to effectively continue our business
operations for the foreseeable future.
Critical
Accounting Policies
This
discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements that have
been prepared under accounting principles generally accepted in the United States of America (“GAAP”). The preparation of
financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported values
of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported
levels of revenue and expenses during the reporting period. Actual results could materially differ from those estimates.
Below
is a discussion of accounting policies that we consider critical to an understanding of our financial condition and operating results
and that may require complex judgment in their application or require estimates about matters which are inherently uncertain. A discussion
of our significant accounting policies, including further discussion of the accounting policies described below, can be found in Note
2, “Summary of Accounting Policies” of our Annual Report on Form 10-K for the fiscal year ended October 31, 2022.
Revenue
Recognition
Our
revenues are earned under formal contracts with our customers and are derived from both sales and rental of underwater solutions for
imaging, mapping, defense and survey applications and from the engineering services that we provide. Our contracts do not include the
possibility for additional contingent consideration so that our determination of the contract price does not involve having to consider
potential variable additional consideration. Our product sales do not include a right of return by the customer.
Regarding
our Products Business, all our products are sold on a stand-alone basis and those market prices are evidence of the value of the products.
To the extent that we also provide services (e.g., installation, training, etc.), those services are either included as part of the product
or are subject to written contracts based on the stand-alone value of those services. Revenue from the sale of services is recognized
when those services have been provided to the customer and evidence of the provision of those services exists.
For
further discussion of our revenue recognition accounting policies, refer to Note 2 – “Revenue Recognition” in these
unaudited consolidated financial statements and Note 2 “Summary of Accounting Policies” in our Annual Report on Form 10-K
for the fiscal year ended October 31, 2022.
Recoverability
of Deferred Costs
We
defer costs on projects for service revenue. Deferred costs consist primarily of direct and incremental costs to customize and install
systems, as defined in individual customer contracts, including costs to acquire hardware and software from third parties and payroll
costs for our employees and other third parties.
We
recognize such costs on a contract-by-contract basis in accordance with our revenue recognition policy. For revenue recognized under
the completed contract method, costs are deferred until the products are delivered, or upon completion of services or, where applicable,
customer acceptance. For revenue recognized under the percentage of completion method, costs are recognized as products are delivered
or services are provided in accordance with the percentage of completion calculation. For revenue recognized ratably over the term of
the contract, costs are also recognized ratably over the term of the contract, commencing on the date of revenue recognition. At each
balance sheet date, we review deferred costs, to ensure they are ultimately recoverable. Any anticipated losses on uncompleted contracts
are recognized when evidence indicates the estimated total cost of a contract exceeds its estimated total revenue.
Income
Taxes
The
Company accounts for income taxes in accordance with Accounting Standards Codification 740, Income Taxes (ASC 740). Under ASC 740, deferred
income tax assets and liabilities are recorded for the income tax effects of differences between the bases of assets and liabilities
for financial reporting purposes and their bases for income tax reporting. The Company’s differences arise principally from the
use of various accelerated and modified accelerated cost recovery system for income tax purposes versus straight line depreciation used
for book purposes and from the utilization of net operating loss carryforwards.
Deferred
tax assets and liabilities are the amounts by which the Company’s future income taxes are expected to be impacted by these differences
as they reverse. Deferred tax assets are based on differences that are expected to decrease future income taxes as they reverse. Correspondingly,
deferred tax liabilities are based on differences that are expected to increase future income taxes as they reverse.
For
income tax purposes, the Company uses the percentage of completion method of recognizing revenues on long-term contracts which is consistent
with the Company’s financial reporting under GAAP.
Intangible
Assets
Intangible
assets consist principally of the excess of cost over the fair value of net assets acquired (or goodwill), customer relationships, non-compete
agreements and licenses. Goodwill was allocated to our reporting units based on the original purchase price allocation. Goodwill is not
amortized and is evaluated for impairment annually or more often if circumstances indicate impairment may exist. Customer relationships,
non-compete agreements, patents and licenses are being amortized on a straight-line basis over periods of 2 to 15 years. The Company
amortizes its finite-lived intangible assets using the straight-line method over their estimated period of benefit. Annually, or sooner
if there is indication of a loss in value, we evaluate the recoverability of intangible assets and consider events or circumstances that
warrant revised estimates of useful lives or that indicate that impairment exists. There were no impairment charges during the periods
presented.
The
first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of the reporting unit with
its’ carrying amount, including goodwill. If the fair value, which is based on future cash flows, exceeds the carrying amount,
goodwill is not considered impaired. If the carrying amount exceeds the fair value, goodwill is reduced by the excess of the carrying
amount of the reporting unit over that reporting unit’s fair value. Goodwill can never be reduced below zero, if any. At the end
of each year, we evaluate goodwill on a separate reporting unit basis to assess recoverability, and impairments, if any, are recognized
in earnings.
Consolidated
Results of Operations
Our
consolidated financial results include the results of the Company’s foreign subsidiaries. Foreign subsidiaries’ results are
translated from their functional currencies to USD for reporting purposes. Fluctuations in currency can therefore have an impact on our
financial results, including our translated revenue. One factor in the Current Quarter is that the translated revenue of the Company’s
foreign subsidiaries was lower due to currency fluctuations. During the Current Quarter our consolidated revenue was $5,301,509 compared to $4,984,838 in the Previous Quarter, representing
an increase of 6.4%. However, applying the same exchange rate (“referred to as “the Constant Rate”) as the Previous
Quarter, revenue of our foreign subsidiaries would have increased by $429,180 thus resulting in an increase in consolidated revenue in
the Current Quarter by 8.6% over the Previous Quarter. During the Current Quarter total operating expenses increased by 8.5% and income
from operations increased by 77.7%. Net income before taxes increased by 108.5% and was $1,028,484 compared to $493,207, representing
an increase of 108.5% and net income after taxes was $1,008,477 compared to $611,303, representing an increase of 65.0%.
Segment
Summary
Products
Business
In
the Current Quarter, the Products Business generated $3,583,429 or 67.6% of our consolidated revenues compared to $3,491,009 or
70.0% in the Previous Quarter, representing a 2.6% increase over the Previous Quarter. However, when applying the Constant Rate, the
Products Business revenue would have increased to $3,665,060, representing an increase of 5.0% over the Previous Quarter. Gross
Profit Margin was slightly lower at 75.3% in the Current Quarter compared to 76.6% in the Previous Quarter, representing a fall of
1.3%. Agents Commission in the Current Quarter fell by 61.0% and was $102,452 compared to $262,632 in the Previous Quarter. This
reflects a decrease in sales originating from Asia in the Current Quarter. Total operating expenses increased in the Products
Business by 17.7% and were $1,396,366 compared to $1,186,697 in the Previous Quarter. This is largely due to exchange rate variance
and represents a non-cash item within SG&A. Income from operations was $1,301,681.
Services
Business
In
the Current Quarter, the Services Business generated $1,718,080 or 32.4% of our consolidated revenues compared to $1,493,829 or 30.0%
in the Previous Quarter, representing an increase in sales of 15.0%. However, when applying the Constant Rate, the Services Business revenue
would have increased to $1,748,958, representing an increase of 17.1% over the Previous Quarter. when applying the Constant Rate. Although the Services Business revenues increased over the
Previous Quarter, it is still off its internal budgetary plan due to delays in closing contracts with its defense customers.
Total Operating Expenses increased
in the Services Business by 13.6% and were $663,273 compared to $583,744 in the Previous Quarter. Income from operations was $261,921.
Results
of Operations for the Current Quarter compared to the Previous Quarter
Revenue:
Total consolidated revenues for the Current Quarter and the Previous Quarter were $5,301,509 and $4,984,838, respectively, representing
an increase of 6.4%. Both the Products Business and Services Business revenues increased over the Previous Quarter. Notwithstanding,
we continue to experience slow order take which we believe results from supply chain issues on broader defense programs which in turn
cause delays in our customers placing orders. A significant part of our consolidated
revenues is derived from our foreign subsidiaries in the UK and Denmark. Translating our foreign revenues in USD has resulted in $429,180 lower revenue in the period using the Constant Rate.
Gross
Profit Margins: Margin percentage was stronger in the Current Quarter at 68.3% (gross profit of $3,623,241) compared
to 60.8% (gross profit of $3,031,706) in the Previous Quarter. This is largely because in the Previous Quarter the Services Business
gross profit margin was exceptionally low due to a concentration of revenues from a particular project that was taken on to
facilitate the business servicing a new market (motor racing). This concentration in the prior period impacted on our consolidated
gross profit margin.
Gross
profit margins reported in our financial results may vary according to several factors. These include:
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The
percentage of consolidated sales attributable to the Marine Technology Business versus the Services Business. The gross profit margin
yielded by the Marine Technology Business is generally higher than that of the Services Business. |
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The
percentage of consolidated sales attributable to the Services Business. The Services Business yields a lower gross profit margin on
generated sales which are largely based on time and materials for our Department of Defense contracts (DoD subcontracts). |
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The
mix of sales within the Marine Technology Business during the reporting period: |
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Outright
Sale versus Rentals. |
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Hardware
Sale versus Software (software is generally higher margin). |
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Mix
of Services rendered in the period – Offshore Engineering Services versus paid customer Research and Development Projects. |
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Level
of commissions on products which may vary according to volume. Both the Services and Marine Technology Businesses work with
sales/distribution agents. Most of the Marine Technology Business sales in Asia is via agents or distributors. See Note 3 to the
unaudited Consolidated Financial Statements “Cost of Revenues” for more discussion on this. Although the Services
Business works with sales agents, this is on a much lesser scale than the Marine Technology Business. |
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Level
of Rental Assets in the Marine Technology Business’ Rental Pool and therefore the depreciation expenses may vary accordingly. |
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The
mix of engineering projects performed by our Services Business (Design prototyping versus manufacturing), may also affect Gross Profit
Margins. |
In
the Current Quarter, gross profit margins for the Marine Technology Business were 75.3% compared to 76.6% in the Previous Quarter. For
the Services Business these were 53.9% in the Current Quarter compared to 23.9% in the Previous Quarter. In the Previous Quarter the
gross profit margin of the Services Business was exceptionally low due to a concentration of revenues from a particular project that
was taken on to facilitate the business servicing a new market (motor racing).
Since
there are more variable factors affecting gross profit margins in the Marine Technology Business (Products Business), a table showing
a summary of break-out of sales generated by this business in the Current Quarter compared to the Previous Quarter is set out below:
| Marine Technology (Products Business) | |
April 30, 2023 | | |
April 30, 2022 | | |
Percentage Change |
| Equipment Sales | |
$ | 2,500,156 | | |
$ | 2,058,137 | | |
Increase of 21.5% |
| Equipment Rentals | |
| 519,427 | | |
| 715,308 | | |
Decrease of 27.4% |
| Software Sales | |
| 219,423 | | |
| 134,422 | | |
Increase of 63.2% |
| Services | |
| 344,423 | | |
| 583,142 | | |
Decrease of 40.9% |
| | |
| | | |
| | | |
|
| Total Net Sales | |
$ | 3,583,429 | | |
$ | 3,491,009 | | |
Increase of 2.6% |
In
the Current Quarter the Marine Technology Business incurred commission costs of $102,452 compared to $262,632 in the Previous Quarter,
representing a decrease of 61.0%. A significant percentage of our sales in foreign territories such as South Korea, Japan and China are
conducted through sales agents and distributors. In the Previous Quarter we had significant equipment sales in the territory of Asia and therefore commission costs
were higher.
Further
information on the performance of each business segment in the Current Quarter compared to the Previous Quarter including revenues by type and geography can be found in Notes 14 and Note 15 (Segment Analysis and Disaggregation of
Revenue, respectively) to the unaudited Consolidated Financial Statements.
Research
and Development (R&D): R&D expenditure in the Current Quarter was $525,939 compared to $517,378 in the Previous Quarter,
representing a modest increase of 1.7%. This is in line with our strategy of focusing more of our resources on
business development, marketing and global brand building efforts.
R&D expenditure is incurred by the Services
Business on its Thermite® range of mission computers. We have received a small order for a small run of our new generation
of Thermite® which we are delivering throughout this financial year to a NATO member country.
R&D expenditure in the Products Business is incurred in connection
with investments it makes in developing and maintaining its products and solutions. These expenditures are an essential part of our business,
as on an ongoing basis we need to continue to innovate around our solutions and remain competitive in the markets in which we operate.
| Segment | |
April
30, 2023 | | |
April
30, 2022 | | |
Percentage Change |
| Services Segment R&D Expenditure | |
$ | 7,534 | | |
$ | (99,868 | ) | |
Increase of 107.5% |
| Products Segment R&D Expenditure | |
$ | 518,405 | | |
$ | 617,246 | | |
Decrease of 16.0% |
In the Previous Quarter due to supply chain issues the Services Business in anticipation of receiving a customer’s
order had incurred expenditure on this project prior to the actual receipt of this order. Following receiving the customer’s purchase
order, the expenditure of $99,868 was reallocated to the customer project, thus the reason for the negative amount represented above.
Selling,
General and Administrative Expenses (SG&A): SG&A expenses for the Current Quarter increased by 10.3% to $2,242,194 from
$2,033,116 in the Previous Quarter.
The
increase in SG&A in the Current Quarter is due an increase in Legal and Professional. This area has increased largely because of the
recent engagement of tax specialists to assist in the preparation of the Company’s federal and state tax returns and an
increase in our audit fees.
Furthermore,
within the category of SG&A we have transactions which are cash charges and non-cash charges. The non-cash charges comprise depreciation,
amortization and stock-based compensation charges. In the Current Quarter non-cash items as a percentage of SG&A expenses was 13.9%
compared to 24.8 % in the Previous Quarter and this is largely due to the significant reduction in stock-based compensation charges in the Current Quarter which
decreased by 46.3% and were $196,261 compared to $365,567 in the Previous Quarter.
Key
Areas of SG&A Expenditure across the Company for the Current Quarter compared to the Previous Quarter are:
| Expenditure | |
April
30, 2023 | | |
April
30, 2022 | | |
Percentage Change |
| Wages and Salaries | |
$ | 907,297 | | |
$ | 940,460 | | |
Decrease of 3.5% |
| Legal and Professional Fees (including accounting and audit) | |
$ | 467,784 | | |
$ | 390,218 | | |
Increase of 19.9% |
| Rent for our various locations | |
$ | 14,263 | | |
$ | 14,742 | | |
Decrease of 3.3% |
| Marketing | |
$ | 66,578 | | |
$ | 108,569 | | |
Decrease of 38.7% |
Although in the Current Quarter “Wages and Salaries” fell, we believe on the full year basis this category will increase
over the prior financial year due to high inflation in the countries in which we operate and potential new hires in key areas such as business development, marketing, electronic engineers and software
development.
In
general, the category of “Rent” is not material for the Company as we own most of our premises and facilities. The
current category of rent largely reflects our premises in Copenhagen and storage facility that we maintain for our business
operations.
The
increase in “Legal and Professional” reflects an increase in both audit fees and the engagement of new tax specialists.
Our marketing comprises a range of activities which include trade shows
in different parts of the world, particularly in Europe, North America, Asia and the Middle East. Although
Marketing expenditure has fallen in the Current Quarter, we anticipate that on a full year basis this will increase over the previous
financial year as we shift our focus from R&D to business development and marketing including undertaking efforts to build our brands.
We therefore anticipate a significant increase in this area of expenditure this year and subsequent years.
Operating
Income: In the Current Quarter, Operating Income increased by 77.7% and was $855,108 as compared to $481,212 in the Previous Quarter.
This is a result of an increase in our consolidated revenues and gross profit margins realized in the Current Quarter.
Other
Income: In the Current Quarter, we had Other Income of $173,376 compared to $14,497, representing an increase of 1095.9%
from the Previous Quarter. In the Current Quarter $170,596 of this amount represents interest earned on our certified deposit
accounts. In February 2023, we established certified deposit accounts with our existing bankers. These accounts are for fixed
3-month rolling periods and constitute “cash equivalents” in our current unaudited consolidated financial statements. We anticipate that the interest earned on these certified deposit accounts will be material in the future.
See Note 17 to the unaudited Consolidated Financial Statements where this is discussed further.
Net
Income before income taxes: In the Current Quarter, we had income before income taxes of $1,028,484 as compared to $493,207 in
the Previous Quarter, representing an increase of 108.5%. Net income before income taxes increased as a result of an increase in our
consolidated revenues and Gross Profit Margins in the Current Quarter along with material interests earned on our certified deposit accounts.
Net
Income: In the Current Quarter we had Net Income of $1,008,477 compared to $611,303 in
the Previous Quarter, representing an increase of 65.0%. We have recorded Current Tax Expense of $68,773 in the Current Quarter and $109,150
of Current Tax Benefit in the Previous Quarter. Our tax expenses depend on the composition of our consolidated income, and in particular
the percentage that is attributable to the Company and its US subsidiaries together versus the percentage attributable to the Company’s
foreign subsidiaries. In the Current Quarter, the Company and its US subsidiaries had no taxable income. The Company’s UK and Danish
subsidiaries had taxable income in their respective tax jurisdictions. The Company’s UK subsidiaries have carryforward losses and
therefore no provision has been made for tax liability for these subsidiaries in the Current Quarter. The Danish subsidiary has no carryforwards
or other tax relief in its tax jurisdiction resulting in a $90,792 tax liability.
Comprehensive
Income. In the Current Quarter Comprehensive income was $1,546,850 compared to a loss of ($1,655,448) for the
Previous Quarter reflecting adjustments resulting from foreign currency translations. This category is affected by fluctuations in
foreign currency exchange transactions both relating to our profit and loss expenses and our assets and liabilities on our balance
sheet and are largely paper losses or gains, as may be applicable in the reporting period. In the Previous Quarter we had a loss of $2,266,751 on foreign currency translation adjustment transactions compared to a
gain of $538,373 in the Current Quarter. A significant part of the Company’s operations is based in the UK and Denmark, and
therefore a major part of our assets and liabilities recorded in our consolidated balance sheet and financial transactions are
translated from the functional currencies of these subsidiaries into USD for reporting purposes, thus accounting for the changes. See Tables 1 under the section of
the MD&A which concerns “Inflation & Foreign Currency” which shows the impact of the currency adjustments on our
Income Statement and Balance Sheet in the Current Quarter compared to the Previous Quarter.
Results
of Operations for the Current Six Month Period compared to the Previous Six Month Period
Revenue:
Total consolidated revenues for the Current Six Month Period and the Previous Six Month Period were $10,897,793 and $10,823,046
respectively, representing a modest increase of 0.7%. In the Current Six Month Period, the Products Business revenues were
$7,407,588 compared to $7,314,757, representing a 1.3% increase over the Previous Six Month Period. The Services Business revenues
in the Current Six Month Period and the Previous Six Month Period were $3,490,205 and $3,508,289, representing a decrease of 0.5%.
One factor which has affected our total consolidated revenues in the Current Six Month Period is currency fluctuations. Applying the Constant Rate in the Current Six Month Period our total consolidated revenues would have increased by 4.4% or
$471,956 compared to the Previous Six Month period.
Gross
Profit Margins: Consolidated Margin percentage was higher in the Current Six Month Period at 67.7% (gross profit of $7,376,246)
compared to 66.4% (gross profit of $7,191,640). This is largely because in the Previous Six Month Period the Services Business Gross
Profit Margin was exceptionally low due to a concentration of revenues from a particular project that was taken on to facilitate the
business servicing a new market (motor racing). This concentration impacted on our consolidated Gross Profit Margin in the prior period.
Gross
profit margins reported in our financial results may vary according to several factors. These include:
| |
● |
The
percentage of consolidated sales attributable to the Marine Technology Business versus the Services Business. The gross profit margin
yielded by the Marine Technology Business is generally higher than that of the Services Business. |
| |
● |
The
percentage of consolidated sales attributable to the Services Business. The Services Business yields a lower gross profit margin on
generated sales which are largely based on time and materials for our Department of Defense contracts (DoD subcontracts). |
| |
● |
The
mix of sales within the Marine Technology Business during the reporting period: |
| |
|
|
| |
|
|
● |
Outright
Sale versus Rentals. |
| |
|
|
● |
Hardware
Sale versus Software (software is generally higher margin). |
| |
|
|
● |
Mix
of Services rendered in the period – Offshore Engineering Services versus paid Customer Research and Development Projects. |
| |
● |
Level
of commissions on products which may vary according to volume. Both the Services and Marine Technology Businesses work with
sales/distribution agents. Most of the Marine Technology Business sales in Asia is via agents or distributors. See Note 3 to the
unaudited Consolidated Financial Statements “Cost of Revenue” for more discussion on this. |
| |
● |
Level
of Rental Assets in the Marine Technology Business’ Rental Pool and therefore the depreciation expenses may vary accordingly. |
| |
● |
The
mix of engineering projects performed by our Services Business (Design prototyping versus manufacturing), may also affect Gross Profit
Margins. |
In
the Current Six Month Period gross profit margins for the Marine Technology Business were 73.7% compared to 81.0% in the Previous Six
Month Period. For the Services Business these were 55.0% compared to 36.1% in the Previous Quarter. In the Current Six Month Period,
margins weakened in the Marine Technology Business largely because of the level of commission incurred in the period. This was $607,828
in the Current Six Month Period compared to $401,004 in the Previous Six Month Period, representing a 51.6% increase. A significant percentage
of our sales in foreign territories such as South Korea, Japan and China are conducted through our sales agents and distributors. In
addition, the Services Business gross profit margins strengthened in the Current Six Month Period. This is attributable to the fact that
in the Previous Six Month Period its margins were exceptionally low because a high percentage of its revenues in that period related
to a specific project which carried a much lower than typical Gross Profit Margin.
Services
Business
Gross
Profit Margins for the Services Business were higher at 55.0% in the Current Six Month Period compared to 36.1% in the Previous Six Month
Period. The wide swing in Gross Profit Margins in the Services Business in the Current Six Month Period is explained on the basis that
in the Previous Six Month Period 24.8% of its revenues ($1,431,414) was attributable to an engineering project which carried a much lower
than typical Gross Profit Margin. This project has afforded the Company an opportunity to serve a new market sector (motor racing) with
a prestigious customer which we believe will open other opportunities with this customer and in this sector.
Products
Business
Gross
profit margins for the Products Business were lower in the Current Six Month Period at 73.7% compared to 81.0% in the Previous Six Month
Period. In the first quarter of the current financial year (Q1), a significant percentage of the Products business sales emanated from
our foreign agents’ network which resulted in significant commission in the said Q1 period ($486,341), which has impacted on our
year-to-date commissions and therefore gross profit margins. In the Current Six Month Period we incurred foreign agents commission costs
of $607,828 compared to $401,004 in the Previous Six Month Period. On a year-to-date basis therefore, this has weakened the gross profit
margins of the Products Business.
Since
there are more variable factors affecting gross profit margins in the Products Business, a table showing a summary of break-out of sales
generated by the Products Business in the Current Six Month Period compared to the Previous Six Month Period is set out below:
| Marine Technology Business | |
April 30, 2023 | | |
April 30, 2022 | | |
Percentage Change |
| Equipment Sales | |
$ | 5,072,716 | | |
$ | 4,016,982 | | |
Increase of 26.3% |
| Equipment Rentals | |
| 785,330 | | |
| 1,345,776 | | |
Decrease of 41.6% |
| Software Sales | |
| 636,593 | | |
| 439,218 | | |
Increase of 44.9% |
| Services | |
| 912,949 | | |
| 1,512,781 | | |
Decrease of 40.0% |
| Total Net Sales | |
$ | 7,407,588 | | |
$ | 7,314,757 | | |
Increase of 1.3% |
Further
information on the performance of each Segment including revenues by product and geography can be found in Notes 14 and 15 (Segment Analysis
and Disaggregation of Revenue) to the unaudited Consolidated Financial Statements.
Research
and Development (R&D): R&D expenditures in the Current Six Month Period were $970,397 compared to the $1,190,268 in the
Previous Six Month Period, representing a decrease of 18.5%. This is in line with our strategy of changing our focus to marketing, business development and global
brand building.
During
the Current Six Month Period, the Services Business R&D expenditure decreased by 68.6%. In general, the fall in R&D
expenditure in this business unit is a reflection of a reduction in expenditures relating to the Thermite® product
line development which had slowed due to the Pandemic. We are now re-engaging our customers who had the Thermite® on trial and
as we understand our customer base requirements better, we may incur more expenditure on developing this range of products. We have
received a small order for a small run of our new generation of Thermite® which we are delivering throughout this financial year
to a NATO member country.
During
the Current Six Month Period R&D expenditure in the Products Segment decreased by 16.6% from $1,146,621 in the Previous Six
Month Period to $956,713. R&D expenditure is incurred by this business in connection with investments it makes in developing its
products and solutions. These expenditures are an essential part of our business, as on an ongoing basis we need to continue to
innovate around our solutions. In prior periods, we incurred significant expenditures developing the new generation of Echoscope
PIPE® technology, our new F280 Series® and our diver augmented vision display system (DAVD). These high expenditure projects are now completed and
although we necessarily continue to incur R&D expenditures, we anticipate these will be less capital intensive going
forward.
| Segment | |
April 30, 2023 | | |
April 30, 2022 | | |
Percentage Change |
| Services Segment R&D Expenditures | |
$ | 13,684 | | |
$ | 43,647 | | |
Decrease of 68.6% |
| Products Segment R&D Expenditures | |
$ | 956,713 | | |
$ | 1,146,621 | | |
Decrease of 16.6% |
Selling,
General and Administrative Expenses (SG&A): SG&A expenses for the Current Six Month Period increased to $4,204,645 from
$4,155,106 in the Previous Six Month Period, representing an increase of 1.2%.
The
increase in SG&A in the Current Six Month Period is due to the increase in our Legal and Professional fees. This is largely due to
costs associated with the engagement of tax specialists to assist in the preparation of our tax returns along
with an increase in our annual audit fees.
SG&A
includes transactions which are cash charges and non-cash charges. The non-cash charges comprise depreciation, amortization and
stock-based compensation charges. In the Current Six Month Period non-cash items as a percentage of SGA was 14.2% compared to 23.3%
in the Previous Six Month Period and this is largely due to the significant reduction in Stock-based compensation charges in the
Current Six Month Period which decreased by 45.2% and were $378,414 compared to $690,743 in the Previous Six Month
Period.
Key
Areas of SG&A Expenditure across the Group for the Current Quarter compared to the Previous Quarter are:
| Expenditure | |
April 30, 2023 | | |
April 30, 2022 | | |
Percentage Change |
| Wages and Salaries | |
$ | 1,754,811 | | |
$ | 1,843,622 | | |
Decrease of 4.8% |
| Legal and Professional Fees (including accounting and audit) | |
$ | 872,872 | | |
$ | 749,235 | | |
Increase of 16.5% |
| Rent for our various locations | |
$ | 26,975 | | |
$ | 30,487 | | |
Decrease of 11.5% |
| Marketing | |
$ | 87,020 | | |
$ | 122,335 | | |
Decrease of 28.8% |
Although
wages and salaries in the Six Month Period is lower than the Previous Six Month Period, on a full year basis we expect this category
of expenditure to increase over the prior financial year due to high inflation in the countries in which we operate and hiring of new staff in business key areas such as
business development, marketing and sales.
The
increase in the “Legal and Professional” category of expenditures in the Current Six Month Period reflects an increase in
the costs of our accounting and audit services fees and additional costs of tax specialists engaged.
In
general, the category of “Rent” is not material for the Company as we own most of premises and facilities. The current category
of rent largely reflects our premises in Copenhagen and a storage facility that we maintain for our business operations.
Our
marketing comprises a range of activities which include trade shows in different parts of the world, particularly in Europe, North America,
Asia and the Middle East. Although in the Current Six Month Period these costs are lower than the Previous Six Month Period, we expect
on a full year basis these costs will be higher than the previous financial year as we pivot our activities from research and development
to marketing and business development. Business Development, marketing and global brand building are key areas within our business strategy.
Operating
Income: Our income from our operating activities in the Current Six Month Period was $2,201,204 as compared to $1,846,266 in
the Previous Six Month Period which represents an increase of 19.2%. This reflects a small increase in revenues, increase in gross profit
margins and reduction in Research & Development expenditure.
Other
Income: In the Current Six Month Period, this increased by 106.5% and was $189,141 as compared to $91,589 in the Previous
Six Month Period. In the Current Six Month Period $183,457 is attributable to interest earned on our certified deposit accounts. See
Note 17 to the unaudited Consolidated Financial Statements for more information.
Net
Income before income taxes: In the Current Six Month Period, we had a net income before income taxes of $2,390,345 as compared
to $1,937,855 in the Previous Six Month Period, representing an increase of 23.4%. This reflects a small increase in revenues, increase
in gross profit margins, a reduction in total operating expenses and a material increase in other income, largely representing interest
earned in the Current Six Month Period on our certified deposit accounts.
Net
Income: In the Current Six Month Period we had Net Income of $2,406,334 compared to $1,828,551
in the Previous Six Month Period, representing an increase of 31.6%. We have recorded current tax expense of $68,784 in the Current Six
Month Period and $176,459 in the Previous Six Month Period. We also recorded Deferred Tax Benefit in the Current Six Month of $84,773
compared to $67,155 in the Previous Six Month Period. Our tax expenses depend on the composition of our consolidated income, and in particular
the percentage attributable to the Company and its US subsidiaries together versus the percentage attributable to the Company’s
foreign subsidiaries. In the Current Six Month Period the Company and its US subsidiaries had no taxable income. The Company’s UK
and Danish subsidiaries had taxable income in their respective tax jurisdictions. The Company’s UK subsidiaries have carryforward
losses and therefore no provision has been made for tax liability for this entity in our consolidated results for the Current Six Month
Period, whereas the Danish subsidiary has no carryforwards or other tax relief in its jurisdiction and therefore we have made a tax provision
for this entity at 22% tax rate.
Comprehensive
Income (loss). In the Current Six Month Period Comprehensive income was $4,552,357 compared to comprehensive
loss of ($197,050) for the Previous Six Month Period reflecting significant adjustments resulting from foreign currency translations.
This category is affected by fluctuations in foreign currency exchange transactions both relating to our profit and loss expenses and
our assets and liabilities on our balance sheet and are largely paper losses or gains, as may be applicable in the reporting period. In the Previous Six Month Period we had a loss of ($2,025,601) on foreign
currency translation adjustment transactions compared to a significant gain in the Current Six Month Period on these transactions of $2,146,023.
In the Current Six Month Period, the USD has strengthened against most major currencies including the British Pound, Euro, Danish Kroner
and Indian Rupees (the functional currencies of our foreign subsidiaries). A substantial part of these losses/gains are paper losses/gains
associated with re-valuation of our foreign subsidiaries’ balance sheet. A significant part of the Company’s operations is
based in the UK, and therefore a significant part of our financial transactions is performed in Pounds which are translated into USD for
reporting purposes. See Table 2 under the MD&A section which concerns “Inflation & Foreign Currency” which shows the
impact of the currency adjustments on our Income Statement and Balance Sheet in the Current Six Month Period compared to the Previous
Six Month Period.
Liquidity
and Capital Resources
As of April 30, 2023, the Company had an accumulated
deficit of $11,770,302, working capital of $38,338,739, cash of $23,455,118 and stockholders’ equity of $48,310,741 and generated
a cash deficit from operating activities of ($261,033).
The Company entered into a $4,000,000 revolving line
of credit with HSBC NA on November 27, 2019, at prime. The outstanding balance on the line of credit was $0 as of April 30, 2023. This
revolving credit line will expire on November 26, 2023, unless renewed.
Inflation
and Foreign Currency
The
Company maintains its books in functional currency, as follows:
| |
● |
US
Dollars for US Operations. |
| |
● |
British
Pound for United Kingdom Operations. |
| |
● |
Danish
Kroner for our Danish Operations. |
| |
● |
Australian
Dollars for our Australian Operations. |
| |
● |
Indian
Rupees for our Indian Operations. |
See
Note 5 (Foreign Currency Translation) of our unaudited Consolidated Financial Statements for more information on the applicable rates
used for our Balance Sheet transactions and Statement of Income and Comprehensive Income.
Fluctuations
in currency exchange rates can affect the Company’s sales, profitability and financial position when the functional currencies of
its wholly owned foreign subsidiaries are translated into USD for financial reporting. In addition, we are also subject to currency fluctuation
risk with respect to certain foreign currency denominated receivables and payables. The Company cannot predict the extent to which currency
fluctuations may affect the Company’s business and financial position, and there is a risk that such fluctuations will have an
adverse impact on the Company’s sales, profits and financial position. Also, because differing portions of our revenues and costs
are denominated in foreign currency, movements can impact on our margins by, for example, decreasing our foreign revenues when the dollar
strengthens without correspondingly decreasing our expenses. The Company does not currently hedge its currency exposure.
Applying
the Constant Rate, the impact of currency fluctuations on the three months ended April 30, 2023 and the six month ended April 30, 2023,
is shown in Tables 1 & 2 below. In this context “Constant Rates” is defined as:
| For
Revenue and Expenses (Income Statement Transactions) for the three month and six month period |
|
For
the Current Quarter, this is the prevailing weighted average exchange rate in the three month period compared to the prevailing
weighted average exchange rate in the three month period for the Previous Quarter.
For the six month period this is the prevailing weighted
average exchange rate in the Previous Six Month Period compared to the average exchange rate in the Current Six Month Period.
|
| For
Balance Sheet Transactions |
|
The
prevailing exchange rate as of October 31, 2022 (the Balance Sheet Date”) when compared to prevailing exchange rate as of April 30,2023. |
Table
1: Three Months ended April 30, 2023
| | |
USD of British Pounds Based | | |
USD of Australian Dollar Based | | |
USD of Danish Kroner based | | |
USD of Indian Rupee Based | | |
USD of Total Foreign based sales | | |
| |
| | |
Actual | | |
Constant | | |
Actual | | |
Constant | | |
Actual | | |
Constant | | |
Actual | | |
Constant | | |
Actual | | |
Constant | | |
Total | |
| | |
Results | | |
Rates | | |
Results | | |
Rates | | |
Results | | |
Rates | | |
Results | | |
Rates | | |
Results | | |
Rates | | |
Effect | |
| Revenues | |
$ | 1,351,881 | | |
$ | 1,441,621 | | |
$ | - | | |
$ | - | | |
$ | 1,053,170 | | |
$ | 1,075,939 | | |
$ | - | | |
$ | - | | |
$ | 2,405,051 | | |
$ | 2,517,560 | | |
$ | (112,509 | ) |
| Costs | |
$ | 1,971,662 | | |
$ | 2,102,544 | | |
$ | 1,251 | | |
$ | 1,343 | | |
$ | 268,903 | | |
$ | 274,717 | | |
$ | (20,303 | ) | |
$ | (21,929 | ) | |
$ | 2,221,513 | | |
$ | 2,356,675 | | |
$ | (135,162 | ) |
| Net profit (losses) | |
$ | (619,781 | ) | |
$ | (660,923 | ) | |
$ | (1,251 | ) | |
$ | (1,343 | ) | |
$ | 784,267 | | |
$ | 801,223 | | |
$ | 20,303 | | |
$ | 21,929 | | |
$ | 183,538 | | |
$ | 160,885 | | |
$ | 22,653 | |
| Assets | |
$ | 20,951,668 | | |
$ | 19,191,075 | | |
$ | 27,306 | | |
$ | 26,411 | | |
$ | 4,589,114 | | |
$ | 4,121,673 | | |
$ | 1,550 | | |
$ | 1,530 | | |
$ | 25,569,638 | | |
$ | 23,340,690 | | |
$ | 2,228,948 | |
| Liabilities | |
$ | (1,377,344 | ) | |
$ | (1,261,604 | ) | |
$ | - | | |
$ | - | | |
$ | (220,924 | ) | |
$ | (198,421 | ) | |
$ | (1,750 | ) | |
$ | (1,728 | ) | |
$ | (1,600,018 | ) | |
$ | (1,461,753 | ) | |
$ | (138,265 | ) |
| Net assets | |
$ | 19,574,324 | | |
$ | 17,929,471 | | |
$ | 27,306 | | |
$ | 26,411 | | |
$ | 4,368,190 | | |
$ | 3,923,252 | | |
$ | (200 | ) | |
$ | (197 | ) | |
$ | 23,969,620 | | |
$ | 21,878,937 | | |
$ | 2,090,683 | |
This
table shows that the effect of the Constant Rate versus the actual exchange rate fluctuations in the Current Quarter was to increase
our net income by $22,653 and increase our net assets by $2,090,683.
Table
2: Six Months ended April 30, 2023
The
impact of currency fluctuations on the six months ended April 30, 2023, is shown below.
| | |
USD of British Pounds Based | | |
USD of Australian Dollar Based | | |
USD of Danish Kroner based | | |
USD of Indian Rupee Based | | |
USD of Total Foreign based sales | | |
| |
| | |
Actual | | |
Constant | | |
Actual | | |
Constant | | |
Actual | | |
Constant | | |
Actual | | |
Constant | | |
Actual | | |
Constant | | |
Total | |
| | |
Results | | |
Rates | | |
Results | | |
Rates | | |
Results | | |
Rates | | |
Results | | |
Rates | | |
Results | | |
Rates | | |
Effect | |
| Revenues | |
$ | 3,783,204 | | |
$ | 4,089,751 | | |
$ | - | | |
$ | - | | |
$ | 2,424,626 | | |
$ | 2,515,287 | | |
$ | - | | |
$ | - | | |
$ | 6,207,830 | | |
$ | 6,605,039 | | |
$ | (397,209 | ) |
| Costs | |
$ | 3,878,681 | | |
$ | 4,192,965 | | |
$ | 821 | | |
$ | 874 | | |
$ | 565,012 | | |
$ | 586,139 | | |
$ | 12,817 | | |
$ | 14,038 | | |
$ | 4,457,331 | | |
$ | 4,794,015 | | |
$ | (336,684 | ) |
| Net profit (losses) | |
$ | (95,477 | ) | |
$ | (103,213 | ) | |
$ | (821 | ) | |
$ | (874 | ) | |
$ | 1,859,614 | | |
$ | 1,929,148 | | |
$ | (12,817 | ) | |
$ | (14,038 | ) | |
$ | 1,750,499 | | |
$ | 1,811,025 | | |
$ | (60,526 | ) |
| Assets | |
$ | 20,951,668 | | |
$ | 19,191,075 | | |
$ | 27,306 | | |
$ | 26,411 | | |
$ | 4,589,114 | | |
$ | 4,121,673 | | |
$ | 1,550 | | |
$ | 1,691 | | |
$ | 25,569,638 | | |
$ | 23,340,850 | | |
$ | 2,228,788 | |
| Liabilities | |
$ | (1,377,344 | ) | |
$ | (1,261,604 | ) | |
$ | - | | |
$ | - | | |
$ | (220,924 | ) | |
$ | (198,421 | ) | |
$ | (1,750 | ) | |
$ | (1,909 | ) | |
$ | (1,600,018 | ) | |
$ | (1,461,934 | ) | |
$ | (138,084 | ) |
| Net assets | |
$ | 19,574,324 | | |
$ | 17,929,471 | | |
$ | 27,306 | | |
$ | 26,411 | | |
$ | 4,368,190 | | |
$ | 3,923,252 | | |
$ | (200 | ) | |
$ | (218 | ) | |
$ | 23,969,620 | | |
$ | 21,878,916 | | |
$ | 2,090,704 | |
This
table shows that the effect of the Constant Rate versus the actual exchange rate fluctuations in the Current Six Month Period was to
decrease our net income by $60,526 and increase our net assets by $2,090,704.
Off-Balance
Sheet Arrangements
We
do not have any off-balance sheet arrangements.