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Coda Octopus Group, Inc. - Quarter Report: 2022 April (Form 10-Q)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended April 30, 2022

 

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   34-2008348

(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:   (407) 735 2406

 

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 ☒ 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

 

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

 

The number of shares outstanding of issuer’s common stock, $0.001 par value as of June 14, 2022 is 10,858,302.

 

 

 

 
 

 

INDEX

 

  Page
PART I - Financial Information 3
   
Item 1: Financial Statements 3
   
Consolidated Balance Sheets as of April 30, 2022 (Unaudited) and October 31, 2021 4
   
Consolidated Statements of Income and Comprehensive Income for the Three and Six Months Ended April 30, 2022 and 2021 (Unaudited) 6
   
Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended April 30, 2022 and 2021 (Unaudited) 7
   
Consolidated Statements of Cash Flows for the Six Months Ended April 30, 2022 and 2021 (Unaudited) 8
   
Notes to Unaudited Consolidated Financial Statements 9
   
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations 27
   
Item 3: Quantitative and Qualitative Disclosures about Market Risks 38
   
Item 4: Controls and Procedures 38
   
PART II - Other Information 39
   
Item 1: Legal Proceedings 39
   
Item 1A: Risk Factors 39
   
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 39
   
Item 3: Default Upon Senior Securities 39
   
Item 4: Mine Safety Disclosures 39
   
Item 5: Other Information 39
   
Item 6: Exhibits 39
   
Signatures 40

 

2

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

 

Unaudited Consolidated Financial Statements

For the Three Months Ended April 30, 2022 and 2021

 

Contents

 

Consolidated Balance Sheets as of April 30, 2022 (Unaudited) and October 31, 2021 4
   
Consolidated Statements of Income and Comprehensive Income for the Three and Six Months ended April 30, 2022 (Unaudited) and 2021 (Unaudited) 6
   
Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months ended April 30, 2022 (Unaudited) and 2021 (Unaudited) 7
   
Consolidated Statements of Cash Flows for the Six Months ended April 30, 2022 (Unaudited) and 2021 (Unaudited) 8
   
Notes to Unaudited Consolidated Financial Statements 9

 

3

 

 

CODA OCTOPUS GROUP, INC.

Consolidated Balance Sheets

April 30, 2022 and October 31, 2021

 

     2022     2021 
   2022   2021 
   Unaudited     
ASSETS          
CURRENT ASSETS          
           
Cash  $20,658,119   $17,747,656 
Accounts Receivable, net   1,981,074    4,207,996 
Inventory   10,598,371    10,691,177 
Unbilled Receivables   353,302    1,080,384 
Prepaid Expenses   348,927    1,202,327 
Other Current Assets   578,456    627,619 
           
Total Current Assets   34,518,249    35,557,159 
           
FIXED ASSETS          
Property and Equipment, net   6,388,822    6,037,101 
           
OTHER ASSETS          
Goodwill and Other Intangibles, net   3,823,506    3,794,383 
Deferred Tax Asset   132,067    76,776 
           
Total Other Assets   3,955,573    3,871,159 
           
Total Assets  $44,862,644   $45,465,419 

 

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

 

4

 

 

CODA OCTOPUS GROUP, INC.

Consolidated Balance Sheets (Continued)

April 30, 2022 and October 31, 2021

 

   2022   2021 
   Unaudited     
LIABILITIES AND STOCKHOLDERS’ EQUITY          
CURRENT LIABILITIES          
           
Accounts Payable  $1,225,126   $1,454,611 
Accrued Expenses and Other Current Liabilities   916,523    740,449 
Note Payable   -    63,559 
Deferred Revenue   1,040,332    1,999,841 
           
Total Current Liabilities   3,181,981    4,258,460 
           
LONG TERM LIABILITIES          
           
Deferred Revenue, less current portion   137,897    157,886 
           
Total Long Term Liabilities   137,897    157,886 
           
Total Liabilities   3,319,878    4,416,346 
           
STOCKHOLDERS’ EQUITY          
           
Common Stock, $.001 par value; 150,000,000 shares authorized, 10,858,302 issued and outstanding as of April 30, 2022 and 10,857,195 shares issued and outstanding as of October 31, 2021   10,859    10,858 
Additional Paid-in Capital   61,873,873    61,183,131 
Accumulated Other Comprehensive Loss   (3,692,660)   (1,667,059)
Accumulated Deficit   (16,649,306)   (18,477,857)
           
Total Stockholders’ Equity   41,542,766    41,049,073 
           
Total Liabilities and Stockholders’ Equity  $44,862,644   $45,465,419 

 

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

 

5

 

 

CODA OCTOPUS GROUP, INC.

Consolidated Statements of Income and Comprehensive Income

(Unaudited)

 

     2022     2021     2022     2021 
   Three Months Ended April 30,   Six Months Ended April 30, 
   2022   2021   2022   2021 
                 
Net Revenues  $4,984,838   $5,373,076   $10,823,046   $10,423,535 
Cost of Revenues   1,953,132    1,623,472    3,631,406    3,359,009 
                     
Gross Profit   3,031,706    3,749,604    7,191,640    7,064,526 
                     
OPERATING EXPENSES                    
Research & Development   517,378    645,281    1,190,268    1,228,420 
Selling, General & Administrative   2,033,116    1,788,534    4,155,106    3,610,225 
                     
Total Operating Expenses   2,550,494    2,433,815    5,345,374    4,838,645 
                     
INCOME FROM OPERATIONS   481,212    1,315,789    1,846,266    2,225,881 
                     
OTHER INCOME (EXPENSE)                    
Other Income   14,497    69,445    94,491    71,499 
Funding from Paycheck Protection Program   -    558,901    -    648,872 
Interest Expense   (2,502)   (5,108)   (2,902)   (11,297)
                     
Total Other Income   11,995    623,238    91,589    709,074 
                     
INCOME BEFORE INCOME TAX EXPENSE   493,207    1,939,027    1,937,855    2,934,955 
                     
INCOME TAX BENEFIT (EXPENSE)                     
Current Tax Benefit (Expense)   109,150    309,962    (176,459)   334,688 
Deferred Tax Benefit (Expense)   8,946    (41,056)   67,155    67,134 
                     
Total Income Tax Benefit (Expense)    

118,096

    268,906    (109,304)   401,822 
                     
                     
NET INCOME  $611,303   $2,207,933   $1,828,551   $3,336,777 
                     
NET INCOME PER SHARE:                    
Basic  $0.06   $0.20   $0.17   $0.31 
Diluted  $0.05   $0.20   $0.16   $0.30 
                     
WEIGHTED AVERAGE SHARES:                    
Basic   10,857,673    10,772,315    10,857,429    10,763,652 
Diluted   11,405,507    11,191,315    11,405,263    11,182,652 
                     
NET INCOME  $611,303   $2,207,933   $1,828,551   $3,336,777 
                     
Foreign Currency Translation Adjustment   (2,266,751)   298,712    (2,025,601)   1,224,325 
                     
Total Other Comprehensive (Loss) Income  $(2,266,751)  $298,712   $(2,025,601)  $1,224,325 
                     
COMPREHENSIVE (LOSS) INCOME  $(1,655,448)  $2,506,645   $(197,050)  $4,561,102 

 

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

 

6

 

 

CODA OCTOPUS GROUP, INC.

Consolidated Statements of Changes in Stockholders’ Equity

For the Three and Six Months Ended April 30, 2022 and 2021

(Unaudited)

 

                                   
               Accumulated         
           Additional   Other         
   Common Stock   Paid-in   Comprehensive   Accumulated     
   Shares   Amount   Capital   Income (Loss)   Deficit   Total 
                         
Balance, October 31, 2020   10,751,881   $10,753   $60,132,415   $(2,321,278)  $(23,425,622)  $34,396,268 
                               
Employee stock based compensation   -    -    174,447    -    -    174,447 
Foreign currency translation adjustment   -    -    -    925,613    -    925,613 
Net Income   -    -    -    -    1,128,844    1,128,844 
Balance, January 31, 2021   10,751,881   $10,753   $60,306,862   $(1,395,665)  $(22,296,778)  $36,625,172 
                               
Employee stock based compensation   -    -    135,157    -    -    135,157 
Stock issued for options exercised   65,161    65    (65)   -    -    - 
Foreign currency translation adjustment   -    -    -    298,712    -    298,712 
Net Income   -    -    -    -    2,207,933    2,207,933 
Balance, April 30, 2021   10,817,042   $10,818   $60,441,954   $(1,096,953)  $(20,088,845)  $39,266,974 

 

               Accumulated         
           Additional   Other         
   Common Stock   Paid-in   Comprehensive   Accumulated     
   Shares   Amount   Capital   Income (Loss)   Deficit   Total 
                         
Balance, October 31, 2021   10,857,195   $10,858   $61,183,131   $(1,667,059)  $(18,477,857)  $41,049,073 
                               
Employee stock based compensation   -    -    325,175    -    -    325,175 
Foreign currency translation adjustment   -    -    -    241,150    -    241,150 
Net Income   -    -    -    -    1,217,248    1,217,248 
Balance, January 31, 2022   10,857,195   $10,858   $61,508,306   $(1,425,909)  $(17,260,609)  $42,832,646 
                               
Employee stock based compensation   -    -    365,568    -    -    365,568 
Stock issued for options exercised   1,107    1    (1)   -    -    - 
Foreign currency translation adjustment   -    -    -    (2,266,751)   -    (2,266,751)
Net Income   -    -    -    -    611,303    611,303 
Balance, April 30, 2022   10,858,302   $10,859   $61,873,873   $(3,692,660)  $(16,649,306)  $41,542,766 

 

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

 

7

 

 

CODA OCTOPUS GROUP, INC.

Consolidated Statements of Cash Flows

(Unaudited)

 

             
   Six Months Ended April 30, 
   2022   2021 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net income  $1,828,551   $3,336,777 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   443,941    599,864 
Stock based compensation   690,743    309,604 
Deferred income taxes   (63,824)   (67,135)
Funding from Paycheck Protection Program recognized as income   -    (648,872)
(Increase) decrease in operating assets:          
Accounts receivable   2,028,159    (1,085,743)
Inventory   (588,779)   (1,425,821)
Unbilled receivables   711,678    (219,136)
Prepaid expenses   801,354    (115,307)
Other current assets   28,144    (312,329)
Increase (decrease) in operating liabilities:          
Accounts payable and other current liabilities   (278,061)   (115,980)
Deferred revenue   (894,245)   178,939 
Net Cash Provided by Operating Activities   4,707,661    434,861 
CASH FLOWS FROM INVESTING ACTIVITIES          
Purchases of property and equipment   (1,083,111)   (551,153)
Purchases of other intangible assets   (58,365)   (48,036)
Net Cash Used in Investing Activities   (1,141,476)   (599,189)
CASH FLOWS FROM FINANCING ACTIVITIES          
Repayment of notes   (63,559)   (251,850)
Proceeds from Paycheck Protection Program   -    648,872 
Net Cash (Used in) Provided by Financing Activities   (63,559)   397,022 
EFFECT OF CURRENCY TRANSLATION ON CHANGES IN CASH   (592,163)   1,224,325 
           
NET INCREASE IN CASH   2,910,463    1,457,019 
           
CASH AT THE BEGINNING OF THE PERIOD   17,747,656    15,134,289 
           
CASH AT THE END OF THE PERIOD  $20,658,119   $16,591,308 
SUPPLEMENTAL CASH FLOW INFORMATION          
Cash paid for interest  $2,902   $28,152 
Cash paid for taxes  $51,264   $- 

 

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

 

8

 

 

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

April 30, 2022, and October 31, 2021

 

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Coda Octopus Group, Inc. (“Coda,” “the Company,” or “we”) operates two distinct operating business units. These are the Marine Technology Business (“Products Business”, “Products Operations” or “Products Segment”) and the Marine Engineering Business (“Services Business”, “Engineering Business” “Engineering Operations” or “Services Segment”). The Marine Technology Business sells technology solutions to the subsea and underwater markets. These solutions are designed, developed, manufactured and supported by the Company. Among the solutions which it offers to the market and currently its main revenue generating product, is its real time 3D volumetric imaging sonar which is a patented and leading product in the subsea/underwater market. This product is marketed under the name Echoscope® and Echoscope PIPE®, PIPE being an acronym for Parallel Intelligent Processing Engine. It also recently launched a new diver management system (Diver Augmented Vision Display (DAVD)) addressing the global defense and commercial diving market and which it believes is a significant part of its growth pillars. The requirements for the DAVD system emanated from Office of Naval Research and the concept of using a pair of transparent glasses in the Head up Display (HUD) underwater is patented and licensed to the Company by United States Department of the Navy at Naval Surface Warfare Center Panama City Division. The Marine Engineering Business are sub-contractors to prime defense contractors and generally supplies proprietary sub-assemblies to these Primes for incorporation into broader mission critical defense systems. These parts typically are supplied for the life of the program to which they pertain.

 

The consolidated financial statements include the accounts of Coda Octopus Group, Inc. and our domestic and foreign subsidiaries based outside of the US. All significant intercompany transactions and balances have been eliminated in the consolidated financial statements.

 

NOTE 2 – REVENUE RECOGNITION

 

The Company recognizes revenue under the Financial Accounting Standards Board’s Topic 606, Revenue from Contracts with Customers (“Topic 606”).

 

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.

 

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 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.

 

9

 

 

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

April 30, 2022, and October 31, 2021

 

NOTE 2 – REVENUE RECOGNITION (Continued)

 

Regarding our Marine Technology Business (“Products Business”), 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 performed and evidence of the provision of those services exist.

 

Revenue derived from either our subscription package offerings 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. These 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 by the provision of the activation codes to the software.

 

With respect to revenues related to our Services Business, 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 of 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.

 

10

 

 

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

April 30, 2022, and October 31, 2021

 

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 April 30, 2022, and October 31, 2021, we had deferred commissions of $3,496 and $0, respectively. Amortization expense related to deferred commissions was $874 and $0 in the three months years ended April 30, 2022, and 2021, respectively.

 

Other Revenue Disclosures

 

See Note 15 – Disaggregation of Revenue 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 financial instruments include cash, accounts receivable, accounts payable, accrued expenses and notes payable. The carrying amounts of cash, accounts receivable, accounts payable and accrued expenses approximate fair values because of the short-term nature of these instruments. The aggregate carrying amount of the notes payable approximates fair value as they bear interest at a market interest rate based on their term and maturity.

 

11

 

 

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

April 30, 2022, and October 31, 2021

 

NOTE 4 – FOREIGN CURRENCY TRANSLATION

 

Assets and liabilities are translated at the prevailing exchange rates at the balance sheet dates. Related revenues and expenses are translated at weighted average exchange rates in effect during the reporting period. Stockholders’ equity, fixed assets and long-term investments are recorded at historical exchange rates. Resulting translation adjustments are recorded as a separate component in stockholders’ equity as part of accumulated other comprehensive income or (loss) as may be appropriate. Foreign currency transaction gains and losses are included in the consolidated statements of income and comprehensive income.

 

NOTE 5 – INVENTORY

 

Inventory is stated at the lower of cost (First in, First Out method) or net realizable value. Inventory consisted of the following components:

 

   April 30, 2022   October 31, 2021 
         
Raw materials and parts  $7,403,241   $7,525,419 
Work in progress   743,008    919,619 
Finished goods   2,452,122    2,246,139 
Total Inventory  $10,598,371   $10,691,177 

 

NOTE 6 – FIXED ASSETS

 

Property and equipment consisted of the following as of:

 

   April 30, 2022   October 31, 2021 
         
Buildings  $5,745,658   $5,298,028 
Land   200,000    200,000 
Office machinery and equipment   1,661,846    1,622,871 
Rental assets   2,395,856    2,326,486 
Furniture, fixtures and improvements   1,165,094    1,218,217 
Total   11,168,454    10,665,602 
Less: accumulated depreciation   (4,779,632)   (4,628,501)
           
Total Property and Equipment, net  $6,388,822   $6,037,101 

 

12

 

 

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

April 30, 2022, and October 31, 2021

 

NOTE 7 – OTHER CURRENT ASSETS

 

Other current assets consisted of the following as of:

 

     April 30, 2022     October 31, 2021 
   April 30, 2022   October 31, 2021 
         
Deposits  $47,026   $63,992 
Other Tax Receivables   144,671    - 
Employee Retention Credit Receivables   386,759    563,627 
Total Other Current Assets  $578,456   $627,619 

 

NOTE 8 – ESTIMATES

 

The preparation of consolidated financial statements in conformity with U.S. 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 estimates related to the percentage of completion method used to account for contracts including costs and earnings in excess of billings, billings in excess of costs and estimated earnings and the valuation of goodwill.

 

NOTE 9 – CONTRACTS IN PROGESS

 

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 balance sheet. These amounts are stated on the consolidated balance sheets as Unbilled Receivables of $353,302 and $1,080,384 as of April 30, 2022, and October 31, 2021, respectively.

 

Our Deferred Revenue of $896,406 and $1,879,790 as of April 30, 2022, and October 31, 2021, respectively, consists of billings in excess of costs and revenues received as part of our warranty obligations upon completing a sale, as elaborated further in the last paragraph of this note.

 

Sales of equipment include a separate performance obligation for warranty, which is treated as deferred revenue, along with sales for which the customer may purchase extended warranty option. These amounts are amortized over the relevant obligation period (12 months is our standard warranty or 24, 36 or 60 months for extended warranty, sold as Through Life Support (TLS) Package) from the date of delivery. These amounts are stated on the consolidated balance sheets as a component of Deferred Revenue and were $281,823 and $277,937 as of April 30, 2022, and October 31, 2021, respectively.

 

13

 

 

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

April 30, 2022, and October 31, 2021

 

NOTE 10 – CONCENTRATIONS

 

Significant Customers

 

During the three months ended April 30, 2022, the Company had one customer from whom it generated sales greater than 10% of net revenues. Revenue from this customer was $549,134, or 11% of net revenues during the three months ended April 30, 2022. Receivables from this customer was $184,374, or 9.3% of net receivables as of April 30, 2022

 

During the three months ended April 30, 2021, the Company had three customers from whom it generated sales greater than 10% of net revenues. Revenues from these customers were $2,178,677, or 41% of net revenues during three months ended April 30, 2021. Receivables from these customers were $1,048,055 or 33% of net receivable as of April 30, 2021.

 

During the six months ended April 30, 2022, the Company had two customers from whom it generated sales greater than 10% of net revenues. Revenues from these customers were $2,374,201, or 22% of net revenues during six months ended April 30, 2022. Receivables from these customers were $600 or 0.03% of net receivables as of April 30, 2022

 

During the six months ended April 30, 2021, the Company had one customer from whom it generated sales greater than 10% of net revenues. Revenues from this customer were $1,045,367, or 10% of net revenues six months ended April 30, 2021. Receivables from this customer were $321,392 or 10% of net receivable as of April 30, 2021.

 

14

 

 

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

April 30, 2022, and October 31, 2021

 

NOTE 11 – RECENT ACCOUNTING PRONOUNCEMENTS

 

There have been no new accounting pronouncements not yet effective that have significant or potential significance, to our Consolidated Financial Statements.

 

NOTE 12 – EARNINGS PER SHARE

 

     Three Months     Three Months     Six Months     Six Months 
   Three Months   Three Months   Six Months   Six Months 
   Ended   Ended   Ended   Ended 
   April 30   April 30   April 30   April 30 
Fiscal Period  2022   2021   2022   2021 
Numerator:                    
Net Income   $611,303   $2,207,933   $1,828,551   $3,336,777 
                     
Denominator:                    
Basic weighted average common shares outstanding   10,857,673    10,772,315    10,857,429    10,763,652 
Unused portion of options and restricted stock awards   547,834    419,000    547,834    419,000 
Diluted outstanding shares   11,405,507    11,191,315    11,405,263    11,182,652 
                     
Net income per share                    
                     
Basic  $0.06   $0.20   $0.17   $0.31 
Diluted  $0.05   $0.20   $0.16   $0.30 

 

15

 

 

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

April 30, 2022, and October 31, 2021

 

NOTE 13 – 2017 STOCK INCENTIVE PLAN

 

On December 6, 2017, the Board of Directors adopted the 2017 Stock Incentive Plan (the “2017 Plan”) with 913,612 shares of Common Stock available under the Plan for issuance. This Plan was approved by Stockholders at its meeting held on or around July 24, 2018.

 

On July 12, 2021, the Board of Directors adopted the 2021 Stock Incentive Plan (the “2021 Plan”). The 2021 Plan is identical to the 2017 in all material respects, except that the number of shares available for issuance thereunder is 1,000,000.

 

During the six months ended April 30, 2022, the Company granted to various eligible individuals Restricted Stock Awards of 55,181 shares of common stock pursuant to the terms of the Plan. During the six months ended April 30, 2022, 177,333 options vested and remain unexercised. 3,333 options were exercised on a cashless basis, and 1,107 shares were issued. As of April 30, 2022, there were 1,365,778 shares available for future issue under both 2017 and 2021 Plans. The total stock compensation expense during the six months ended April 30, 2022, was $690,743.

 

During the six months ended April 30, 2021, 4,000 options were forfeited. During the six months ended April 30, 2021, 182,667 options vested. As of April 30, 2021, 65,161 shares of common stock were issued pursuant the cashless exercise of 138,000 options. 44,667 options vested in March 2021 remained unexercised as of April 30, 2021. As of April 30, 2021, there were 416,273 shares of common stock available for future issue under the 2017 Plan. The total stock compensation expense during the six months ended April 30, 2021, was $309,604.

 

NOTE 14 -SEGMENT ANALYSIS

 

Based on the fundamental difference in the types of offering products versus services, we operate two distinct reportable segments which are managed separately. Coda Octopus Products (“Marine Technology Business” or “Products Segment”) operations are comprised primarily of sale of underwater technology sonar solutions, products for underwater operations including hardware and software; diver management system and rental of solutions and products to the underwater market. Coda Octopus Martech and Coda Octopus Colmek (“Marine Engineering Business” or “Services Segment”) provides engineering services primarily as sub-contractors to prime defense contractors.

 

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.

 

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 tables summarize segment asset and operating balances by reportable segment as of and for the three and six months ended April 30, 2022 and 2021, 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 Consolidated Financial Statements

April 30, 2022, and October 31, 2021

 

NOTE 14 -SEGMENT ANALYSIS (Continued)

 

     Marine Technology Business (Products)     Marine Engineering Business (Services)     Overhead     Total 
   Marine Technology Business (Products)   Marine Engineering Business (Services)   Overhead   Total 
                 
Three Months Ended April 30, 2022                    
                     
Net Revenues  $3,491,009   $1,493,829   $-   $4,984,838 
                     
Cost of Revenues   816,033    1,137,099    -    1,953,132 
                     
Gross Profit   2,674,976    356,730    -    3,031,706 
                     
Research & Development   617,246    (99,868)   -    517,378 
Selling, General & Administrative   569,451    683,612    780,053    2,033,116 
                     
Total Operating Expenses   1,186,697    583,744    780,053    2,550,494 
                     
Income (Loss) from Operations   1,488,279    (227,014)   (780,053)   481,212 
                     
Other Income (Expense)                    
Other Income   9,055    4,098    1,344    14,497 
Interest Expense   (2,502)   -    -    (2,502)
                     
Total Other Income (Expense)   6,553    4,098    1,344    11,995 
                     
Income (Loss) before Income Taxes   1,494,832    (222,916)   (778,709)   493,207 
                     
Income Tax (Expense) Benefit                    
Current Tax Benefit (Expense)   279    146,890    (38,019)   109,150 
Deferred Tax (Expense) Benefit   (1,926)   (45,184)   56,056    8,946 
                     
Total Income Tax (Expense) Benefit   (1,647)   101,706    18,037    118,096 
                     
Net Income (Loss)  $1,493,185   $(121,210)  $(760,672)  $611,303 
                     
Supplemental Disclosures                    
                     
Total Assets  $30,503,346   $13,541,238   $818,060   $44,862,644 
                     
Total Liabilities  $2,255,971   $616,133   $447,774   $3,319,878 
                     
Revenues from Intercompany Sales - eliminated from sales above  $413,654   $126,870   $607,500   $1,148,024 
                     
Depreciation and Amortization  $241,469   $31,190   $9,816   $282,475 
                     
Purchases of Long-lived Assets  $84,969   $11,049   $43,494   $139,512 

 

17

 

 

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

April 30, 2022, and October 31, 2021

 

NOTE 14 -SEGMENT ANALYSIS (Continued)

 

     Marine Technology Business (Products)     Marine Engineering Business (Services)     Overhead     Total 
   Marine Technology Business (Products)   Marine Engineering Business (Services)   Overhead   Total 
                 
Three Months Ended April 30, 2021                    
                     
Net Revenues  $4,184,409   $1,188,667   $-   $5,373,076 
                     
Cost of Revenues   1,022,701    600,771    -    1,623,472 
                     
Gross Profit   3,161,708    587,896    -    3,749,604 
                     
Research & Development   538,878    106,403    -    645,281 
Selling, General & Administrative   804,140    556,611    427,783    1,788,534 
                     
Total Operating Expenses   1,343,018    663,014    427,783    2,433,815 
                     
Income (Loss) from Operations   1,818,690    (75,118)   (427,783)   1,315,789 
                     
Other Income (Expense)                    
Other Income   68,583    16    846    69,445 
Funding from Paycheck Protection Program   122,327    436,574    -    558,901 
Interest Expense   

-

   -    (5,108)   (5,108)
                     
Total Other Income (Expense)   190,910    436,590    (4,262)   623,238 
                     
Income (Loss) before Income Taxes   2,009,600    361,472    (432,045)   1,939,027 
                     
Income Tax (Expense) Benefit                    
Current Tax Benefit   72,292    237,670    -    309,962 
Deferred Tax (Expense) Benefit   (102,585)   112,550    (51,021)   (41,056)
                     
Total Income Tax (Expense) Benefit   (30,293)   350,220    (51,021)   268,906 
                     
Net Income (Loss)  $1,979,307   $711,692   $(483,066)  $2,207,933 
                     
Supplemental Disclosures                    
                     
Total Assets  $27,086,894   $14,667,654   $966,418   $42,720,966 
                     
Total Liabilities  $1,839,295   $1,027,958   $586,739   $3,453,992 
                     
Revenues from Intercompany Sales - eliminated from sales above  $504,411   $90,443   $675,000   $1,269,854 
                     
Depreciation and Amortization  $200,536   $26,436   $6,709   $233,681 
                     
Purchases of Long-lived Assets  $144,232   $1,371   $44,442   $190,045 

 

18

 

 

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

April 30, 2022, and October 31, 2021

 

NOTE 14 -SEGMENT ANALYSIS (Continued)

 

     Marine Technology Business (Products)     Marine Engineering Business (Services)     Overhead     Total 
   Marine Technology Business (Products)   Marine Engineering Business (Services)   Overhead   Total 
                 
Six Months Ended April 30, 2022                    
                     
Net Revenues  $7,314,757   $3,508,289   $-   $10,823,046 
                     
Cost of Revenues   1,388,325    2,243,081    -    3,631,406 
                     
Gross Profit   5,926,432    1,265,208    -    7,191,640 
                     
Research & Development   1,146,621    43,647    -    1,190,268 
Selling, General & Administrative   1,327,947    1,339,787    1,487,372    4,155,106 
                     
Total Operating Expenses   2,474,568    1,383,434    1,487,372    5,345,374 
                     
Income (Loss) from Operations   3,451,864    (118,226)   (1,487,372)   1,846,266 
                     
Other Income (Expense)                    
Other Income   18,104    75,043    1,344    94,491 
Interest Expense   (2,502)   -    (400)   (2,902)
                     
Total Other Income (Expense)   15,602    75,043    944    91,589 
                     
Income (Loss) before Income Taxes   3,467,466    (43,183)   (1,486,428)   1,937,855 
                     
Income Tax (Expense) Benefit                    
Current Tax Benefit (Expense)   (266,241)   170,926    (81,144)   (176,459)
Deferred Tax Benefit   4,781    (44,980)   107,354    67,155 
                     
Total Income Tax (Expense) Benefit   (261,460)   125,946    26,210    (109,304)
                     
Net Income (Loss)  $3,206,006   $82,763   $(1,460,218)  $1,828,551 
                     
Supplemental Disclosures                    
                     
Total Assets  $30,503,346   $13,541,238   $818,060   $44,862,644 
                     
Total Liabilities  $2,255,971   $616,133   $447,774   $3,319,878 
                     
Revenues from Intercompany Sales - eliminated from sales above  $803,049   $242,693   $1,207,500   $2,253,242 
                     
Depreciation and Amortization  $377,127   $47,847   $18,967   $443,941 
                     
Purchases of Long-lived Assets  $1,071,062   $12,049   $58,365   $1,141,476 

 

19

 

 

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

April 30, 2022, and October 31, 2021

 

NOTE 14 -SEGMENT ANALYSIS (Continued)

 

     Marine Technology Business (Products)     Marine Engineering Business (Services)     Overhead     Total 
   Marine Technology Business (Products)   Marine Engineering Business (Services)   Overhead   Total 
                 
Six Months Ended April 30, 2021                    
                     
Net Revenues  $7,932,688   $2,490,847   $-   $10,423,535 
                     
Cost of Revenues   1,916,976    1,442,033    -    3,359,009 
                     
Gross Profit   6,015,712    1,048,814    -    7,064,526 
                     
Research & Development   980,622    247,798    -    1,228,420 
Selling, General & Administrative   1,540,218    1,129,321    940,686    3,610,225 
                     
Total Operating Expenses   2,520,840    1,377,119    940,686    4,838,645 
                     
Income (Loss) from Operations   3,494,872    (328,305)   (940,686)   2,225,881 
                     
Other Income (Expense)                    
Other Income   70,619    34    846    71,499 
Funding from Paycheck Protection Program   122,327    526,545    -    648,872 
Interest Expense   -    

-

    (11,297)   (11,297)
                     
Total Other Income (Expense)   192,946    526,579    (10,451)   709,074 
                     
Income (Loss) before Income Taxes   3,687,818    198,274    (951,137)   2,934,955 
                     
Income Tax (Expense) Benefit                    
Current Tax Benefit   84,945    237,670    12,072    334,688 
Deferred Tax (Expense) Benefit   (113,740)   264,636    (83,761)   67,134 
                     
Total Income Tax (Expense) Benefit   (28,795)   502,306    (71,689)   401,822 
                     
Net Income (Loss)  $3,659,023   $700,580   $(1,022,826)  $3,336,777 
                     
Supplemental Disclosures                    
                     
Total Assets  $27,086,894   $14,667,654   $966,418   $42,720,966 
                     
Total Liabilities  $1,839,295   $1,027,958   $586,739   $3,453,992 
                     
Revenues from Intercompany Sales - eliminated from sales above  $875,040   $139,644   $1,350,000   $2,364,684 
                     
Depreciation and Amortization  $512,658   $74,081   $13,125   $599,864 
                     
Purchases of Long-lived Assets  $544,207   $5,548   $49,434   $599,189 

 

20

 

 

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

April 30, 2022, and October 31, 2021

 

NOTE 15 –DISAGGREGATION OF REVENUE

 

   For the Three Months Ended April 30, 2022 
   Marine   Marine     
   Technology   Engineering   Grand 
   Business   Business   Total 
Disaggregation of Total Net Sales               
                
Primary Geographical Markets               
Americas  $424,935   $578,244   $1,003,179 
Europe   221,334    915,585    1,136,919 
Australia/Asia   2,226,457    -    2,226,457 
Middle East/Africa   618,283    -    618,283 
                
Total Revenues  $3,491,009   $1,493,829   $4,984,838 
                
                
Major Goods/Service Lines               
Equipment Sales  $2,058,137   $543,134   $2,601,271 
Equipment Rentals   715,308    -    715,308 
Software Sales   134,422    -    134,422 
Engineering Parts   -    618,335    618,335 
Services   583,142    332,360    915,502 
                
Total Revenues  $3,491,009   $1,493,829   $4,984,838 
                
                
Goods transferred at a point in time  $2,174,910   $543,134   $2,718,044 
Services transferred over time   1,316,099    950,695    2,266,794 
                
Total Revenues  $3,491,009   $1,493,829   $4,984,838 

 

21

 

 

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

April 30, 2022, and October 31, 2021

 

NOTE 15 –DISAGGREGATION OF REVENUE (Continued)

 

   For the Three Months Ended April 30, 2021 
   Marine   Marine     
   Technology   Engineering   Grand 
   Business   Business   Total 
Disaggregation of Total Net Sales               
                
Primary Geographical Markets               
Americas  $914,529   $597,463   $1,511,992 
Europe   1,665,643    591,204    2,256,847 
Australia/Asia   1,487,023    -    1,487,023 
Middle East/Africa   117,214    -    117,214 
                
Total Revenues  $4,184,409   $1,188,667   $5,373,076 
                
                
Major Goods/Service Lines               
Equipment Sales  $3,090,462   $93,505   $3,183,967 
Equipment Rentals   598,190    -    598,190 
Software Sales   221,053    -    221,053 
Engineering Parts   -    778,369    778,369 
Services   274,704    316,792    591,496 
                
Total Revenues  $4,184,409   $1,188,667   $5,373,076 
                
                
Goods transferred at a point in time  $3,311,515   $93,505   $3,405,020 
Services transferred over time   872,894    1,095,162    1,968,056 
                
Total Revenues  $4,184,409   $1,188,667   $5,373,076 

 

22

 

 

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

April 30, 2022, and October 31, 2021

 

NOTE 15 –DISAGGREGATION OF REVENUE (Continued)

 

   For the Six Months Ended April 30, 2022 
   Marine   Marine     
   Technology   Engineering   Grand 
   Business   Business   Total 
Disaggregation of Total Net Sales               
Revenues               
Primary Geographical Markets               
Americas  $2,482,603   $1,782,526   $4,265,129 
Europe   712,350    1,725,763    2,438,113 
Australia/Asia   3,041,541    -    3,041,541 
Middle East/Africa   1,078,263    -    1,078,263 
                
Total Revenues  $7,314,757   $3,508,289   $10,823,046 
                
                
Major Goods/Service Lines               
Equipment Sales  $4,016,982   $979,998   $4,996,980 
Equipment Rentals   1,345,776    -    1,345,776 
Software Sales   439,218    -    439,218 
Engineering Parts   -    1,918,953    1,918,953 
Services   1,512,781    609,338    2,122,119 
                
Total Revenues  $7,314,757   $3,508,289   $10,823,046 
                
                
Goods transferred at a point in time  $4,438,551   $980,000   $5,418,551 
Services transferred over time   2,876,206    2,528,289    5,404,495 
                
Total Revenues  $7,314,757   $3,508,289   $10,823,046 

 

23

 

 

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

April 30, 2022, and October 31, 2021

 

NOTE 15 –DISAGGREGATION OF REVENUE (Continued)

 

   For the Six Months Ended April 30, 2021 
   Marine   Marine     
   Technology   Engineering   Grand 
   Business   Business   Total 
Disaggregation of Total Net Sales               
Revenues               
Primary Geographical Markets               
Americas  $1,463,807   $1,113,904   $2,577,711 
Europe   2,790,755    1,376,943    4,167,698 
Australia/Asia   3,495,233    -    3,495,233 
Middle East/Africa   182,893    -    182,893 
                
Total Revenues  $7,932,688   $2,490,847   $10,423,535 
                
                
Major Goods/Service Lines               
Equipment Sales  $5,883,949   $314,462   $6,198,411 
Equipment Rentals   932,553    -    932,553 
Software Sales   446,275    -    446,275 
Engineering Parts   -    1,634,716    1,634,716 
Services   669,911    541,668    1,211,579 
                
Total Revenues  $7,932,688   $2,490,847   $10,423,535 
                
                
Goods transferred at a point in time  $6,367,552   $314,462   $6,682,014 
Services transferred over time   1,565,136    2,176,385    3,741,521 
                
Total Revenues  $7,932,688   $2,490,847   $10,423,535 

 

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CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

April 30, 2022, and October 31, 2021

 

NOTE 16 – COVID-19

 

The Company is continuing to face various risks related to the global outbreak of coronavirus disease (“COVID-19”).

 

The Engineering Services Business is dependent on its workforce and supply chain to deliver its products and services primarily to the U.S. and U.K. Governments. COVID-19 outbreaks among the workforce affect our ability to complete our projects within specified timeline and also increase the costs of such projects. Furthermore, costs of increase in labor due to a general shortage of labor or supply chain issues, may not be fully recoverable either from our customers or under existing insurance policies.

 

The Marine Technology Business is dependent on its workforce and/or distributors/resellers to sell and deliver its products and services. Travel restrictions introduced by governments in the areas in which we sell our solutions have impacted the Marine Products Business’s ability to deploy its workforce effectively. The Company’s activities are performed in certain international locations that are also impacted by the COVID-19 outbreak. Furthermore, it is critical for the Marine Technology Business to have in-person engagement with customers for the demonstration of its products from a vessel at sea. The restriction on global travel has resulted in significantly less customer engagement which affects the demand for its goods and services. These disruptions continue to impact the business. Particularly, its ability to perform sustained and meaningful business development and marketing activities, which require demonstrations at sea at customer locations.

 

Further, the Pandemic may continue to affect the Company’s results of operation, financial position, and liquidity.

 

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CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

April 30, 2022, and October 31, 2021

 

NOTE 17 – INCOME TAXES

 

The Company’s effective tax rate for the three months ended April 30, 2022, and 2021 was (23.9) % and (13.9) % respectively. The decrease in the effective tax rate for the three months ended April 30, 2022, as compared to April 30, 2021, resulted from one of the US companies having a taxable loss for the three months. We have been recording the US tax rate of 21% for the US companies. We have been recording the UK tax rate at 0.0% as we believe our R&D tax credits will offset any tax liability incurred.

 

The Company’s effective tax rate for the six months ended April 30, 2022, and 2021 was 5.6 % and (13.9) % respectively. The increase in the effective tax rate for the six months ended April 30, 2022, as compared to April 30, 2021, resulted from the US companies becoming tax paying entities having used up their net operating loss carryforwards. We have been recording the US tax rate of 21% for the US companies. We have been recording the UK tax rate at 0.0% as we believe our R&D tax credits will offset any tax liability incurred.

 

NOTE 18 - RECLASSIFICATION OF PRIOR YEAR PRESENTATION

 

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications have no effect on the previously reported consolidated financial statements.

 

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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 February 14, 2022. This discussion should not be construed to imply that the results discussed herein will necessarily be indicative of actual operating results in the future. Such discussion represents only our management’s best present assessment.

 

General Overview

 

Throughout these discussions, the following terminologies listed immediately below are used and have the meanings ascribed to them in the said table.

 

“Current Quarter” Three-month period ended April 30, 2022
“Previous Quarter” Three-month period ended April 30, 2021
“Current Six-Month Period” The Six-month period ended April 30, 2022
“Previous Six-Month Period” The Six-month period ended April 30, 2021

 

We operate two distinct business operations. These are:

 

  the Marine Technology Business (also referred to in this Form 10-Q as “Products Business”, “Products Operations” or “Products Segment”); and
     
  the Marine Engineering Business (also referred to in this Form 10-Q as “Engineering Business”, “Engineering Operations”, or “Services Business” or “Services Segment”).

 

Our Marine Technology Business is an established technology solution provider to the subsea and underwater imaging, surveying and diving market. It has been operating in this sector for over 25 years and it owns key proprietary technology including real time volumetric 3D Imaging Sonar technology and diving technology, that are used both in the underwater defense and commercial markets. All design, development and manufacturing of our technology and solutions are performed within the Company.

 

Our imaging sonar technology products and solutions marketed under the name of Echoscope® and Echoscope PIPE® are used primarily in the underwater construction market, offshore wind energy industry (offshore renewables), offshore oil and gas, forward looking obstacle avoidance, complex underwater mapping, salvage operations, dredging, bridge inspection, underwater hazard detection, port security, mining, fisheries, commercial and defense diving, and marine sciences sectors. Our diving technology which is new to the market is distributed under the name “CodaOctopus® DAVD” (Diver Augmented Vision Display) addresses the global defense and commercial diving markets. We believe that it has the potential to radically change how diving operations are performed globally because it delivers a real time information platform for diving, allows diving operations to be performed in zero visibility water conditions and provides real time mapping of the dive area.

 

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Although we generate most of our revenues from our real time 3D sonar which includes both hardware and proprietary software, we have a number of other products in the subsea market such as our inertial navigation systems (F180 Series® and F280 Series®) and our geophysical hardware and software solutions, which include machine learning based automatic detection systems. Our customers include offshore service providers to major oil and gas companies, renewable energy companies, underwater construction companies, law enforcement agencies, ports, mining companies, defense bodies, research institutes and universities and diving companies.

 

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. 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.

 

Key Pillars for our Growth Plans

 

Our volumetric real time imaging sonar technology and our DAVD are our most promising products for the Group’s near-term growth.

 

Our real time 3D/4D/5D/6D Imaging sonars are the only underwater imaging sonars capable of providing not only complex seabed mapping but inspecting and monitoring in real time 3D/4D/5D and 6D moving objects underwater irrespective of water conditions including in zero visibility water conditions (a perennial problem in underwater operations). Competing technology can perform mapping (but not complex mapping) without the ability to perform real time 3D inspection and monitoring of moving objects underwater. Furthermore, we believe our Echoscope PIPE® is the only technology that can generate multiple real time 3D/4D/5D and 6D acoustic images of moving objects underwater using different acoustic parameters such as frequency, field of view, pulse length and acoustic filters.

 

In the industry in which we operate, we are widely considered the leading solution providers for underwater real time 3D visualization.

 

We also believe that the DAVD system is poised to radically change the way diving operations are performed globally by advancing the methods of communication, ability to consume and use digital information and real time imaging sonar data, thereby improving safety and reducing the costs of these operations. The DAVD HUD (Head Up Display) concept of utilizing a pair of transparent glasses in the HUD underwater, is protected by patent. The DAVD HUD is manufactured and distributed under license from the United States Department of the Navy at Naval Surface Warfare Center Panama City Division. The other component parts of the DAVD system are proprietary to the Company and include software (4G USE®), Diver Processing Pack, Top Side Controller and real time 3D Sonar. The successful adoption of the DAVD is dependent on the Company’s ability to have on-site demonstrations with existing and prospective customers. The DAVD system does not lend itself to adoption without such demonstration and training.

 

Both the Marine Technology Business and Marine Engineering Business have established synergies in terms of customers and specialized engineering skill sets (hardware, firmware and software) encompassing capturing, computing, processing and displaying data in harsh environments. Both businesses jointly bid for projects for which their common joint skills provide competitive advantage and make them eligible for such projects.

 

Factors Affecting our Business in the Current Quarter

 

Our Form 10-K for the fiscal year ended October 31, 2021, covers factors affecting our business and are incorporated by reference herein. Set out immediately below are additional factors that affect our business in the Current Quarter:

 

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Cumulative Supply Chain Issues including Ripple Effect On Orders

 

The biggest challenge for the Company in the Current Quarter is the ongoing shortage of components in the market. We are experiencing a very high percentage of routine items required for the manufacture of our products and solutions or performing custom upgrades for customers that are unavailable for purchase in the market with crippling lead times being quoted from anywhere between six months to a year. In addition, suppliers are now charging on an hourly basis for time spent on seeking alternative parts. Since the beginning of the Coronavirus outbreak in March 2020, the Company has been ramping up its investment in inventory items that were typically on long lead time. We believe that in the current year we have built sufficient inventory for these high value long lead items. However, our systems are complex, and it is the low value inventory items that have traditionally been readily available that have unexpectedly become unavailable. To complete a system or perform customer upgrades, we need all parts and not just a high percentage of parts and it is these previously readily available items that have now become extremely challenging.

 

Our suppliers of certain subassemblies are also receiving decommits (i.e., cancellation) on orders that have been under contract with their suppliers for a long time. Therefore, even if there is a supply contract in place, firm or expected delivery dates are increasingly no longer met by suppliers.

 

We are also experiencing significant price increases for all our raw materials and components. Price increases sometimes exceed 100%. The significant price increases also means that unless these increased prices are fully absorbed by customers, margins and net income may be adversely affected.

 

The general shortage of components in the market impacts our Services Business even more acutely given the prototyping nature of its business which does not enable pre-emptive forward buying. The very nature of prototyping means that any requisite components are unknown until the prototype requirements are finalized and order is placed by the customer. Therefore, these components cannot be pre-emptively purchased until contract award or letter of intent received.

 

Additionally, our customers are also experiencing supply chain problems. This impacts on their ability to progress to the point of placing orders for the sub-assemblies that we typically design and manufacture for them. Consequently, this delays orders and impacts the level of order take by the Business.

 

Pandemic

 

Our operations continue to be impacted by the ongoing Coronavirus outbreak with its various mutations (“Pandemic”), which in turn continues to impact the demand for our goods and services. We rely on the ability to sell our solutions offered by the Marine Technology Business globally. Asia is a very significant market for our technology solutions including Japan, China and South Korea. During the Current Quarter, all of these countries had various degrees of entry restrictions which continue to prevent in-person visits with existing and prospective customers to demonstrate our new offerings which underpin our growth strategy. Our products and solutions, including the top end software which controls the sonar and DAVD are complex and, as a pre-requisite for adoption, do require in-person demonstration and training for customers. It is therefore not feasible to do these virtually.

 

Furthermore, in the Current Quarter our business experienced critical shortage of staff due to a high infection rate. This has resulted in increased project costs for various ongoing internal and external projects and significantly reduced productivity which will have a negative impact on our overall performance during the current financial year.

 

Inflation

 

Due to the global supply chain issues and after-shock of the Pandemic, inflation measured as the Consumer Price Index is significant in the countries in which we operate. In the twelve months to April 2022, these were:

 

  - Denmark 6.7%,
  - UK 9.0% and
  - USA 8.3%.

 

Inflation affects our business in a number of areas including increasing the costs of our operations and therefore our overall financial results. See section of this report “Inflation and Foreign Currency”.

 

Currency Fluctuations

 

The Company has operations in the UK, USA, Denmark, Australia and India.  In the Current Quarter the USD has strengthened against major currencies including the British Pound, Euro and Danish Kroner (the functional currencies of the Company’s foreign subsidiaries). A significant part of our consolidated results is transacted in Pounds and translated into USD, our reporting currency. In the Current Quarter, for the purposes of reporting revenues and expenses the value of the Pound fell 5.8% when compared to the Previous Quarter and for assets and liabilities the Pound fell 9.1% when compared to the Previous Quarter. The impact of currency fluctuations, including the impact of the Pound falling, is discussed more fully below in the section “Inflation and Foreign Currency”. See also Note 4 (Foreign Currency Translation) and section of this report “Inflation and Foreign Currency”. 

  

Skills/Resource Shortages and Pressure on Salaries and Wages

 

We are experiencing skills shortage in areas that are critical to our growth strategy including experienced sales and marketing personnel and software developers.

 

Due to the inflationary conditions in the countries in which we operate (US, the UK and Denmark), there are significant pressures on wages making it difficult to attract staff and also risking retention of skills.

 

Impact on Revenues and Earnings

 

We are uncertain as to the extent that these factors reported immediately above including the global supply chain issues will have on our future financial results. In the Current Quarter, we continue to be negatively impacted by the reduction in customer orders and the resulting drop in our revenues and earnings. The supply chain issues further exacerbate this problem as our customers are unable to sub-contract to us, due to problems with availability of components and raw materials under the main part of the programs. Furthermore, with the significant increase in the costs of components and raw materials, this may affect our earnings, as we may not be able to sustainably pass on these dramatic increases onto our customers which may result in reduce demand for our products or services or the erosion of our gross profit margins.

 

Impact on Liquidity, Balance Sheet and Assets

 

Failure to curb the Pandemic in the near future, address the supply chain issues and inflation may adversely impact on our availability of our free cash flow, working capital, earnings and business prospects. As of April 30, 2022, we had cash and cash equivalents of approximately $20,658,119. Based on our outstanding obligations and our cash balances, we believe we have sufficient working capital to effectively continue our business operations for the foreseeable future.

 

Critical Accounting Policies

 

This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements that have been prepared under accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported values of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported levels of revenue and expenses during the reporting period. Actual results could materially differ from those estimates.

 

Below is a discussion of accounting policies that we consider critical to an understanding of our financial condition and operating results and that may require complex judgment in their application or require estimates about matters which are inherently uncertain. A discussion of our significant accounting policies, including further discussion of the accounting policies described below, can be found in Note 2, “Summary of Accounting Policies” of our Consolidated Financial Statements for the year ended October 31, 2021.

 

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Revenue Recognition

 

Our revenues are earned under formal contracts with our customers and are derived from both sales and rental of underwater solutions for imaging, mapping, defense and survey applications and from the engineering services that we provide. Our contracts do not include the possibility for additional contingent consideration so that our determination of the contract price does not involve having to consider potential variable additional consideration. Our product sales do not include a right of return by the customer.

 

Regarding our Products 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 consolidated financial statements and in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021.

 

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.

 

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Income Taxes

 

The Company accounts for income taxes in accordance with Accounting Standards Codification Topic 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 US 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, non-compete agreements and licenses. Goodwill was allocated to our reporting units based on the original purchase price allocation. Goodwill is not amortized and is evaluated for impairment annually or more often if circumstances indicate impairment may exist. Customer relationships, non-compete agreements, patents and licenses are being amortized on a straight-line basis over periods of 2 to 15 years. The Company amortizes its 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 consider 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. 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 the goodwill over the implied fair value of the goodwill. There were no impairment charges during the periods presented.

 

Summary of Consolidated Results of Operations

 

Our consolidated financial results in the Current Quarter were down compared to the Previous Quarter. This is attributed to reduced order bookings in both the Products and Services businesses during the Current Quarter. The Products Business experienced delays in several anticipated rental projects which were included in our pipeline of opportunities in both the first quarter and the second quarter of the financial year. This was further exacerbated by Oceanology 2022 (one of the main industry trade events) being held in March 2022. Typically, customers postpone capital expenditure investment decisions until after this trade event. Furthermore, many key customers from Asia were not in attendance of Oceanology 2022 due to the Pandemic-related restrictions in these countries. This has resulted in reduced order by the Marine Technology Product in the first two quarters of this financial year. Although we have experienced reduced demand, we believe this relates to the current environment and not a broader issue with our offerings.

 

The Services Business order take continues to be slower than anticipated and is compounded by their customers projects being affected by the ongoing supply chain shortages and inflationary prices and therefore impacting the timing of the placement of sub-contracts for sub-assemblies that would typically be awarded to the Services Business.

 

Furthermore, during the Current Quarter we continued to be materially impacted by the Pandemic-related constraints placed upon the business environment which limited the extent of the business development activities the Products Business could undertake in Asia. Our UK operations were also significantly impacted by a high level of infection of the coronavirus amongst staff which impacted productively and hampered our progress.

 

Segment Summary

 

Products Business

 

In the Current Quarter the Products Business generated $3,491,009 or 70% of our consolidated revenues compared to $4,184,409 or 77.9% in the Previous Quarter, representing a fall of 16.6%. Revenues generated from Europe fell by 86.7% and were $221,334 compared to $1,665,443 in the Previous Quarter. We believe that this is due to the Pandemic which surged in Europe in the first half of our financial year affecting demand in Europe for our products. Gross Profit Margin increased slightly by 1% and was 76.6% in the Current Quarter compared to 75.6% in the Previous Quarter. In the Current Quarter more units of revenues in the Products Business emanated from sales through agents, resulting in an increase in commissions on sales which were 165.2% higher at $266,300 in the Current Quarter compared to $100,400, thus negatively affecting margins. In the Current Quarter Total Operating Expenses fell in the Products Business by 11.6%, compared to the Previous Quarter and Net Income Before Taxes fell by 20.8% and was $1,494,832 compared to $2,009,600 in the Previous Quarter.

 

Services Business

 

In the Current Quarter the Services Business generated $1,493,829 or 30% of our consolidated revenues compared to $1,188,667 or 22.1% in the Previous Quarter representing an increase of 25.7%. Gross Profit Margin was 23.9% representing a fall of 25.6%. The fall in Gross Profit Margin in the Services Business is largely due to the mix of engineering projects executed in the Current Quarter. Revenues generated by the Services Business includes equipment sales in the amount of $534,134 which carry a lower than typical Gross Profit Margin profile for the Services Business. This project afforded the Company an opportunity to serve a new market sector with a prestigious customer which we believe will open other opportunities with this customer in the new sector. Total Operating Expenses decreased by 12.0%, largely due to a decrease in R&D expenditures in the amount of $206,271, which resulted from R&D costs incurred being subsequently applied to a contracted engineering project and moved from Operating expenses to Direct Costs. In the Current Quarter the Services Business realized a loss before income taxes of $222,916 compared to an income of $361,472 in the Previous Quarter. Although the Services Business realized a loss in the Current Quarter, we do anticipate that on an annualized basis the Services Business operations will generate a net income, as we are expecting the third and fourth quarters to be more solid for this operating segment.

  

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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 $4,984,838 and $5,373,076 respectively, representing a fall of 7.8%. The Products Business revenues fell from $4,184,409 in the Previous Quarter to $3,491,009 in the Current Quarter, representing a fall of 16.6%. This is largely due to slower than anticipated closure of orders in the first two quarters of this financial year, where we are seeing customer projects being postponed, thus impacting order take. In the Current Quarter, the Services Business revenues increased by 25.7% and was $1,493,829 compared to $1,188,667 in the Previous Quarter. Although the Services Business is quoting more projects in this financial year, the pace of progress for closing these opportunities has slowed. We believe this is largely due to supply chain issues under the prime contract causing delay in the sub-contracting process.

 

Gross Profit Margins: Margin percentage was weaker in the Current Quarter at 60.8% (gross profit of $3,031,706 compared to 69.8% (gross profit of $3,749,604) in the Previous Quarter.

 

Gross Profit Margins in the reporting period may vary according to a number of factors. These include:

 

  The percentage of consolidated sales attributed to the 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. The Services Business yields a lower gross profit margin on generated sales which are largely based on time and materials contracts.
  The mix of sales generated by the Products Business:

 

    Outright sales versus rentals.
    Hardware related sales versus Software related sales.
    Extent of Offshore Engineering Support Services provided in the period.
    Extent of paid customer engineering work relating to customizing our technology for their purpose.

 

  Level of commissions on sales (both the Services and Products businesses work with a global network of sales agents). Most sales by the Products Business from Asia attract commission as those are typically sales via our agents/distributors Network.
  Level of assets in rental pool and cost of sales associated with these Assets (and which are subject to depreciation).

 

Services Business

 

In the Current Quarter Gross Profit Margins for the Services Business were 23.9% compared to 49.5% in the Previous Quarter. This significant fall is due to the fact that 36.4% of the total revenues generated in the Current Quarter by this segment relates to a particular work package which has a much lower than typical Gross Profit Margin, due to the type of project it involves. This project afforded the Company an opportunity to serve a new market sector with a prestigious customer which we believe will open other opportunities for the Company with this customer and in this sector. This has impacted the Gross Profit Margin of the Services Business in the Current Quarter and overall consolidated Gross Profit Margin.

 

Products Business

 

In the Current Quarter Gross Profit Margins for the Products operations were 76.6% compared to 75.6% 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  $2,058,137   $3,090,462    Decrease 33.4%
Equipment Rentals   715,308    598,190    Increase 19.6%
Software Sales   134,422    221,053    Decrease 39.2%
Services   583,142    274,704    Increase 112.3%
                
Total Net Sales  $3,491,009   $4,184,409    Decrease 16.6%

 

In the Current Quarter the Products Business incurred commission costs of $262,632 compared to $76,631 in the Previous Quarter, representing a 242.7% increase, resulting in Gross Profit Margins being lower.

 

Further information on the performance of each Segment including revenues by product and geography in the Current Quarter can be found in Notes 14 and 15 to the Unaudited Consolidated Financial Statements.

 

Research and Development (R&D): Total consolidated Research and Development expenditures in the Current Quarter were $517,378 compared to $645,281, representing a decrease of 19.8%. The reduction is largely due to a fall in R&D expenditures in the Services Segment.

 

  Services Segment.

 

During the Current Quarter the Services Business R&D expenditures were ($99,868) in the Current Quarter compared to $106,403 in the Previous Quarter. This amount concerns an initial investment made by the Company in R&D that can now be attributed to subsequently awarded customer contract. The fall in R&D expenditures in this business unit is a reflection of reduction in expenditures relating to the Thermite® product line development which has been on hold due to many trials which we had commenced prior to the Pandemic being stalled. Until we can get the outcome of these trials, and therefore the customer requirements for the product, we are postponing expenditures in this area. One such trial which had hitherto been stalled has re-started and we have received the order for a small quantity of prototypes. This is an important opportunity for the success of the Thermite® range since it is for a US Navy shipboard application and if we are successful would lead to downstream follow-on production order for multiple units. This would also be a new program and customer for the Services Segment.

 

  Products Segment

 

R&D expenditures in the Products Business increased from $538,878 in the Previous Quarter to $617,246 in the Current Quarter, representing an increase of 14.54%. The real increase in R&D Expenditures is relatively modest given that in the Current Quarter this amount includes an exceptional item of expenditures of $66,000 which represents a sub-contractor’s costs for development of a new generation of an ASIC (Application-Specific Integrated Circuit) device for our sonar technology, which will replace the previous generation of this device which we utilize.

 

Segment  April 30, 2022   April 30, 2021   Percentage Change 
Services Segment R&D Expenditures  $(99,868)  $106,403    Decrease 193.9%
Products Segment R&D Expenditures  $617,246   $538,878    Increase 14.54%

 

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Selling, General and Administrative Expenses (SG&A): SG&A expenses for the Current Quarter was $2,033,116 compared to $1,788,534 in the Previous Quarter, representing an increase in this area of expenditures of 13.7%.

 

The increase in SG&A in the Current Quarter is due to several factors. These include increase in wages and salaries and increase in Legal and Professional Fees. In addition, in the Previous Quarter we recorded contributions of $48,288 under the UK Government’s Pandemic Relief Program, the Coronavirus Job Retention Scheme (CJRS) which reduced payroll expenditures in the Previous Quarter and therefore SG&A. In the Current Quarter, we recorded no such contributions. In addition, in the Current Quarter, we recorded an increase of 170.48% relating to stock compensation expenditures (a non-cash charge) and which was $365,568 compared to $135,157 in the Previous Quarter. We also incurred costs related to the establishment of Coda Octopus Products (India) Private Ltd which did not exist in the Previous Quarter. This entity has been established to mitigate the acute engineering and software skills shortage that we are experiencing in both the UK and USA.

 

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

 

Expenditure  April 30, 2022   April 30, 2021   Percentage Change 
Wages and Salaries  $940,460   $791,759    Increase of 18.78%
Legal and Professional Fees (including accounting and audit)  $390,218   $258,736    Increase of 50.82%
Rent for our various locations  $14,742   $8,158    Increase of 80.71%
Marketing  $108,569   $32,116    Increase of 238.05%

 

The increase in “Wages and Salaries” is a reflection of the increased costs associated with the market conditions for employment. With inflationary pressures currently at unprecedented levels in the countries in which we operate including USA and UK, we expect this area is likely to continue to increase to remain competitive in attracting and retaining staff.

 

The increase in the Current Quarter of “Legal and Professional” category of expenditures is a reflection of increased fees associated with the performance of the Group’s audit services.

 

In general, the category of “Rent” is not material for the Business as we own most of our premises and facilities. The current category of rent largely reflects the premises we are using in Copenhagen which has been established to mitigate as far as possible the impact of the United Kingdom withdrawing from the European Union.

 

The Marketing Expenditures in both the Current Quarter and Previous Quarter are atypical of our projected Marketing Expenditures. Typically, our Marketing Expenditures reflect a range of marketing events such as participation of trade shows in different parts of the world, particularly in Europe, North America, Asia and the Middle East. Since the outset of the Pandemic in 2020, our marketing activities have been severely constrained due to the various government restrictions on travel and gatherings. This has depressed this area of expenditure. However, we are beginning to participate in more marketing events, and this has resulted in an increase of Marketing expenditures in the Current Quarter. We expect this area to materially increase over the fiscal year and be more in line with our pre-Pandemic Marketing expenditures.

 

Operating Income: In the Current Quarter we realized an operating profit of $481,212 compared to $1,315,789 in the Previous Quarter, representing a fall in Operating Income of 63.4%. The reduction in Operating Income is a result of a fall in our consolidated revenues in the Current Quarter by 7.2% compared to the Previous Quarter along with weaker Gross Profit Margins and an increase in Total Operating Expenses of 4.8% compared to the Previous Quarter.

 

Interest Expense: Interest expense fell by 51.0% in the Current Quarter to $2,502 from $5,108 in the Previous Quarter. We do not expect this category to be material since we do not have any significant loans. This category reflects interest and charges on banking facilities we have in place, such as business credit cards.

 

Other Income: In the Current Quarter we had $11,995 as “Other Income” compared to $623,238 in the Previous Quarter. In the Previous Quarter, as part of the US Government Pandemic Relief Program, the Company recognized $558,901 as “Other Income”, which was received under the second round of the Payroll Protection Program for payroll assistance (“PPP”). In the Current Quarter, no PPP assistance was recorded. Except for amounts received for PPP, “Other Income” category is typically not material.

 

Net Income before income taxes: In the Current Quarter, we realized Net Income before income taxes of $493,208 as compared to $1,939,027 in the Previous Quarter, representing a fall of 74.6%. The fall in Net Income before taxes is due to a fall in our consolidated revenues in the Current Quarter of 7.2% with Gross Profit Margins being weaker, in conjunction with an increase in Total Operating Expenses by 4.8% over the Previous Quarter. In addition, in the Previous Quarter Net Income before taxes increased by the inclusion of $558,901 in “Other Income” which represented assistance received under the PPP. Without this PPP contribution in the Previous Quarter, the fall in Net Income before income taxes in the Current Quarter would be 64.3%.

 

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Net Income: In the Current Quarter the Company realized a net income of $611,303 as compared to $2,207,933 in the Previous Quarter, representing a fall of 72.3%. The fall in Net Income in the Current Quarter is a result of a fall in our consolidated revenues in conjunction with an increase in Total Operating Expenses. In addition, in the Previous Quarter Net Income increased by the inclusion of $558,901 in “Other Income” which represented assistance received under PPP. Without this PPP contribution in the Previous Quarter, the fall in Net Income in the Current Quarter would be 62.9%. In the Current Quarter the Company’s effective tax rate decreased as a result of the Services Business having a taxable loss in the Current Quarter. In the Current Quarter the effective tax rate was (23.9)% compared to (13.9)% in the Previous Quarter.

 

Comprehensive Income (loss). In the Current Quarter Comprehensive loss was ($1,655,448) compared to a comprehensive income of $2,506,645 for the Previous Quarter. This category is affected by fluctuations in foreign currency exchange transactions. In the Previous Quarter we realized a gain on foreign currency translation adjustments relating to certain transactions of $298,712 compared to a loss on these transactions of $2,266,751 in the Current Quarter. In the Current Quarter the USD has strengthened against major currencies including the British Pound, Euro and Danish Kroner (the functional currencies of our foreign operations). A significant part of the Company’s operations is based in the UK, and therefore a significant part of our financial transactions is performed in Pounds which are translated into USD for reporting purposes. In the Current Quarter, the Pound has fallen significantly against the USD. This is a key factor in the loss relating to foreign currency translations transactions in the Current Quarter. See Table 1 under section “Inflation & Foreign Currency” which shows the impact of the currency adjustments on our Profit & Loss Account activities and Balance Sheet

 

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

 

Revenue: Total consolidated revenues for the Current Six Month Period and the Previous Six Month Period were $10,823,046 and $10,423,535 respectively, representing an increase of 3.8%. In the Current Six Month Period, the Products Business revenues fell by 7.8%. The Products Business revenue in the Current Six Month Period was $7,314,757 compared to $7,932,688. The Services Business revenues increased in the Current Six Month Period and was $3,508,289 compared to $2,490,847, representing an increase of 40.8%. In the Current Six Month Period both the Products and Services Businesses have experienced a slow pace of converting opportunities to firm orders and we have during the period booked less orders than anticipated in our business plan. In the Current Quarter our overall quotation percentage rate was higher than the Previous Quarter. However, we are experiencing a much slower rate of closure including projects moving out in time. We believe this is reflective of the challenging environment particularly the supply chain issues that persists globally and also the ongoing constraints caused by the Pandemic, particularly in Asia which is an important market for our solutions.

 

Gross Profit Margins: Margin percentage was lower in the Current Six Month Period at 66.4% (gross profit of $7,191,640) compared to 67.8% (gross profit of $7,064,526).

 

Gross Profit Margins in the reporting period vary according to several factors, including:

 

  The percentage of consolidated sales attributed to the 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. The Services Business yields a lower gross profit margin on generated sales which are largely based on time and materials contracts.
  The mix of sales generated by the Products Business:

 

    Outright sales versus rentals.
    Hardware related sales versus Software related sales.
    Extent of Offshore Engineering Support Services provided in the period.
    Extent of paid customer engineering work relating to customizing our technology for their purpose.

 

  Level of commissions on sales (both the Services and Products businesses work with a global network sales agents). Most sales from Asia attract commission as those are typically sales via our agents/distributors Network.
  Level of assets in rental pool and cost of the sales associated these Assets (and which are subject to depreciation).

 

Services Business

 

Gross Profit Margins for the Services Business were lower at 36.1% in the Current Six Month Period compared to 42.1% in the Previous Six Month Period. In the Current Six Month Period 27.9% of the Services Business revenues ($979,998) is attributable to an engineering project which carries a lower than typical Gross Profit Margin. This project afforded the Company an opportunity to serve a new market sector with a prestigious customer which we believe will open other opportunities with this customer and in this sector. This mix has impacted on the overall Gross Profit Margins of the Services Business.

 

Products Business

 

In the Current Six Month Period Gross Profit Margins for the Products Business were 81.0% compared to 75.8% in the Previous Six Month Period. Even though we paid increased agents commission on sales generated in the Current Six Month Period ($401,004 compared to $357,736, 12.1% higher) Gross Profit Margins were stronger in the Products Business due to increased units of equipment rentals (44.3% over the Previous Six Month Period) and service (125.8% increase over the Previous Six Month Period) both categories attracting a higher Gross Profit Margin than hardware product sales.

 

Since there are more variable factors affecting Gross Profit Margins in the Products Business, a table showing a summary of break-out of sales generated by the Products Business in the Current Six Month Period compared to the Previous Six Month Period is set out below:

 

   Six Month Period 2022   Six Month Period 2021   Percentage
Change
 
Equipment Sales  $4,016,982   $5,883,949    Decrease 31.7%
Equipment Rentals   1,345,776    932,553    Increase 44.3%
Software Sales   439,218    446,275    Decrease 1.6%
Services   1,512,781    669,911    Increase 125.8%
Total Net Sales  $7,314,757   $7,932,688    Decrease 7.8%

 

In the Current Six Month Period the Products Business incurred Commission costs of $401,400 compared to $357,736, representing a 12.1% increase, resulting in Gross Profit Margins being lower.

 

Further information on the performance of each Segment including revenues by product and geography can be found in Notes 14 and 15 to the Unaudited Consolidated Financial Statements.

 

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Research and Development (R&D): R&D expenditures in the Current Six Month Period were $1,190,268 compared to the $1,228,420 in the Previous Six Month Period, representing a decrease of 3.1%.

 

  Services Segment.

 

During the Current Six Month Period the Services Business R&D expenditures decreased by 82.4%. The fall in R&D expenditures in this business unit is a reflection of reduction in expenditures relating to the development of the Thermite® product line. Since the start of the Pandemic Thermite® trials have stalled. Until we can get the outcome of these trials, and therefore the customer requirements for the product, we are postponing expenditures in this area. One such trial which had hitherto been stalled has re-started and we have received the order for a small quantity of prototypes. This is an important opportunity as it is intended for a US Navy shipboard application. If we are successful, we would expect it to result in downstream follow-on production order for multiple units. This would also be a new program and customer for the Services Segment.

 

  Products Segment

 

During the Current Six Month Period R&D expenditures in the Products Segment increased by 16.9% from $980,622 in the Previous Six Month Period to $1,146,621. R&D expenditures are incurred by this business in connection with investments it makes in developing its products and solutions. In the Current Six Month Period, Products Business R&D expenditures include an exceptional item of expenditure of $66,000 which represents accruals for sub-contractor’s costs for development of a new generation of an ASIC (Application-Specific Integrated Circuit) device for our sonar technology.

 

Segment  April 30, 2022   April 30, 2021   Percentage Change 
Services Segment R&D Expenditures  $43,647   $247,798    Decrease of 82.4%
Products Segment R&D Expenditures  $1,146,621   $980,622    Increase of 16.9%

 

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Selling, General and Administrative Expenses (SG&A): SG&A expenses for the Current Six Month Period increased to $4,155,106 from $3,610,225 in the Previous Six Month Period representing an increase of 15.1%.

 

The increase in SG&A in the Current Six Month Period is due to several factors. These include increase in wages and salaries and increase in Legal and Professional Fees. In addition, in the Previous Six Month Period we recorded contributions of $131,788 under the UK Government’s Pandemic Relief Program, the Coronavirus Job Retention Scheme (CJRS) which reduced payroll expenditures in the Previous Six Month Period and therefore SG&A. In the Current Six Month Period, we recorded no such contributions. In the Current Six-Month Period, we recorded a significant increase of 123.1% relating to stock compensation expenditures (a non-cash charge) and which were $690,743 compared to $309,604 in the Previous Six Month Period. We also incurred costs related to the establishment of Coda Octopus Products (India) Private Ltd, which did not exist in the Previous Six Month Period.

 

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

 

Expenditure  April 30, 2022   April 30, 2021   Percentage Change 
Wages and Salaries  $1,843,622   $1,630,065    Increase 13.10%
Legal and Professional Fees (including accounting and audit)  $749,235   $594,085    Increase 26.12%
Rent for our various locations  $30,487   $18,283    Increase 66.75%
Marketing  $122,335   $43,446    Increase 181.58%

 

The increase in the “Wages and Salaries” category of expenditure in the Current Six Month Period, is a reflection of tightness in the labor market resulting in competitive conditions causing increase in the costs of labor in the countries in which we operate including in US, UK, Denmark and India. The increase is a reflection of increases to salaries for existing staff and new hires.

 

The increase in the “Legal and Professional” category of expenditures in the Current Six Month Period is a reflection of increase in the costs of our audit services fees.

 

In general, the category of “Rent” is not material for the Business as we own most of premises and facilities. The current category of rent largely reflects the premises we use in Copenhagen.

 

The Marketing Expenditures in both the Previous Six Month Period and Current Six Month Period are atypical of our Marketing Expenditures. Our marketing comprises of a raft of activities which include trade shows in different parts of the world, particularly in Europe, North America, Asia and the Middle East. In the Previous Six Month Period our marketing activities have been severely constrained due to the Pandemic which prevented activities such as travel to customer or attending trade shows. We are now participating in more marketing related events. However, we are still significantly constrained and not back to pre-Pandemic levels of marketing activities due to the ongoing Pandemic, which restricts marketing activities in key countries such as those in Asia where there are still significant restrictions on foreigners entering these countries. The nature of our offerings, particularly our technology solutions require us to be in close proximity with our customers including being able to physically demonstrate the performance of our solutions. Therefore, virtual meetings cannot substitute for the key requirements to be physically able to demonstrate our capabilities on water in the customer’s place of operation. As these barriers are removed including entry restrictions, we anticipate that this area of expenditures will materially increase and be more in line with our pre-Pandemic expenditures.

 

Operating Income: Our income from our operating activities in the Current Six Month Period was $1,846,266 as compared to $2,225,881 in the Previous Six Month Period which represents a fall of 17.1%. This fall is a reflection of weaker Gross Profit Margins combined with an increase in Total Operating Expenses by 10.5%, as a result of a significant increase in our SG&A Expenditures in the Current Six Month Period.

 

Interest Expense: Interest expense in the Current Six Month Period was $2,902 compared to $11,297 in the Previous Six Month Period, representing a reduction of 74.3%. We do not expect Interest Expense to be material for our business since we currently do not have any significant loans. This category typically reflects charges on our banking facilities such as Business credit cards.

 

Other Income: In the Current Six Month Period, we had Other Income of $91,589 as compared to $709,074 in the Previous Six Month Period. In the Previous Six Month Period Other Income included $648,872 reflecting Pandemic-related contributions under the PPP. In the Current Six Month Period, there are no such contributions. Without such contributions, this category is generally not material.

 

Net Income before income taxes: In the Current Six Month Period, we had a net income before income taxes of $1,937,856 as compared to $2,934,955 in the Previous Six Month Period, representing a fall of 34.0%. This is due to the fall in our consolidated revenues in the Current Quarter impacting our year-to-date consolidated revenues along with weaker gross profit margins in conjunction with an increase in Total Operating Expenses by 10.5%. In addition, in the Previous Six Month Period Net Income before income taxes increased by the inclusion of $648,872 in “Other Income” which represented assistance received under the PPP. Without this PPP contribution in the Previous Six Month Period, the fall in Net Income before income taxes in the Current Six Month Period would be 15.2%.

 

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Net Income: In the Current Six Month Period net income fell by 45.2 % to $1,828,552 from $3,336,777 in the Previous Six Month Period. This is due to the fall in our consolidated revenues along with weaker gross profit margins in conjunction with an increase in Total Operating Expenses. In addition, in the Previous Six Month Period Net Income increased by the inclusion of $648,872 in “Other Income” which represented assistance received under the PPP. Without this PPP contribution in the Previous Six Month Period, the fall in Net Income in the Current Six Month Period would be 31.9%. In the Current Six Month Period the Company’s effective tax rate increased and was 5.5% compared to (13.9)% in the Previous Six Month Period. The increase in the effective tax rate in the Current Six Month Period results from the exhaustion of the Company’s net operating losses in the United States. Furthermore, the effective tax rate in the Current Six Month Period is a lower rate because one of our subsidiaries in the United States incurred a loss in the Current Quarter.

 

Comprehensive Income (loss). In the Current Six Month Period Comprehensive loss was $197,050 compared to Comprehensive gain of $4,561,102 for the Previous Six Month Period. This category is affected by fluctuations in foreign currency exchange transactions. In the Previous Six Month Period we had a gain of $1,224,325 on foreign currency translation adjustment transactions compared to a loss on these transactions of $2,025,601 in the Current Six Month Period. In the Current Six Month Period, the USD has strengthened against most major currencies including the British Pound, Euro and Danish Kroner, the functional currencies of our foreign subsidiaries. A significant part of the Company’s operations is based in the UK, and therefore a significant part of our financial transactions is performed in Pounds which are translated into USD for reporting purposes. In the Current Six Month Period, the Pound has fallen significantly against the USD. This is a key factor in the loss relating to foreign currency translations transactions in the Current Six Month Period. See Table 2 under section “Inflation & Foreign Currency” which shows the impact of the currency adjustments on our Profit & Loss Account activities and Balance Sheet.

 

Liquidity and Capital Resources

 

At April 30, 2022, the Company had an accumulated deficit of $16,649,306, working capital of $31,336,268 and stockholders’ equity of $41,542,766. For the Six Months Ended April 30, 2022, the Company’s operating activities provided cash of $4,707,661.

 

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 Loan was satisfied in full on December 28, 2021.

 

Revolving Credit Line

 

The Company entered into a $4,000,000 revolving line of credit with HSBC Bank NA on November 27, 2019 (renewed up to November 2022), with interest at the prime rate. The outstanding balance on the line of credit was $0 as of April 30, 2022.

 

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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;
 

Australian Dollars for our Australian Operations

  Indian Rupees for our Indian Operations

 

Fluctuations in currency exchange rates can affect the Company’s sales, profitability, balance sheet valuation and financial position when the foreign currencies of its international operations are translated into US. dollars for financial reporting. In addition, we are also subject to currency fluctuation risk with respect to certain foreign currency denominated receivables and payables. The Company cannot predict the extent to which currency fluctuations may affect the Company’s business and financial position, and there is a risk that such fluctuations will have an adverse impact on the Company’s sales, profits and financial position. Also, because differing portions of our revenues and costs are denominated in foreign currency, movements can impact 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 six months ended April 30, 2022, is shown in Table 1 and Table 2 below.

 

For the purpose of Table 1 “Constant Rates” is defined as the prevailing exchange rate for balance sheet transactions in the Previous Quarter and weighted average exchange rate prevailing in the Previous Quarter for related revenues and expenses.

 

Table 1: Three Months ended April 30, 2022

 

    British Pounds     Australian Dollar     Danish Kroner     Indian Rupee     US Dollar        
    Actual     Constant     Actual     Constant     Actual     Constant     Actual     Constant     Actual     Constant     Total  
    Results     Rates     Results     Rates     Results     Rates     Results     Rates     Results     Rates     Effect  
Revenues     3,280,837       3,412,590       -       -       700,819       751,162       -       -       3,981,656       4,163,752       (182,096 )
Costs and Other (Income) Expense     2,529,514       2,631,095       319       333       38,881       41,674       (25,077     (25,861)       2,543,637       2,647,241       (103,604 )
Net profit (losses)     751,323       781,495       (319 )     (333 )     661,938       709,488       25,077       25,861       1,438,019       1,516,511       (78,492 )
Assets     21,722,299       23,651,516       32,203       34,323       2,687,985       2,947,397       18,822       18,429       24,461,309       26,651,665       (2,190,356 )
Liabilities     (1,675,791 )     (1,824,623 )     (2,415 )     (2,574 )     (58,317 )     (63,945 )     (67,054 )     (65,652 )     (1,803,577 )     (1,956,794 )     153,217  
Net assets     20,046,508       21,826,893       29,788       31,749       2,629,668       2,883,452       (48,232 )     (47,223 )     22,657,732       24,694,871       (2,037,139 )

 

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 Quarter by $78,492 and decreased net assets by $2,037,139.

 

Table 2: Six Months ended April 30, 2022

 

The impact of currency fluctuations on the six months ended April 30, 2022, is shown below. In this context “Constant Rates” is defined as the prevailing exchange rate for balance sheet transactions in the Previous Six Month Period and weighted average exchange rate prevailing in the Previous Six Month Period for related revenues and expenses.

 

    British Pounds     Australian Dollar     Danish Kroner     Indian Rupee     US Dollar        
    Actual     Constant     Actual     Constant     Actual     Constant     Actual     Constant     Actual     Constant     Total  
    Results     Rates     Results     Rates     Results     Rates     Results     Rates     Results     Rates     Effect  
Revenues     5,816,119       6,049,685       -       -       1,089,562       1,167,830       -       -       6,905,681       7,217,515       (311,834 )
Costs & Other (Income) Expense     4,791,775       4,984,205       24,573       25,677       109,026       116,858       (25,077     (25,861)       4,900,297       5,100,879       (200,582 )
Net profit (losses)     1,024,344       1,065,480       (24,573 )     (25,677 )     980,536       1,050,972       25,077       25,861       2,005,384       2,116,636       (111,252 )
Assets     21,722,299       23,651,516       32,203       34,323       2,687,985       2,947,397       18,822       18,429       24,461,309       26,651,665       (2,190,356 )
Liabilities     (1,675,791 )     (1,824,623 )     (2,415 )     (2,574 )     (58,317 )     (63,945 )     (67,054 )     (65,652 )     (1,803,577 )     (1,956,794 )     153,217  
Net assets     20,046,508       21,826,893       29,788       31,749       2,629,668       2,883,452       (48,232 )     (47,223 )     22,657,732       24,694,871       (2,037,139 )

  

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 Six Months Period by $111,252 and decreased net assets by $2,037,139.

 

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 April 30, 2021. 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 reporting period covered by this report.

 

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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

 

None.

 

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 Inline XBRL Instance Document.
   
101.SCH Inline XBRL Taxonomy Extension Schema Document
   
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
   
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
   
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

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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: June 14, 2022 /s/ Annmarie Gayle
  Annmarie Gayle
  Chief Executive Officer
   
Date: June 14, 2022 /s/ Michael Midgley
  Michael Midgley
  Chief Financial Officer

 

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