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Coda Octopus Group, Inc. - Quarter Report: 2020 July (Form 10-Q)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended July 31, 2020

 

OR

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______________ to ______________

 

Commission File Number 001-38154

 

CODA OCTOPUS GROUP, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   34-200-8348

(State or other jurisdiction of

Incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

3300 S Hiawassee Rd, Suite 104-105,

Orlando, Florida

  32835
(Address of principal executive offices)   (Zip Code)
     
Registrant’s telephone number, including area code:   (863) 937 8985

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock   CODA   Nasdaq

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one): [  ]

 

Large accelerated filer [  ]   Accelerated filer [  ]   Non-accelerated filer [  ]   Smaller reporting company [X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

The number of shares outstanding of issuer’s common stock, $0.001 par value as of September 14, 2020 is 10,751,881.

 

 

 

 

 

 

INDEX

 

  Page
PART I - Financial Information  
   
Item 1: Financial Statements 3
   
Consolidated Balance Sheets as of July 31, 2020 (Unaudited) and October 31, 2019 3
   
Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months Ended July 31, 2020 and 2019 (Unaudited) 5
   
Consolidated Statements of Changes in Stockholders’ Equity for the Three, Six and Nine Months Ended July 31, 2020 and 2019 (Unaudited) 6
   
Consolidated Statements of Cash Flows for the Nine Months Ended July 31, 2020 and 2019 (Unaudited) 7
   
Notes to Unaudited Consolidated Financial Statements 8
   
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations 29
   
Item 3: Quantitative and Qualitative Disclosures about Market Risks 43
   
Item 4: Controls and Procedures 43
   
PART II - Other Information 44
   
Item 1: Legal Proceedings 44
   
Item 1A: Risk Factors 44
   
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 44
   
Item 3: Default Upon Senior Securities 44
   
Item 4: Mine Safety Disclosures 44
   
Item 5: Other Information 44
   
Item 6: Exhibits 44
   
Signatures 45

 

 2 

 

 

PART I. FINANCIAL INFORMATION

 

CODA OCTOPUS GROUP, INC.

Consolidated Balance Sheets

July 31, 2020 and October 31, 2019

 

   2020   2019 
   Unaudited     
ASSETS          
           
CURRENT ASSETS          
           
Cash  $13,017,208   $11,721,683 
Accounts Receivable, net   3,559,273    4,431,971 
Inventory   8,877,474    5,350,514 
Unbilled Receivables   1,181,423    2,279,362 
Other Current Assets   260,313    298,187 
Prepaid Expenses   276,097    198,140 
           
Total Current Assets   27,171,788    24,279,857 
           
FIXED ASSETS          
Property and Equipment, net   6,158,556    5,986,812 
           
OTHER ASSETS          
Goodwill and Other Intangibles, net   3,630,486    3,612,891 
Deferred Tax Asset   307,215    631,684 
           
Total Other Assets   3,937,701    4,244,575 
           
Total Assets  $37,268,045   $34,511,244 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 3 

 

 

CODA OCTOPUS GROUP, INC.

Consolidated Balance Sheets (Continued)

July 31, 2020 and October 31, 2019

 

   2020   2019 
   Unaudited     
LIABILITIES AND STOCKHOLDERS’ EQUITY          
           
CURRENT LIABILITIES          
           
Accounts Payable  $949,970   $1,273,490 
Accrued Expenses and Other Current Liabilities   608,898    576,672 
Notes Payable   864,315    487,140 
Deferred Revenue   809,231    830,148 
           
Total Current Liabilities   3,232,414    3,167,450 
           
LONG TERM LIABILITIES          
           
Deferred Revenue, less current portion   183,448    143,587 
Notes Payable, less current portion   481,354    572,434 
           
Total Long Term Liabilities   664,802    716,021 
           
Total Liabilities   3,897,216    3,883,471 
           
STOCKHOLDERS’ EQUITY          
           
Common Stock, $.001 par value; 150,000,000 shares authorized, 10,751,881 shares issued and outstanding as of July 31, 2020 and 10,721,881 shares issued and outstanding as of October 31, 2019   10,753    10,723 
Additional Paid-in Capital   59,954,600    59,521,665 
Accumulated Other Comprehensive Loss   (1,929,763)   (2,135,408)
Accumulated Deficit   (24,664,761)   (26,769,207)
           
Total Stockholders’ Equity   33,370,829    30,627,773 
           
Total Liabilities and Stockholders’ Equity  $37,268,045   $34,511,244 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 4 

 

 

CODA OCTOPUS GROUP, INC.

Unaudited Consolidated Statements of Income and Comprehensive Income

For the Periods Indicated

 

   Three Months Ended July 31,   Nine Months Ended July 31, 
   2020   2019   2020   2019 
                 
Net Revenues  $5,396,036   $6,668,498   $15,366,233   $19,210,278 
Cost of Revenues   1,776,868    2,120,680    5,547,211    6,404,726 
                     
Gross Profit   3,619,168    4,547,818    9,819,022    12,805,552 
                     
OPERATING EXPENSES                    
Research & Development   772,641    631,690    2,414,547    1,948,243 
Selling, General & Administrative   1,525,469    1,775,909    4,950,357    5,091,866 
                     
Total Operating Expenses   2,298,110    2,407,599    7,364,904    7,040,109 
                     
INCOME FROM OPERATIONS   1,321,058    2,140,219    2,454,118    5,765,443 
                     
OTHER INCOME (EXPENSE)                    
Other Income   3,871    6,398    16,384    65,467 
Interest Expense   (16,580)   (20,275)   (54,650)   (69,683)
                     
Total Other Expense   (12,709)   (13,877)   (38,266)   (4,216)
                     
NET INCOME BEFORE INCOME TAXES   1,308,349    2,126,342    2,415,852    5,761,227 
                     
INCOME TAX BENEFIT (EXPENSE)                    
Current Tax Benefit (Expense)   1,584    (38)   13,063    77,954 
Deferred Tax Expense   (287,180)   (350,617)   (324,469)   (850,987)
                     
Total Income Tax Expense   (285,596)   (350,655)   (311,406)   (773,033)
                     
NET INCOME  $1,022,753   $1,775,687   $2,104,446   $4,988,194 
                     
NET INCOME PER SHARE:                    
Basic  $0.10   $0.17   $0.20   $0.47 
Diluted  $0.09   $0.17   $0.19   $0.47 
                     
WEIGHTED AVERAGE SHARES:                    
Basic   10,739,354    10,679,876    10,727,705    10,670,642 
Diluted   11,291,354    10,679,876    11,279,705    10,670,642 
                     
NET  INCOME  $1,022,753   $1,775,687   $2,104,446   $4,988,194 
Foreign Currency Translation Adjustment   674,879    (1,458,315)   205,645    (1,065,479)
                     
Total Other Comprehensive Income (Loss)   674,879    (1,458,315)   205,645    (1,065,479)
                     
COMPREHENSIVE INCOME  $1,697,632   $317,372   $2,310,091   $3,922,715 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 5 

 

 

CODA OCTOPUS GROUP, INC.

Unaudited Consolidated Statements of Changes in Stockholders’ Equity

For the Three, Six and Nine Months Ended July 31, 2020 and 2019

 

               Accumulated         
           Additional   Other         
   Common Stock   Paid-in   Comprehensive   Accumulated     
   Shares   Amount   Capital   Income (Loss)   Deficit   Total 
                         
Balance, October 31, 2018 (Audited)   10,640,416   $10,641   $58,599,378   $(2,228,663)  $(31,994,406)  $24,386,950 
                               
Stock Issued to Investors   23,965    23    105,422    -    -    105,445 
Foreign currency translation adjustment   -    -    -    297,855    -    297,855 
Net Income   -    -    -    -    1,239,013    1,239,013 
Balance, January 31, 2019   10,664,381    10,664    58,704,800    (1,930,808)   (30,755,393)   26,029,263 
                               
Director stock based compensation   7,143    8    42,281    -    -    42,289 
Foreign currency translation adjustment   -    -    -    94,981    -    94,981 
Net Income   -    -    -    -    1,973,494    1,973,494 
Balance, April 30, 2019   10,671,524    10,672    58,747,081    (1,835,827   (28,781,899   28,140,027 
                               
Consultant stock based compensation   20,000    20    291,780    -    -    291,800 
Disgorgement of stock sales             166,514              166,514 
Foreign currency translation adjustment   -    -    -    (1,458,315)   -    (1,458,315)
Net Income                       1,775,687    1,775,687 
Balance, July 31, 2019   10,691,524   $10,692   $59,205,375   $(3,294,142)  $(27,006,212)  $28,915,713 

 

               Accumulated         
           Additional   Other         
   Common Stock   Paid-in   Comprehensive   Accumulated     
   Shares   Amount   Capital   Income (Loss)   Deficit   Total 
                         
Balance, October 31, 2019 (Audited)   10,721,881   $10,723   $59,521,665   $(2,135,408)  $(26,769,207)  $30,627,773 
                               
Foreign currency translation adjustment   -    -    -    84,751    -    84,751 
Net Income   -    -    -    -    1,346,773    1,346,773 
Balance, January 31, 2020   10,721,881    10,723    59,521,665    (2,050,657)   (25,422,434)   32,059,297 
                               
Stock based compensation   -    -    88,299    -    -    88,299 
Foreign currency translation adjustment   -    -    -    (553,985)   -    (553,985)
Net Loss   -    -    -    -    (265,080)   (265,080)
Balance, April 30, 2020   10,721,881    10,723    59,609,964    (2,604,642   (25,687,514   31,328,531 
                               
Stock based compensation   -    -    175,166    -    -    175,166 
Consultant stock based compensation   30,000    30    169,470    -    -    169,500 
Foreign currency translation adjustment   -    -        674,879    -    674,879 
Net Income   -    -        -    1,022,753    1,022,753 
Balance, July 31, 2020   10,751,881   $10,753   $59,954,600   $(1,929,763)  $(24,664,761)  $33,370,829 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 6 

 

 

CODA OCTOPUS GROUP, INC.

Unaudited Consolidated Statements of Cash Flows

For the Periods Indicated

Unaudited

 

   Nine Months Ended July 31, 
   2020   2019 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net income  $2,104,446   $4,988,194 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   643,335    594,606 
Stock based compensation   432,965    334,089 
Deferred tax asset   324,469    850,987 
Loss on the sale of property and equipment   -    36,344 
(Increase) decrease in operating assets:          
Accounts receivable   872,698    (525,168)
Inventory   (3,526,960)   (531,577)
Unbilled receivables   1,097,939    (1,300,494)
Other current assets   37,874    (270,171)
Prepaid expenses   (77,957)   (17,582)
Increase (decrease) in operating liabilities:          
Accounts payable and other current liabilities   (291,294)   543,483 
Deferred revenue   18,944    381,494 
Net Cash Provided by Operating Activities   1,636,459    5,084,205 
CASH FLOWS FROM INVESTING ACTIVITIES          
Purchases of property and equipment   (782,350)   (1,843,589)
Proceeds from sales of property and equipment   -    725,000 
Purchases of other intangible assets   (50,324)   (34,303)
Net Cash Used in Investing Activities   (832,674)   (1,152,892)
CASH FLOWS FROM FINANCING ACTIVITIES          
Repayment of notes   (362,776)   (846,442)
Proceeds from notes   648,871    - 
Disgorgement of stock sales   -    166,514 
Issuance of common stock for cash   -    105,445 
Net Cash Provided by (Used in) in Financing Activities   286,095    (574,483)
EFFECT OF CURRENCY EXCHANGE RATE ON CHANGES IN CASH   205,645    (1,065,479)
           
NET INCREASE IN CASH   1,295,525    2,291,351 
           
CASH AT THE BEGINNING OF THE PERIOD   11,721,683    7,512,422 
           
CASH AT THE END OF THE PERIOD  $13,017,208   $9,803,773 
SUPPLEMENTAL CASH FLOW INFORMATION          
Cash paid for interest  $53,041   $69,499 
Cash paid for taxes  $-   $7,840 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 7 

 

 

CODA OCTOPUS GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

July 31, 2020 and 2019

 

NOTE 1 – BASIS OF PRESENTATION

 

The accompanying unaudited interim consolidated financial statements have been prepared based upon U.S. Securities and Exchange Commission rules that permit reduced disclosure for interim periods. Therefore, they do not include all information and footnote disclosures necessary for a complete presentation of Coda Octopus Group, Inc.’s financial position, results of operations and cash flows, in conformity with generally accepted accounting principles. Coda Octopus Group, Inc. (the “Company”, “Coda Octopus”, “we” or “us”) filed audited consolidated financial statements as of and for the fiscal years ended October 31, 2019 and 2018 which included all information and notes necessary for such complete presentation as part of its annual report on Form 10-K filed on January 28, 2020, (“the “Form 10-K”). The results of operations for the interim period ended July 31, 2020 are not necessarily indicative of the results to be expected for any future period or the entire fiscal year. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended October 31, 2019, which are contained in the Form 10-K. The accompanying unaudited interim consolidated financial statements contain all adjustments (consisting of normal recurring items) which are, in the opinion of management, necessary for a fair presentation of the Company’s financial position as of July 31, 2020 and the results of operations, comprehensive income and cash flows for the interim periods ended July 31, 2020 and 2019. The unaudited interim consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. The Company uses the US dollar as the reporting currency for financial reporting. The financial position and results of operations of the Company’s UK-based operations are measured using the British Pound Sterling, Australian based operations are measured using Australian Dollars and Danish based operations are measured using Danish Kroner as the functional currencies. Foreign currency translation gains and losses are recorded as a change in other comprehensive income. Transaction gains and losses generated from the remeasurement of assets and liabilities denominated in currencies other than the functional currency of our foreign operations are also included in other comprehensive income.

 

NOTE 2 – REVENUE RECOGNITION

 

Beginning on November 1, 2018, the Company adopted the Financial Accounting Standards Board’s Topic 606, Revenue from Contracts with Customers (“Topic 606”). Previously, we had recognized revenue in accordance with FASB Topic 605, Revenue Recognition. After carefully comparing the old and the new revenue standards, we believe that our previous revenue recognition policy is substantially consistent with our new revenue recognition policy and that revenues are consistently stated between periods and no cumulative effect adjustment was required.

 

Topic 606 has established a five-step process to determine the amount of revenue to record from contracts with customers. The five steps are:

 

  Determine if we have a contract with a customer;
     
  Determine the performance obligations in that contract;
     
  Determine the transaction price;
     
  Allocate the transaction price to the performance obligations; and
     
  Determine when to recognize revenue.

 

8
 

 

CODA OCTOPUS GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

July 31, 2020 and 2019

 

NOTE 2 – REVENUE RECOGNITION (Continued)

 

Our revenues are earned under formal contracts with our customers and are derived from both sales and rental of underwater technologies and equipment for real time 3D imaging, mapping, defense and survey applications and from the engineering services which we provide primarily to prime defense contractors. 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 additional variable consideration. Our sales do not include a right of return by the customer.

 

With regard to our Marine Technology Business (“Products Segment”), all of 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, post-sales technical support 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 exist.

 

Revenue derived from either our subscription package offering, or rental of our equipment is recognized when performance obligations are met, in particular, on a daily basis during the subscription or rental period.

 

For arrangements with multiple performance obligations, we recognize product revenue by allocating the transaction revenue to each performance obligation based on the relative fair value of each deliverable and recognize revenue when performance obligations are met including when equipment is delivered, and for rental of equipment, when installation and other services are performed.

 

Our contracts sometimes require customer payments in advance of revenue recognition and are recognized as revenue when the Company has fulfilled its obligations under the respective contracts. Until such time, we recognize this prepayment as deferred revenue.

 

For software license sales for which any services rendered are not considered distinct to the functionality of the software, we recognize revenue upon delivery of the software.

 

With respect to revenues related to our Services Segment, there are contracts in place that specify the fixed hourly rate and other reimbursable costs to be billed based on material and direct labor hours incurred and revenue is recognized on these contracts based on material and the direct labor hours incurred. Revenues from fixed-price contracts are recognized on the percentage-of-completion method, measured by the percentage of costs incurred (materials and direct labor hours) to date to estimated total services (materials and direct labor hours) for each contract. This method is used as we consider expenditures for direct materials and labor hours to be the best available measure of progress on these contracts.

 

On a quarterly basis, we examine all our fixed-price contracts to determine if there are any losses to be recognized during the period. Any such loss is recorded in the quarter in which the loss first becomes apparent based upon costs incurred to date and the estimated costs to complete as determined by experience from similar contracts. Variations from estimated contract performance could result in adjustments to operating results.

 

Recoverability of Deferred Costs

 

In accordance with Topic 606, we defer costs on projects for service revenue. Deferred costs consist primarily of incremental direct 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. The pricing of these service contracts is intended to provide for the recovery of these types of deferred costs over the life of the contract.

 

9
 

 

CODA OCTOPUS GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

July 31, 2020 and 2019

 

NOTE 2 – REVENUE RECOGNITION (Continued)

 

We recognize such costs in accordance with our revenue recognition policy by contract. 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 over time, costs are recognized ratably over the term of the contract, commencing on the date of revenue recognition. At each quarterly 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.

 

Deferred Commissions

 

Our incremental direct costs of obtaining a contract, which consists of sales commissions are deferred and amortized over the period of the contract performance. We classify deferred commissions as current or noncurrent based on the timing of when we expect to recognize the expense. The current and noncurrent portions of deferred commissions are included in prepaid expenses and other current assets, and other assets, net, respectively, in our consolidated balance sheets. As of July 31, 2020 and October 31, 2019, we deferred commissions of $30,466 and $0, respectively. Amortization expense related to deferred commissions was $98,702 and $0 in the nine months ended July 31, 2020 and 2019, respectively.

 

Other Revenue Disclosures

 

See Note 14 – Segment Analysis for a breakdown of revenues from external customers and cost of those revenues between our Product Segment and Services Segment including information on the split of revenues by geography.

 

NOTE 3 – FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The Company’s short term financial instruments consist of cash, receivables, accounts payable, accrued expenses and a revolving line of credit. The Company adjusts the carrying value of financial assets and liabilities denominated in other currencies such as cash, receivables, accounts payable and the lines of credit using the appropriate exchange rates at the balance sheet date. The Company believes that the carrying values of these short-term financial instruments approximate their estimated fair values.

 

10
 

 

CODA OCTOPUS GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

July 31, 2020 and 2019

 

NOTE 4 – FOREIGN CURRENCY TRANSLATION

 

The financial position and results of operations of the Company’s foreign subsidiaries are measured using the local currency in the jurisdiction in which the subsidiary operates as the functional currency. Assets and liabilities of operations denominated in foreign currencies are translated into US dollars at exchange rates in effect at the balance sheet date, while revenues and expenses are translated at the weighted average exchange rates during the reporting period. The resulting translation gains and/or losses on assets and liabilities are recorded in accumulated other comprehensive income (loss), and are excluded from net income (loss) until realized through a sale or liquidation of the investment.

 

NOTE 5 - INVENTORY

 

Inventory is stated at the lower of cost (weighted average method) or net realizable value. Inventory consisted of the following components:

 

   July 31,   October 31, 
   2020   2019 
Inventory          
           
Raw materials and parts  $6,919,288   $4,379,260 
Work in progress   1,320,236    517,354 
Finished goods   637,950    453,900 
Total Inventory  $8,877,474   $5,350,514 

 

11
 

 

CODA OCTOPUS GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

July 31, 2020 and 2019

 

NOTE 6 – FIXED ASSETS

 

Fixed assets consist of the following components:

 

   July 31,   October 31, 
   2020   2019 
         
Buildings  $5,150,109   $4,654,029 
Land   200,000    200,000 
Office machinery and equipment   2,031,564    1,954,938 
Assets utilized in Customer Rentals   1,576,540    1,468,124 
Furniture, fixtures and improvements   1,187,445    1,158,033 
Totals   10,145,658    9,435,124 
Less: accumulated depreciation   (3,987,102)   (3,448,312)
           
Property and Equipment, Net  $6,158,556   $5,986,812 

 

NOTE 7 – OTHER CURRENT ASSETS

 

Other current assets consisted of the following components:

 

   July 31,   October 31, 
   2020   2019 
Other Current Assets          
           
Deposits  $139,355   $42,932 
Tax receivables   120,958    255,255 
Total Other Current Assets  $260,313   $298,187 

 

12
 

 

CODA OCTOPUS GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

July 31, 2020 and 2019

 

NOTE 8 – ESTIMATES

 

The preparation of consolidated financial statements in conformity with US Generally Accepted Accounting Principles (“US GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues including unbilled and deferred revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include costs and estimated earnings in excess of billings, billings in excess of costs and estimated earnings, and valuation of accounts receivable, valuation of fixed assets, valuation of inventory, valuation of deferred tax assets and the valuation of goodwill and other intangibles.

 

NOTE 9 – CONTRACTS IN PROGRESS

 

Costs and estimated earnings in excess of billings on uncompleted contracts represent accumulated project expenses and fees which have not been invoiced to customers as of the date of the consolidated balance sheets. These amounts are stated on the consolidated balance sheets as unbilled receivables of $1,181,423 and $2,279,362 as of July 31, 2020 and October 31, 2019, respectively.

 

Our deferred revenue of $992,679 and $973,735 as of July 31, 2020 and October 31, 2019, respectively, consists of billings in excess of costs and estimated earnings and revenues received as part of our subscription package offering, warranty or Through Life Support (“TLS”) obligations upon completing a sale.

 

Revenue received as part of sales of products via our Products Segment includes a provision for subscription package offering, warranty or TLS. Subscription package offering is essentially a rental agreement for a fixed period of twelve months under which we supply full equipment suite including hardware, software and technical support during the subscription period. TLS offers the customer extended post-sales technical support along with software and hardware assurances. These post-sales obligations (subscription package offering, warranty and TLS) are treated as deferred revenue and are amortized over the period when the contractual obligations exist, which for subscription package offering and warranty is 12 months and TLS varies between 36 and 60 months depending on the package purchased by the customer. These amounts are stated on the consolidated balance sheets as a component of deferred revenue in the amount of $519,588 and $497,819 as of July 31, 2020 and October 31, 2019, respectively.

 

13
 

 

CODA OCTOPUS GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

July 31, 2020 and 2019

 

NOTE 10 - CONCENTRATIONS

 

Significant Customers

 

During the three months ended July 31, 2020, the Company had two customers from whom it generated sales greater than 10% of net revenues. Revenues from these customers was $2,064,274, or 38% of net revenues during the period.

 

During the three months ended July 31, 2019, the Company had one customer from whom it generated sales greater than 10% of net revenues. Revenue from this customer was $2,136,570, or 32% of net revenues during the period.

 

During the nine months ended July 31, 2020, the Company had one customer from whom it generated sales greater than 10% of net revenues. Revenues from this customer was $3,735,550, or 24% of net revenues during the period.

 

During the nine months ended July 31, 2019, the Company had one customer from whom it generated sales greater than 10% of net revenues. Revenue from this customer was $5,345,790, or 28% of net revenues during the period.

 

NOTE 11 – NOTES PAYABLE

 

   July 31,   October 31, 
   2020   2019 
Notes Payable          
           
Secured note payable to HSBC NA with interest payable on the 28th day of each month at 4.56% per annum. Our monthly repayment obligation under this loan is $43,777 (comprising both principal and interest repayment).  $696,798   $1,059,574 
Unsecured Paycheck Protection Program loans which carries an interest rate of 1%. Principal payments begin on October 1, 2020 in the amount of $36,048.   648,871    - 
           
Total   1,345,669    1,059,574 
Less: current portion   (864,315)   (487,140)
Total Long Term Notes Payable  $481,354   $572,434 

 

The Company entered into a $4,000,000 revolving line of credit with HSBC NA on November 27, 2019, with the interest rate established as the applicable prime rate. The outstanding balance on the line of credit was $0 as of July 31, 2020. The credit line which is subject to renewal expires on November 26, 2020.

 

The Company availed itself to the Paycheck Protection Program scheme (“PPP”) in the second and third quarter of this fiscal year. All the PPP amounts received have been utilized in accordance with the purpose and objective of the program. Where these conditions are met, i.e. utilization of the amounts for the designated purpose of the scheme the borrower is eligible for the forgiveness of these amounts. We believe we have met these qualifying conditions and would anticipate the forgiveness of these amounts in due course. We have submitted our application for the forgiveness.

 

14
 

 

CODA OCTOPUS GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

July 31, 2020 and 2019

 

NOTE 12 – RECENT ACCOUNTING PRONOUNCEMENTS

 

On February 24, 2016, the FASB issued ASU No. 2016-02, Leases, requiring lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases with the exception of short-term leases. For lessees, leases will continue to be classified as either operating or finance leases in the balance sheet. Lessor accounting is similar to the current model but updated to align with certain changes to the lessee model. Lessors will continue to classify leases as operating, direct financing or sales-type leases. The effective date of the new standard for public companies is for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. The Company adopted ASU No. 2016-02 effective November 1, 2019. We own substantially all of our facilities. Accordingly, the adoption of ASU No. 2016-02 did not have a material impact on our interim consolidated financial statements.

 

With the exception of the updated standards discussed above, there have been no new accounting pronouncements not yet effective that have significance, or potential significance, to our consolidated financial statements.

 

NOTE 13 – EARNINGS PER COMMON SHARE

 

   Three Months   Three Months   Nine Months   Nine Months 
   Ended   Ended   Ended   Ended 
   July 31,   July 31,   July 31,   July 31, 
Fiscal Period  2020   2019   2020   2019 
Numerator:                    
Net Income  $1,022,753   $1,775,687   $2,104,446   $4,988,194 
                     
Denominator:                    
Basic weighted average common shares outstanding   10,739,354    10,679,876    10,727,705    10,670,642 
Options issued   552,000    -    552,000    - 
Diluted outstanding shares   11,291,354    10,679,876    11,279,705    10,670,642 
                     
Earnings from continuing operations                    
                     
Basic  $0.10   $0.17   $0.20   $0.47 
Diluted  $0.09   $0.17   $0.19   $0.47 

 

15
 

 

CODA OCTOPUS GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

July 31, 2020 and 2019

 

NOTE 14 – SEGMENT ANALYSIS

 

Based on the fundamental differences in the types of offerings (services versus products sale/rental), we operate two distinct reportable segments which are managed separately. Coda Octopus Martech and Coda Octopus Colmek (“Services Segment” or “Marine Engineering Business”) are providing engineering services as sub-contractors mainly to prime defense contractors and Coda Octopus Products operations are comprised primarily of product sales, technology solutions sales, rental of equipment and/or software and associated services (“Products Segment” or “Marine Technology Business”).

 

Segment operating income is total segment revenue reduced by operating expenses identifiable with the business segment. Corporate includes general corporate administrative costs (“Overhead”).

 

The Company evaluates performance and allocates resources based upon segment operating income. The accounting policies of the reportable segments are the same as those described in the summary of accounting policies reported in our Form 10-K - Consolidated Financial Statements of October 31, 2019 which was filed with the Securities Exchange Commission on January 28, 2020.

 

There are inter-segment sales which have been eliminated in our financial statements but are disclosed in the tables below for information purposes.

 

The following table summarizes segment asset and operating balances by reportable segment as of and for the three and nine months ended July 31, 2020 and 2019, respectively.

 

The Company’s reportable business segments sell their goods and services in four geographic locations:

 

  Americas
     
  Europe
     
  Australia/Asia
     
  Middle East/Africa

 

16
 

 

CODA OCTOPUS GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

July 31, 2020 and 2019

 

NOTE 14 – SEGMENT ANALYSIS (continued)

 

Information concerning principal geographic areas is presented below according to the area where the activity has taken place for the three and nine months ended July 31, 2020 and 2019 respectively:

 

   Marine
Technology
Business
(Products)
   Marine
Engineering
Business
(Services)
   Overhead   Total 
                 
Three Months Ended July 31, 2020                    
                     
Revenues from External Customers  $3,053,070   $2,342,966   $-   $5,396,036 
                     
Cost of Revenues   653,117    1,123,751    -    1,776,868 
                     
Gross Profit   2,399,953    1,219,215    -    3,619,168 
                     
Research & Development   394,332    352,625    25,684    772,641 
Selling, General & Administrative   496,772    515,547    513,150    1,525,469 
                     
Total Operating Expenses   891,104    868,172    538,834    2,298,110 
                     
Income (Loss) from Operations   1,508,849    351,043    (538,834)   1,321,058 
                     
Other (Expense) Income                    
Other Income   3,745    126    -    3,871 
Interest Expense   (1,718)   (4,672)   (10,190)   (16,580)
                     
Total Other Income (Expense)   2,027    (4,546)   (10,190)   (12,709)
                     
Net Income (Loss) before Income Taxes   1,510,876    346,497    (549,024)   1,308,349 
                     
Income Tax (Expense) Benefit                    
Current Tax Benefit (Expense)   5,532    -    (3,948)   1,584 
Deferred Tax (Expense) Benefit   (236,356)   15,155    (65,979)   (287,180)
                     
Total Income Tax (Expense) Benefit   (230,824)   15,155    (69,927)   (285,596)
                     
Net Income (Loss)  $1,280,052   $361,652   $(618,951)  $1,022,753 
                     
Supplemental Disclosures                    
                     
Total Assets  $22,149,613   $14,439,917   $678,515   $37,268,045 
                     
Total Liabilities  $1,737,007   $1,392,816   $767,393   $3,897,216 
                     
Revenues from Intercompany Sales - eliminated from sales above  $498,312   $8,976   $1,350,000   $1,857,288 
                     
Depreciation and Amortization  $261,975   $43,263   $4,677   $309,915 
                     
(Sales) Purchases of Long-lived Assets  $317,892   $23,288   $-   $341,180 

 

17
 

 

CODA OCTOPUS GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

July 31, 2020 and 2019

 

NOTE 14 – SEGMENT ANALYSIS (continued)

 

   Marine
Technology
Business
(Products)
   Marine
Engineering
Business
(Services)
   Overhead   Total 
                 
Three Months Ended July 31, 2019                    
                     
Revenues from External Customers  $3,231,510   $3,436,988   $-   $6,668,498 
                     
Cost of Revenues   592,585    1,528,095    -    2,120,680 
                     
Gross Profit   2,638,925    1,908,893    -    4,547,818 
                     
Research & Development   503,540    32,991    95,159    631,690 
Selling, General & Administrative   590,981    659,398    525,530    1,775,909 
                     
Total Operating Expenses   1,094,521    692,389    620,689    2,407,599 
                     
Income (Loss) from Operations   1,544,404    1,216,504    (620,689)   2,140,219 
                     
Other Income (Expense)                    
Other Income   6,398    -    -    6,398 
Interest Expense   (2,197)   (2,150)   (15,928)   (20,275)
                     
Total Other Income (Expense)   4,201    (2,150)   (15,928)   (13,877)
                     
Net Income (Loss) before Income Taxes   1,548,605    1,214,354    (636,617)   2,126,342 
                     
Current Tax (Expense) Benefit   (5,172)   4,460    674    (38)
Deferred Tax Expense   (47,768)   (214,144)   (88,705)   (350,617)
                     
Total Income Tax Expense   (52,940)   (209,684)   (88,031)   (350,655)
                     
Net Income (Loss)  $1,495,665   $1,004,670   $(724,648)  $1,775,687 
                     
Supplemental Disclosures                    
                     
                     
Total Assets  $18,200,970   $13,876,685   $1,266,254   $33,343,909 
                     
Total Liabilities  $2,169,195   $870,492   $1,388,509   $4,428,196 
                     
Revenues from Intercompany Sales - eliminated from sales above  $136,128   $75,729   $675,000   $888,857 
                     
Depreciation and Amortization  $132,392   $63,724   $4,078   $200,194 
                     
(Sales) Purchases of Long-lived Assets  $(262,062)  $5,937   $34,303   $(221,822)

 

18
 

CODA OCTOPUS GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

July 31, 2020 and 2019

 

NOTE 14 – SEGMENT ANALYSIS (continued)

 

   Marine
Technology
Business
(Products)
   Marine
Engineering
Business
(Services)
   Overhead   Total 
                 
Nine Months Ended July 31, 2020                    
                     
Revenues from External Customers  $8,377,081   $6,989,152   $-   $15,366,233 
                     
Cost of Revenues   1,715,647    3,831,564    -    5,547,211 
                     
Gross Profit   6,661,434    3,157,588    -    9,819,022 
                     
Research & Development   1,393,757    830,008    190,782    2,414,547 
Selling, General & Administrative   2,056,947    1,678,882    1,214,528    4,950,357 
                     
Total Operating Expenses   3,450,704    2,508,890    1,405,310    7,364,904 
                     
Income (Loss) from Operations   3,210,730    648,698    (1,405,310)   2,454,118 
                     
Other Income (Expense)                    
Other Income   16,242    142    -    16,384 
Interest Expense   (7,345)   (12,313)   (34,992)   (54,650)
                     
Total Other Income (Expense)   8,897    (12,171)   (34,992)   (38,266)
                     
Net Income (Loss) before Income Taxes   3,219,627    636,527    (1,440,302)   2,415,852 
                     
Income Tax Benefit (Expense)                    
Current Tax Benefit (Expense)   24,968    -    (11,905)   13,063 
Deferred Tax (Expense) Benefit   (315,849)   145,713    (154,333)   (324,469)
                     
Total Income Tax (Expense) Benefit   (290,881)   145,713    (166,238)   (311,406)
                     
Net Income (Loss)  $2,928,746   $782,240   $(1,606,540)  $2,104,446 
                     
Supplemental Disclosures                    
                     
Total Assets  $22,149,613   $14,439,917   $678,515   $37,268,045 
                     
Total Liabilities  $1,737,007   $1,392,816   $767,393   $3,897,216 
                     
Revenues from Intercompany Sales - eliminated from sales above  $801,134   $109,505   $2,025,000   $2,935,639 
                     
Depreciation and Amortization  $539,567   $89,688   $14,080   $643,335 
                     
Purchases of Long-lived Assets  $758,619   $24,440   $48,519   $831,578 

 

19
 

 

CODA OCTOPUS GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

July 31, 2020 and 2019

 

NOTE 14 – SEGMENT ANALYSIS (continued)

 

   Marine
Technology
Business
(Products)
   Marine
Engineering
Business
(Services)
   Overhead   Total 
                 
Nine Months Ended July 31, 2019                    
                     
Revenues from External Customers  $9,481,229   $9,729,049   $-   $19,210,278 
                     
Cost of Revenues   1,798,800    4,605,926    -    6,404,726 
                     
Gross Profit   7,682,429    5,123,123    -    12,805,552 
                     
Research & Development   1,533,544    130,205    284,494    1,948,243 
Selling, General & Administrative   2,089,442    1,864,503    1,137,921    5,091,866 
                     
Total Operating Expenses   3,622,986    1,994,708    1,422,415    7,040,109 
                     
Income (Loss) from Operations   4,059,443    3,128,415    (1,422,415)   5,765,443 
                     
Other Income (Expense)                    
Other Income   65,467    -    -    65,467 
Interest Expense   (8,063)   (11,849)   (49,771)   (69,683)
                     
Total Other Income (Expense)   57,404    (11,849)   (49,771)   (4,216)
                     
Net Income (Loss) before Income Taxes   4,116,847    3,116,566    (1,472,186)   5,761,227 
                     
Current Tax Benefit   20,496    39,445    18,013    77,954 
Deferred Tax Expense   (199,073)   (447,540)   (204,374)   (850,987)
                     
Total Income Tax Expense   (178,577)   (408,095)   (186,361)   (773,033)
                     
Net Income (Loss)  $3,938,270   $2,708,471   $(1,658,547)  $4,988,194 
                     
Supplemental Disclosures                    
                     
Total Assets  $18,200,970   $13,876,685   $1,266,254   $33,343,909 
                     
Total Liabilities  $2,169,195   $870,492   $1,388,509   $4,428,196 
                     
Revenues from Intercompany Sales - eliminated from sales above  $1,044,595   $304,658   $2,025,000   $3,374,253 
                     
Depreciation and Amortization  $391,516   $191,402   $11,688   $594,606 
                     
Purchases of Long-lived Assets  $1,803,206   $40,383   $34,303   $1,877,892 

 

20
 

 

CODA OCTOPUS GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

July 31, 2020 and 2019

 

NOTE 14 – SEGMENT ANALYSIS (continued)

 

 For the Three Months Ended July 31, 2020 
   Marine   Marine     
   Technology   Engineering   Grand 
   Business   Business   Total 
Disaggregation of Total Net Sales               
                
Americas               
Equipment Sales  $426,319   $-   $426,319 
Equipment Rentals   37,334    -    37,334 
Software Sales   28,385    -    28,385 
Engineering Parts   -    1,466,742    1,466,742 
Services   579,855    286,920    866,775 
Europe               
Equipment Sales   71,239    160,537    231,776 
Equipment Rentals   81,766    -    81,766 
Software Sales   -    -    - 
  Engineering Parts   -    428,767    428,767 
  Services   87,122    -    87,122 
Australia/Asia               
  Equipment Sales   1,538,202    -    1,538,202 
  Equipment Rentals   -    -    - 
  Software Sales   62,155    -    62,155 
  Services   118,287    -    118,287 
Middle East & Africa               
  Equipment Sales   -    -    - 
  Equipment Rentals   -    -    - 
  Software Sales   22,406    -    22,406 
  Services   -    -    - 
                
  Total Net Sales  $3,053,070   $2,342,966   $5,396,036 

 

   For the Three Months Ended July 31, 2020 
   Marine   Marine     
   Technology   Engineering   Grand 
   Business   Business   Total 
Total Net Sales by Geographic Area               
  Americas  $1,071,893   $1,753,662   $2,825,555 
  Europe   240,127    589,304    829,431 
  Australia/Asia   1,718,644    -    1,718,644 
  Middle East & Africa   22,406    -    22,406 
                
  Total Net Sales  $3,053,070   $2,342,966   $5,396,036 

 

21
 

 

CODA OCTOPUS GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

July 31, 2020 and 2019

 

NOTE 14 – SEGMENT ANALYSIS (continued)

 

   For the Three Months Ended July 31, 2020
   Marine   Marine     
   Technology   Engineering   Grand 
   Business   Business   Total 
Total Net Sales by Product Line               
  Equipment Sales  $2,058,166   $160,537   $2,218,703 
  Equipment Rentals   119,100    -    119,100 
  Software Sales   90,540    -    90,540 
  Engineering Parts   -    1,895,509    1,895,509 
  Services   785,264    286,920    1,072,184 
                
  Total Net Sales  $3,053,070   $2,342,966   $5,396,036 

 

22
 

 

CODA OCTOPUS GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

July 31, 2020 and 2019

 

NOTE 14 – SEGMENT ANALYSIS (continued)

 

   For the Three Months Ended July 31, 2019
   Marine   Marine     
   Technology   Engineering   Grand 
   Business   Business   Total 
Disaggregation of Total Net Sales               
                
Americas               
  Equipment Sales  $493,261   $-   $493,261 
  Equipment Rentals   221,567    -    221,567 
  Software Sales   -    -    - 
  Engineering Parts   -    2,259,717    2,259,717 
  Services   95,698    767,024    862,722 
Europe               
  Equipment Sales   418,557    3,235    421,792 
  Equipment Rentals   322,887    -    322,887 
  Software Sales   19,259    -    19,259 
  Engineering Parts   -    347,459    347,459 
  Services   150,216    59,553    209,769 
Australia/Asia               
  Equipment Sales   648,640    -    648,640 
  Equipment Rentals   260,474    -    260,474 
  Software Sales   81,541    -    81,541 
  Services   204,273    -    204,273 
Middle East & Africa               
  Equipment Sales   290,386    -    290,386 
  Equipment Rentals   -    -    - 
  Software Sales   21,261    -    21,261 
  Services   3,490    -    3,490 
                
  Total Net Sales  $3,231,510   $3,436,988   $6,668,498 

 

23
 

 

CODA OCTOPUS GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

July 31, 2020 and 2019

 

NOTE 14 – SEGMENT ANALYSIS (continued)

 

   For the Three Months Ended July 31, 2019
   Marine   Marine     
   Technology   Engineering   Grand 
   Business   Business   Total 
Total Net Sales by Geographic Area               
  Americas  $810,526   $3,026,741   $3,837,267 
  Europe   910,919    410,247    1,321,166 
  Australia/Asia   1,194,928    -    1,194,928 
  Middle East & Africa   315,137    -    315,137 
                
  Total Net Sales  $3,231,510   $3,436,988   $6,668,498 

 

   For the Three Months Ended July 31, 2019
   Marine   Marine     
   Technology   Engineering   Grand 
   Business   Business   Total 
Total Net Sales by Product Line               
  Equipment Sales  $1,850,844   $3,235   $1,854,079 
  Equipment Rentals   804,928    -    804,928 
  Software Sales   122,061    -    122,061 
  Engineering Parts   -    2,607,176    2,607,176 
  Services   453,677    826,577    1,280,254 
                
  Total Net Sales  $3,231,510   $3,436,988   $6,668,498 

 

24
 

 

CODA OCTOPUS GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

July 31, 2020 and 2019

 

NOTE 14 – SEGMENT ANALYSIS (continued)

 

    For the Nine Months Ended July 31, 2020  
    Marine     Marine        
    Technology     Engineering     Grand  
    Business     Business     Total  
Disaggregation of Total Net Sales                  
                   
Americas                          
  Equipment Sales   $ 847,494     $ -     $ 847,494  
  Equipment Rentals     118,672       -       118,672  
  Software Sales     35,635       -       35,635  
  Engineering Parts     -       3,960,340       3,960,340  
  Services     1,125,062       939,336       2,064,398  
Europe                          
  Equipment Sales     478,949       160,537       639,486  
  Equipment Rentals     427,249       -       427,249  
  Software Sales     109,681       -       109,681  
  Engineering Parts     -       1,923,532       1,923,532  
  Services     363,255       5,407       368,662  
Australia/Asia                          
  Equipment Sales     3,876,850       -       3,876,850  
  Equipment Rentals     401,151       -       401,151  
  Software Sales     190,745       -       190,745  
  Services     291,644       -       291,644  
Middle East & Africa                          
  Equipment Sales     38,244       -       38,244  
  Equipment Rentals     592       -       592  
  Software Sales     22,406       -       22,406  
  Services     49,452       -       49,452  
                           
  Total Net Sales   $ 8,377,081     $ 6,989,152     $ 15,366,233  

 

    For the Nine Months Ended July 31, 2020  
    Marine     Marine        
    Technology     Engineering     Grand  
    Business     Business     Total  
Total Net Sales by Geographic Area                        
  Americas   $ 2,126,863     $ 4,899,676     $ 7,026,539  
  Europe     1,379,134       2,089,476       3,468,610  
  Australia/Asia     4,760,390       -       4,760,390  
  Middle East & Africa     110,694       -       110,694  
                           
  Total Net Sales   $ 8,377,081     $ 6,989,152     $ 15,366,233  

 

25
 

 

CODA OCTOPUS GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

July 31, 2020 and 2019

 

NOTE 14 – SEGMENT ANALYSIS (continued)

 

    For the Nine Months Ended July 31, 2020  
    Marine     Marine        
    Technology     Engineering     Grand  
    Business     Business     Total  
Total Net Sales by Product Line                        
  Equipment Sales   $ 5,241,537     $ 160,537     $ 5,402,074  
  Equipment Rentals     947,664       -       947,664  
  Software Sales     358,467       -       358,467  
  Engineering Parts     -       5,883,872       5,883,872  
  Services     1,829,413       944,743       2,774,156  
                           
  Total Net Sales   $ 8,377,081     $ 6,989,152     $ 15,366,233  

 

26
 

 

CODA OCTOPUS GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

July 31, 2020 and 2019

 

NOTE 14 – SEGMENT ANALYSIS (continued)

 

    For the Nine Months Ended July 31, 2019  
    Marine     Marine        
    Technology     Engineering     Grand  
    Business     Business     Total  
Disaggregation of Total Net Sales                  
                     
Americas                        
  Equipment Sales   $ 560,339     $ 57,545     $ 617,884  
  Equipment Rentals     446,594       -       446,594  
  Software Sales     7,250       -       7,250  
  Engineering Parts     -       6,827,221       6,827,221  
  Services     915,837       1,646,694       2,562,531  
Europe                          
  Equipment Sales     1,189,162       114,214       1,303,376  
  Equipment Rentals     974,394       -       974,394  
  Software Sales     167,903       -       167,903  
  Engineering Parts     -       1,023,822       1,023,822  
  Services     628,235       59,553       687,788  
Australia/Asia                        
  Equipment Sales     2,707,978       -       2,707,978  
  Equipment Rentals     518,392       -       518,392  
  Software Sales     283,419       -       283,419  
  Services     543,314       -       543,314  
Middle East & Africa                        
  Equipment Sales     300,859       -       300,859  
  Equipment Rentals     36,130       -       36,130  
  Software Sales     58,826       -       58,826  
  Services     142,597       -       142,597  
                           
  Total Net Sales   $ 9,481,229     $ 9,729,049     $ 19,210,278  

 

    For the Nine Months Ended July 31, 2019  
    Marine     Marine        
    Technology     Engineering     Grand  
    Business     Business     Total  
Total Net Sales by Geographic Area                        
  Americas   $ 1,930,020     $ 8,531,460     $ 10,461,480  
  Europe     2,959,694       1,197,589       4,157,283  
  Australia/Asia     4,053,103       -       4,053,103  
  Middle East & Africa     538,412       -       538,412  
                           
  Total Net Sales   $ 9,481,229     $ 9,729,049     $ 19,210,278  

 

27
 

 

CODA OCTOPUS GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

July 31, 2020 and 2019

 

NOTE 14 – SEGMENT ANALYSIS (continued)

 

    For the Nine Months Ended July 31, 2019  
    Marine     Marine        
    Technology     Engineering     Grand  
    Business     Business     Total  
Total Net Sales by Product Line                        
  Equipment Sales   $ 4,758,338     $ 171,759     $ 4,930,097  
  Equipment Rentals     1,975,510       -       1,975,510  
  Software Sales     517,398       -       517,398  
  Engineering Parts     -       7,851,043       7,851,043  
  Services     2,229,983       1,706,247       3,936,230  
                           
  Total Net Sales   $ 9,481,229     $ 9,729,049     $ 19,210,278  

 

NOTE 15 – INCOME TAXES

 

The Company’s effective tax rate for the three months ended July 31, 2020 and 2019 was 19.1% and 17.8%, respectively. The increase in the effective tax rate for the nine months ended July 31, 2020, as compared to July 31, 2019 resulted from a decrease in our AMT tax refund percentage from 5.2% in 2019 to 1.9% in 2020.

 

As of July 31, 2020, we had U.S. federal net operating losses (“NOL”) carryforwards of $1,651,804, which expire in 2029.

 

NOTE 16 RECLASSIFICATION OF PRIOR YEAR PRESENTATION

 

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. An adjustment has been made to the Consolidated Balance Sheet and Consolidated Statements of Cash Flows for the fiscal year ended October 31, 2019, to reclassify the Value Added Tax (VAT) receivable.

 

28
 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward-Looking Statements

 

The information herein contains forward-looking statements. All statements other than statements of historical fact made herein are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. These forward-looking statements can be identified by the use of words such as “believes,” “estimates,” “could,” “possibly,” “probably,” anticipates,” “projects,” “expects,” “may,” “will,” or “should” or other variations or similar words. No assurances can be given that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from management’s expectations.

 

The following discussion and analysis should be read in conjunction with our financial statements, included herewith and the audited financial statements included in our annual report on Form 10-K filed with the Securities and Exchange Commission on January 28, 2020. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.

 

General Overview

 

Throughout these discussions, the following terminologies listed immediately below are used and have the meanings ascribed to them below:

 

“Current Quarter” Three-Month Period Ended July 31,2020
“Previous Quarter” Three-Month Period Ended July 31, 2019
“Current Nine-Month Period” The Nine Month Period Ended July 31, 2020
“Previous Nine-Month Period” The Nine Month Period Ended July 31, 2019
“2020 Third Quarter Period” Three-Month Period ended July 31, 2020
“2019 Third Quarter Period” Three-Month Period ended July 31, 2019

 

We have two distinct operating businesses within our Group.

 

Products Business:

 

Our Products Business, also referred to as “Marine Technology Business”, designs, manufactures and sells and/or rents underwater solutions, products and services to the subsea commercial and defense markets. Our product offerings comprise both hardware and software. The Products Business has operations in the USA, UK, Denmark, and Australia. The most significant product in the Products Business portfolio is the real time 3D sonar technology which has unique capabilities for both the commercial and defense underwater imaging sonar markets. We believe it is the only sonar in the world with these capabilities. We generate most of our revenues from our real time 3D sonar which includes both hardware and proprietary software. Our products are used primarily in the underwater construction market, offshore oil and gas, offshore wind energy industry, complex dredging, port security, search and rescue, salvaging, defense, shallow water and deep-water mining and marine sciences sectors. Our customers include service providers to major oil and gas companies, renewable energy companies, law enforcement agencies, ports, mining companies, defense bodies, research institutes and universities.

 

Services Business:

 

Our Services Business acts primarily as a sub-contractor to prime defense contractors and engineer sub-assemblies which are utilized in broader defense programs. The Services Business has operations in the USA and UK. Its central business model is the design and manufacture of 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 for these items. 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. Clients include prime defense contractors such as Raytheon, Northrop Grumman, Thales Underwater and BAE systems.

 

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Factors Affecting our Business

 

Our business is affected by several factors that change from to time. Some of the most pressing and concerning which we currently face include: 

 

  Continued uncertainty over the future trade relationship between the European Union (“EU”) and the United Kingdom;
  The continued impact of the COVID-19 pandemic, which has resulted in lower demand for our goods and services and also delays in engineering projects due to our customers allowing only essential travel of their and their suppliers’ personnel currently;
  Change in the economic trade policy towards China in both the UK and the US resulting in refusal of export licenses for our products going to China.

 

United Kingdom’s Withdrawal from the European Union (“Brexit”)

 

Following the United Kingdom’s withdrawal from the EU, the two parties have been in trade talks regarding their ongoing relationship after the transitional period ends on December 31, 2020. If the parties fail to reach agreement on access to their mutual economic markets, the United Kingdom will leave the EU without a trade deal resulting in the application of the World Trade Organization (WTO) trade rules. The target dates which were initially set out for making certain progress have passed without any known outcomes and it is therefore looking increasingly likely that the transitional period will expire without a trade deal in place.

 

Leaving the EU without a trade agreement will most likely affect our UK operations, and thus overall consolidated financial results. The UK operations represent a significant part of our revenues and net income. Our R&D and manufacturing capability for our flagship product Echoscope® is carried out within the United Kingdom and due to the institutional knowledge and experience with our products and technology, it does not lend itself to easily being transferred from Scotland to, for example, another EU member state (as some other companies in other sectors have chosen to do).

 

Since there is no precedent for an EU member state leaving, the full implications for the Company are not currently evident. The outcome is dependent on the type of trade arrangement that is struck between the United Kingdom and the EU. However, we believe that operating under the WTO rules would have far-reaching implications for our Company particularly in the area of costs associated with import/export arrangements for our products including custom duties on purchases and sales and delays and increased compliance costs in the supply chain (both purchasing and selling).

 

We currently benefit from mutual recognition rules in a number of areas including export control requirements and quality standards which allow us to distribute our products freely in the EU and globally where there are agreements with the EU. If these are removed, it is likely to involve new qualification requirements with the attendant costs and delays involved. Furthermore, restrictions on free movement will also introduce additional barriers by limiting our ability to utilize our trained engineers and experts on customer projects in the EU. In addition, shipments of goods will likely be interrupted because of delays at border and ports. This could affect our relationships with customers and negatively impact on our revenues.

 

The uncertainty as to whether the UK and EU will reach a trade agreement is also causing significant fluctuations between the British Pound and other major currencies including the US Dollar and the Euro, which affects our business since a significant part of our income and expenditures relate to our activities in the United Kingdom.

 

We have taken steps to mitigate the impact of the UK’s departure from the EU without a trade deal, by establishing a Danish based subsidiary, Coda Octopus Products A/S, to maintain a presence in the European Union. We have increased our planning around this entity which would give us access to EU markets, by taking on new premises in Copenhagen for its activities. We intend to run a large part of our rental business from this office. Even with such mitigation steps, we can give no assurance that this, in itself, will be sufficient to reduce the impact of the United Kingdom leaving the EU without a trade deal and allow for continued access to the EU markets.

 

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Impact of the Coronavirus outbreak

 

The global outbreak of the Coronavirus has resulted in various governments throughout the world (including the USA, United Kingdom, and the European Union member states, where we have operations), implementing measures restricting the freedom of movement of people. These restrictions have severely curtailed our business activities in our second quarter period of 2020.

 

Our business started to be impacted in February 2020 when several significant industry events such as trade shows important for the promotion and marketing of our products were cancelled. In addition, several navy projects which had been scheduled for implementation were indefinitely postponed in February 2020. During March 2020, governments introduced “global restrictions of movement” that impacted our ability to conduct much of our income generating business activities. Our financial performance was materially impacted in the second quarter of 2020 as disclosed in our Form 10-Q which was filed with the Securities Exchange Commission on June 15, 2020.

 

Although the economy has somewhat reopened, during the 2020 Third Quarter Period, we continued to be impacted by the pandemic as most of our customers are working on a limited basis and are focusing on the most essential projects. Consequently, this has reduced the demand for our goods and services in the 2020 Third Quarter Period.

 

Impact on Revenues and Earnings

 

Until the business environment normalizes, we are uncertain as to the extent of the impact the coronavirus outbreak will have on our financial results. We have experienced two quarters of the coronavirus impact and our financial results have been negatively impacted as we are seeing less demand for our goods and services. The second quarter was severely impacted but in the 2020 Third Quarter Period, we saw an increase in the demand for our goods and services, albeit not at the same levels as the comparable 2019 period. On the Products Business side, a significant part of our revenues is generated from field customer support work (training, assistance in mobilization of equipment or operating the equipment on behalf of our customers). Coronavirus has caused many of these field projects to be postponed indefinitely – which in turn negatively affects our revenues and financial results. Additionally, travel is an important element of the Services Business as many of its engineering projects require customers to attend its premises to conduct Critical Design Reviews (“CDRs”). The Coronavirus outbreak has resulted in travel restrictions due to customer policy or quarantine requirements. This in turn has resulted in the delay in many engineering projects, thus negatively impacting our revenues and financial results.

 

Impact on Liquidity, Balance Sheet and Assets

 

Failure to halt the pandemic, coupled with a downturn in the global economic outlook, may adversely impact on our availability of our free cashflow and working capital. However, as of July 31, 2020 at the end of our third quarter we had cash and cash equivalents of $13,017,208 and for the nine month period of 2020 we generated $1,295,525 of cash. Based on our outstanding obligations including loans and notes payable, their terms and our cash balances we believe we have sufficient working capital to effectively continue our business operations for the foreseeable future.

 

Government Policies on Covid-19

 

Our operations are based in different countries, with each country establishing different rules related to Covid-19 including rules on restricting business operations, limiting staff travel work, requiring staff to self-isolate where staff member or any family member may be exposed to the virus. This has generally resulted in a less predictable working environment for planning and delivering customer projects. A number of implications flow from this including:

 

Impairment of the business’ productivity

Project over runs.

Increase project costs due to the delay.

Higher staff costs due to increased sick pay allowance which varies according to the country where the business operations are located combined with lower productivity.

 

Products Business Outlook

 

In the Current Quarter the Products Business revenues fell by 5.5% compared to the Previous Quarter and similarly year to date revenues were down by 11.6% over the comparable 2019 period.

 

As we anticipated, in the 2020 Third Quarter Period, the coronavirus outbreak has limited the number of offshore projects which are undertaken by our customers. This has resulted in a significant fall in the category of revenues relating to project work (rentals) which fell in the 2020 Third Quarter Period by 85% and was $119,100 compared to $804,928 in the 2019 Third Quarter Period. 

 

The Products Business operations are global and much of our income generating activities require us to attend customer sites, often on an offshore vessel. Offshore activities now require more planning to ensure personnel entering the offshore facility are virus-free. The new norm requires personnel to be quarantined for a 14-day period in the country where the job site is located, prior to entering the vessel. This limits available resources for customer projects (as project implementation time is likely to increase by the 14 days arrival quarantine and the additional 14 days upon return to home country).

 

We rely on sophisticated electronics for our products and we anticipate delay in the supply chain and increase in price. This may affect, among other things, our gross margins and ability to fulfil customer orders in a timely manner along with a resulting decline in revenues.

 

 31 

 

 

Services Business Outlook

 

In the Current Quarter the Services Segment revenues fell by 31.8% compared to the Previous Quarter and similarly year to date revenues were down 28.2% over the comparable 2019 period.

 

The Services Business continue to experience delays in the placement of defense-related orders due to the coronavirus.

 

In addition, many of our engineering projects require customers to attend our sites for Critical Design Reviews (“CDRs”). Due to the policy of many organizations to limit travel to “essential travel only”, many CDRs are postponed and this negatively impacts on the advancement of the engineering projects which will impact revenues.

 

Exporting to China

 

The change in both the US and UK Governments attitude towards trade with China, directly affects the sale by our Products Business to customers based in China. Our real time 3D sonars which are rated above 300 meters along with our inertial navigation and attitude measurement sensors (F180® series) are subject to export control for certain countries, including China. This means that before we export an item which is subject to export control, an export license must be obtained.

 

Recently, the UK Government refused an export license for the first time in 25 years of our dealing with the UK Export Control Organization for a significant order we had received from a repeat customer in China. The curtailment of access to this market due to Government Restrictions is likely to significantly impact our revenues from Asia.

 

The removal of China and potentially the European Union as trading partners, would have significant negative impact on our revenues.

 

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 Consolidated Financial Statements for the year ended October 31, 2019.

 

 32 

 

 

Revenue Recognition

 

Our revenues are earned under formal contracts with our customers and are derived from both sales and rental of underwater technologies and equipment 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 additional potential variable consideration. Our product sales do not include a right of return by the customer.

 

With regard to our Products Segment, all of 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 exist.

 

For further discussion of our revenue recognition accounting policies, refer to Note 2 – “Revenue Recognition” in these financial statements and in our Annual Report on Form 10-K for the fiscal year ended October 31, 2019.

 

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.

 

 33 

 

 

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 carry-forwards.

 

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 U.S. generally accepted accounting principles.

 

Intangible Assets

 

Intangible assets consist principally of the excess of cost over the fair value of net assets acquired (or goodwill), customer relationships, and licenses. Goodwill was allocated to our reporting units based on the original purchase price allocation. Goodwill is not amortized, and it is evaluated annually for impairment 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 limited 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 take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists.

 

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. An impairment loss would be recognized in an amount equal to the excess of the carrying amount of over the fair value of the respective reporting unit to which the goodwill is allocated. There were no impairment charges during the periods presented.

 

Summary of Consolidated Results of Operations

 

Following the material adverse impact on our financial results in the second quarter of 2020 due to the coronavirus pandemic which resulted in the closing of the global economy, in the 2020 Third Quarter Period we saw a moderate increase in the demand for our goods and services.

 

Although the business environment is still challenging due the ongoing coronavirus pandemic, in the 2020 Third Quarter Period we were able to fully reopen our business operations in all locations.

 

The Products Business has seen a significant decline in offshore project work. We believe customers are pursuing only essential projects (such as underwater repair, health and/or safety projects or salvaging operations). This has resulted in a significant fall in revenues generated from project works (rentals) which fell by 85% ($119,100) in the Current Quarter compared to $804,928 in the Previous Quarter. In the Current Quarter the Products Business generated revenues of $3,053,070 compared to $3,231,510 the Previous Quarter, representing a fall of 5.5%. The composition of revenues generated by the Products Business in the Current Quarter has impacted gross profit margins which were lower by 3.1% in the Products Business than the Previous Quarter.

 

The Services Segment order take has slowed due to the coronavirus and we are seeing a delay in anticipated orders coupled with delays in receiving customer sign off (critical design reviews) on engineering projects, as customers are unable to visit our site to perform such reviews. This results in the delay of the advancement of these engineering projects and therefore our revenues.

 

In the Current Quarter, the Services Business generated revenues of $2,342,966 compared to $3,436,988 in the Previous Quarter, a fall of 31.8%.

 

In the Current Quarter the Products Business generated 56.6% of our consolidated revenues and the Services Business generated 43.4%.

 

 34 

 

 

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 $5,396,036 and $6,668,498 respectively, representing a decrease of 19.1%. This decrease is due to the ongoing impact of the Coronavirus pandemic resulting in lower demand for our goods and services, largely because customer staff are still working from home which hampers progress on many field projects. The Services Business is also experiencing delays in the completion of critical design reviews (“CDRs”) on engineering projects due to customers pursuing an “essential travel only policy”. The Products Business generated revenues of $3,053,070 compared to $3,231,510 in Previous Quarter, representing a fall in its revenues of 5.5%. The Services Business generated revenues of $2,342,966 compared to $3,436,938 in the Previous Quarter representing a fall in its revenues of 31.8%.

 

Gross Profit Margins: Margin percentage was marginally weaker in the Current Quarter at 67.1% (gross profit of $3,619,168) compared to 68.2% (gross profit of $4,547,818) in the Previous Quarter.

 

Gross Profit Margins may vary according to several factors. These include:

 

  The percentage of consolidated sales attributed by Products Business. The Gross Profit Margin yielded by the Products Business is generally higher than that of the Services Business;
  The percentage of consolidated sales attributed by the Services Business. The Services Business yields a lower gross profit margin on generated sales which are largely based on time and materials contracts (except for its Thermite® products);
  The mix of sales within the Products Business (outright sales versus rentals; hardware sales versus software and mix of services: offshore engineering services or customer paid for research and development work around our technology); and
  Level of discounts we may give on Products due to volume purchase by customer and commissions on sales (both the Services and Products Businesses work with sales agents).

 

In the Current Quarter Gross Profit Margins for the Products operations were 78.6% compared to 81.7% in the Previous Quarter. For the Services operation these were 52.0% in the Current Quarter compared to 55.5% in the Previous Quarter. 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 Quarter compared to the Previous Quarter is set out below:

 

   Current Quarter
Products
   Previous Quarter
Products
   Percentage Change 
Equipment Sales  $2,058,166   $1,850,844    11.2%
Equipment Rentals   119,100    804,928    (85.2)%
Software Sales   90,540    122,061    (25.8)%
Services   785,264    453,677    73.1%
                
Total Net Sales  $3,053,070   $3,231,510    (5.5)%

 

The significant reduction in our rental revenues is due to lower demand as during this pandemic period customers are pursuing essential projects only. Most customers are still operating essential travel only policy (restricting therefore the number of projects that can be executed). Furthermore, the increase in outright sales means that there is an increase in commission payable in respect of these outright sales. This also affects our margins.

 

Further information on the performance in the Current Quarter compared to the Previous Quarter of each Segment including revenues by product and geography can be found in Note 14 to the Unaudited Consolidated Financial Statements.

 

 35 

 

 

Research and Development (R&D): Total consolidated Research and Development expenditures in the Current Quarter were $772,641 compared to $631,690 in the Previous Quarter, representing an increase of 22.3%. The main reason for R&D expenditure increasing is the development investments the Service Segment is making. This is detailed below.

 

  Services Segment.

 

During the Current Quarter, the Services Business R&D expenditures increased by 969% (from $32,991 in the Previous Quarter to $352,625 in the Current Quarter). Research and Development expenditures are incurred by this business in relation to an incubator embedded systems division which it has established. This division is investing in the development of the Thermite® range of mission computers for leveraging across our group of companies. In this connection, at the beginning of our fiscal year we have hired 4 new engineers for this division as reflected by the increase in R&D expenditures in this Segment. Thermite is a ruggedized mission computer with variants which are man worn, backpack worn and simultaneously integrated in the soldier’s helmet and in defense system such as air-borne drones. The next generation of Thermite® (now the Thermite® Octal) is in trials with several customers. The pace of these trials has slowed due to the outbreak of the coronavirus, where travel is still restricted, and most employees are working from home which therefore impacts trial scheduling. We continue to believe that the development of the Thermite® product is significant for the growth of our Services Segment.

 

  Products Segment

 

R&D expenditures in the Products Business fell from $503,540 in the Previous Quarter to $394,332 in the Current Quarter, representing a reduction of 21.7%. Research and Development expenditures are incurred by this business in relation to its ongoing product development including its underwater imaging sonar technology and inertial navigation systems (both hardware and software). The reduction in this area of expenditures in the Current Quarter is in accordance with our business plan. We have reached key milestones in our development plan with respect to our real time 3D imaging sonar technology and our inertial navigation and attitude measurement sensor, which has resulted in the fall in these expenditures in the Current Quarter.

 

  CRADA – Heads Up Development Prototype Investment

 

In the Previous Quarter, we incurred Research and Development expenditures attributed to the Cooperative Research and Development Agreement (“CRADA”). Under the CRADA we collaborated with Naval Surface Warfare Center, Panama Division in the development of the first-generation prototype Heads Up Display (HUD) Unit for Naval Sea Systems Command (NAVSEA). The first-generation prototype has been signed off under the CRADA and, accordingly, we do not expect further expenditures under the CRADA since the next generation of the HUD is expected to be funded by ONR/NAVSEA.

 

Segment 

July 31,

2020

  

July 31,

2019

  

Percentage

Change

Services Segment R&D Expenditures  $352,625   $32,991   Increase of 969%
Products Segment R&D Expenditures  $394,332   $503,540   Decrease of 21.7%
Coda Octopus Group, Inc. R&D Expenditures  $25,684   $95,159   Decrease of 73%

 

Despite spending significant amounts on Research and Development, we can neither guarantee that these efforts will be successful nor that they will result in meaningful commercial opportunities for the Business.

 

 36 

 

 

Selling, General and Administrative Expenses (SG&A): SG&A expenses for the Current Quarter was $1,525,469 compared to $1,775,909 in the Previous Quarter, representing a fall of 14.1%.

 

Key Areas of SG&A Expenditure across the Group for the Current Quarter compared to the Previous Quarter are:

 

Expenditure 

July 31,

2020

  

July 31,

2019

  

Percentage

Change

Wages and Salaries  $734,890    $726,025   Increase of 1.2%
Legal and Professional Fees (including accounting and audit)  $177,248   $213,274   Decrease of 16.9%
Rent and Rates for our various locations  $50,339    $45,283   Increase of 11.17%
Marketing  $2,487    $49,110   Decrease of 94.94%
General Costs  $(171,028 )  $(27,836)  Increase of 514.4%

 

Legal and Professional Fees were lower due to certain waivers of fees by our Board and our CEO. These waivers have now expired, and payment of fees will resume in the fourth quarter. The percentages of fees that were waived are disclosed in Form 8-K filed the Securities Exchange Commission on April 7, 2020.

 

Marketing costs were lower due to limitation of travel caused by the coronavirus outbreak and cancellation of industry trade shows.

 

The decrease in General Costs is due to a fall in transactional foreign currency exchange expenses.

 

Operating Income (loss): In the Current Quarter we realized an operating income of $1,321,058 compared to an operating income of $2,140,219 in the Previous Quarter, representing a fall of 38.3%. This is largely due to the fall in our revenues in the Current Quarter by 19.1% compared to the Previous Quarter. The fall in revenues reflects the impact of the coronavirus which continues to prevent the full normalization of business activities where we are still seeing restriction on travel and customers pursuing only essential projects. Overall, this has resulted in lower demand for our goods and services.

 

Interest Expense: Interest expense decreased by 18.2% in the Current Quarter to $16,580 from $20,275 in the Previous Quarter. This reflects a reduction in the level of secured debentures we have in place. Although we availed ourselves to the Paycheck Protection Program introduced by the US Government and borrowed $648,871 which carries an interest of 1%, we have fully utilized these amounts for the purposes which they were granted. We therefore believe that we qualify for the forgiveness of materially all of these amounts and as such we do not believe that interest expense will be impacted by the borrowing of these amounts. Note 11 – Notes Payable to the Unaudited Consolidated Financial Statements contains further details pertaining to outstanding loans and notes payable.

 

Other Income: We had $3,871 in Other Expense as compared to $6,398 in Other income in the Previous Quarter. This category is subject to fluctuations as it usually reflects UK Value Added Tax rebates from purchases made outside of the European Union by our UK operations and therefore fluctuates according to the level of such purchases.

 

Net Income (loss) before income taxes: In the Current Quarter, we realized net income before income taxes of $1,308,349 as compared to $2,126,342 in the Previous Quarter, representing a decrease of 38.5%. The fall in Net Income before income taxes is primarily due to the fall in our consolidated revenues by 19.1% caused by the ongoing coronavirus outbreak which has resulted in constraints in the operating business environment resulting in reduced demand for our goods and services and also delay in performing a number of critical design review (CDRs) engineering projects which requires customers to travel to our facilities to perform these. This has slowed down the advancement of these projects and therefore revenues that can be recognized.

 

Net Income: In the Current Quarter, Net Income was $1,022,753 compared to $1,775,687 in the Previous Quarter, representing a fall of 42.4%. The fall in Net Income is primarily due to the fall in our consolidated revenues by 19.1% due to the ongoing impact of the coronavirus which has resulted in reduced demand for our goods and services in the Current Quarter along with a delay in performing a number of critical design review (CDRs) engineering projects which requires customers to travel to our facilities to perform these. This has slowed down the advancement of these projects and therefore revenues that can be recognized.

 

Comprehensive Income. In the Current Quarter Comprehensive Income was $1,697,632 compared to a comprehensive income of $317,372 for the Previous Quarter, representing an increase of 434.9%. This category is affected by fluctuations in foreign currency exchange transactions. In the Previous Quarter we had foreign currency exchange adjustment losses of (1,458,315) compared to a gain of $674,879 in the Current Quarter.

 

 37 

 

 

Results of Operations for the Current Nine Month Period compared to the Previous Nine Month Period

 

Revenue: Total consolidated revenues for the Current Nine Month Period and the Previous Nine Month Period were $15,366,233 and $19,210,278 respectively, representing a decrease of 20%. The significant fall in revenues in the Current Nine Month Period, is a carry forward effect from our financial results in the second quarter of 2020 which were severely impacted by the Coronavirus outbreak and which saw a decline in our consolidated revenues of 51.5%. Although in the third quarter of 2020, the business has started to recover from the deleterious impact realized in the second quarter 2020 period, we are still seeing a lower demand for our goods and services. Revenues have particularly been impacted in the second and third quarter in the Services operations due to delays in advancing a number of engineering projects as these are hampered by travel restrictions which impinge on the ability to conduct the necessary Critical Design Reviews required to advance these projects in the Services Business.

 

Gross Profit Margins: Margin percentage was slightly weaker in the Current Nine Month Period at 63.9% (gross profit of $9,819,022) compared to 66.7% (gross profit of $12,805,552) in the Previous Nine Month Period.

 

Gross Profit Margins vary according to several factors, including:

 

  The percentage of consolidated sales attributed to Products Business. The Gross Profit Margin yielded by the Products Business is generally higher than that of the Services Business;
  The percentage of consolidated sales attributed to the Services Business (this Business yields lower gross profit margin on sales which are largely based on time and materials contracts (except for its Thermite® products);
  The mix of sales within the Products Business (outright sales versus rentals; hardware sales versus software and mix of services: offshore engineering services or customer paid for research and development work around our technology); and
  Level of discounts we may give on Products due to volume purchase by customer and commissions on sales (both the Services and Products work with sales agents).

 

In the Current Nine Month Period Gross Profit Margins for the Products Business were 79.5% compared to 81.0% in the Previous Nine Month Period; Gross Profit Margins for the Services Business were 45.2% in the Current Nine Month Period compared to 52.7% in the Previous Nine Month Period. 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 Nine Month Period compared to the Previous Nine Month Period is set out below:

 

   Current Nine Months Period
Products
   Previous Nine Months Period
Products
   Percentage Change 
Equipment Sales  $5,241,537   $4,758,338    10.2%
Equipment Rentals   947,664    1,975,510    (52.0)%
Software Sales   358,467    517,398    (30.7)%
Services   1,829,413    2,229,983    (18.0)%
                
Total Net Sales  $8,377,081   $9,481,229    (11.6)%

 

The significant reduction in rentals is due to lower demand during the second and third quarter periods of this financial year due to the pandemic. This has resulted in customers pursuing only essential projects to minimize travel and thus risks of contraction of the virus by their personnel. Furthermore, the increase in sales means that there is an increase in commission payable in respect of sales. This also affects our margins.

 

Further information on the performance of each Segment for the Current Nine Month Period compared to the Previous Nine Month Period including revenues by product and geography can be found in Note 14 – “Segment Analysis” to the Unaudited Consolidated Financial Statements.

 

 38 

 

 

Research and Development (R&D): R&D expenditures in the Current Nine Month Period were $2,414,547 compared to the $1,948,243 in the Previous Nine Month Period, representing an increase of 23.9%. The increase in R&D expenditures in the Current Nine Month Period over the Previous Nine Month Period is attributed to the Services Segment which saw an increase in this area of expenditures of approximately 537%. R&D Expenditures in the Products Business were down in the Current Nine Month Period by 9.12% compared to the Previous Nine Month Period.

 

  Services Segment.

 

During the Current Nine Month Period the Services Business R&D expenditures increased by 537%. Research and Development expenditures are incurred by this business in relation to an incubator embedded systems division which it has established. This division is investing in the development of the Thermite® range of mission computers for leveraging across our group of companies. In this connection, at the beginning of our fiscal year we have hired 4 new engineers for this division and increase in R&D expenditures in this Segment reflects this. Thermite is a ruggedized mission computer with variants which are man worn, backpack worn and simultaneously integrated in the soldier’s helmet and in defense system such as air-borne drones. The next generation of Thermite® (now the Thermite® Octal) is in trials with several customers (although the pace of these trials has slowed due to restrictions on non-essential travel). We believe that the continuing development of the Thermite® product is significant for the growth of our Services Segment.

 

  Products Segment

 

During the Current Nine Month Period R&D expenditures in the Products Segment decreased by 9.12% from $1,533,544 in the Previous Nine Month Period to $1,393,757 in the Current Nine Month Period. These expenditures are attributed to investments we are making in developing products. The fall of R&D expenditures in the Current Nine Month Period is in accordance with our business plan. We have reached key milestones in our development plan with respect to our real time 3D imaging sonar technology and our inertial navigation and attitude measurement sensor, which has resulted in the fall in these expenditures in the Current Nine Month Period.

 

  CRADA – Heads Up Development Prototype Investment

 

In the Previous Nine Month Period we had costs of $284,494 compared to $190,782 in the Current Nine Month Period, representing a fall of 32.94% on Research and Development expenditures attributed to the Cooperative Research and Development Agreement (“CRADA”). Under the CRADA we collaborated in the development of the first-generation prototype Heads Up Display (HUD) Unit for Naval Sea Systems Command (NAVSEA) in conjunction with Naval Surface Warfare Center, Panama Division. The first-generation prototype has been signed off under the CRADA and, accordingly, we do not expect further expenditures under the CRADA since the next generation of the HUD will be funded by ONR/NAVSEA. We have started to receive the first tranche of the second-generation HUD development funding.

 

Segment  July 31, 2020   July 31, 2019   Percentage Change
Services Segment R&D Expenditures  $830,008    130,205   Increase of 537.46%
Products Segment R&D Expenditures  $1,393,757   $1,533,544   Decrease of 9.12%
Coda Octopus Group, Inc. R&D Expenditures  $

 

190,782

   $284,494   Decrease of 32.94%

 

 39 

 

 

Despite spending significant amounts on Research and Development, we can neither guarantee that these efforts will be successful nor that they will result in meaningful commercial opportunities for the Business.

 

Selling, General and Administrative Expenses (SG&A): SG&A expenses for the Current Nine Month Period was $4,950,357 compared to $5,091,866 in the Previous Nine Month Period representing a fall in this area of expenditure of 2.8%.

 

Key Areas of SG&A Expenditure across the Group for the Current Nine Month Period compared to the Previous Nine Month Period are:

 

Expenditure 

July 31, 2020

  

July 30, 2019

  

Percentage Change

Wages and Salaries  $2,290,485   $2,217,906   Increase of 3.27%
Legal and Professional Fees (including accounting and audit)  $765,320   $761,498   Increase of 0.5%
Rent for our various locations  $116,218   $198,614   Decrease of 41.49%
Marketing  $68,823   $138,765   Decrease of 50.40%
General Costs  $(96,384)  $(26,442)  Increase of 264.51%

 

The increase in the “Wages and Salaries” category of expenditure in the Current Nine Month Period, is a reflection of increase in the costs of labor in the UK where we have the highest head count of staff and the costs of additional staff in the area of sales and marketing. We have started to introduce some costs cutting measures and would expect on an annualized basis that this area of expenditures will remain broadly in line with the annualized numbers in the previous financial year.

 

“Legal and Professional” expenditures in the Current Nine Month Period increased slightly over the Previous Nine Month Period. In the Current Nine Month Period, we also received certain waivers of by our Board and our CEO. These waivers expired in the fourth quarter of our fiscal year. The percentages of fees that were waived are disclosed in Form 8-K filed the Securities Exchange Commission on April 7, 2020.

 

The decrease in the category of rent is a reflection that we now own most of the properties which we use for our business operations across our group. We expect this category to remain at the amount reflected in the Current Quarter. The only rental property we currently utilize in our Company is our facility in Copenhagen, Denmark where we have established this office to mitigate against some of the impact of the United Kingdom’s withdrawal from the European Union.

 

The decrease in General Costs is due to decrease of transactional foreign currency exchange expenses.

 

Operating Income: Our income from our operating activities in the Current Nine Month Period was $2,454,118 as compared to $5,765,443 in the Previous Nine Month Period which represents a fall of 57.4%. This is due to the significant fall in our revenues in second quarter of 2020 period caused by the impact of coronavirus which limited our business activities severely as a result of the closure of global economic activities. Although in the third quarter of 2020 we have seen an increase in the demand for our goods and services compared to the second quarter 2020 period, where the pandemic impact was greatest, we have still not seen a reversion to the same level of demand pre-pandemic. Revenues in the 2020 Third Quarter Period were also down by 19.1% compared to the 2019 Third Quarter Period. Together these circumstances have resulted in a fall in our Current Nine Month Period revenues and at the same time our operating expenses have largely remained at the same levels as in the prior periods, thus negatively impacting our operating income for the Current Nine Month Period.

 

Interest Expense: Interest expense in the Current Nine Month Period was $54,650 compared to $69,683 in the Previous Nine Month Period, representing a fall of 21.6%. This is an area that is decreasing due to reduction in the level of loans and notes payable and associated interests. Although we availed ourselves to the Paycheck Protection Program introduced by the US Government and borrowed $648,871 which carries an interest of 1%, we have fully utilized these amounts for the purposes which they were granted. We therefore believe that we qualify for the forgiveness of materially all of these amounts and as such we do not believe that interest expense will be impacted by the amounts borrowed under the scheme. Please refer to Note 11 –Loans and Notes Payable - to the Unaudited Consolidated Financial Statements for further details pertaining to this HSBC Loan for more information on this.

 

Other Income: In the Current Nine Month Period, we had Other Income of $16,384 as compared to $65,467 in the Previous Nine Month Period representing a decrease of 75%. This category is subject to fluctuations as it usually reflects UK Value Added Tax rebates from purchases made outside of the European Union by our UK operations and therefore fluctuates according to the level of such purchases.

 

Net Income before income taxes: In the Current Nine Month Period, we had a net income before income taxes of $2,415,852 as compared to $5,761,227 in the Previous Nine Month Period, representing a fall of 58.1%. This is due to the reasons explained above.

 40 

 

 

Net Income: In the Current Nine Month Period net income fell by 57.8% to $2,104,446 from $4,988,194 in the Previous Nine Month Period due to the coronavirus impact on our business which has severely constrained our business activities and resulted in lower demand for our goods and services.

 

Comprehensive Income. In the Current Nine Month Period Comprehensive Income was $2,310,091 compared to $3,922,715 for the Previous Nine Month Period. This category is affected by fluctuations in foreign currency exchange transactions. In the Previous Nine Month Period we had a significant loss of $1,065,479 on foreign currency translation adjustment transactions compared to a modest gain in the Current Nine Month Period of $205,645

 

Liquidity and Capital Resources

 

At July 31, 2020, the Company had an accumulated deficit of $24,664,761, working capital of $23,939,374 and stockholders’ equity of $33,370,829. For the Nine Months Ended July 31, 2020, the Company’s operating activities generated cash of $1,636,459.

 

Financing Activities

 

Secured Promissory Note

 

On April 28, 2017, the Company and its wholly-owned US based subsidiaries, Coda Octopus Products, Inc. and Coda Octopus Colmek, Inc. (together, the “Subsidiaries”), entered into a loan agreement with HSBC Bank NA (the “Lender”) for a loan in the principal amount of $8,000,000 (the “Loan”). The annual interest rate is fixed at 4.56%. The obligations in connection with the repayment of the Loan are secured by all assets of Coda Octopus Group, Inc., and its US Subsidiaries. Our foreign subsidiaries are joint and several guarantors of the obligations. We pay a monthly amount of $43,777 comprising principal and interest repayment. The Note matures in December 2021.

 

The Company prepaid a significant part of the principal amounts on March 14, 2018 thus accelerating the reduction in the principal amount outstanding under this loan and at the same time reducing our interest expense associated with this Secured Promissory Note.

 

The amount outstanding under this loan as of July 31, 2020 is $696,798. Please refer to Note 11 – Notes Payable - to the Unaudited Consolidated Financial Statements for further details pertaining to this HSBC Loan for more information on this.

 

Revolving Credit Line

 

The Company secured a $4,000,000 revolving line of credit with the Lender on November 27, 2019, at prime. The outstanding balance on the line of credit was $0 as of July 31, 2020. This is an annual facility and is due to be considered for renewal in November 2020.

 

Paycheck Protection Program

 

In April 2020, the Company availed itself to the Paycheck Protection Program (“PPP”) borrowing a total of $648,871. This carries an interest rate of 1%. We have utilized these amounts in accordance with the purpose of the program and would anticipate that materially all of these amounts will be forgiven. Please refer to Note 11 – Notes Payable to the Unaudited Consolidated Financial Statements.

 

 41 

 

 

Inflation and Foreign Currency

 

The Company maintains its books in functional currency. In this connection these are:

 

  US Dollars for US Operations;
  British Pound for United Kingdom Operations;
  Danish Kroner for our Danish Operations; and
  Australian Dollars for our Australian Operations.

 

Fluctuations in currency exchange rates can affect the Company’s sales, profitability and financial position when the foreign currencies of its international operations are translated into U.S. dollars for financial reporting. In addition, we are also subject to currency fluctuations 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 including its recorded book value of its assets. Also, because differing portions of our revenues and costs are denominated in foreign currency, movements can impact 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.

 

The impact of currency fluctuations on the three months and Nine months ended July 31, 2020 is shown below. For the purpose of this table “Constant Rates” is defined as the weighted average exchange rate prevailing in the previous comparable period.

 

Table 1: Three Months ended July 31, 2020

 

   GBP   AUD   DKK   USD 
   Actual Results   Constant rates   Actual Results   Constant rates   Actual Results   Constant rates   Actual Results   Constant rates   Total Effect 
Revenues   1,839,801    1,825,042    26,257    26,414    -    -    1,866,058    1,851,456    14,602 
Costs   736,519    730,611    (28,300)   (28,470)   5,499    5,407    713,718    707,549    6,169 
Net Income (Losses)   1,103,282    1,094,431    54,557    54,884    (5,499)   (5,407)   1,152,340    1,143,908    8,432 
Assets   20,017,873    18,629,694    994,320    956,757    32,343    30,364    21,044,536    19,616,815    1,427,721 
Liabilities   (1,637,703)   (1,524,133)   (2,566)   (2,469)   3,251    3,052    (1,637,018)   (1,523,550)   (113,468)
Net Assets   18,380,170    17,105,561    991,754    954,288    35,594    33,416    19,407,518    18,093,264    1,314,254 

 

This table shows that the effect of constant exchange rates, versus the actual exchange rate fluctuations, increased our net income on activities in the Current Quarter by $8,432 and increased net assets by $1,314,254. In addition, the Company recorded gains on exchange rate fluctuations on transactions of $1,464 during the Current Quarter.

 

 42 

 

 

Table 2: Nine Months ended July 31, 2020

 

The impact of currency fluctuations on the Nine months ended July 31, 2020 is shown below. In this context “Constant Rates” is defined as the weighted average exchange rate prevailing in the Previous Quarter.

 

   GBP   AUD   DKK   USD 
   Actual Results   Constant rates   Actual Results   Constant rates   Actual Results   Constant rates   Actual Results   Constant rates   Total Effect 
Revenues   7,174,864    7,176,669        226,371        238,840    -    -    7,401,235    7,415,508    (14,273)
Costs   4,964,179    4,965,428    (20,056)   (21,161)   18,017    18,242    4,962,140    4,962,509    (369)
Net Income (Losses)   2,210,685    2,211,241    246,427    260,000    (18,017)   (18,242)   2,439,095    2,453,000    (13,905)
Assets   20,017,873    18,629,694    994,320    956,757    32,343    30,364    21,044,536    19,616,815    1,427,721 
Liabilities   (1,637,703)   (1,524,133)   (2,566)   (2,469)   3,251    3,052    (1,637,018)   (1,523,550)   (113,468)
Net Assets   18,380,170    17,105,561    991,754    954,288    35,594    33,416    19,407,518    18,093,264    1,314,254 

 

This table shows that the effect of constant exchange rates, versus the actual exchange rate fluctuations, decreased our net income on activities in the Current Nine Months Period by $13,905 and increased net assets by $1,314,254. In addition, the Company recorded losses on exchange rate fluctuations on transactions of $49,787 during the Current Nine Months Period.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements.

 

Item 3. Qualitative and Quantitative Disclosures About Market Risk

 

Not required for smaller reporting companies.

 

Item 4. Controls and Procedures

 

a) Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.

 

The Company’s management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial (and principal accounting) Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of January 31, 2020. Based upon that evaluation 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 covered by this report.

 

(b) Changes in Internal Controls.

 

There was no change in our internal controls over financial reporting that has materially affected, or is reasonable likely to materially affect, our internal control over financial reporting during the quarter covered by this Report.

 

 43 

 

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.

 

Item 1A. Risks Factors

 

Not required for smaller reporting companies

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Pursuant to the terms of the Company’s approved 2017 Stock Incentive Plan, on March 23, 2020, the Company granted a total of 552,000 options to a number of its employees. The seven-year options may be exercised at $4.62 per share and vest in three equal annual installments commencing on the first anniversary of grant.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not Applicable.

 

Item 5. Other Information

 

Item 6. Exhibits

 

31 Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a)
   
32 Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

101.INS XBRL Instance Document.
   
101.SCH XBRL Taxonomy Extension Schema Document
   
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
   
101.LAB XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  Coda Octopus Group, Inc. (Registrant)
   
Date: September 14, 2020 /s/ Annmarie Gayle
  Annmarie Gayle
  Chief Executive Officer
   
Date: September 14, 2020 /s/ Michael Midgley
  Michael Midgley
  Chief Financial Officer

 

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