x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
o
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
Delaware
|
34-200-8348
|
|
(State
or other jurisdiction of Incorporation or organization)
|
(I.R.S.
Employer Identification Number)
|
|
164
West, 25th
Street, 6R, New York
|
10001
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
|
Registrant's
telephone number, including area code:
|
(212)
924-3442
|
Large
accelerated filer o
|
Accelerated
filer o
|
Smaller
reporting company x
|
Page
|
||||
PART
I - Financial Information
|
1
|
|||
Item
1: Financial Statements
|
1
|
|||
Six
Months Ended April 30, 2009 and 2008
|
||||
Condensed
Consolidated Balance Sheet as of April 30, 2009 (Unaudited) and October
31, 2008
|
1
|
|||
Condensed
Consolidated Statements of Operations and Comprehensive Loss for the Three
and Six Months Ended April 30, 2009 and 2008 (Unaudited)
|
2
|
|||
Condensed
Consolidated Statement of Deficiency in Stockholders’ Equity for the
Six Months Ended April 30, 2009 (Unaudited)
|
3
|
|||
Condensed
Consolidated Statements of Cash Flows for the Six Months Ended April 30,
2009 and 2008 (Unaudited)
|
4
|
|||
Notes
to Condensed Consolidated Financial Statements (Unaudited)
|
5
|
|||
Item
2: Management's Discussion and Analysis or Plan of
Operation
|
22
|
|||
Item 4T: Controls and
Procedures
|
32
|
|||
PART
II - Other Information
|
33
|
|||
Item
1: Legal Proceedings
|
33
|
|||
Item
2: Unregistered Sales of Equity Securities and Use of
Proceeds
|
33
|
|||
Item
3: Defaults Upon Senior Securities
|
33
|
|||
Item
4: Submission of Matters to a Vote of Security Holders
|
33
|
|||
Item
5: Other Information
|
33
|
|||
Item
6: Exhibits
|
33
|
|||
Signatures
|
34
|
April 30,
2009
(Unaudited)
|
October 31,
2008
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$
|
179,383
|
$
|
3,896,149
|
||||
Restricted
cash, Note 2
|
1,505,837
|
1,017,007
|
||||||
Short-term
investments, Note 4
|
68,000
|
153,000
|
||||||
Accounts
receivable, net of allowance for doubtful accounts
|
2,584,084
|
2,589,174
|
||||||
Inventory
|
3,010,876
|
2,317,322
|
||||||
Due
from related parties, Note 13
|
11,619
|
54,166
|
||||||
Unbilled
receivables, Note 3
|
964,836
|
518,326
|
||||||
Other
current assets, Note 5
|
211,142
|
407,080
|
||||||
Prepaid
expenses
|
347,950
|
385,831
|
||||||
Total
current assets
|
8,883,727
|
11,338,055
|
||||||
Property
and equipment, net, Note 6
|
378,143
|
355,909
|
||||||
Deferred
financing costs, net of accumulated amortization of $268,096 in 2009 and
$181,596 in 2008, Note 12
|
1,426,797
|
1,513,297
|
||||||
Goodwill
and other intangible assets, net, Note 7
|
4,298,459
|
3,832,023
|
||||||
Total
assets
|
$
|
14,987,126
|
$
|
17,039,284
|
||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable, trade
|
$
|
1,907,240
|
$
|
1,159,849
|
||||
Accrued
expenses and other current liabilities
|
1,882,950
|
2,347,522
|
||||||
Deferred
revenues, Note 3
|
223,454
|
268,650
|
||||||
Deferred
payment related to acquisitions, Note 14
|
208,586
|
-
|
||||||
Accrued
dividends on Series A preferred stock
|
38,108
|
53,874
|
||||||
Due
to related parties, Note 13
|
-
|
41,904
|
||||||
Loans
and notes payable, short term, Note 12
|
12,802,982
|
12,358,597
|
||||||
Total
current liabilities
|
17,063,320
|
16,230,396
|
||||||
Loans
and notes payable, long term, Note 12
|
157,382
|
162,700
|
||||||
Total
liabilities
|
17,220,702
|
16,393,096
|
||||||
Deficiency
in stockholders' equity, Note 8:
|
||||||||
Preferred
stock, $.001 par value; 5,000,000 shares authorized, 6,287 series A issued
and outstanding, as of April 30, 2009 and October 31, 2008
respectively
|
6
|
6
|
||||||
Common
stock, $.001 par value; 150,000,000 shares authorized, 49,000,244 and
48,853,664 shares issued and outstanding as of April 30, 2009 and October
31, 2008 respectively
|
49,000
|
48,854
|
||||||
Common
stock subscribed
|
120,000
|
131,790
|
||||||
Additional
paid-in capital
|
51,743,418
|
51,433,049
|
||||||
Accumulated
other comprehensive loss
|
(1,028,827
|
)
|
(1,317,696
|
)
|
||||
Accumulated
deficit
|
( 53,117,173
|
)
|
(49,649,815
|
)
|
||||
Total
deficiency in stockholders' equity
|
(2,233,576
|
)
|
646,188
|
|||||
Total
liabilities and deficiency in stockholders' equity
|
$
|
14,987,126
|
$
|
17,039,284
|
For
the three
months
|
For
the three
months
|
For
the six
months
|
For
the six
months
|
|||||||||||||
ended
April 30,
|
ended
April 30,
|
ended
April 30,
|
ended
April 30,
|
|||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
|
|
||||||||||||||
Net
revenue
|
$ | 4,307,447 | $ | 5,096,684 | $ | 7,506,553 | $ | 8,223,915 | ||||||||
Cost
of revenue
|
1,575,788 | 1,306,776 | 3,017,935 | 2,949,552 | ||||||||||||
Gross
profit
|
2,731,659 | 3,789,908 | 4,488,618 | 5,274,363 | ||||||||||||
Research
and development
|
456,477 | 764,308 | 1,060,158 | 1,453,501 | ||||||||||||
Selling,
general and administrative expenses
|
2,223,628 | 2,802,193 | 5,126,347 | 5,859,122 | ||||||||||||
Debt
modification cost
|
162,832 | - | 162,832 | - | ||||||||||||
Operating
income (loss)
|
(111,278 | ) | 223,407 | (1,860,719 | ) | (2,038,260 | ) | |||||||||
Other
income (expense)
|
||||||||||||||||
Other
income
|
3,547 | 44,368 | 31,187 | 49,225 | ||||||||||||
Interest
expense
|
(426,814 | ) | (455,334 | ) | (824,238 | ) | (569,305 | ) | ||||||||
Impairment
of investment in short term investment
|
(782,000 | ) | - | (782,000 | ) | - | ||||||||||
Total
other income (expense)
|
(1,205,267 | ) | (410,966 | ) | (1,575,051 | ) | (520,080 | ) | ||||||||
Loss
before income taxes
|
(1,316,545 | ) | (187,559 | ) | (3,435,770 | ) | (2,558,340 | ) | ||||||||
Provision
for income taxes
|
- | - | - | - | ||||||||||||
Net
loss
|
(1,316,545 | ) | (187,559 | ) | (3,435,770 | ) | (2,558,340 | ) | ||||||||
Preferred
Stock Dividends:
|
||||||||||||||||
Series
A
|
(439 | ) | (28,931 | ) | (31,588 | ) | (75,024 | ) | ||||||||
Net
Loss Applicable to Common Shares
|
$ | (1,316,984 | ) | $ | (216,490 | ) | $ | (3,467,358 | ) | $ | (2,633,364 | ) | ||||
Loss
per share, basic and diluted
|
(0.03 | ) | (0.00 | ) | (0.07 | ) | (0.05 | ) | ||||||||
Weighted
average shares outstanding
|
49,000,244 | 48,317,993 | 48,950,494 | 48,283,808 | ||||||||||||
Comprehensive
loss:
|
||||||||||||||||
Net
loss
|
$ | (1,316,545 | ) | $ | (187,559 | ) | $ | (3,435,770 | ) | $ | (2,558,340 | ) | ||||
Foreign
currency translation adjustment
|
(18,531 | ) | (4,289 | ) | (408,131 | ) | (121,950 | ) | ||||||||
Unrealized
loss on investment
|
- | (195,500 | ) | - | (382,500 | ) | ||||||||||
Comprehensive
loss
|
$ | (1,335,076 | ) | $ | (387,348 | ) | $ | (3,843,901 | ) | $ | (3,062,790 | ) |
Preferred
Stock
Series
A
|
Preferred
Stock
Series
B
|
Common
Stock
|
Common
Stock
|
Additional
Paid-in
|
Accumulated
Other
Comprehensive
|
Accumulated
|
||||||||||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Subscribed
|
Capital
|
Loss
|
Deficit
|
Total
|
||||||||||||||||||||||||||||||||||
Balance,
October 31, 2008
|
6,287
|
$
|
6
|
-
|
$
|
-
|
48,853,664
|
$
|
48,854
|
131,790
|
$
|
51,433,049
|
$
|
(1,317,696
|
)
|
$
|
(49,649,815
|
)
|
$
|
646,188
|
||||||||||||||||||||||||
Stock
issued for compensation
|
146,580
|
147
|
(11,790
|
)
|
$
|
30,163
|
$
|
18,520
|
||||||||||||||||||||||||||||||||||||
Fair
value of options issued for compensation
|
$
|
280,206
|
$
|
280,206
|
||||||||||||||||||||||||||||||||||||||||
Preferred
stock dividends Series A
|
$
|
(31,588
|
)
|
$
|
(31,588
|
)
|
||||||||||||||||||||||||||||||||||||||
Foreign
currency translation adjustment
|
$
|
(408,131
|
)
|
$
|
(408,131
|
)
|
||||||||||||||||||||||||||||||||||||||
Realized gain
from marketable securities
|
$
|
697,000
|
$
|
697,000
|
||||||||||||||||||||||||||||||||||||||||
Net
loss
|
$
|
(3,435,770
|
)
|
$
|
(3,435,770
|
)
|
||||||||||||||||||||||||||||||||||||||
Balance
April 30, 2009
|
6,287
|
$
|
6
|
-
|
$
|
-
|
49,000,244
|
$
|
49,000
|
$
|
120,000
|
$
|
51,743,418
|
$
|
(1,028,827
|
)
|
$
|
(53,117,173
|
)
|
$
|
(2,233,576
|
)
|
2009
|
2008
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
loss
|
$
|
(3,435,770
|
)
|
$
|
(2,558,340
|
)
|
||
Adjustments
to reconcile net loss to net cash used by operating
activities:
|
||||||||
Depreciation
and amortization
|
291,953
|
253,155
|
||||||
Stock
based compensation
|
298,726
|
196,189
|
||||||
Financing
costs
|
767,143
|
395,430
|
||||||
Impairment
of investment in marketable securities
|
782,000
|
-
|
||||||
Changes
in operating assets and liabilities:
|
||||||||
(Increase)
decrease in:
|
||||||||
Accounts
receivable
|
106,836
|
136,313
|
||||||
Inventory
|
(658,302
|
)
|
203,795
|
|||||
Prepaid
expenses
|
37,880
|
16,843
|
||||||
Other
receivables
|
(197,986
|
)
|
(407,638
|
)
|
||||
Increase
(decrease) in:
|
||||||||
Accounts
payable and accrued expenses
|
741,698
|
(492,299
|
)
|
|||||
Due
to related parties
|
(41,904
|
)
|
(169,784
|
)
|
||||
Net
cash used in operating activities
|
(1,307,726
|
)
|
(2,426,336
|
)
|
||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchases
of property and equipment
|
(52,814
|
)
|
(63,154
|
)
|
||||
Purchases
of intangible assets
|
-
|
(97,827
|
)
|
|||||
Increase
in restricted cash
|
(488,830
|
)
|
-
|
|||||
Acquisitions
|
(214,317
|
)
|
(763,936
|
)
|
||||
Cash
acquired from acquisitions
|
877
|
-
|
||||||
Net
cash used in investing activities
|
(755,084
|
)
|
(924,917
|
)
|
||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
(Payments
for) proceeds from loans, net
|
(1,019,124
|
)
|
10,437,753
|
|||||
Preferred
stock dividend paid
|
(47,354
|
)
|
(64,491
|
)
|
||||
Net
cash (used in) provided by financing activities
|
(1,066,478
|
)
|
10,373,262
|
|||||
Effect
of exchange rate changes on cash
|
(587,478
|
)
|
(214,460
|
)
|
||||
Net
decrease in cash
|
(3,716,766
|
)
|
6,807,549
|
|||||
Cash
and cash equivalents, beginning of period
|
3,896,149
|
916,257
|
||||||
Cash
and cash equivalents, end of period
|
$
|
179,383
|
$
|
7,723,806
|
||||
Cash
paid for:
|
||||||||
Interest
|
$
|
1,077,095
|
$
|
282,805
|
||||
Income
taxes
|
-
|
-
|
Equipment,
net
|
$
|
5,000
|
||
Customer
relationships acquired
|
60,000
|
|||
Non-compete
agreements acquired
|
50,000
|
|||
Goodwill
|
135,000
|
|||
Deferred
payments
|
(125,000
|
)
|
||
Cash
paid for acquisition
|
$
|
125,000
|
Current
assets acquired
|
$
|
147,039
|
||
Equipment,
net
|
51,336
|
|||
Current
liabilities assumed
|
(201,166
|
)
|
||
Customer
relationships acquired
|
29,740
|
|||
Non-compete
agreements acquired
|
29,740
|
|||
Goodwill
|
282,533
|
|||
Cash
acquired
|
877
|
|||
Deferred
payments
|
(250,782
|
)
|
||
Cash
paid for acquisition
|
$
|
89,317
|
Quoted Prices
in Active
Markets for
Identical
Instruments
|
Significant
Other
Observable
Inputs
|
Significant
Unobservable
Inputs
|
||||||||||||||
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Assets:
|
||||||||||||||||
Short
term Investment
|
$
|
68,000
|
$
|
68,000
|
|
|
||||||||||
Total
|
$
|
68,000
|
$
|
68,000
|
-
|
-
|
||||||||||
Liabilities: | ||||||||||||||||
Notes
Payable
|
$ |
12,800,786
|
$ | 12,800,786 | - | - | ||||||||||
Total
|
12,800,786 | 12,800,786 | - | - |
2009
|
2008
|
|||||||
Raw
materials
|
$
|
1,324,473
|
$
|
1,917,566
|
||||
Work
in process
|
164,219
|
113,942
|
||||||
Finished
goods
|
1,522,185
|
285,814
|
||||||
Total
inventory
|
$
|
3,010,876
|
$
|
2,317,322
|
2009
|
2008
|
|||||||
Deposits
|
$
|
86,955
|
$
|
110,548
|
||||
Value
added tax (VAT)
|
26,622
|
262,090
|
||||||
Other
receivable
|
97,565
|
34,442
|
||||||
Total
|
$
|
211,142
|
$
|
407,080
|
2009
|
2008
|
|||||||
Machinery
and equipment
|
$
|
1,183,741
|
$
|
1,076,950
|
||||
Accumulated
depreciation
|
(805,598
|
)
|
(721,041
|
)
|
||||
Net
property and equipment assets
|
$
|
378,143
|
$
|
355,909
|
2009
|
2008
|
|||||||
Customer
relationships (weighted average life of 9.2 years)
|
$
|
784,242
|
$
|
694,503
|
||||
Non-compete
agreements (weighted average life of 2.8 years)
|
278,650
|
198,911
|
||||||
Patents
(weighted average life of 10 years)
|
63,695
|
63,695
|
||||||
Licenses
(weighted average life of 2 years)
|
100,000
|
100,000
|
||||||
Total
amortized identifiable intangible assets - gross carrying
value
|
1,226,587
|
1,057,109
|
||||||
Less
accumulated amortization
|
(445,238
|
)
|
(324,661
|
)
|
||||
Net
|
781,349
|
732,448
|
||||||
Residual
value
|
$
|
781,349
|
$
|
732,448
|
2009
|
$
|
101,498
|
||
2010
|
142,721
|
|||
2011
|
130,66
6
|
|||
2012
|
75,824
|
|||
2013
and thereafter
|
330,640
|
|||
Total
|
$
|
781,349
|
2009
|
2008
|
|||||||
Beginning
goodwill balance at November 1
|
$
|
3,099,575
|
$
|
3,099,575
|
||||
Goodwill
recorded upon acquisition
|
417,533
|
-
|
||||||
Balance
at April 30, 2009 and October 31, 2008
|
$
|
3,517,108
|
$
|
3,099,575
|
Six months ended
April
30, 2009
|
Year ended
October 31, 2008
|
|||||||||||||||
Number
|
Weighted
Average Exercise
Price
|
Number
|
Weighted
Average Exercise
Price
|
|||||||||||||
Outstanding
at beginning of the period
|
38,339,318
|
$
|
1.39
|
36,519,318
|
$
|
1.29
|
||||||||||
Granted
during the period
|
-
|
-
|
1,870,000
|
1.36
|
||||||||||||
Terminated
during the period
|
(210,000
|
)
|
1.32
|
(50,000
|
)
|
1.70
|
||||||||||
Outstanding
at the end of the period
|
38,129,318
|
$
|
1.39
|
38,339,318
|
$
|
1.39
|
||||||||||
Exercisable
at the end of the period
|
37,066,418
|
$
|
1.39
|
37,161,418
|
$
|
1.39
|
Range of
Exercise Prices
|
Number
Outstanding
|
Weighted Average
Contractual Life
(Yrs)
|
Total Exercisable
|
|||||||||
0.50
|
750,000
|
2.00
|
750,000
|
|||||||||
0.58
|
400,000
|
1.92
|
400,000
|
|||||||||
1.00
|
5,795,900
|
2.07
|
5,739,800
|
|||||||||
1.30
|
16,046,709
|
2.79
|
15,186,959
|
|||||||||
1.50
|
425,000
|
2.71
|
400,250
|
|||||||||
1.70
|
14,651,709
|
2.67
|
14,549,409
|
|||||||||
1.80
|
60,000
|
3.40
|
40,000
|
|||||||||
Totals
|
38,129,318
|
2.61
|
37,066,418
|
Non-Current
|
2009
|
2008
|
||||||
Net
Operating Loss Carry Forward
|
$
|
17,384,000
|
$
|
16,485,000
|
||||
Valuation
Allowance
|
(17,384,000
|
)
|
(16,485,000
|
)
|
||||
Net
Deferred Tax Asset
|
$
|
-
|
$
|
-
|
2009
|
$
|
258,894
|
||
2010
|
481,214
|
|||
2011
|
444,164
|
|||
2012
|
245,138
|
|||
2013
and thereafter
|
326,678
|
|||
Total
|
$
|
1,756,088
|
April 31,
2009
|
October 31,
2008
|
|||||||
The
Company has a secured convertible debenture for $12M with a life of 7
years from February 26, 2008, maturing at 130% of face value, and with
interest payable every six months, starting in February 2009, at a rate of
8.5%; During the term, the debentures are convertible into our common
stock at the option of the Noteholders at a conversion price of $1.05. We
may also force the conversion of these Notes into our common stock after
two years in the event that we obtain a listing on a national exchange and
our stock price closes on 40 consecutive trading days at or above $2.50
between the second and third anniversaries of this agreement; $2.90
between the third and fourth anniversaries of this agreement; and $3.50
after the fourth anniversary of this agreement or where the daily volume
weighted average price of our stock as quoted on OTCBB or any other US
National Exchange on which our securities are then listed has, for at
least 40 consecutive trading days closed at the agreed price. The Company
has failed to comply with certain covenants contained in the debenture
agreement.
|
$
|
12,800,786
|
$
|
12,348,493
|
||||
The
Company, through its UK subsidiary Coda Octopus Products Ltd has a 7 year
unsecured loan note for £100,000; interest rate of 12% annually; repayable
at borrower’s instigation or convertible into common stock when the share
price reaches $3.
|
148,598
|
162,700
|
||||||
The
Company through its US subsidiary Coda Octopus Colmek, Inc., has an
unsecured loan note payable to a director and former officer of the
Company, which is being repaid in the short term.
|
-
|
10,104
|
||||||
The
Company through its UK subsidiary, Dragon Design Ltd, has an outstanding
loan note payable for £14,000 over 36 months, commencing in November 2007,
with monthly payments of £454.42 and an annual interest rate of 14.5%. By
the end of April 2009, 20 payments remained on this note.
|
10,980
|
-
|
||||||
The
Company through its UK subsidiary, Dragon Design Ltd, has an unsecured
revolving line of credit with their bank for £40,000, which is repayable
on demand. The amount outstanding on this line of credit was reduced to
zero in February 2009.
|
-
|
-
|
||||||
Total
|
$
|
12,960,364
|
$
|
12,521,297
|
||||
Less:
current portion
|
12,802,982
|
12,358,597
|
||||||
Total
long-term portion
|
$
|
157,382
|
$
|
162,700
|
Equipment,
net
|
$
|
5,000
|
||
Customer
relationships acquired
|
60,000
|
|||
Non-compete
agreements acquired
|
50,000
|
|||
Goodwill
|
135,000
|
|||
Total
purchase price
|
$
|
250,000
|
Current
assets acquired
|
$
|
147,039
|
||
Equipment,
net
|
51,336
|
|||
Current
liabilities assumed
|
(201,166
|
)
|
||
Customer
relationships acquired
|
29,740
|
|||
Non-compete
agreements acquired
|
29,740
|
|||
Goodwill
|
282,533
|
|||
Cash
acquired
|
877
|
|||
Total
purchase price
|
$
|
340,099
|
2009
|
||||
Revenue
|
$
|
7,638,252
|
||
Net
loss
|
(2,546,002
|
)
|
||
Loss
per common share
|
$
|
(0.05
|
)
|
Contracting
|
Products
|
Corporate
|
Totals
|
|||||||||||||
Revenues
|
$
|
3,805,323
|
$
|
2,607,058
|
$
|
1,094,173
|
$
|
7,506,553
|
||||||||
Operating
profit/(loss)
|
97,432
|
1,029,483
|
(2,987,635
|
)
|
(1,860,720
|
)
|
||||||||||
Identifiable
assets
|
5,912,632
|
3,000,278
|
6,074,216
|
14,987,126
|
||||||||||||
Capital
expenditure
|
259,250
|
10,237
|
33,327
|
302,814
|
||||||||||||
Selling,
general & administrative
|
1,569,180
|
986,180
|
2,570,987
|
5,126,347
|
||||||||||||
Depreciation
& amortization
|
151,837
|
31,006
|
109,109
|
291,953
|
||||||||||||
Interest
expense
|
7,342
|
13,295
|
803,601
|
824,238
|
2009
|
2008
|
|||||||
Revenues:
|
||||||||
United
States
|
$
|
2,384,933
|
$
|
7,362,966
|
||||
United
Kingdom
|
4,027,448
|
9,605,956
|
||||||
Corporate
and other
|
1,094,173
|
-
|
||||||
Total
Revenues
|
$
|
7,506,553
|
$
|
16,968,922
|
||||
Assets:
|
||||||||
United
States
|
$
|
4,512,475
|
$
|
4,357,042
|
||||
United
Kingdom
|
4,400,435
|
5,478,233
|
||||||
Corporate
and other
|
6,074,216
|
7,204,009
|
||||||
Total
Assets
|
$
|
14,987,126
|
$
|
17,039,284
|
1.
|
It
has raised approximately $33 million in funds, through three private
placements primarily with institutional investors. The Company raised
approximately $8 million in 2006, approximately $13 million in April/May
2007, and approximately $12 million in a convertible debt transaction that
was completed in February 2008.
|
2.
|
It
has completed the commercialization of the Echoscope and successfully
deployed its real-time 3D technology and products on three continents with
major corporations, governments, ports, law enforcement agencies and
security organizations.
|
3.
|
It
has significantly broadened both its revenue base and its base of
expertise in engineering, defense electronics, military and security
training, and software development primarily through the acquisition of
four privately held companies. Management believes that broadening the
base of the Company in these specific areas was necessary to position Coda
Octopus as a reliable and experienced contractor, subcontractor and
supplier of 3D sonar products and systems on a worldwide
basis.
|
4.
|
Beginning
in July 2007, the US Department of Defense (DoD) Technical Support Working
Group (TSWG) funded Coda Octopus to build and deliver next-generation
Underwater Inspection Systems™ (UIS) for the US Coast Guard and other
potential users. The program has included money to build and deliver
current systems, as well as a roadmap for their future development. During
the year ended October 31, 2007, the Company delivered three UIS systems
to the US Coast Guard against a purchase order totaling $2.59 million. In
FY 2008 the Company was funded for an additional $1.53 million to develop
certain mutually agreed technical enhancements to the system. The
Company’s latest contract with TSWG covers the funding of an additional
$1.4 million for additional enhancements and the delivery of additional
systems. The Company believes it has successfully completed the key
second-stage enhancements sought by the DoD and the Coast Guard. As a
result, management believes that the Company is positioned to build and
deploy fully integrated systems that meet the highest standards in the
world. They enable users to “see” objects that are smaller than a baseball
from a distance of more than 100 meters, and to do so in all kinds of
ocean or water conditions at virtually any depth. In addition, the Company
through its Colmek subsidiary, has more than 20 years of successful
experience as contractor with the Department of Defense, and as a
subcontractor with various large primes, most particularly
Raytheon.
|
5.
|
The
Company has taken advantage of its first mover status in real-time 3D
sonar to start to open up several potentially significant vertical markets
in the private sector. Thus far, the three areas of focus have been
Dredging, Underwater Construction, and Security. In each of these areas,
the Company has selected a lead customer and has worked with that customer
to develop and deploy a system that management believes will have wide
application throughout the segment. In the case of Rotterdam-based Van
Oord, the Company was funded to develop a particular application, and in
other cases the Company has financed the development
internally.
|
·
|
Marine
geophysical survey (commercial), which focuses around oil and gas,
oceanographic research and exploration, where we market to survey
companies, research institutions, salvage companies. This was our original
focus, with current products spanning geophysical data collection and
analysis, through to printers to output geophysical data collected by
sonar. We believe that our marine geophysical survey markets are
experiencing rapid growth due to: 1) successful new product introductions
in recent periods; 2) market-proximity benefits derived from the 2004
relocation to the United States; 3) initial market penetration into new
sub-sectors of the marine geophysical survey markets; 4) the high price of
oil and gas in the past few years, resulting in unprecedented exploration
and production activity, which is still having some effect on the market
even with lower current prices.
|
·
|
Underwater
defense/security, where we market to ports and harbors, state, local and
federal government agencies, law enforcement agencies and defense
contractors. We have recently completed developing and commenced marketing
our Underwater Inspection System (UIS™), the first real-time, high
resolution, three-dimensional underwater sonar imaging system, which we
believe has particularly important applications in the fields of port
security, defense and undersea oil and gas
development.
|
·
|
Underwater
construction, where our products are used for real-time monitoring of
construction which is conducted subsea, a particularly challenging
environment. We have also developed for one of our customers a tailored
software application to allow the laying of concrete Accropodes™ for
constructing breakwaters. The advantage of our real-time system is in
giving visibility where previously divers were used to help with the
construction, a dangerous and inefficient
process.
|
·
|
Dredging,
where our products are used for pre-dredge survey and in a real-time mode
where they monitor the quality and precision of the dredge. The advantage
we give is in improving the dredge quality and drastically reducing the
time involved – for example, if a re-dredge is required, this can be done
immediately from the information we provide, instead of days or weeks
later, when a new vessel may even have to be
used.
|
·
|
Other
applications, such as shallow water hydrography underwater logging, debris
survey and treasure hunting.
|
¨
|
First
mover advantage in 3D sonar markets based on our patented technology, our
research and development efforts and extensive and successful testing in
this area that date back almost two decades as well as broad customer
acceptance.
|
|
¨
|
Early
recognition of need for 3D real-time sonar in defense/security
applications.
|
|
¨
|
Expansion
into new geographies like North America and Western
Europe.
|
|
¨
|
Expansion
into new commercial markets like commercial marine survey with innovative
products.
|
|
¨
|
Recent
sole source classification for one of our products and its derivatives by
certain government procurement
agencies.
|
|
·
|
Continuing to sell our current
range of products into a mixture of commercial, defense and security
markets, increasing sales of these products over the course of this
financial year - we have seen strong growth
recently.
|
|
·
|
Continuing to develop and sell
complete turnkey systems based around our leading Echoscope™ 3D
technology, to open markets in law enforcement and inspection - a great
deal of our R&D expenditure has been directed towards refining our
product with a view to completing sales this year that are currently in
our pipeline.
|
|
·
|
Continuing to deliver to the
Coast Guard on the next stage contract, which we were awarded in February.
Work on stage 3 has already begun in the second quarter of this year and
continues until at least the end of the financial
year.
|
|
·
|
Delivering on our first port
security solution contract through the provision of our unique 3D
technology and other products and services, enabling us to provide
complete solutions.
|
|
·
|
Leveraging our subsidiaries to
take advantage of our lead in underwater sonar technology by cross
marketing all group products and services from each
company.
|
|
·
|
Continuing to review and refocus
our cost base where necessary to achieve a cost level commensurate with
our current level of
activity.
|
10.27
|
Cash Control Framework Agreement
dated March 16, 2009 by and between the Company, The Royal Bank of
Scotland and Greenhouse Investment
Limited*
|
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
|
|
·
|
Incorporated
by reference to the Company’s Annual Report on Form 10-K for the year
ended October 31, 2008, filed March 18,
2009.
|
Coda
Octopus Group, Inc.
(Registrant)
|
||
Date:
June 19, 2009
|
/s/ Jason Reid
|
|
Jason
Reid
|
||
President
and Chief Executive Officer
|
||
Date:
June 19, 2009
|
/s/ Jody E. Frank
|
|
Jody
Frank
|
||
Chief
Financial Officer
|