Registration
Number 333-___________
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
CODA
OCTOPUS GROUP, INC.
(Name
of
Small Business Issuer in its Charter)
|
Delaware
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3812
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34-200-8348
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|
(State
or other jurisdiction of
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(Primary
Standard Industrial
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(I.R.S.
Employer
|
|
incorporation
or organization)
|
Classification
Code Number)
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Identification
No.)
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164
West, 25th
Street, 6th
Floor,
New
York 10001
(Address
and telephone number of principal executive offices)
Jason
Reid
President
and Chief Executive Officer
164
West, 25th
Street, 6th
Floor,
New
York 10001
(212)
924 3442
(Name,
address and telephone number of agent for service)
Copies
to:
Marc
J.
Ross, Esq.
Louis
A.
Brilleman, Esq.
Sichenzia
Ross Friedman Ference LLP
61
Broadway
New
York,
New York 10006
Tel:
(212) 930-9700
Fax:
(212) 930-9725
Approximate
date of commencement of proposed sale to the public: From time to time after
the
effective date of this Registration Statement.
If
any of
the securities being registered on this form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. x
If
this
form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
If
this
form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. o
______
If
this
form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
number of the earlier effective registration statement for the same offering.
o
______
If
delivery of the prospectus is expected to be made pursuant to Rule 434, please
check the following box. o
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Title
of Each Class of Securities to be Registered
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Amount
To Be Registered
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Proposed
Maximum Offering Price Per Share (1)
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Proposed
Maximum Aggregate Offering Price
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Amount
of Registration Fee
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|
|
|
|
|
|
|
|
|
|
|
|
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Common
Stock, par value
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|
|
|
|
|
|
|
|
|
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$0.001
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|
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15,000,000
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$
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1.52
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$
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22,800,000
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$
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2,439.60
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Common
Stock, par value
|
|
|
|
|
|
|
|
|
|
|
|
|
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$0.001
(2)
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17,400,000
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$
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1.52
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$
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26,448,000
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$
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2,829.94
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|
|
|
|
|
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Total
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32,400,000
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$
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49,248,000
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$
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5,269.54
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(1)
Estimated solely for purposes of calculating the registration fee pursuant
to
Rule 457(c) under the Securities Act of 1933, as amended.
(2)
Represents shares issuable upon exercise of warrants.
The
registrant hereby amends this registration statement on such date or date(s)
as
may be necessary to delay its effective date until the registrant shall file
a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the registration statement shall
become effective on such date as the commission acting pursuant to said Section
8(a) may determine.
The
information in this prospectus is not complete and may be changed. The
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
PROSPECTUS
CODA
OCTOPUS GROUP, INC.
32,400,000 Shares
of Common Stock
This
prospectus relates to the resale by the selling stockholders of up to
32,400,000 shares
of
our common stock. The total number of shares sold herewith consists of the
following shares held by or to be issued to the selling stockholders: (i)
15,000,000 shares held by certain of our stockholders (ii) 7,500,000 shares
issuable upon the exercise of A warrants, (iii) 7,500,000 issuable upon the
exercise of B warrants and (iv) 2,400,000 shares issuable upon exercise of
placement agent warrants. We are not selling any shares of common stock in
this
offering and therefore will not receive any proceeds from this offering. We
will, however, receive proceeds from the cash exercise, if any, of warrants
to
purchase an aggregate of 17,400,000 shares of common stock. All costs associated
with this registration will be borne by us.
The
selling stockholders may sell their shares in public or private transactions,
at
prevailing market prices or at privately negotiated prices. We will not receive
any proceeds from the sale of the shares of common stock by the selling
stockholders.
Our
common stock is currently traded in the pink sheets under the symbol CDOC.
On
May 15, 2007, the last reported sale price for our common stock in the pink
sheets was $1.50 per share. We are currently in discussions with various
broker-dealers to arrange for an application to be filed with the National
Association of Securities Dealers (NASD) for the public trading of our common
stock on the OTC Bulletin Board. There is no assurance that our common stock
will be quoted on the OTC Bulletin Board or any stock exchange.
Investing
in these securities involves significant risks. See "Risk Factors" beginning
on
page 3.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION
HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS
IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The
date
of this Prospectus is ________, 2007
TABLE
OF CONTENTS
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Page
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Prospectus
Summary
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1
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Risk
Factors
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3
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Forward
Looking Statements
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8
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Use
of Proceeds
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8
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Management's
Discussion and Analysis or Plan of Operation
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9
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Business
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15
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Description
of Property
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25
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Legal
Proceedings
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26
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Directors
and Executive Officers
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27
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Executive
Compensation
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30
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Security
Ownership of Certain Beneficial Owners and Management
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37
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Market
for Common Equity and Related Stockholder Matters
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38
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Selling
Stockholders
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39
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| Recent
Financing |
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42
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Certain
Relationships and Related Transactions
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43
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Description
of Securities
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44
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Plan
of Distribution
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46
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Legal
Matters
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47
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Experts
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47
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Where
You Can Find More Information
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48
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Disclosure
of Commission Position on Indemnification for Securities Act
Liabilities
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48
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Index
to Consolidated Financial Statements
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F-1
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You
may
only rely on the information contained in this prospectus or that we have
referred you to. We have not authorized anyone to provide you with different
information. This prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the common stock
offered by this prospectus. This prospectus does not constitute an offer to
sell
or a solicitation of an offer to buy any common stock in any circumstances
in
which such offer or solicitation is unlawful. Neither the delivery of this
prospectus nor any sale made in connection with this prospectus shall, under
any
circumstances, create any implication that there has been no change in our
affairs since the date of this prospectus or that the information contained
by
reference to this prospectus is correct as of any time after its
date.
PROSPECTUS
SUMMARY
This
summary highlights information contained elsewhere in this prospectus. You
should read the entire prospectus carefully, including, the section entitled
"Risk Factors" before deciding to invest in our common stock. Coda Octopus
Group, Inc. is referred to throughout this prospectus as "Coda Octopus," "we"
or
"us."
General
We
are
engaged in 3-D subsea technology and are the developer and patent holder of
real-time 3-D sonar products which are expected to play a critical role in
the
next generation of underwater port security. We produce hardware, software
and
fully integrated systems which are sold and supported on a worldwide basis,
with
wide applications in two distinct market segments:
| |
·
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marine
geophysical survey (commercial), which focuses around oil and gas,
construction and oceanographic research and exploration, where we
market
to survey companies, research institutions, salvage companies. This
was
our original focus , from founding in 1994, 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 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.
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·
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underwater
defense/security, where we market to ports and harbors, state and
federal
government agencies and defense contractors. We started to focus
on this
market following the acquisition of OmniTech AS, a Norwegian company,
in
December 2002, a company which had developed a prototype system,
the
Echoscope™,
a
unique, patented instrument which permits accurate three-dimensional
visualization, measurement, data recording and mapping of underwater
objects. We have recently completed developing and commenced marketing
this first real time, high resolution, three-dimensional underwater
sonar
imaging device which we believe has particularly important applications
in
the fields of port security, defense and undersea oil and gas
development.
|
In
addition, through our two engineering services subsidiaries, Martech Systems
(Weymouth) Ltd, based in Weymouth, England, UK, and Colmek Systems Engineering,
based in Salt Lake City, Utah, US, we provide engineering services to a wide
variety of clients in the subsea, defense, nuclear and pharmaceutical
industries. These engineering capabilities are increasingly being combined
with
our product offerings, bringing opportunities to provide complete systems,
installation and support.
For
the
foreseeable future, we intend to intensify our focus on port security. We
believe that in the post 9/11 era there are significant growth opportunities
available in that particular market segment because of increased government
expenditures aimed at enhancing security. Specifically, we believe that we
have
the ability to capitalize on this opportunity as a result of:
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·
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First
mover advantage in 3-D sonar
markets.
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·
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Early
recognition of need for 3-D real-time sonar in defense/security
applications.
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·
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Expansion
into new geographies like North America and the Western
hemisphere.
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·
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Expansion
into new commercial markets like commercial marine survey with innovative
products.
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Further,
we believe the Echoscope™ will transform certain segments of the sonar product
market, and that 3-D sonar has disruptive technology qualities, in the early
stages of adoption. We believe the market opportunity in underwater security
and
defense could grow at a rapid pace over the next several years.
We
also
believe that our two recent acquisitions and formation of our wireless video
surveillance subsidiary strengthen our capabilities to produce comprehensive
security and defense systems and provide new opportunity for us to expand our
offerings.
Our
principal executive office is located at 164 West 25th
Street,
6th
Floor,
New York, New York 10001and our telephone number at that location is 212-924
3442.
This
Offering
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Shares
offered by Selling Stockholders
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Up
to 32,400,000 shares, including 17,400,000 shares issuable upon exercise
of warrants
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Common
Stock to be outstanding after the offering
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65,209,750*
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Use
of Proceeds
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We
will not receive any proceeds from the sale of the common stock hereunder.
See "Use of Proceeds" for a complete description.
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Risk
Factors
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The
purchase of our common stock involves a high degree of risk.
You
should carefully review and consider "Risk Factors" beginning on
page
3
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*Based
on
the current issued and outstanding number of shares of 47,809,750 as of May
11,
2007, and assuming issuance of all 17,400,000 shares upon exercise of the
warrants issued to the investors and the placement agent, the number of shares
offered herewith represents approximately 68% of the total issued and
outstanding shares of common stock.
Recent
Developments
Financing
During
April and May 2007, we entered into and consummated securities purchase
agreements with a group of accredited individual and institutional investors
providing for the sale and issuance of 15,000,000 shares of our common stock
and
five-year warrants to purchase 7,500,000 shares of common stock at $1.30 per
share and five-year warrants to purchase 7,500,000 shares of common stock at
$1.70 per share. Gross proceeds from the offering amounted to $15,000,000.
We
also issued five-year warrants to purchase 2,400,000 shares of our common stock
at $1.00 per share as part of placement agent fees.
We
agreed
to file the registration statement of which this prospectus forms a part for
the
registration of the shares as well as the shares issuable upon exercise of
the
warrants within 45 days after the closing date of each of the offering and
cause
it to be declared effective within 90 days after the closing date (135 days
assuming a full review by the Securities and Exchange Commission). Only
investors who participated in this financing as well as the placement agent
for
the offering are having shares included in this prospectus. If the registration
statement is not declared effective within the time period required, we must
pay
liquidated damages of 1.5% of the purchase price per month or part thereof
up to
a maximum of 24% in the aggregate of the purchase price paid. Such damages
are
payable in cash.
Acquisitions
On
June
26, 2006, we acquired all of the issued and outstanding capital stock of
Martech
Systems (Weymouth) Limited, a UK company. This company specializes in
engineering projects and sales to the UK Ministry of Defense, adding these
capabilities to the Group. The purchase price was approximately $1,536,000,
payable as follows: approximately $1,180,000 in cash at closing; approximately
$364,000 in cash one year after closing, which is accrued as $382,000 as
at
October 31, 2006, due to exchange rate movements. Approximately $286,000
in
common stock could become due on October 31, 2007, though this dependent
upon
the performance of Martech, and is in no way guaranteed. The result of
operations of Martech have been included in the consolidated financial
statements from the date of acquisition.
On
April
6, 2007, we completed the acquisition of Miller & Hilton d/b/a Colmek
Systems Engineering, a Utah corporation. The total purchase price was
approximately $2.075 million, consisting of cash paid at the closing of the
transaction in the amount of $800,000 and the issuance of 532,090 shares of
our
common stock and $700,000 that is due and payable on the first anniversary
of
the closing date evidenced by secured promissory notes to the former Colmek
shareholders . Under the terms of the stock purchase agreements, we have pledged
the Colmek shares as collateral security for the performance of our deferred
payment obligations under the notes.
An
investment in our shares involves a high degree of risk. Before making an
investment decision, you should carefully consider all of the risks described
in
this prospectus. If any of the risks discussed in this prospectus actually
occur, our business, financial condition and results of operations could be
materially and adversely affected. If this were to happen, the price of our
shares could decline significantly and you may lose all or a part of your
investment. The risk factors described below are not the only ones that may
affect us. Our forward-looking statements in this prospectus are subject to
the
following risks and uncertainties. Our actual results could differ materially
from those anticipated by our forward-looking statements as a result of the
risk
factors below. See "Forward-Looking Statements."
Risks
Related to Our Business
We
have incurred significant losses to date and may continue to incur
losses.
During
the fiscal years ended October 31, 2006 and 2005, we incurred net losses (after
giving effect to foreign currency translation adjustments) of $7,559,170 and
$3,807,055, respectively. We may continue to incur losses for at least the
next
12 months. Continuing losses will have an adverse impact on our cash flow and
may impair our ability to raise additional capital required to continue and
expand our operations.
If
we are unable to obtain additional funding, we may have to reduce our business
operations.
We
anticipate, based on currently proposed plans and assumptions relating to our
ability to market and sell our products, that our cash at hand including the
proceeds from a recent financing transaction will satisfy our operations and
capital requirements for the next 12 months. However, if we are unable to
realize satisfactory revenue in the near future, we will be required to seek
additional financing to continue our operations beyond that period. We will
also
require additional financing to expand into other markets and further develop
our products. Except for the warrants issued in our recent offerings, we have
no
current arrangements with respect to any additional financing. Consequently,
there can be no assurance that any additional financing on commercially
reasonable terms or at all will be available when needed. The inability to
obtain additional capital may reduce our ability to continue to conduct business
operations. Any additional equity financing may involve substantial dilution
to
our then existing stockholders. Our future capital requirements will depend
upon
many factors, including:
| |
·
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continued
scientific progress in our research and development
programs;
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·
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competing
technological and market
developments;
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·
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our
ability to establish additional collaborative relationships;
and
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·
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the
effect of commercialization activities and facility expansions if
and as
required.
|
We
are dependent on new products.
Our
future revenue stream depends to a large degree on our ability to bring new
products to market on a timely basis. We must continue to make significant
investments in research and development in order to continue to develop new
products, enhance existing products and achieve market acceptance of such
products. We may incur problems in the future in innovating and introducing
new
products. Our development stage products may not be successfully completed
or,
if developed, may not achieve significant customer acceptance. If we were unable
to successfully define, develop and introduce competitive new products, and
enhance existing products, our future results of operations would be adversely
affected. Development and manufacturing schedules for technology products are
difficult to predict, and we might not achieve timely initial customer shipments
of new products. The timely availability of these products in volume and their
acceptance by customers are important to our future success. A delay in new
product introductions could have a significant impact on our results of
operations.
If
the protection of our intellectual property rights is inadequate, our ability
to
compete successfully could be impaired.
We
have a
patent “Method
for Producing a 3-D Image.”
We
regard our intellectual property as critical to our business. We rely on a
combination of patent, trademark and trade secret protection to protect our
proprietary rights. Nevertheless, the steps we take to protect our proprietary
rights may be inadequate. Detection and elimination of unauthorized use of
our
products is difficult. We may not have the means, financial or otherwise, to
prosecute infringing uses of our intellectual property by third parties.
Further, effective patent, trademark, service mark, copyright and trade secret
protection may not be available in every country in which we will sell our
products and offer our services. If we are unable to protect or preserve the
value of our patents, trademarks, copyrights, trade secrets or other proprietary
rights for any reason, our business, operating results and financial condition
could be harmed.
Litigation
may be necessary in the future to enforce our intellectual property rights,
to
protect our trade secrets, to determine the validity and scope of the
proprietary rights of others, or to defend against claims that our products
infringe upon the proprietary rights of others or that proprietary rights that
we claim are invalid. Litigation could result in substantial costs and diversion
of resources and could harm our business, operating results and financial
condition regardless of the outcome of the litigation.
Other
parties may assert infringement or unfair competition claims against us. We
cannot predict whether third parties will assert claims of infringement against
us, or whether any future claims will prevent us from operating our business
as
planned. If we are forced to defend against third-party infringement claims,
whether they are with or without merit or are determined in our favor, we could
face expensive and time-consuming litigation, which could distract technical
and
management personnel. If an infringement claim is determined against us, we
may
be required to pay monetary damages or ongoing royalties. Further, as a result
of infringement claims, we may be required, or deem it advisable, to develop
non-infringing intellectual property or enter into costly royalty or licensing
agreements. Such royalty or licensing agreements, if required, may be
unavailable on terms that are acceptable to us, or at all. If a third party
successfully asserts an infringement claim against us and we are required to
pay
monetary damages or royalties or we are unable to develop suitable
non-infringing alternatives or license the infringed or similar intellectual
property on reasonable terms on a timely basis, it could significantly harm
our
business.
Our
Products May Contain Errors or Defects, which Could Result in Damage to Our
Reputation, Lost Revenues, Diverted Development Resources and Increased Service
Costs, Warranty Claims and Litigation.
Our
devices are complex and must meet stringent requirements. We warrant that our
products will be free of defect for various periods of time, depending on the
product. In addition, certain of our contracts include epidemic failure clauses.
If invoked, these clauses may entitle the customer to return or obtain credits
for products and inventory, or to cancel outstanding purchase orders even if
the
products themselves are not defective.
We
must
develop our products, particularly software associated with these products,
quickly to keep pace with the rapidly changing market, and we have a history
of
frequently introducing new products. Products and services as sophisticated
as
ours could contain undetected errors or defects, especially when first
introduced or when new models or versions are released. In general, our products
may not be free from errors or defects after commercial shipments have begun,
which could result in damage to our reputation, lost revenues, diverted
development resources, increased customer service and support costs and warranty
claims and litigation which could harm our business, results of operations
and
financial condition.
Increased
Reliance on Sales to Government Agencies carries the risk of us Becoming Overly
Dependent on one Source of Revenues.
We
have
recently introduced a new version of our Echoscope™, a sonar device that permits
real time, three-dimensional viewing, imaging and data recording of underwater
scenes and objects. Because of its ability to inspect harbor walls, ship hulls
and bridge pilings under unfavorable conditions, it is uniquely positioned
as an
aid in port and coastal infrastructure security. Therefore, we believe that
the
product is of great interest to government agencies, particularly the U.S.
Department of Homeland Security, and we are focusing our marketing efforts
on
those entities. If those marketing efforts are successful, we will become
increasingly dependent on government contracts. If for any reason government
spending on these types of security devices is subsequently reduced, this may
have a significant negative impact our sales and results of operations.
Our
Business is Subject to Disruptions and Uncertainties Caused by War or
Terrorism.
Acts
of
war or acts of terrorism could have a material adverse impact on our business,
operating results, and financial condition. The threat of terrorism and war
and
heightened security and military response to this threat, or any future acts
of
terrorism, may cause further disruption to our economy and create further
uncertainties. To the extent that such disruptions or uncertainties result
in
delays or cancellations of orders, or the manufacture or shipment of our
products, our business, operating results, and financial condition could be
materially and adversely affected.
We
Are Exposed to Fluctuations in Currency Exchange
Rates.
A
significant portion of our business including our manufacturing is conducted
outside the U.S., and as such, we face exposure to movements in non-U.S.
currency exchange rates. These exposures may change over time as business
practices evolve and could have a material adverse impact on our financial
results and cash flows. Fluctuation in currency impacts our operating
results.
Currently,
we hedge only those currency exposures associated with certain assets and
liabilities denominated in non-functional currencies. The hedging activities
undertaken by us are intended to offset the impact of currency fluctuations
on
certain non-functional currency assets and liabilities. Our attempts to hedge
against these risks may not be successful resulting in an adverse impact on
our
net income.
We
Face Risks in Investing in and Integrating New
Acquisitions.
We
have
recently acquired a number of companies, including Miller & Hilton, d/b/a/
Colmek Systems Engineering, and intend to continue to acquire other companies.
Acquisitions of companies entail numerous risks, including:
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·
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potential
inability to successfully integrate acquired operations and products
or to
realize cost savings or other anticipated benefits from
integration;
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·
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diversion
of management’s attention from on-going business
concerns;
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·
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loss
of key employees of acquired
operations;
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·
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the
difficulty of assimilating geographically dispersed operations and
personnel of the acquired
companies;
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·
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the
potential disruption of our ongoing
business;
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·
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unanticipated
expenses related to such
integration;
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·
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the
correct assessment of the relative percentages of in-process research
and
development expense that can be immediately written off as compared
to the
amount which must be amortized over the appropriate life of the
asset;
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| |
·
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the
impairment of relationships with employees and customers of either
an
acquired company or our own
business;
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| |
·
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the
potential unknown liabilities associated with acquired
business;
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| |
·
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inability
to recover strategic investments in development stage entities;
and
|
| |
·
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insufficient
revenues to offset increased expenses associated with
acquisitions.
|
As
a
result of such acquisitions, we have significant assets that include goodwill
and other purchased intangibles. The testing of these intangibles under
established accounting guidelines for impairment requires significant use of
judgment and assumptions. Changes in business conditions could require
adjustments to the valuation of these assets. In addition, losses incurred
by a
company in which we have an investment may have a direct impact on our financial
statements or could result in our having to write-down the value of such
investment. Any such problems in integration or adjustments to the value of
the
assets acquired could harm our growth strategy and have a material adverse
effect on our business, financial condition and compliance with debt
covenants.
Our
management has limited experience in managing and operating a US public company.
Any failure to comply or adequately comply with federal securities laws, rules
or regulations could subject us to fines or regulatory actions, which may
materially adversely affect our business, results of operations and financial
condition.
Our
current management has limited experience managing and operating a public
company in the United States and relies in many instances on the professional
experience and advice of third parties including its consultants, attorneys
and
accountants. Failure to comply or adequately comply with any laws, rules, or
regulations applicable to our business may result in fines or regulatory
actions, which may materially adversely affect our business, results of
operation, or financial condition.
Government
regulation and legal uncertainties may harm our
business.
Because
of the nature of some of our products, they may be subject to United States
and
other export controls and may be exported outside the United States or the
United Kingdom only with the required level of export license or through an
export license exception. Changes in our products or changes in export and
import regulations may create delays in the introduction of our products in
international markets, prevent our customers with international operations
from
deploying our products throughout their global systems or, in some cases,
prevent the export or import of our products to certain countries altogether.
Any change in export or import regulations or related legislation, shift in
approach to the enforcement or scope of existing regulations or change in the
countries, persons or technologies targeted by these regulations could result
in
decreased use of our products by, or in our decreased ability to export or
sell
our products to, existing or potential customers with international
operations.
Our
products are complex and may contain defects when first introduced into the
market and as new versions are released. Virtually all information technology
products and particularly those with electro-mechanical components such as
ours
are subject to a certain rate of failure. Delivery of products with
manufacturing defects or reliability or quality problems could significantly
delay or hinder market acceptance of our products, which in turn could damage
our reputation and adversely affect our ability to retain our existing customers
and to attract new customers. Correcting these production problems may require
us to expend significant amounts of capital and other resources. We cannot
give
you any guarantee that our products will be free from errors or defects after
we
start commercial production. If there are product errors or defects, this will
result in additional development costs, loss of or delays in market acceptance
of our products, diversion of technical and other resources from our other
development efforts, increased product repair or replacement costs, or the
loss
of credibility with our current and prospective customers, which may have a
negative impact upon our financial performance or status as a going
concern.
If
we cannot compete effectively, we will lose business.
The
market for our products, services and solutions is positioned to become
competitive. There are technological and marketing barriers to entry, but we
cannot guarantee that the barriers we are capable of producing will be
sufficient to defend the market share we wish to gain against future
competitors. The principal competitive factors in this market
include:
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·
|
Ongoing
development of enhanced technical features and
benefits;
|
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·
|
Reductions
in the manufacturing cost of competitors’
products;
|
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·
|
The
ability to maintain and expand distribution
channels;
|
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·
|
The
ability to deliver our products to our customers when
requested;
|
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·
|
The
timing of introductions of new products and services;
and
|
These
and
other prospective competitors have substantially greater resources, more
customers, longer operating histories, greater name recognition and more
established relationships in the industry. As a result, these competitors may
be
able to develop and expand their networks and product offerings more quickly,
devote greater resources to the marketing and sale of their products and adopt
more aggressive pricing policies. In addition, these competitors have entered
and will likely continue to enter into business relationships to provide
additional products competitive to those we provide or plan to
provide.
Loss
of Jason Reid, our President and chief Executive Officer, could impair our
ability to operate.
If
we
lose our key employee, Jason Reid, or are unable to attract or retain qualified
and suitable personnel, our business could suffer. Our success is highly
dependent on our ability to attract and retain qualified scientific, technical
and management personnel. We are highly dependent on our management, in
particular, Jason Reid, our President and Chief Executive Officer, who is
critical to the development of our business as a whole. Mr. Reid has an
employment agreement with us. However the loss of his services could have a
material adverse effect on our growth plan. If we were to lose this individual,
we may experience difficulties in competing effectively, developing our
technology and implementing our business strategies. We have key man life
insurance in place for a number of our employees, including Jason
Reid.
We
are authorized to issue "blank check" preferred stock, which, if issued without
stockholders approval, may adversely affect the rights of holders of our common
stock.
Our
certificate of incorporation authorizes the issuance of up to 5,000,000 shares
of "blank check" preferred stock with such designations, rights and preferences
as may be determined from time to time by our Board of Directors, of which
as of
the date hereof 6,407 Series A Preferred are issued and outstanding.
Accordingly, our Board of Directors is empowered, without stockholder approval,
to issue preferred stock with dividend, liquidation, conversion, voting or
other
rights which would adversely affect the voting power or other rights of our
stockholders. In the event of issuance, the preferred stock could be utilized,
under certain circumstances, as a method of discouraging, delaying or preventing
a change in control, which could have the effect of discouraging bids for our
company and thereby prevent stockholders from receiving the maximum value for
their shares. We have no present intention to issue any shares of its preferred
stock in order to discourage or delay a change of control. However, there can
be
no assurance that preferred stock will not be issued at some time in the
future.
Risks
relating principally to our common stock and its market
value:
Our
stock price may be volatile.
The
market price of our common stock is likely to be highly volatile and could
fluctuate widely in price in response to various factors, many of which are
beyond our control, including:
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·
|
technological
innovations or new products and services by us or our
competitors;
|
| |
·
|
additions
or departures of key personnel;
|
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·
|
sales
of our common stock;
|
| |
·
|
our
ability to integrate operations, technology, products and
services;
|
| |
·
|
our
ability to execute our business
plan;
|
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·
|
operating
results below expectations;
|
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·
|
loss
of any strategic relationship;
|
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·
|
economic
and other external factors; and
|
| |
·
|
period-to-period
fluctuations in our financial
results.
|
You
may
consider any one of these factors to be material. Our stock price may fluctuate
widely as a result of any of the above listed factors. In addition, the
securities markets have from time to time experienced significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies. These market fluctuations may also materially and
adversely affect the market price of our common stock.
We
have
never paid cash dividends on our common stock and do not anticipate paying
cash
dividends in the foreseeable future. The payment of dividends on our common
stock will depend on earnings, financial condition and other business and
economic factors affecting it at such time as the board of directors may
consider relevant. If we do not pay dividends, our common stock may be less
valuable because a return on your investment will only occur if its stock price
appreciates.
Our
stock is deemed to be penny stock.
Our
stock
is currently traded in the pink sheets. We intend to take the necessary steps
to
have our common stock included for quotation on the OTC Bulletin Board which
is
generally considered to be a less efficient market than markets such as NASDAQ
or other national exchanges, and which may cause difficulty in conducting trades
and difficulty in obtaining future financing. Even if our common stock is
included for quotation, it will likely be subject to the "penny stock rules"
adopted pursuant to Section 15 (g) of the Securities Exchange Act of 1934,
as
amended, or Exchange Act. The penny stock rules apply to non-NASDAQ companies
whose common stock trades at less than $5.00 per share or which have tangible
net worth of less than $5,000,000 ($2,000,000 if the company has been operating
for three or more years). Such rules require, among other things, that brokers
who trade "penny stock" to persons other than "established customers" complete
certain documentation, make suitability inquiries of investors and provide
investors with certain information concerning trading in the security, including
a risk disclosure document and quote information under certain circumstances.
Penny stocks sold in violation of the applicable rules may entitle the buyer
of
the stock to rescind the sale and receive a full refund from the
broker.
Many
brokers have decided not to trade "penny stock" because of the requirements
of
the penny stock rules and, as a result, the number of broker-dealers willing
to
act as market makers in such securities is limited. In the event that we remain
subject to the "penny stock rules" for any significant period, there may develop
an adverse impact on the market, if any, for our securities. Because our
securities are subject to the "penny stock rules," investors will find it more
difficult to dispose of our securities. Further, for companies whose securities
are traded in the OTC Bulletin Board, it is more difficult: (i) to obtain
accurate quotations, (ii) to obtain coverage for significant news events because
major wire services, such as the Dow Jones News Service, generally do not
publish press releases about such companies, and (iii) to obtain needed
capital.
FORWARD-LOOKING
STATEMENTS
Our
representatives and we may from time to time make written or oral statements
that are "forward-looking," including statements contained in this prospectus
and other filings with the Securities and Exchange Commission, reports to our
stockholders and news releases. All statements that express expectations,
estimates, forecasts or projections are forward-looking statements within the
meaning of the Act. In addition, other written or oral statements which
constitute forward-looking statements may be made by us or on our behalf. Words
such as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates," "projects," "forecasts," "may," "should," variations of such words
and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve risks, uncertainties and assumptions which are difficult to predict.
Therefore, actual outcomes and results may differ materially from what is
expressed or forecasted in or suggested by such forward-looking statements.
We
undertake no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise. Important
factors on which such statements are based are assumptions concerning
uncertainties, including but not limited to uncertainties associated with the
following:
(a)
volatility or decline of our stock price;
(b)
potential fluctuation in quarterly results;
(c)
our
failure to earn revenues or profits;
(d)
inadequate capital and barriers to raising the additional capital or to
obtaining the financing needed to implement its business plans;
(e)
inadequate capital to continue business;
(f)
changes in demand for our products and services;
(g)
rapid
and significant changes in markets;
(h)
litigation with or legal claims and allegations by outside parties;
(i)
insufficient revenues to cover operating costs.
USE
OF PROCEEDS
We
will
receive no proceeds from the sale of shares of common stock offered by the
selling securityholders herewith.
Forward-Looking
Statements
The
information in this report contains forward-looking statements. All statements
other than statements of historical fact made in report 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. This discussion should not be construed
to imply that the results discussed herein will necessarily continue into the
future, or that any conclusion reached herein will necessarily be indicative
of
actual operating results in the future. Such discussion represents only the
best
present assessment of our management.
General
Overview
On
July
13, 2004, pursuant to the terms of a share exchange agreement between The Panda
Project, Inc., a Florida corporation, and Fairwater Technologies Ltd.
(“Fairwater”), Panda acquired the shares of Coda Octopus Limited, a UK
corporation and Fairwater’s wholly-owned subsidiary, in consideration for the
issuance of a total of 20,050,000 shares of common stock to Fairwater and other
shareholders of Coda Octopus Limited. The shares issued represented
approximately 90.9% of the issued and outstanding shares of Panda. The share
exchange was accounted for as a reverse acquisition of Panda by Coda.
Subsequently, Panda was reincorporated in Delaware and changed its name to
Coda
Octopus Group, Inc.
We
are a
developer of underwater technologies and equipment for imaging, mapping, defense
and survey applications. We are based in New York, with research and
development, sales and manufacturing facilities located in the United Kingdom,
United States and Norway, and additional sales locations in Florida and
Washington, D.C.
The
consolidated financial statements include the accounts of Coda Octopus and
our
domestic and foreign subsidiaries that are more than 50% owned and controlled
except that the financial statements do not include Colmek which was acquired
on
April 6, 2007. All significant intercompany transactions and balances have
been
eliminated in the consolidated financial statement.
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the amounts reported in the consolidated financial statements and
accompanying disclosures. Although these estimates are based on management's
best knowledge of current events and actions that we may undertake in the
future, actual results may differ from those estimates.
Background
We
are
engaged in 3-D subsea technology and are the developer and patent holder of
real-time 3-D sonar products which are expected to play a critical role in
the
next generation of underwater port security. We produce hardware, software
and
fully integrated systems which are sold and supported on a worldwide basis,
with
wide applications in two distinct market segments:
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·
|
marine
geophysical survey (commercial), which focuses around oil and gas,
construction and oceanographic research and exploration, where we
market
to survey companies, research institutions, salvage companies. This
was our original focus, from original founding in 1994, 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 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.
|
| |
·
|
underwater
defense/ security, where we market to ports and harbors, state and
federal
government agencies and defense contractors. We started to focus
on this
market following the acquisition of OmniTech AS, a Norwegian Company,
in
December 2002, a company which had developed a prototype system,
the
Echoscope™,
a unique, patented instrument which permits accurate three-dimensional
visualization, measurement, data recording and mapping of underwater
objects. We have recently completed developing and commenced marketing
this first real time, high resolution, three-dimensional underwater
sonar
imaging device which we believe has particularly important applications
in
the fields of port security, defense and undersea oil and gas
development.
|
In
addition, through our two engineering services subsidiaries, Martech Systems
(Weymouth) Ltd, based in Weymouth, England, UK, and Colmek Systems Engineering,
based in Salt Lake City, Utah, US, we provide engineering services to a wide
variety of clients in the subsea, defense, nuclear, government and
pharmaceutical industries. These engineering capabilities are increasingly
being
combined with our product offerings, bringing opportunities to provide complete
systems, installation and support.
For
the
foreseeable future, we intend to intensify our focus on port security. We
believe that in the post 9/11 era there are significant growth opportunities
available in that particular market segment because of increased government
expenditures aimed at enhancing security. Specifically, we believe that we
have
the ability to capitalize on this opportunity as a result of:
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·
|
First
mover advantage in 3-D sonar
markets.
|
| |
·
|
Early
recognition of need for 3-D real-time sonar in defense/security
applications.
|
| |
·
|
Expansion
into new geographies like North America and the Western
hemisphere.
|
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·
|
Expansion
into new commercial markets like commercial marine survey with innovative
products.
|
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·
|
Recent
sole source classification for one of our products and its derivatives
by
certain government procurement
agencies.
|
Further,
we believe the Echoscope™ will transform certain segments of the sonar product
market, and that 3-D sonar has disruptive technology qualities, in the early
stages of adoption. We believe the market opportunity in underwater security
and
defense could grow at a rapid pace over the next several years.
Around
91% of our 2006 revenues of $7,291,291 were attributable to pure “products”
business. On a pro forma basis, adding the acquired businesses last year would
have given us revenues of $11,579,707 and around 43% of our revenues would
have
been generated from “services”.
To
this
established base of business, we now plan to add other
sub-sections:
|
|
· |
we
are now starting to bid (sometimes in partnership, where areas of
focus
other than underwater sonar and wireless video surveillance capability
are
demanded) for complete port security and other solutions. We have
bid on a
small number of these in the last six months and hope for our first
successes shortly.
|
|
|
· |
we
are currently reviewing the possibility of launching next year, in
partnership with others, a services business based on our product
set.
This business will be port based and will, for example, provide ship
hull
inspections by way of rental of equipment and provision of a team
to
operate the equipment for any ship entering that particular
port.
|
Critical
Accounting Policies
This
discussion and analysis of our financial condition and results of operations
are
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 accounting
principles generally accepted in the United States of America requires our
management to make estimates and assumptions that affect the reported amounts
of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts 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 3, "Summary of Significant Accounting Policies"
of
our Consolidated Financial Statements.
Revenue
Recognition
We
record
revenue in accordance with the guidance of the SEC's Staff
Accounting Bulletin SAB No. 104 (SAB
104), which supersedes SAB
No. 101
in order
to encompass EITF
No. 00-21,
Revenue
Arrangements with Multiple Deliverables
(EITF
00-21).
Revenue
is derived from sales of underwater technologies and equipment for imaging,
mapping, defense and survey applications. Revenue is also derived through
contracts gained by our Martech, Colmek and Innalogic businesses.
Revenue
is recognized when conclusive evidence of firm arrangement exists, delivery
has
occurred or services have been rendered, the contract price is fixed or
determinable, and collectibility is reasonably assured. No right of return
privileges are granted to customers after shipment.
For
arrangements with multiple deliverables, we recognize product revenue by
allocating the revenue to each deliverable based on the fair value of each
deliverable in accordance with EITF
No. 00-21
and SAB
No. 104, and recognize revenue for equipment upon delivery and for installation
and other services as performed. EITF No. 00-21 was effective for revenue
arrangements entered into in fiscal periods beginning after June 15, 2003.
Our
contracts typically require customer payments in advance of revenue recognition.
These deposit amounts are reflected as liabilities and recognized as revenue
when the Company has fulfilled its obligations under the respective contracts.
Revenues
derived from our software license sales are recognized in accordance with
Statement of Position (SOP) SOP No. 97-2, “Software Revenue Recognition,” and
SOP No. 98-9, “Modifications of SOP No. 97-2, Software Revenue Recognition with
Respect to Certain Transactions”. For software license sales for which any
services rendered are not considered essential to the functionality of the
software, we recognize revenue upon delivery of the software, provided (1)
there
is evidence of an arrangement, (2) collection of our fee is considered probable
and (3) the fee is fixed and determinable.
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 in accordance with our revenue recognition policy by
contract. 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 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.
Stock-Based
Compensation Expense
Stock
Based Compensation — SFAS No. 123, “Accounting for Stock-Based Compensation”,
establishes and encourages the use of the fair value based method of accounting
for stock-based compensation arrangements under which compensation cost is
determined using the fair value of stock-based compensation determined as of
the
date of the grant or the date at which the performance of the services is
completed and is recognized over the periods in which the related services
are
rendered. The statement also permits companies to elect to continue using the
current intrinsic value accounting method specified in Accounting Principles
Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees”, to
account for stock-based compensation to employees. We use the fair value method
for equity instruments granted to employees and non-employees and use the Black
Scholes model for measuring the fair value. The stock based fair value
compensation is determined as of the date of the grant or the date at which
the
performance of the services is completed (measurement date) and is recognized
over the periods in which the related services are rendered.
Income
Taxes
Deferred
income taxes are provided using the asset and liability method for financial
reporting purposes in accordance with the provisions of Statements of Financial
Standards No. 109, "Accounting for Income Taxes". Under this method, deferred
tax assets and liabilities are recognized for temporary differences between
the
tax bases of assets and liabilities and their carrying values for financial
reporting purposes, and for operating loss and tax credit carry forwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be removed or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the
consolidated statements of operations in the period that includes the enactment
date.
Comparison
of Three Months Ended January 31, 2007 compared to Three Months Ended January
31, 2006
Introduction
Due
to
the acquisition of Martech Systems (Weymouth) Limited (“Martech”), a UK company,
in June 2006, the financial information presented for Coda for the three
months
ended January 31, 2007, includes activity in Martech for that period.,
combined with revenue, other income and SG&A expenses of Coda for the three
months ended January 31, 2007. The financial information presented for
the three
months ended January 31, 2006 does not include any revenues and expenses
for Martech. Due to the disproportionate size of the revenues and expenses
in
the accompanying unaudited consolidated statements of operations in 2007
compared to those in 2006, comparisons between the two periods may not
be
meaningful.
Results
of Operations
Revenue.
Total
revenue for the three months ended January 31, 2007 (the "2007 Period")
and
January 31, 2006 (the "2006 Period") was $2,701,275 and $975,581, respectively,
representing an increase of 177%. Compared
with the 2006 Period, contributions from Martech were $720,899 in the
2007
Period. Therefore, there was a 103% increase in our remaining businesses.
This
was due to a strong demand for our traditional products in the geophysical
and
hydrographic survey markets.
Margins
were stronger in the 2007 Period at 65.2% compared with 63.3% for the
2006
Period reflecting higher product margin
sales.
Research
and Development (R&D).
R&D
spending decreased slightly to $518,393 in the 2007 Period from $532,128in
the
2006 Period as we continue to focus considerable effort into enhancing
the
Echoscope™ and releasing other products in our suite of marine geophysical
offerings.
Selling,
General and Administrative Expenses (SG&A).
SG&A expenses for the 2007 Period increased to $3,224,659 from $1,108,106
during the 2006 Period. Of the 2007 Period costs, $1,594,694 was a non-cash
charge relating to stock and options issued. Without this, the SG&A for the
Period would have been at the expected level of around $1.6 million for
the
quarter. This represents an increase over the prior year of around $500,000
which is attributable primarily to the following:
| · |
an
increase in the number of employees from 40 at January 31, 2006 to
75 at
January 31, 2007;
|
| · |
the
addition of the operations of Martech Systems (Weymouth) Ltd., which
added
$442,585
|
| · |
increased
accounting, legal and related costs associated with the Company's
efforts
to establish and operate as a public company in the
U.S.
|
Key
areas of expenditure include wages and salaries, where we spent $1,312,505
or
42% of our SG&A costs (2006 Period was $537,230, or 48%); legal and
professional fees, including accounting, audit and investment banking services,
where we spent $261,821, or 8% of our SG&A costs (2006 Period was $159,560,
or 14%); travel, where we spent $100,332, or 3% of our SG&A costs (2006
Period was $54,841, or 5%); and marketing, where we spent $50,295, or 2%
of our
SG&A costs (2006 Period was $67,977, or 6%).
Financing
Expenses.
We
incurred costs of $435,000 as fees in connection with our financings, which
are
also included in our loss from operations. These fees covered equity fund
raising during the quarter.
As
a
result of the foregoing, the Company incurred a loss from operations of
$2,417,806 during the 2007 Period, as compared to a loss from operations
of
$1,022,525 during the 2006 Period.
Interest
Expense.
Interest expense for the 2007 Period increased to $115,211 from $57,100 during
the 2006 Period. The increase was primarily due to interest and factoring
costs
totaling $82,918.
During
the 2007 Period, the Company booked charges to represent the fair value of
preferred stock and warrants sold within the year totaling $800,000. Net
loss
applicable to common shares was ($3,330,919) or ($0.13) per share for the
2007 Period as compared to a loss of ($1,079,010), or ($0.05) for the 2006
Period.
Liquidity
and Capital Resources
As
of
January 31 , 2007 the Company had negative working capital of $ 1,168,846.
The
Company generated a deficit in cash flow from operations of $ 1,660,028 for
the
three months ended January 31, 2007. This deficit is primarily attributable
to
the Company's net loss from operations of $3,330,919, adjusted for stock
based
compensation of $1,594,694 and the beneficial conversion feature attributed
to
preferred stock of $800,000.
Cash
flows used in investing activities for the three months ended January 31,
2007
was $36,840 in connection with the acquisition of equipment.
The
Company met its cash requirements during the period through net proceeds
from
the issuance of equity of $ 800,000 and repayment of debt of $ 317,243.
During
April and May 2007, we entered into and consummated securities purchase
agreements with a group of accredited individual and institutional investors
providing for the sale and issuance of 15,000,000 shared or our common stock
and
five-year warrants to purchase 7,500,000 shares of common stock at $1.30
per
share and five-year warrants to purchase 7,500,000 shares of common stock
at
$1.70 per share. Gross proceeds from the offering amounted to $15,000,000.
We
also issued five-year warrants to purchase 2,400,000 shares of our common
stock
at $1.00 per share as part of placement agent fees.
We
agreed
to file the registration statement of which this prospectus forms a part
of the
registration of the shares as well as the shares issuable upon exercise of
the
warrants within 45 days after the closing date of each of the offering and
cause
it to be declared effective within 90 days after the closing date (135 days
assuming a full review by the Securities and Exchange Commission). Only
investors who participated in this financing as well as the placement agent
for
the offering are having shares included in this prospectus. If the registration
statement is not declared effective within the time period required, we must
pay
liquidated damages of 1.5% of the purchase price per month or part thereof
up to
a maximum of 24% in the aggregate of the purchase price paid. Such damages
are
payable in cash.
While
we
have raised capital to meet our working capital and financing needs in the
past,
additional financing is required in order to meet our current and projected
cash
flow requirements from operations and development. While we believe we have
sufficient cash on hand as of January 31, 2007 to meet our working capital
needs
and requirements for the next twelve (12) months, we are seeking additional
financing, which may take the form of debt, convertible debt or equity, in
order
to provide the additional working capital and funds for expansion. We currently
have no commitments for financing. There is no guarantee that we will be
successful in raising the funds required.
Inflation
and Foreign Currency
The
Company maintains its books in local currency: US Dollars for the parent
holding
Company in the United States of America, Pound Sterling and Norwegian Krone
for
its or its United Kingdom and Norwegian operations, respectively.
The
Company’s operations are primary outside of the United States through its
wholly-owned subsidiaries. As a result, fluctuations in currency exchange
rates
may significantly affect the Company's sales, profitability and financial
position when the foreign currencies of its international operations are
translated into U.S. dollars for financial reporting. In additional, we are
also
subject to currency fluctuation risk with respect to certain foreign currency
denominated receivables and payables. Although the Company cannot predict
the
extent to which currency fluctuations may or will affect the Company's business
and financial position, there is a risk that such fluctuations will have
an
adverse impact on the Company's sales, profits and financial position. Because
differing portions of our revenues and costs are denominated in foreign
currency, movements could impact our margins by, for example, decreasing
our
foreign revenues when the dollar strengthens and not correspondingly decreasing
our expenses. The Company does not currently hedge its currency exposure.
In the
future, we may engage in hedging transactions to mitigate foreign exchange
risk.
It
is the
opinion of the Company that inflation has not had a material effect on its
operations.
Comparison
of Fiscal Year Ended October 31, 2006 Compared to Year Ended October 31,
2005
Introduction
Due
to
the acquisition of Martech Systems (Weymouth) Limited (“Martech”), a UK company,
in June 2006, the financial information presented for Coda for the year ended
October 31, 2006, represents activity in Martech for the periods from the
date of their acquisitions to the year ended October 31, 2006, combined with
revenue, other income and S G & A expenses of Coda for year ended
October 31, 2006. The financial information presented for the year ended
October 31, 2005 does not include any revenues and expenses for Martech.
Due to the disproportionate size of the revenues and expenses in the
accompanying consolidated statements of operations in 2006 compared to those
in
2005, comparisons between the two periods may not be
meaningful.
Results
of Operations
Revenue.
Total
revenue for the year ended October 31, 2006 (the "2006 Period") and October
31,
2005 (the "2005 Period") was $7,291,291 and $4,288,416, respectively,
representing an increase of 70%. During the 2006 Period, the Company entered
the
3-D sonar business and enjoyed revenues of $1,298,433 from the introduction
and
initial sale of seven Echoscope™ units to customers including the U.S. Navy and
the U.S. Coast Guard. Sales of the Company's traditional marine product
offerings grew by 38.5% to $5,259,172 from $3,795,914, driven by motion sensor
sales, which grew by 296.6% over the year.
Research
and Development (R&D).
R&D
spending increased to $3,130,821 in FY 2006, from $1,044,695 in FY 2005 as
we
directed considerable additional effort into enhancing the Echoscope™ and
releasing other products in our suite of marine geophysical
offerings.
Selling,
General and Administrative Expenses (SG&A).
SG&A expenses for the 2006 Period increased to $7,453,946 from $4,349,674
during the 2005 Period. The increase is attributable primarily to the
following:
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an
increase in the number of employees from 37 at October 31, 2005 to
77 at
October 31, 2006;
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|
additional
lease expense associated with Florida operations; and
|
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|
increased
accounting, legal and related costs associated with the Company's
efforts to establish and operate as a public company in the
U.S.
|
All
of
these additional charges totaled $1,750,685. In addition, non-cash charges
for
stock-based compensation totaled $2,005,056, an increase of $1,353,587 over
the
2005 Period. Key areas of expenditure include wages and salaries, where we
spent
$3,196,429, or 43% of our SG&A costs; legal and professional fees, including
accounting, audit and investment banking services, where we spent $1,272,086,
or
17% of our SG&A costs; travel, where we spent $397,137, or 5% of our
SG&A costs; and marketing, where we spent $315,265, or 4% of our SG&A
costs.
Financing
Expenses.
We
incurred costs of $447,750 as fees in connection with our financings from
operations, which are also included in our loss from operations. These fees
covered equity fund raising of $8m and the closing of a recourse-based factoring
facility which has provided working capital of around $1m over the
year.
As
a
result of the foregoing, the Company incurred a loss from operations of
$6,352,816 during
the 2006 Period, as compared to a loss from operations of $3,570,753 during
the
2005 Period.
Interest
Expense.
Interest expense for the 2006 Period increased to $1,203,690 from $219,855
during the 2005 Period. The increase was primarily due to non-cash interest
costs totaling $784,873, which represent the beneficial conversion feature
of
warrants issued in connection with our financing.
During
the 2006 period, the Company booked charges to represent the fair value of
preferred stock and warrants sold within the year totaling $4,536,844. Net
loss
applicable to common shares was ($12,096,014) or ($0.50) per share in FY
2006 as
compared to a loss of ($3,807,055), or ($0.16) in FY
2005.
Cash
Flow
Operating
Activities. Net
cash generated by operating activities for the year ended October 31, 2006
was
$121,807 compared with net cash used of $3,569,924 for the year ended October
31, 2005. The key elements of this positive operating cash flow were a decrease
in other receivables of $2.26m, which was counterbalanced by an increase in
accounts payable of $1.86m and an increase in amounts due to related parties,
which totaled $523,076.
Investing
Activities.
Net cash used by investing activities for the year ended October 31, 2006 was
$1,103,621 compared with $272,157 for the year ended October 31, 2005. This
was
primarily due to the acquisition of Martech for $1,154,590.
Financing
Activities. Net
cash provided by financing activities for the year ended October 31, 2006 was
$2,378,108 compared with $3,698,660 for the year ended October 31, 2005. This
was primarily due to a repayment of loans of $2,106,342 for the 2006 Period
as
opposed to proceeds from loans of $2,898,126 for the 2005 Period. This was
somewhat offset by an increase in the proceeds from the sale of stock to
$4,564,100 from $800,534.
Liquidity
and Capital Resources
As
of
October 31, 2006, the Company had negative working capital of $ 1,063,125.
The
Company generated a cash flow from operations of $121,807 for the year ended
October 31, 2006. This cash flow is primarily attributable to the Company's
net
loss from operations of $ 12,096,014, adjusted for stock based compensation
of
$2,005,056, the beneficial conversion feature attributed to preferred stock
of
$4,152,800 and an increase in accounts receivable of $2,260,315.
Cash
flows used in investing activities for the year ended October 31, 2006 was
$1,103,621, primarily due to the purchase of Martech Systems of $
1,154,590.
The
Company met its cash requirements during the period through net proceeds
from
the issuance of equity of $4,564,100 and repayment of debt of $2,106,342.
During
April and May 2007, we entered into and consummated securities purchase
agreements with a group of accredited individual and institutional investors
providing for the sale and issuance of 15,000,000 shares of our common
stock and
five-year warrants to purchase 7,500,000 shares of common stock at $1.30
per
share and five-year warrants to purchase 7,500,000 shares of common stock
at
$1.70 per share. Gross proceeds from the offering amounted to $15,000,000.
We
also issued five-year warrants to purchase 2,400,000 shares of our common
stock
at $1.00 per share as part of placement agent fees.
We
agreed
to file the registration statement of which this prospectus forms a part
for the
registration of the shares as well as the shares issuable upon exercise
of the
warrants within 45 days after the closing date of each of the offering
and cause
it to be declared effective within 90 days after the closing date (135
days
assuming a full review by the Securities and Exchange Commission). Only
investors who participated in this financing as well as the placement agent
for
the offering are having shares included in this prospectus. If the registration
statement is not declared effective within the time period required, we
must pay
liquidated damages of 1.5% of the purchase price per month or part thereof
up to
a maximum of 24% in the aggregate of the purchase price paid. Such damages
are
payable in cash.
While
we
have raised capital to meet our working capital and financing needs in
the past,
additional financing is required in order to meet our current and projected
cash
flow requirements from operations and development. While we believe we
have
sufficient cash on hand as of October 31, 2006 to meet our working capital
needs
and requirements for the next twelve (12) months, we are seeking additional
financing, which may take the form of debt, convertible debt or equity,
in order
to provide the additional working capital and funds for expansion. We
currently
have no commitments for financing. There is no guarantee that we will
be
successful in raising the funds required.
Inflation
and Foreign Currency
The
Company maintains its books in local currency: US Dollars for the parent
holding
Company in the United States of America, Pound Sterling and Norwegian Kroner
for
its or its United Kingdom and Norwegian operations, respectively.
The
Company’s operations are primary outside of the United States through its
wholly-owned subsidiaries. As a result, fluctuations in currency exchange
rates
may significantly affect the Company's sales, profitability and financial
position when the foreign currencies of its international operations are
translated into U.S. dollars for financial reporting. In additional, we are
also
subject to currency fluctuation risk with respect to certain foreign currency
denominated receivables and payables. Although the Company cannot predict
the
extent to which currency fluctuations may or will affect the Company's business
and financial position, there is a risk that such fluctuations will have
an
adverse impact on the Company's sales, profits and financial position. Because
differing portions of our revenues and costs are denominated in foreign
currency, movements could impact our margins by, for example, decreasing
our
foreign revenues when the dollar strengthens and not correspondingly decreasing
our expenses. The Company does not currently hedge its currency exposure.
In the
future, we may engage in hedging transactions to mitigate foreign exchange
risk.
The
translation of the Company’s United Kingdom operation’s pound sterling
denominated balance sheets into U.S. dollars, as of October 31, 2006, has
been
affected by the weakening of the U.S. dollar against the pound sterling from
1.76 as of October 31, 2005, to 1.90 as of October 31, 2006, an approximate
8%
depreciation in value. The average pound sterling /U.S. dollar exchange rates
used for the translation of the United Kingdom operation’s pound sterling
denominated statements of operations into U.S. dollars, as of October 31,
2006
and 2005 were 1.80 and 1.82, respectively.
The
translation of the Company’s Norwegian operation’s Kroner denominated balance
sheets into U.S. dollars, as of October 31, 2006, has not been materially
affected by the currency fluctuations of the U.S. dollar against the Kroner
from
0.154 as of October 31, 2005, to 0.153 as of October 31, 2006, an approximate
0.7% change in value. The average Kroner /U.S. dollar exchange rates used
for
the translation of the Norwegian operation’s Kroner denominated statements of
operations into U.S. dollars, as of October 31, 2006 and 2005 were 0.15 and
0.15, respectively.
It
is the
opinion of the Company that inflation has not had a material effect on its
operations.
Financing
Activities
Since
February 2005, we have raised approximately $24,724,289 in cash through the
issuance in private offerings at various times of shares of our common stock,
and units consisting of shares of preferred stock and warrants to purchase
common stock.
In
February 2005, we issued a total of 1,000,000 shares of our common stock
for a
total cash consideration of $800,534.
In
October 2005, we issued to one investor a total of 15,000 Series A Preferred
Stock (Sterling Denominated), since converted into 2,655,000 shares of common
stock, for a total cash consideration of £1,500,000 equivalent to approximately
$2,655,000,
based upon a conversion ratio of $1.77 for each UK Pound at the time of the
investment.
On
April
30, 2006, we issued a total of 7,320.88 shares of our Series A Preferred
Stock
to a group of individual investors for total cash consideration of £684,618.83
UK Pounds equivalent to $1,211,775 based upon a conversion ratio of $1.77
for
each UK Pound at the time of the investment.
In
June
2006, we issued to one institutional investor units consisting of 23,000
shares
of our Series B Preferred Stock and two five-year warrants to purchase 4.6
million shares of our common stock at a price ranging from $1.30 to $2.00
per
share for total cash consideration of $2,300,000. Of these shares of Series
B
Preferred Stock, 4,819 have since been converted into 481,900 shares of common
stock.
In
July
2006, we issued to two individual investors 820 shares of our Series A Preferred
Stock for a total cash consideration of $82,000. These have since been converted
into 820,000 shares of our common stock.
From
September 2006 through January 2007, we issued to one institutional investor
units consisting 23,000 shares of our Series B Preferred Stock and four five
year warrants to purchase 4.6 million shares of our common stock at a price
ranging from $1.3 to $2.00 per share and 650,000 shares of our Common Stock
for
a total cash consideration of $2,300,000. The 23,000 shares of Series B
Preferred Stock have since been converted into 2,300,000 shares of our common
stock.
On
October 31, 2006, we issued to one investor 500 shares of our Series A Preferred
Stock for a total consideration of $50,000. These have since been converted
into
50,000 shares of our common stock.
In
February 2007, we issued to one investor 3,000 shares of our Series B Preferred
Stock plus five-year warrants to purchase 300,000 shares of our common stock
at
$1.30 per share and five-year warrants to purchase 300,000 shares of our
common
stock at $1.70 per share for a total cash consideration of $300,000. The
3000
shares of Series B Preferred Stock have since been converted into 300,000
shares
of our common stock.
In
April
2007 we issued to an individual investor 25,000 shares of our common stock
plus
five-year warrants to purchase the same amount of shares of common stock (of
which 12,500 may be purchased at $1.30 and the balance at $1.70 per share)
for a
total of $25,000.
During
April and May 2007, we issued to a group of investors a total of 15,000,000
shares of our common stock plus five-year warrants to purchase the same amount
of shares of common stock (of which 7,500,000 may be purchased at $1.30 and
the
balance at $1.70 per share) for a total of $15,000,000.
Off-Balance
Sheet Arrangements
We
do not
have any off balance sheet arrangements that are reasonably likely to have
a
current or future effect on our financial condition, revenues, results of
operations, liquidity or capital expenditures.
Overview
Coda
Octopus Group, Inc. (“the Company”, “we” or “us”) is engaged in 3-D subsea
technology and are the developer and patent holder of real-time 3-D sonar
products which are expected to play a critical role in the next generation
of
underwater port security. We produce hardware, software and fully integrated
systems which are sold and supported on a worldwide basis, with wide
applications in two distinct market segments:
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marine
geophysical survey (commercial), which focuses around oil and gas,
construction and oceanographic research and exploration, where we
market
to survey companies, research institutions, salvage companies. This
was
our original focus, from founding in 1994. Our current products encompass
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 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.
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underwater
defense/security, where we market to ports and harbors, state and
federal
government agencies and defense contractors. We started to focus
on this
market following the acquisition of OmniTech AS, a Norwegian company,
in
December 2002 (now operating under the name of Coda Omnitech AS),
a
Company which had developed a prototype system, the Echoscope™,
a
unique, patented instrument which supplies accurate three-dimensional
visualization, measurement, data recording and mapping of underwater
objects. We have recently completed developing and commenced marketing
this first real time, high resolution, three-dimensional underwater
sonar
imaging device which we believe has particularly important applications
in
the fields of port security, defense and undersea oil and gas
development.
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In
addition, through our two engineering services subsidiaries, Martech Systems
(Weymouth) Ltd, based in Weymouth, England, UK, and Colmek Systems Engineering,
based in Salt Lake City, Utah, US, we provide engineering services to a wide
variety of clients in the subsea, defense, nuclear and pharmaceutical
industries. These engineering capabilities are increasingly being combined
with
our product offerings, bringing opportunities to provide complete systems,
installation and support.
For
the
foreseeable future, we intend to intensify our focus on port security. We
believe that in the post 9/11 era there are significant growth opportunities
available in that particular market segment because of increased government
expenditures aimed at enhancing security. Specifically, we believe that we
have
the ability to capitalize on this opportunity as a result of:
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First
mover advantage in 3-D sonar
markets.
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Early
recognition of need for 3-D real-time sonar in defense/security
applications.
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Expansion
into new geographies like North America and the Western
hemisphere.
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Expansion
into new commercial markets like commercial marine survey with innovative
products.
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Further,
we believe the Echoscope™ will transform certain segments of the sonar product
market, and that 3-D sonar has disruptive technology qualities, in the early
stages of adoption. We believe the market opportunity in underwater security
and
defense could grow at a rapid pace over the next several years.
We
also
believe that our two recent acquisitions and formation of our wireless video
surveillance subsidiary strengthen our capabilities to produce comprehensive
security and defense systems and provide new opportunity for us to expand our
offerings.
Corporate
History
The
Company began as Coda Technologies Ltd (now operating under the name of Coda
Octopus Products Limited), a UK corporation which was formed in 1994 as a
start-up company with its origins as a research group at Herriott-Watt
University, Edinburgh, Scotland. Its operations consisted primarily of
developing software for subsea mapping and visualization using sidescan sonar,
a
technology widely used in commercial offshore geophysical survey and naval
mine-hunting to detect objects on, and textures of, the surface of the seabed.
During the late 1990s we achieved significant market penetration in Europe
and
Asia, but this was difficult to replicate in the USA due to our being a UK
based
Company at that time, though we did have a US subsidiary which was established
to market and sell our products in North America. The delay in effectively
breaking into the US market severely limited our growth since this market
constitutes the major portion of the worldwide market for geophysical and
hydrographic survey. Management of Coda Technologies Ltd therefore embarked
upon
a program to expand its capabilities in growing the Company with a focus on
strategic markets such as defense, homeland security and port security.
In
June
2002, we acquired by way of merger Octopus Marine Systems Ltd, a UK corporation,
and changed our name from Coda Technologies Ltd to Coda Octopus Ltd. At the
time
of its acquisition, Octopus Marine Systems was producing geophysical products
broadly similar to those of Coda, but targeted at the less sophisticated,
easy-to-use, work-horse market. It was also finalizing the development of a
new
motion sensing device (the “F180”), which was to be employed aboard vessels
conducting underwater surveys to correct sonar measurement by providing precise
positioning and compensation for vessel motion.
In
December 2002, Coda Octopus Ltd acquired OmniTech AS, a Norwegian company,
which
became a wholly-owned subsidiary of the Company and now operates under the
name
CodaOctopus Omnitech AS. Before we acquired OmniTech, it had been
engaged for over ten years in developing revolutionary sonar imaging and
visualization technology to produce three-dimensional underwater images for
use
in the subsea construction industry. Marketed by us under the brand name
"Echoscope", this technology is unique in that it delivers real time 3-D images
and visualization with extremely accurate positioning. This
is
the subject matter of a patent in a number of jurisdictions, including the
USA.
This technology, which continues to be developed by our Research and
Development team in Norway, allowed Coda Octopus to start to shift the original
focus on hydrographic and geophysical survey to include port security and
defense, with particular emphasis on the US market.
In
July
2004, the shareholders of Coda Octopus Ltd exchanged their shares for shares
in
The Panda Project, Inc. ("Panda"), a publicly traded corporation which at the
time had no assets, liabilities or business operations. As a result of such
reverse acquisition, the shareholders of Coda Octopus became the owners of
90.9%
of the outstanding shares of Panda. Upon completion of the exchange, the name
of
The Panda Project, Inc. was changed to Coda Octopus Group, Inc. and its state
of
incorporation was changed from Florida to Delaware. Panda had been incorporated
in 1992, and prior to the share exchange, it had been engaged in the design,
development and manufacture of interconnect solutions to generate greater
throughput from silicon to board to system.
By the
end of 2000, it had disposed of all of its assets and liabilities and became
a
publicly traded shell corporation.
Following
the reverse merger and in continuance of our program to capture more of the
market in the United States and our focus on port security and defense, we
established our headquarters in New York City. We have also subsequently, in
May
2006, established a government relations office in Washington, DC.
In
June
2006, we acquired a design and engineering firm, Martech Systems (Weymouth)
Ltd
("Martech"), which provides high quality bespoke engineering solutions in the
fields of electronic data acquisition, transmission and recording, and has
links
into our existing markets.
In
November 2006, we established in New York City a key subsidiary, Innalogic
Inc
which provides encrypted wireless video surveillance products and data
transmission capability.
In
April
2007, we acquired a Utah-based engineering firm, Miller & Hilton d/b/a
Colmek Systems Engineering, which is a custom engineering service provider
of
subsea and other engineering solutions, particularly in the fields of data
acquisition, storage and display. This company has particular links into the
US
defense industry, both directly and through its links with prime
contractors.
Also
in
April 2007, we established an assembly and test facility in St. Petersburg,
Florida, which is where we will be building our Echoscope™ and derivative
products from June 2007 onwards.
Strategy
Having
started as a products company, we have leveraged our capabilities, technology
and market position to allow us to now provide complete systems, combining
our
subsea technology products, wireless data transmission products and processes,
and engineering services. Our strategy is to continue to sell each of our
products and services separately, but to increasingly combine our offerings
into
systems and move into provision of complete solutions, with special focus in
the
areas of defense, and port and coastal infrastructure security.
We
expect
increased sales of our current products and their derivatives, especially the
Echoscope™ and UIS™ and comprehensive security systems to increase and account
for significant growth over the next five years. In the Echoscope™ and UIS™, we
have a unique product addressing a significant need in a niche sector of the
port security, defense, and oil and gas industries, with potential to greatly
enhance subsea visualization. We expect that the key element of our growth
strategy will be dominated by our 3-D technology over the near future. Through
our Government Relations department in Washington, DC, we have engaged a number
of lobbying groups to address the different areas of government, ie. federal,
state, government agencies and defense. In addition, we have technology
affiliations with important and influential organizations such as Stanford
Research International (SRI) and PCT, as described elsewhere in this document.
We expect growth through both our own internal research and development of
products and through strategically relevant acquisitions.
Operations
We
are
structured as a holding company for a number of operating subsidiaries,
providing corporate management, financing and legal services to group companies.
As a public company, based in New York City, this is also our administrative
center for our investors and shareholders. We currently operate through five
separate subsidiary companies, which are described below.
Coda
Octopus Products Ltd
Coda
Technologies Ltd, a UK corporation, was formed in 1994 as a start-up company
with its origins as a research group at Herriott-Watt University, Edinburgh,
Scotland. Its operations consisted primarily of developing software for subsea
mapping and visualization using sidescan sonar, a technology widely used in
commercial offshore geophysical survey and naval mine-hunting to detect objects
on, and textures of, the surface of the seabed. During the late 1990s we
achieved significant market penetration in Europe and Asia, but this was
difficult to replicate in the USA due to our being a UK based company at that
time, though we did, and still do, have a US subsidiary which was established
to
market and sell our products in North America. The delay in effectively breaking
into the US market severely limited our growth since such market constitutes
the
major portion of the worldwide market for geophysical and hydrographic survey.
Management of Coda Technologies Ltd therefore embarked upon a program to expand
its capabilities, expanding from the original focus on the survey, research,
hydrography, and search and recovery sectors of the subsea imaging industry.
Coda Technologies Limited has since changed its name to Coda Octopus Limited
and
more recently to Coda Octopus Products Limited. This company also has a sister
company in the US, Coda Octopus, Inc., selling the same product range to the
North American market.
The
Company markets and sells a number of sonar-related products, focused on the
marine hydrographic and geophysical survey markets (see ‘Products and
Services’).
Martech
Systems (Weymouth) Ltd
Martech
is a company incorporated under the laws of the UK operating under its own
brand
name in a very specialized niche of high quality design and manufacturing
services to the UK defense, nuclear and pharmaceutical industries. We acquired
this entity in June 2006. Its services are provided on a custom sub-contract
basis where high quality and high integrity devices are required in very small
numbers.
The
Company markets and sells through an extensive network of personal contacts
established in the industry over the almost twenty years that Martech has been
in existence. This contact base allows the Company to become aware of upcoming
opportunities and then allows the Company to express interest and subsequently
seek to be listed for the appropriate invitations to tender. The Company enjoys
certain pre-approvals to allow it to be short-listed for certain types of
Government work. Much of the more significant business gained by Martech is
gained this way through the formal Government or government contractor tendering
process.
Innalogic,
Inc
Co-located
with our corporate headquarters at our 25th
Street
offices in Manhattan, Innalogic Inc., a Delaware corporation, provides wireless
encrypted video surveillance products for commercial organizations and local
and
Federal government agencies. Innalogic is in the process of executing or has
completed nine customer contracts, of which eight are for domestic organizations
and one for an overseas customer. These range in value from $40k to
$320k.
Miller
& Hilton d/b/a Colmek Systems Engineering
(“Colmek”)
Colmek,
a
Utah corporation which we acquired in April 2007, is a service provider of
deep
ocean and other engineering solutions, particularly in the fields of data
acquisition, storage and display. Founded in 1977, it has grown and diversified
since its inception and now provides services and products to a wide range
of
defense, research and exploration organizations. For more than a quarter
century, Colmek has been solving system-critical problems for leading defense,
research and exploration companies in the US. It designs, manufactures and
supports systems that are reliable and effective in multiple military and
commercial applications where ruggedness and reliability under extreme
operational conditions are paramount and where lives depend on accurate and
precise information.
Port
Security Group, Inc.
We
have
recently formed this subsidiary to spearhead our drive into port and coastal
infrastructure markets, selling our products, systems and solutions. This will
be the key part of the Group through which we will focus our move into complete
solutions, with the products and engineering services being provided to this
company via our existing capabilities, to avoid duplication. Effectively, Port
Security Group will be a bidding and project management company, providing
solutions in partnership with other Group entities, as well as products and
services from outside the Group.
We
also
own separate entities both in the United Kingdom and in the United States that
are specifically designed to complete corporate acquisitions.
Our
Products
Our
products are marketed under two brands, Coda™ and
Octopus™.
Coda
brand products are high-end, enhanced, feature-rich products. They are designed
to be used in the most exacting underwater survey requirements employing
sidescan and sub-bottom data acquisition. The Octopus brand instruments are
rugged, simple-to-use work-horse products employing sidescan and sub-bottom
profiling. They are used by survey companies, navies and academic organizations,
where simple installation and minimal training is required.
The
products marketed under the Coda™
brand
consist of the following:
Coda
GeoSurvey Data Acquisition
Our
initial focus was the development of systems for use in geophysical
services. This entails the visualization and analysis of the seabed
which is performed in two forms: sidescan
using a
towfish which generates sonar signals allowing imaging of the seabed itself,
highlighting different surface types, textures and objects, and shallow
seismic
which
uses low frequency sonar to penetrate through the seabed generating data
depicting the below seabed structure. This developed into the Coda GeoSurvey
system which acquires both types of data, allowing digital storage of the data
and further analysis within the software. This system was launched in 1995
and
remains one of our core products. The system operates on both Windows and Linux
operating systems and is usually supplied on ruggedized PC type hardware, and
is
designed to interface with most popular third-party sonar systems. Since
developing the initial software, we have implemented a number of additional
software modules to allow analysis of the data in a variety of ways. Today,
Coda
GeoSurvey is widely used throughout the world by commercial survey organizations
and research institutes. Specific products include: the DA200, for simultaneous
acquisition of sidescan and shallow seismic data, the DA100, for acquisition
of
either sidescan or shallow seismic data, and the DA50, a portable version of
the
DA100.
Coda
GeoSurvey Productivity Suite
The
GeoSurvey Productivity Suite is a software system enabling acquired sidescan
and
seismic data to be processed, cleaned, analyzed and interpreted for inclusion
in
reports and charts. GeoSurvey Productivity Suite comprises an integrated suite
of software modules for different tasks according to the needs of the user
and
can be run on the same hardware as GeoSurvey Acquisition or on a standard PC
or
laptop. The end products are typically a cleaned image depicting the seabed
and
its surface features or its underlying layers and features, together with
information such as co-ordinates, annotations and interpretations, for
integration into geographical information systems. (“GIS”).
Coda
Echoscope™
The
Echoscope™ is a unique sonar device which embodies a patented invention for a
method of producing a 3-D Sonar Image that permits real time, three-dimensional
viewing, imaging and data recording of underwater scenes and objects. The 3-D
aspect enables the high resolution visualization to be performed from multiple
perspectives. It is able to detect moving as well as fixed objects, and unlike
optical sensors can detect and image objects in zero visibility water. Unlike
conventional 2D sonars that generate narrow beams or fan shaped beams, the
Echoscope™ uses advanced beam forming techniques to generate over 16,000
individual beams to create instantaneous high resolution 3-D images. The
Echoscope™ is compact, measuring about the size of an average briefcase, thus
enabling it to be used from small vessels. It is suitable for over-the-side
or
bow mounting on vessels of any size or on remotely operated underwater vehicles
(“ROV”) and autonomous underwater vehicles (“AUV”).
The
Echoscope™ has a very wide range of applications including:
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inspection
of harbor walls.
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inspection
of ship hulls,
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inspection
of bridge pilings;
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ROV
navigation (obstacle
avoidance);
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AUV
navigation and target recognition (obstacle avoidance);
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construction
- pipeline touchdown placement and
inspection;
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obstacle
avoidance navigation;
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bathymetry
(measurement of water depth to create 3-D terrain
models);
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monitoring
underwater construction;
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underwater
intruder detection;
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dredging
and rock dumping;
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locating
and identifying objects undersea, including
mines.
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Considerable
interest in the Echoscope™ has been shown by the United States Coast Guard,
NAVSEA, the Office for Naval Research (ONR), the Office for Naval Intelligence
(ONI), the Department of Homeland Security and various military
agencies.
The
Echoscope™, in its simplest form as a stand alone product, is priced at
$250,000. We
have
been delivered 12 of these to customers since its introduction. In addition,
a
number of our these are on long term rental in places like the Gulf of
Mexico.
Among the first purchasers have been United States naval agencies, the United
States Coast Guard, research institutions and a construction company in Japan.
Coda
Underwater Inspection System (UIS)™
The
Coda
Underwater Inspection System or UIS™ is the world’s first, and we believe only,
fully integrated high resolution 3-D inspection system. It delivers precise
and
intuitive 3-D images in real-time, and is designed to inspect large areas with
100% coverage and 98% probability of detection. The UIS™ is built on the
extensive knowledge gained in the development and testing of a Mobile Inspection
Package which was developed in collaboration with the Center for Ocean
Technology, University of South Florida, with funding from United States Office
of Naval Research (ONR) and United States Coast Guard (USCG).
At
the
heart of every UIS™ is the unique Echoscope™ real-time 3-D sonar incorporating
our cutting edge phased array technology to simultaneously generate over 16,000
beams. This results in an instant three dimensional sonar image where the
position of every data point is accurately known, producing detailed images
from
a single sonar ping,
To
ensure
accurate positioning the Echoscope™ is integrated with the Octopus F180™ in the
UIS™, giving series precision attitude and positioning. This provides absolute
positioning at accuracies of up to 10cm (4”), with heading better than 0.05°.
High accuracy is the key to ensuring that all data is correctly geo-referenced,
enabling real-time mosaicing as well as quick relocation of areas of interest
from previous inspections.
As
part
of a small boat package, the UIS™ includes a ruggedized digital video camera or
optional night vision camera to provide a separate and immediately obvious
above
water reference. For remotely operated vehicle (ROV) installations, the latest
laser scaling camera provides an accurate visual cross reference.
Depending
on the application and platform, the UIS™ can be combined with a wide range of
additional sensors and other sonars to create a fully integrated bespoke
package. Centered around the unique and powerful Echoscope™ 3-D sonar, the
integrated UIS™ solution offers significant advantages and superior performance
over systems using 2D sonar, sector scan sonar, acoustic lens sonars or
underwater video cameras alone.
Octopus®
brand
products:
The
Octopus® brand products consist of instruments and equipment which meet the
requirements of all survey applications, from the smallest inshore surveys
to
rapid naval reconnaissance to large scale site investigations, and which have
been used throughout the world. They include the following.
Octopus
F180™ Precision Attitude & Positioning System
The
Octopus F180™ integrates GPS with aerospace motioning sensing devices
(gyroscopes and accelerometers) to provide high-accuracy measurements of
geographical position and motion in the most dynamic environment at sea, and
includes position, heading, heave, pitch and roll as its primary outputs. The
primary application is to compensate for the effects of motion on single beam
and multibeam echosounders where it is critical to know where the instruments
are pointing when depth soundings are being taken in order to ensure accuracy
of
depth and position.
Developed
originally for motor sport (measuring vehicle motion and position) the F180™ is
manufactured under license pursuant to which CodaOctopus has exclusive rights
to
the products so developed. Since its launch in August 2003, the F180™ has become
a popular and well regarded sensor with a growing number of customers in the
commercial marine survey industry around the world, because of its simplicity
of
operation and accuracy at a relatively low cost. Modifications and enhancements
have resulted in a simple-to-use product that brings highly accurate positioning
and motion data into extreme offshore conditions for precision marine survey
applications. Variants within the F180™ series include the F190, exclusively
configured for use ‘inland’, eg. within ports and harbors, and the F185, with
enhanced precision positioning to 1cm accuracy. Also available is Octopus
iHeave, a software product for dealing with long period ocean swell
compensation, fully integrated with the F180™ series.
Octopus
760 Series Geophysical Acquisition System
The
760
series is a range of geophysical data acquisition systems for sidescan sonar
and
shallow seismic profiling. In common with the Coda GeoSurvey product line,
the
Octopus 760 integrates with third party sonars and sensors to acquire, display
and record data. However, it is designed to be simple to operate and requires
minimal training. The 760series is a self contained instrument rather than
software and a PC. There are four variants of the 760 series - the 760D which
combines simultaneous acquisition of sidescan sonar and sub-bottom profiler;
the
760S which provides ‘either/or’ sidescan sonar and sub-bottom profiler data
acquisition; the 460+ for sidescan only; and the 360+ for shallow seismic only.
There is also a variant of the 760 series, the 460P, which is re-packaged into
a
splash-proof hand-portable carry-case for operation in the most demanding of
environments such as in small open boats. Combined with compact dual-frequency
sidescan sonar and an optional battery pack, the 460P is also available as
a
complete portable sidescan sonar system and has been supplied to the British
Royal Navy amongst other naval and commercial customers.
Octopus
361/461 Analysis Software
The
361/461 Analysis Software is a low-cost, reduced capability alternative to
the
Coda GeoSurvey Productivity suite, providing an entry level product for less
demanding sidescan sonar and sub-bottom profiler users.
Octopus®
Thermal Printers
In
June
2004, the Company acquired a thermal printer product line from Ultra Electronics
plc, which we rebranded under the “Octopus” brand name. Octopus® printers are
used to produce high quality grayscale continuous images onto thermal paper
or
film and are ideal for producing hard copy output of geophysical data and other
continuous data. They are widely used in the geophysical survey industry in
conjunction with other Coda and Octopus products, as well as in defense
applications as part of surface ship and submarine detection
systems.
Our
Services
With
our
recent acquisitions of Martech Systems (Weymouth) Limited and Colmek Systems
Engineering, we have moved from being a pure “products” company to being a
comprehensive provider of systems and solutions.
Both
these entities focus on producing specific low volume, high value solutions,
bringing Coda Octopus Group firmly into the services sector in the defense
and
homeland security markets. The addition of these design and “bespoking”
capabilities to the Company’s Echoscope™ product set gives enormous added
strength to the Business.
Martech
Martech
Systems, based in Weymouth on the South Coast of England, is a team of highly
skilled and specialized electronic, software and mechanical design engineers
providing bespoke design and manufacturing services. It operates in the very
specialized niche of high quality design and manufacturing services mainly
to
the United Kingdom defense, nuclear and pharmaceutical industries. Its services
are provided on a custom sub-contract basis where high quality and high
integrity devices are required, but in quite small amounts, sometimes less
than
a dozen.
Accredited
to ISO 9001-2000 and Tick-IT, Martech focuses on providing low risk, high
integrity solutions to difficult engineering problems and applications
where
repeatability and reliability is of paramount importance.
An
example of the type of business conducted by Martech is a contract with
a prime
defense contractor for the design and supply of special type test equipment
(STTE), which cannot be purchased off the shelf since it is to be used
to test
equipment being newly developed. Martech has designed and built numerous
items
of STTE to support UK sonar systems. Another example of Martech’s design and
engineering services is the development of a ruggedized display unit in
military
vehicles capable of displaying variables such as wind speed, air temperature
and
humidity independent of the vehicle’s computer.
In
the
past, it has also designed products such as an air traffic management software
system, military sonar test equipment, and equipment for production testing
of
sensors used in blood analysis equipment.
In
the
past, Martech’s contracts ranged in amounts between a few thousand dollars up to
around a million dollars. It is currently bidding on and obtaining contracts
in
the $500,000 - $1,000,000 range in addition to continuing to seek smaller
contracts.
Martech’s
Competition
Martech’s
competition is from the larger contractors in the defense industry. Typical
amongst these are Ultra Electonics, BAE Systems, and Thales. Martech is like
many smaller companies a competitor to its customers, who have in-house design
facilities, and has to manage these relationships carefully.
Martech’s
Strategy
Martech’s
business strategy is to continue to grow profitably in its established niche.
It
has established credentials with many of the bigger industry players and is
well
known as a reliable contractor who delivers service and products to the high
specifications involved in defense, nuclear and pharmaceutical industries.
This
business strategy has worked well, and should continue to work well in the
foreseeable future.
A
part of
Coda Octopus Group, Inc strategy in acquiring Martech is that it will seek
to
utilize Martech’s high quality design and manufacturing skill set in its
pre-existing businesses.
This
acquisition provides Coda Octopus with an additional established and growing
revenue stream in the defense sector. It also provides Coda Octopus with a
backbone of experienced technical resource founded on the requirement of
producing high quality product that is resilient in adverse operating
conditions.
In
short
Martech can provide Coda Octopus with the skills, practices and knowledge to
expand its foothold in the defense sector and ensure that it can substantiate
its credibility as a defense and homeland security supplier.
Colmek
Colmek
operates in the same specialized niche of high quality design and manufacturing
services as Martech but to the US defense sector mainly, though also in
commercial sectors in the US. Its services are also provided on a custom
sub-contract basis where high quality and high integrity devices are required.
An
example of the type of business conducted by Colmek is a contract to produce
a
system to monitor the build-up of ice on the bows of oil tankers in use in
the
Barents Sea. Colmek staff developed a monitoring system using strain-gauge
sensors, attached directly to the hull of the vessel. Environmental concerns
were of paramount importance, as much of the monitoring equipment was to be
located in the hull of the ship, where temperatures could drop well below the
specifications of standard, off-the-shelf, equipment. Colmek created a system
where the captain can monitor actual ice load as measured by the various
strain-gauges on the ship’s hull.
In
the
past, it has also been engaged on projects such as the design and production
of
a pipeline inspection vehicle and helicopter-based mine hunting system
incorporating sonar, laser, and acoustic payload configurations.
In
the
past Colmek’s contracts ranged in amounts from very low values to around
$1,000,000. For the future Colmek will seek the larger engagements in addition
to continuing to seek smaller contracts.
Colmek’s
Revenues for the full year to October 31st,
2006
were $2,969,164.
Similarly
to Martech, Colmek Systems Engineering intends to continue to grow in its
existing established niche. It has long standing relationships with many of
the
major companies in the industry, such as Northrop Grumman and Raytheon, and
is a
trusted supplier, as well as sometimes being a competitor to these big
organizations. We trust that these long term relationships will continue to
serve Colmek well.
We
acquired Colmek for three reasons. First, for access to Colmek’s customer base,
both Government Agencies and the type of organization indicated above. We
hope
to realize synergies between Colmek’s customers and the customers of the
Company. The second reason was for the intrinsic skills and knowledge that
Colmek staff can bring to bear on the Coda Octopus business. Third, for the
synergies with our prior acquisition, Martech Systems, in the UK, essentially,
a
buy and build strategy, with basic business synergies to be gained between
the
two companies.
Thus,
Colmek provides a growing revenue stream in the defense sector, opportunities
for cross-selling, raw skills that can be applied across the Group, and the
operating synergies to be gained between Martech and Colmek.
Research
and Development
The
scientists and engineers who worked for OmniTech AS (now operating under the
name of Coda Octopus Omnitech) have become the nucleus for our research and
development center, based in Bergen, Norway. They also benefit from strong
and
long lasting links with the University of Bergen. We have also developed close
links to the Center for Ocean Technology (COT), formerly based within the
University of South Florida (USF) in St Petersburg, Florida, now part of
Stanford Research International (SRI) at St Petersburg. Our strategic
relationship with these institutions has facilitated the development of our
UIS™
system to meet key requirements of government agencies such as the US Coast
Guard.
In
Bergen, we have two chief engineers, who between them led the hardware and
software development of the Echoscope™, and three other engineers who support
this activity, covering mechanical design and engineering and
software.
The
key
drivers for our research and development activities are the lead we believe
we
have in 3-D acoustic imaging and which we aim to maintain over the coming years.
Our aim and strategy is to stay at the forefront of this technology, allowing
us
to generate strong earnings growth from regular new products.
We
have
recently been investing over $3 million annually in our research and development
activities and expect to continue this level of investment during the current
year in order to continue the current pace of research and development, as
well
as product and intellectual property rights development. Our
products are developed in-house by our team of software design, hardware design
and engineering, and support staff.
Production
and Manufacturing
Our
production process consists of supply chain management, product assembly,
testing and calibration. We do not undertake any metal fabrication or electronic
circuit board manufacture and all components are manufactured outside of the
Company, bought in as raw materials and then assembled into finished
goods.
Assembly
of our products is carried out in three places at present. Our data acquisition
products and motion sensors are produced in the UK in our production facility,
and distributed from there. Our printers are currently outsourced and produced
on contract for us in Weymouth, though we are currently reviewing this
arrangement with a view to taking this in house in the near future.
Our
Echoscope™ product is currently produced in Bergen, Norway, where the Echoscope™
was originally developed, though this is only for the short-term. We have
recently established an assembly facility in St Petersburg, Florida, where
our
Echoscope™ product will be assembled, tested, calibrated and supported to
replace any manufacturing and support which is currently provided from Bergen,
Norway.
Marketing
We
conduct worldwide sales and marketing through each company individually, with
our Chief Commercial Officer coordinating sales and marketing efforts at Group
level to gain synergies wherever possible, as well as national and international
exposure for the Company and its capabilities. This structure provides dedicated
sales effort in each of the Group companies. In each case each sales person
is
charged with selling that Company’s products alone. The companies are staffed as
follows:
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Coda
Octopus Products - eight persons distributed between the UK and Florida,
USA
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Martech
Systems (Weymouth) - two full time and one part time based in Weymouth,
UK
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Colmek
Systems Engineering - one full time staff in Salt Lake City and one
in
Washington, DC
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Innalogic
Inc - one staff member based in New York City,
USA
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Port
Security Group - currently being developed by Group-level
staff
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Group
level - two members of staff, based in New York City,
USA
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We
plan
to add, into the current structure, at least five more staff members during
the
current year, and in addition, we are planning to open sales offices in the
Middle East and Far East.
Generally,
our focus is on widening our market reach and selling broader services, systems
and solutions within our existing customer base. Specifically, we have a key
focus on Port and Harbor Security, leading with our flagship 3-D sonar product
Echoscope™, and its added value derivative, the UIS™. Our marketing effort is
dedicated to enhancing, reinforcing, and protecting the value of our lead in
this huge emerging market, broadening out our current product and systems-based
offerings to be able to offer complete solutions. However within that we have
the following supporting marketing sub-strategies:
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Product:
The extension of our product line (particularly Echoscope™) through adding
value to produce higher added functionality products (eg. UIS™, the
Company’s Underwater Inspection System).
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Price:
The maintenance and enhancement of profit margin through value add
(as
described above).
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Place:
The use of strategic partnerships, at the higher value end of the
market,
particularly to provide solutions rather than product (eg. the provision,
through partnership, of a complete port security solution to a major
port), and the use of existing and new sales agents to provide sales
leads
for lower value but very important “pure” product
sales.
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·
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Promotion:
The attendance and illustration of our capabilities at trade shows,
use of
customer mailing, advertising and trade public relations.
|
Each
of
the Group companies have a number of external agents and representatives, these
are distributed globally for Coda Octopus Products, within the UK for Martech
and within the USA for Colmek Systems Engineering, and Innalogic.
Government
Relations
As
government has become a primary focus of our marketing of the Echoscope™, we
have established an office in Washington so that we can reach the different
levels of government and have employed a very experienced individual to develop
this presence. In addition, we have engaged a number of lobbying firms to assist
us with this task:
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·
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PMA
Group, a lobbying firm based in Washington, DC, assists at a congressional
level and has been employed by the Group for the past 18
months;
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CJ
Strategies, a lobbying firm based in Washington, DC, is assisting
in
reaching the US Navy and has strong connections with the state of
California;
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The
Charles Group, a lobbying firm based in Washington, DC, is assisting
in
reaching the government agencies, such as the FBI, US Secret Service,
DEA,
etc.;
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·
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The
Johnson Group, a company based in Washington, DC, is assisting in
reaching
individual ports and other end-users, as well as helping with funding
for
these end-users from Homeland
Security.
|
Intellectual
Property
The
Coda
Octopus technologies and products are underpinned by strong intellectual
property rights including trademarks, copyrights and patents (“IPRS”). We are in
the process of augmenting our IPRS portfolio, including rationalizing our
brands, seeking to register in the US and other jurisdictions certain trademarks
and the filing of a number of new patents in key areas of our business
activities. We have a number of fundamental patents including a patent covering
the stitching together of acoustic imagery (valid in the US, Europe, Australia
and Norway). This covers the real time acoustic image generation element
of what
we do, and we believe it provides us with a competitive advantage.
Our
patented inventions along with our strategy to enhance these are at the heart
of
the Company’s strategy for growth and development. In recognition of this, the
Company’s Board has adopted for implementation by the Company a Corporate Patent
Strategy. This provides for the effective management and organization of our
patents and other intellectual property rights. The main goals of our Corporate
Patent Strategy are to (i) protect value; (ii) create value and (iii) extract
value. Protecting value entails implementing measures aimed at protecting the
Company’s existing patents and other intellectual property rights. Creating
Value aims at, working closely with our Research and Development Division to
remain at the forefront of 3-D Sonar Technology by ensuring that we make the
necessary technological advancement in the market spaces in which we operate
and
obtain the right legal protection by filing quality new patents. Extract value
entails ensuring that our Patents and other Intellectual Property Rights work
for us and generate premium revenues.
In
order
to ensure the full and effective implementation of our Corporate Patent
Strategy, a Patent Committee has been established, and the Board has approved
a
budget for fiscal year 2006-2007 of $190,000 to fully support the strategy’s
implementation.
Patents
We
have
been granted two patents:
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·
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Patent
No. 6,438,071 concerns the “Method for Producing a 3-D Image” and is
recorded in the European Patents Register File #SH-44923; Australia
#55375/99; Norway #307014 and US Patent Office # 6,438,071. This
patent
relates to the method for producing an image of a submerged object
(3),
e.g. a shipwreck or the sea bottom, comprising the steps of emitting
acoustic waves from a first transducer toward a first chosen
volume.
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·
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Patent
No. 6,532,192 concerns “Subsea Positioning System and Apparatus”, recorded
in the US Patent Office. This
patent relates to subsea positioning system and
apparatus.
|
Trademarks
In
marketing and branding our products and services we use the following
unregistered trademarks:
Coda™
Octopus®
Octopus
& Design™
F-180™
Echoscope™
In
addition, we have registered the internet domain names “codaoctopus.com”,
“theportsecuritygroup.com”, “3dsonar.com” and “portsecurity.com” with various
ICANN-certified domain name registrars.
Competition
We
compete with numerous companies, some of which are much larger than we are
with
much greater financial, technical and human resources.
Products
The
sonar
equipment industry is fragmented with several companies occupying niche areas,
and we face specific competition from different competitors with respect to
our
different products. In the field of geophysical products Triton Imaging
International, Inc., a California based company, and Oceanic Imaging
Consultants, Hawaii, USA, dominate the market with an estimated 30% each of
world sales, while we believe that we are just behind this with
25%.
In
the
field of motion sensing equipment, we believe that we have four principal
competitors - TSS (International) Ltd in Watford, England which is focused
on
the mid-performance segments with about 30% of the world market; Ixsea, a French
company which covers all segments, with about 25% of the market; Seatex, a
Norwegian company, part of Kongsberg Simrad which has products across all
segments, with about 20% of the market; and Applanix, a Canadian company, now
part of Trimble which has one major product focused on the high end of the
market, with about 15% of the market. We believe that our market share in the
field of motion sensing equipment is only about 10% at present.
In
the
area of grayscale thermal printers, there are two companies besides us who
compete in this small market. EPC Labs, Mass., USA, have around 40% of the
market, mainly in the USA; iSys of Canada have around 20% of the market; we
have
around 40% of the market, mainly in Europe and Asia.
In
the
field of 3-D real time imaging, we believe that we have no direct competition
at
present since no other companies offer such a product. There is, however, no
assurance that others will not enter this area with competing
products.
We
seek
to compete on the basis of producing quality products employing cutting edge
technology. We intend to continue our research and development activities to
continually improve our products, seek new applications for our existing
products and to develop new innovative products.
Services
We
are
involved in custom engineering for the defense industry in the US, and for
the
defense, nuclear and pharmaceutical industries in the UK. The size of these
companies means that there is significant competition provided by other small
engineering contracting firms, but the largest competition comes from the
decision by larger companies to proceed with a project in-house instead of
outsourcing to a sub-contractor like Martech or Colmek. In essence, the
potential of each company is determined by their ability to be known and trusted
by potential clients, and the make or buy decisions made by those potential
clients.
Employees
As
of the
date hereof, we have 90 employees:
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·
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6
are employed in research and development in our Bergen
facility
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·
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6
are employed in production, marketing and administration at our
Oxford
facility
|
| |
·
|
21
are employed in software development, marketing and administration
at our
Edinburgh office
|
| |
·
|
7
are employed in management and administration at our New York City
office
|
| |
·
|
2
are employed in sales and marketing at our Florida
office
|
| |
·
|
2
are employed in Government Relations at our Washington
office
|
| |
·
|
27
are employed in Martech in Weymouth, of which 24 are full time
employees
and 3 are part time (paid on an hourly basis) with the main categories
of
employees being chief engineer, senior engineer, engineer, technician
and
junior engineer
|
| |
·
|
19
are employed in Colmek in Salt Lake City, the main categories of
employees
being engineers and
technician.
|
Seventy-Percent
of our employees have a background in science, technology and engineering,
with
a substantial part being educated to degree and PhD level. We expect to relocate
much of our senior management staff to the US over the next 6 -12 months. None
of our employees are members of any union, and we have not experienced any
labor
difficulties in the past.
Description
of Property
New
York City, New York, USA.
Our
corporate offices are located at 164 West 25th
Street,
6th
(6F)
Floor, New York, NY 10001. We lease premises comprising 1,000 sq. ft pursuant
to
a renewable lease which expires on November
30, 2007.
The
lease provides for a monthly rental of $2,500.
New
York City, New York, USA.
Our
wholly owned subsidiary, Innalogic, Inc, has its business premises at 164 West
25th
Street,
6th
(6R)
Floor, New York, NY 10001. It leases premises adjoining our corporate offices.
These premises comprise 2,700 sq. ft. pursuant to a renewable lease which
expires on
November
30, 2007, at
a
rental of $6,500 per month.
St
Petersburg, Florida, USA.
We
lease 3,200 sq. ft. of business premises (comprising assembly, testing
facilities and office space) located at 100 14th
Avenue
South, St Petersburg, Florida. The space houses US Sales and Marketing staff
and
is located close to the University of South Florida, which is convenient for
conducting trials and demonstrations of our products. The lease expires on
March
31, 2008 and provides for a rental of $44,940 per annum (excluding
utilities).
Washington,
DC, USA.
We lease
office premises located at 700 13th
Street,
N.W, Washington, D.C. 20005 (10th
Floor).
This space comprises 186 square feet and houses our Government Relations
operations. The lease provides for a rental of $854.37 per ,month and expires
on
January 31, 2012 but can be terminated by us with 30 days’ notice at any
point.
Salt
Lake City, Utah, USA.
Our
wholly owned subsidiary, Miller & Hilton d/b/a Colmek Systems Engineering,
leases 6,500 sq. ft. of business premises at 2001 South 3400 West, Salt Lake
City, Utah comprising both office space, manufacturing and testing facilities.
The lease provides for an annual rental of $3,795 per month (and stipulates
an
annual increase of 3%) and expires in April 2012.
Edinburgh,
Scotland, UK.
Our
wholly owned UK subsidiary, Coda Octopus Products Limited, leases business
premises comprising 4,099 sq. ft. and located at First Floor, Anderson House,
Breadalbane Street, Edinburgh. The space comprises a main floor which houses
sales and support staff and our software product development team. The building
is located close to the Port of Leith and Firth of Forth, which is convenient
for conducting trials and demonstrations of our products. The lease provides
for
an annual rental of £65,583.96 (equivalent to $125,921 based on an exchange rate
of $1.92) and expires on September 26th,
2016.
Pursuant to the provisions of the lease, we may terminate the lease without
penalty on or after the fifth anniversary of the lease agreement, which is
September 26th,
2011.
Edinburgh,
Scotland, UK.
Our
wholly owned UK Subsidiary, Coda Octopus Products Limited, leases workshop
and
manufacturing facilities at Unit 3, Corunna Place, Edinburgh comprising 1,000
square feet and used as workshop space. The lease provides for a rental of
£7,100 per annum (£591.66 per month - equivalent to $1,136 based on an exchange
rate of $1.92) and expires on 31 July 2009.
Oxford,
England, UK.
Our UK
wholly owned subsidiary, Coda Octopus Products Limited, also leases 2,500 sq.
ft. of office and warehouse space in a small industrial park located in Suite
3,
Business Centre, Castle Farm, Deddington, Oxfordshire. This space is all on
one
floor and houses production, inventory, marketing and administration. The
location is convenient for access to the entire South of England and its
transport connections. The lease provides for an annual rental of £26,000
(equivalent to $49,920 based on an exchange rate of $1.92) on a rolling monthly
basis.
Notice
of
surrender of the lease has been served and we intend to vacate these premises
by
August 2007.
Weymouth,
England, UK.
Our UK
wholly owned Subsidiary, Martech Systems (Weymouth) Limited also leases business
premises located at 14 Albany Road, Granby Industrial Estate, Weymouth, Dorset
DT4 9TH comprising 5,000 sq. ft. The lease provides for an annual rent of
£29,984.74 (equivalent of $57,571 based on an exchange rate of $1.92) and
expires on September 30, 2013. The lease provides for an annual rent increase
of
3% of the last annual rent.
Bergen,
Norway.
Our
Norwegian wholly owned Subsidiary, Coda Octopus Omnitech AS, leases an 800
sq.
ft. of business premises directly on the waterway connected to Bergen harbor.
These premises are located at Sandviksboder 77C, 5035 Bergen and houses our
research and development team. They are well located for developing and testing
new products, and for transport links to the rest of Europe. The lease
provides for a rental of $26,864.70 per annum and expires on July 1, 2008.
In light of the newly acquired lease premises, within 6 months we will terminate
the lease on these premises.
Bergen,
Norway.
Our
Norwegian subsidiary, Coda Octopus Omnitech AS, also recently leased 2,370
sq.
ft. of business premises in a recently refurbished maritime business center
directly on the waterway connected to Bergen harbor. This will serve as our
new
Research and Development center with purpose-built laboratories for electronic
and mechanical development.. The lease provides for a rental of NOK 440,500
per
annum (equivalent of $71,592 based on an exchange rate of 6.1529) and
expires in May 31, 2012. We have the option to terminate this after 5 years
without incurring any penalties.
Legal
Proceedings
We
are
not currently subject to any legal proceedings that may have an adverse impact
on our assets or results of operations.
Directors
and Executive Officers
The
following persons are our executive officers and directors as of the date
hereof:
|
Name
|
|
Age
|
|
Position(s)
|
|
|
Jason
Reid
|
|
41
|
|
President,
Chief Executive Officer, Interim Chief Financial Officer and Director
|
|
|
Paul
Nussbaum
|
|
59
|
|
Chairman
of the Board of Directors stale
|
|
|
Rodney
Peacock
|
|
61
|
|
Director
|
|
|
Blair
Cunningham
|
|
38
|
|
Senior
Vice President Products division
|
|
|
Anthony
Davis
|
|
41
|
|
Senior
Vice President Commercial Division
|
|
|
Frank
B. Moore
|
|
72
|
|
Senior
Vice President - Government Liaison
|
|
|
Geoff
Turner
|
|
54
|
|
Senior
Vice President - Mergers and Acquisitions
|
|
|
Scott
Debo
|
|
37
|
|
President
and Chief Executive Officer of Colmek
|
|
Jason
Reid
has
served since June, 2004 as a director and President of Coda Octopus Group,
Inc.
Mr. Reid has been affiliated with Coda Octopus Products Ltd., the current key
operating subsidiary, since 1994, initially as a founder and independent
director and, since 2002, as Managing Director. Mr. Reid is a director of the
Company’s subsidiaries, Coda Octopus Products Ltd., Coda Octopus Omnitech AS
(Norway), Coda Octopus, Inc., Innalogic, Inc., Port Security Group, Inc. and
Martech Systems (Weymouth) Limited. He is also a director of Fairwater Holdings
Ltd. and Fairwater Technology Group Ltd, a principal stockholder of the Company.
He was a founding partner, in 1984, of Weight Management Group Ltd, a $20m
Scottish company which competes directly with Weight Watchers International,
Inc., and which is market leader in Scotland. From 1992-2004, he was Managing
Director of Weight Management Group Ltd, acquiring, in 2001, Green Meadow Foods
Ltd, which distributed controlled dietary foods throughout Scotland to the
major
retail trade. In 2003, he oversaw the successful national UK launch of a new
magazine title, published by Weight Management Group Ltd. He became a
non-executive director of both companies when he assumed the role of President
and CEO of Coda Octopus Group, Inc. in 2004. Between 1993 and 2004 he was also
chairman of a software development company in Scotland, Softworks Business
Systems Solutions Ltd., producing commercial software for public companies,
including Bulthaup and Manchester Ship Canal, part of Peel Holdings plc. In
1997, he was a Director of William Grant Mining Ltd. In the past, he also served
as a director of Slimmer Clubs Ltd.
Paul
Nussbaum
has
served since January 2005 as Chairman of the Board of Directors of Coda Octopus
Group, Inc. in a non-executive capacity. He is the chairman of the Waramaug
Partners Group, a private real estate and special situations equity firm. He
is
the former Chairman Emeritus of Wyndham International, Inc., (NYSE:WYN),
successor to Patriot American Hospitality, Inc. From 1991 to 1999 he served
as
Founder, Chairman & Chief Executive Officer for the Patriot American Group
of Companies, including Patriot American Hospitality, Inc., a paired share
real
estate investment trust which owned the Wyndham, Grand Bay, Malmaison,
Summerfield Suites, and Clubhouse Inn proprietary hotel brands. From 1979 to
1991, Mr. Nussbaum served as chairman of the real estate practice group of
Schulte Roth & Zabel, a law firm in New York. From 1971 to 1979, he was an
associate and later a partner in the Dreyer & Traub law firm in New York.
Mr. Nussbaum earned his B.A. degree from the State University of New York at
Buffalo and his J.D. degree from Georgetown University Law Center.
Rodney
Peacock
has
served as a director of Coda Octopus Group, Inc. since January 2005. He has
been
Managing Director of Axiom Marketing & Management Ltd, a consultancy, since
November 1997. From 1990 to 1997, he served as Joint Managing Director of
the
Brand Development Company and from 1985-90, Managing Director of NPL, an
Addison
Group Subsidiary. He was, from 1981-85, head of the Marketing Group of Arthur
Young Consultancy and from 1976-81 General Manager, Retail Products Division
of
Tate & Lyle. From 1970-76, he served as Brand Group Manager of United
Biscuits and from 1964 to 1970, Research Chemist of Ilford Films. Mr. Peacock
received his BSc (Hons) in Physics and Chemistry from London
University.
Blair
Cunningham has
served as Senior Vice President Products Division of Coda Octopus Group, Inc
since 2005 and Technical Manager of Coda Octopus Products Ltd between July
2004
and July 2005. Mr. Cunningham is also a Director of the Company’s subsidiaries,
Martech and Coda Octopus (UK) Holdings Limited. From March 1992 to present
he
has served as a Director of Softworks Business Systems Solutions Ltd, an
Aberdeen, Scotland based software company which developed turnkey software
solutions for large public companies. From 1990-92, Mr. Cunningham was an
Analyst/Programmer with Weight Management Group Ltd, Aberdeen. Mr. Cunningham
received an HND in Computer Science in 1989 from Moray College of Further
Education, Elgin, Scotland.
Anthony
Davis
has
served as Senior Vice President Commercial Division of Coda Octopus Group,
Inc
since July 2005. Previously, he served as Business Development Manager of
Coda
Octopus Products Ltd from 2002-04, prior to which he was a Sales Manager
between
1998 and 2002. Mr. Davis is also a Director of the Company’s subsidiaries,
Martech and Coda Octopus (UK) Holdings Limited. He was a Project Manager
from
1996 to 1998 at Cable & Wireless Marine, Chelmsford, England and Survey
Manager in Abu Dhabi for NPCC from 1994 to 1996. He served as a Project
Geophysicist in Singapore for Ocean Science International from 1992 to1994,
as
an Offshore Geophysicist for NESA in Delft from 1990-91 and as a Logging
Engineer for Schlumberger in Aberdeen from 1987 to 1990. He earned his BSc
Geology & Geophysics at Edinburgh University in 1987.
Frank
B. Moore
has
served as Senior Vice President Government Liaison of Coda Octopus Group,
Inc
since May 2006. Since December, 2001, Mr. Moore has served as Chairman of
Ulysses Financial, a company engaged in private equity financing.
Between January 1977 and January 1981, Mr. Moore served as Assistant to
the President of the United States. His chief responsibility was the
Administration’s relations with Congress. Mr. Moore reported directly to the
President and also worked on international matters such as the Panama Canal
Treaty and the Strategic Arms Limitations Talks (S.A.L.T. II). Prior to his
position in the White House, Mr. Moore served as Assistant, and later as
Chief
of Staff, to the Governor of Georgia, Jimmy Carter. Between July, 1982 and
September, 1998, Mr. Moore was Vice President for Government Affairs and
Public
Policy for Waste Management. Mr. Moore earned his BBA from the University
of
Georgia and completed the Advanced Management Program at Harvard Business
School.
Geoff
Turner
has
served as Senior Vice President for Mergers and Acquisitions of Coda Octopus
Group, Inc since May 2006. Previously, he served as a consultant from November
2005 to April 2006 through his consultancy company Taktos Limited. Mr. Turner
is
also a Director of the Company’s subsidiaries, Martech and Coda Octopus (UK)
Holdings Limited. He has been involved in the IT industry for over 30 years,
in
both technical, and commercial roles. He spent the 13 years up to 1999 with
GE
Information Services (& International Network Services), the then global
market leader in Electronic Commerce, where he was Director of Business
Development for Europe, Middle East and Africa. During this time, in addition
to
his business development roles he held posts as Software Products Director,
and
in global channel sales management. Since leaving GE in 1999, Mr. Turner has
been involved as a shareholder and a consultant through Taktos Limited in a
number of businesses ranging from financial services businesses to a provider
of
supply chain management software.
Scott
Debo
Scott
Debo who is employed by our key subsidiary Colmek Systems Engineering (Colmek),
has been President and CEO of Colmek since June 2001. With a background in
finance, marketing and management, Mr. DeBo has improved and created new
opportunities for Colmek through the development of a focussed marketing effort
combined with increased focus on reducing cost per job taken on by Colmek,
creating an activity based costing system and guiding the Company through
various quality improvements including ISO-9001; 2000 compliancy and Raytheon
Six Sigma training. Prior to working for Colmek, Mr. Debo was Director of
Government Relations for Arcanvs Inc. from March 2000 until March
2001, and
he
was
Project Manager for Evergreen Development
from
January 1999 to March 2000.
Mr. DeBo
holds a Masters Degree in Business Administration in both private and public
management from Williamette University as well as a Bachelor of Science Degree
from Oregon State University. Prior to receiving his MBA, Mr. DeBo
was Director of Operations for an adventure travel provider, and worked as
a
foreign market entry consultant for several firms. Mr. DeBo also works a
NCAA Division 1 men’s basketball official.
All
directors of the Company are elected at its annual meeting of stockholders
to
hold office until the next annual meeting of stockholders and until their
successor is elected and qualified, or until such director’s earlier death,
resignation or removal. All officers of the Company serve at the pleasure of
the
Board, subject to their contractual rights, if any.
We
are currently in discussions with a candidate for
the position of Chief Financial Officer.
Removal
of Directors
The
Company’s Certificate of incorporation provides that any director or all the
directors of a single class (but not the entire board of directors) of the
Company may be removed, at any time, but only for cause and only by the
affirmative vote of the holders of at least 2/3 of the voting power of the
outstanding shares of capital stock of the Company entitled to vote generally
in
the election of directors cast at a meeting of the stockholders called for
that
purpose. Notwithstanding the foregoing, whenever the holders of any one or
more
series of preferred stock of the Company shall have the right, voting separately
as a class, to elect one or more directors of the Company, the preceding
provisions shall not apply with respect to the director or directors elected
by
holders of preferred stock.
Audit
Committee
Our
Audit
Committee was established on May 31, 2006 pursuant to our Audit Committee
Charter. The Audit Committee’s purpose is to:
| |
·
|
Being
directly responsible for the appointment, compensation and oversight
of
the independent auditor, which shall report directly to the Audit
Committee, including resolution of disagreements between management
and
auditors regarding financial reporting for the purpose of preparing
or
issuing an audit report or related work.
|
| |
·
|
oversee
management’s preparation of the Company’s financial statements and
management’s conduct regarding the accounting and financial reporting
processes;
|
| |
·
|
oversee
management’s maintenance of internal controls and procedures for financial
reporting;
|
| |
·
|
oversee
the Company’s compliance with applicable legal and regulatory
requirements, including without limitation, those requirements relating
to
financial controls and reporting;
|
| |
·
|
oversee
the independent auditor’s qualifications and independence;
|
| |
·
|
oversee
the performance of the independent auditors, including the annual
independent audit of the Company’s financial statements;
|
| |
·
|
prepare
the report required by the rules of the SEC to be included in the
Company’s proxy statement; and
|
| |
·
|
discharge
such duties and responsibilities as may be required of the Audit
Committee
by the provisions of applicable law or rule or regulation of the
American
Stock Exchange and the Sarbanes-Oxley Act of 2002.
|
The
members of the Audit Committee are Paul Nussbaum, who serves as Chairman and
Rodney Peacock, each of whom is an “independent director” under the standards of
Item 7(d)(3)(iv) of Schedule 14A of the Securities Exchange Act of 1934, as
amended. Mr. Nussbaum is our “audit committee financial expert” as defined by
Section 407 of the Sarbanes-Oxley Act of 2002. We believe that the composition
of our Audit Committee meets the requirements for independence under the current
requirements of the Sarbanes-Oxley Act of 2002 and SEC rules and regulations.
We
believe that the functioning of the Audit Committee complies with the applicable
requirements of the Sarbanes-Oxley Act of 2002, as well as SEC rules and
regulations.
Compensation
Committee
On
October 19, 2004, we established a Compensation Committee. The Compensation
Committee, which is made up of Messrs Nussbaum and Peacock, is responsible
for,
among other things, reviewing and evaluating all compensation arrangements
for
the executive officers of the Company and administrating the Company’s 2004
Employees, Directors, Officers and Consultants Stock Option and Stock Award
Plan
(the “2004 Plan”), as well as the Company’s fiscal 2006 Employees, Directors,
Officers and Consultants Stock Option and Stock Award Plan (the “2006 Plan”).
The
Summary Compensation Table shows certain compensation information for services
rendered in all capacities for the fiscal years ended October 31, 2006 and
2005.
In addition, the table shows compensation for our current executive officers.
Other than as set forth herein, no executive officer’s salary and bonus exceeded
$100,000 in any of the applicable years. The following information includes
the
dollar value of base salaries, bonus awards, the number of stock options granted
and certain other compensation, if any, whether paid or deferred.
Conversion rates for 2006, 2005 of one UK Pound were $1.7842, $1.8457,
respectively. Other annual compensation consisted of car allowances, re-location
expenses, disability payments, health insurance and/or pension benefits. Other
annual compensation consisted of car allowances, re-location expenses,
disability payments, health insurance and/or pension benefits.
Summary
Compensation Table*
|
Name
and Principal Position
|
|
Year
|
|
Salary
(1)
|
|
Bonus
|
|
Restricted
Stock
Awards
|
|
Option
Awards
|
|
All
Other
Compensation
|
|
Total
|
|
|
|
|
|
|
($)
|
|
($)
|
|
($)
|
|
($)
(2)
|
|
($)
|
|
($)
|
|
|
Jason
Reid
President
and Chief Executive Officer
|
|
|
2006
2005
|
|
|
250,000
215,047
|
|
|
-0-
-0-
|
|
|
$100,000
(8)
-0-
|
|
|
-0-
$107,060(3
|
)
|
|
12,667
-0-
|
|
|
362,667
322,107
|
|
|
Blair
Cunningham
Chief
Technology Officer
|
|
|
2006
2005
|
|
|
144,072
154,317
|
|
|
-0-
-0-
|
|
|
$43,750
(9)
-0-
|
|
|
-0-
$53,530(4
|
)
|
|
20,249
19,299
|
|
|
208,071
227,146
|
|
|
Anthony
Davis
Chief
Commercial Officer
|
|
|
2006
2005
|
|
|
163,796
134,836
|
|
|
-0-
-0-
|
|
|
$43,750(10)
-0-
|
|
|
-0-
$40,148(5
|
)
|
|
10,858
-0-
|
|
|
218,404
174,984
|
|
|
Geoff
Turner (5)
Senior
Vice President Mergers & Acquisition
|
|
|
2006
2005
|
|
|
178,000
29,667
|
|
|
-0-
-0-
|
|
|
-0-
-0-
|
|
|
-0-
$58,285(6
|
)
|
|
-0-
-0-
|
|
|
178,000
87,952
|
|
|
Frank
Moore (5)
Senior
Vice President Government Liaison
|
|
|
2006
|
|
|
75,000
|
|
|
-0-
|
|
|
$31,250(11)
|
|
|
$37,001(7)-
|
|
|
2,500
|
|
|
145,751
|
|
*
In
accordance with the rules promulgated by the Securities and Exchange Commission,
certain columns relating to information that is not applicable have been omitted
from this table and the other tables set forth in this section.
|
|
(1) |
A
portion of these amounts were paid in UK Pounds (the conversion rate
used
in this table for these amounts is $1.8457 per UK
Pound).
|
|
|
(2) |
Amount
represents the aggregate grant date fair value computed in accordance
with
Statement of Financial Accounting Standards No. 123R, “ Share-Based
Payment”
(“SFAS 123R”). Information regarding the assumptions made in the valuation
reported and material terms of each grant are incorporated herein
by
reference from “Note 4 Capital Stock” to our Consolidated Financial
Statements for the Year Ended October 31,
2006.
|
|
|
(3) |
Comprising
400,000 options valued based on the date of issue using Black Scholes
method and booked in our accounts as an
expense.
|
|
|
(4) |
Comprising
200,000 options valued based on the date of issue using Black Scholes
method and booked in our accounts as an
expense.
|
|
|
(5) |
Comprising
150,000 options valued based on the date of issue using Black Scholes
method and booked in our accounts as an
expense.
|
|
|
(6) |
Comprising
150,000 options valued based on date of issue using Black
Scholes
method and booked in our accounts as an
expense.
|
|
|
(7) |
Comprising
150,000 options valued based on date of issue using Black Scholes
method
and booked in our accounts as an
expense.
|
|
|
(8) |
Comprising
140,000 shares valued at
$100,000
|
|
|
(9) |
Comprising
50,000 shares, half of which is valued at $0.50 and half at
$1.25
|
|
|
(10) |
Comprising
50,000 shares, half of which is valued at $0.50 and half
at
$1.25
|
|
|
(11) |
Comprising
25,000 shares valued
at $1.25
|
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END 2006
|
Name
|
|
Equity Incentive
Plan
Awards: Number of Securities Underlying
Unexercised
Unearned
Options
(#)
|
|
Option
Exercise
Price
($)
|
|
Option
Expiration
Date
|
|
|
Jason
Reid
President
and Chief Executive Officer
|
|
|
400,000
(1
|
)
|
$
|
1.00
|
|
|
May
2010
|
|
|
Blair
Cunningham
Senior
Vice President Products
Division
|
|
|
200,000
(2
|
)
|
$
|
1.00
|
|
|
May
2010
|
|
|
Anthony
Davis
Senior
Vice President Commercial
Division
|
|
|
150,000
(3
|
)
|
$
|
1.00
|
|
|
May
2010
|
|
|
Geoff
Turner
Senior
Vice President Mergers & Acquisition
|
|
|
150,000
(4
|
)
|
$
|
1.00
|
|
|
November
2010
|
|
|
Frank
Moore
Senior
Vice President Government Liaison
|
|
|
150,000
(4
|
)
|
$
|
1.00
|
|
|
May
2011
|
|
| |
(1)
|
Consists
of 268,000 vested options and 132,000 that had not vested as of the
fiscal
year end. All options reported in this column have since
vested.
|
| |
(2)
|
Consists
of 134,000 vested options and 66,000 that had not vested as of the
fiscal
year end. All options reported in this column have since
vested.
|
| |
(3)
|
Consists
of 100,500 vested options and 49,500 which in accordance with the
terms of
the vesting schedule will vest on November 1
2007.
|
| |
(4)
|
Consists
of 100,500 vested options and 49,500 which in accordance with the
terms of
the vesting schedule will vest on May 1
2008.
|
DIRECTOR
COMPENSATION
(During
Last Completed Fiscal Year)
|
Name
(a)
|
|
Fees
Earned or Paid in Cash
($)
(b)
|
|
Stock
Awards ($)
(c)
|
|
Option
Awards ($)
(d)
(4)
|
|
|
Paul
Nussbaum
|
|
$
|
25,000
(2
|
)
|
$
|
25,000(5
|
)
|
|
75,000
|
|
|
Rodney
Peacock
|
|
|
15,000
(3
|
)
|
$
|
15,000
(6
|
)
|
|
50,000
|
|
|
William
Ahearn (1)
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
|
(1) |
William
Ahern died on June 15, 2006 and all information is through that date.
This
table reflects his compensation as a director only. Mr. Ahearn received
compensation in his capacity as SVP Research and Development.
|
|
|
(2) |
Consists
of an annual retainer in the amount of $40,000 and $2,500 per board
meeting attended. Half of these amounts is payable in the Company’s
Stock
|
|
|
(3) |
Consists
of an annual retainer in the amount of $20,000 and $2,500 per board
meeting attended. Half of these amounts is payable in the Company’s
Stock.
|
|
|
(4) |
Options
issued in 2006 have an exercise price of $1.50 per
share.
|
|
|
(5) |
Consist
of 20,000 shares.
|
|
|
(6) |
Consist
of 12,000 shares.
|
Compensation
of Directors
Pursuant
to Agreements dated January 26, 2005 with our non-employee directors, Paul
Nussbaum and Rodney Peacock, each receives a fee of $2,500 per board and
committee meeting attended and are reimbursed for expenses incurred in
connection with attending board and committee meetings. Our board chairman
receives an annual retainer of $40,000 and Mr. Peacock receives an annual
retainer of $20,000. Messrs. Nussbaum and Peacock received 100,000 shares
and
150,000 shares, respectively, on January 26, 2005. On the same date, each
director also received five-year options to purchase 200,000 shares of our
common stock, exercisable at $1.00 per share. Messrs. Nussbaum and Peacock
will
receive options to purchase 75,000 shares and 50,000 shares, respectively,
at
the first board meeting in each fiscal year, at an exercise price to be
established by the Board. Each director is also entitled while serving as
a
director and for a period of three years thereafter, to participate in directors
and officers liability insurance and to indemnification of all costs and
expenses, including cost of legal counsel, selected and retained by the
director, in connection with any action, suit or proceeding to which the
director may be a party by reason of the director, acting in such capacity.
All
options granted to Messrs. Nussbaum and Peacock terminate at such time as
the
individual is no longer serving as a director.
Employment
Agreements
Jason
Reid
On
April
1, 2005, the Company entered into an Employment Agreement with Jason Reid.
The
Agreement commenced on April 1, 2005 and has an indefinite term until terminated
pursuant to said Agreement. Mr. Reid agreed to serve as President and Chief
Executive Officer. Pursuant to said Agreement, we are paying Mr. Reid a base
annual salary of $250,000 from April 1, 2005 through October 31, 2006.
Thereafter, Mr. Reid shall be entitled to receive an annual cash and stock
incentive bonus for each fiscal year based upon a level of accomplishment of
management and performance objectives as established by the Compensation
Committee subject to a minimum bonus of $50,000 for the preceding year on the
basis that the Employment Agreement is renewed after each one year term. At
its
meeting held in October 2006 and in accordance with its remit the Compensation
Committee approved an increase in the base annual salary to $350,000 effective
1
November 2006. The bonus stipulated for 2005-06 was waived
At
the
end of each quarter during the contract, Mr. Reid shall be entitled to receive
a
restricted stock grant of $25,000 paid in common stock. The value shall be
calculated be the average closing price for each trading day in that quarter
unless in the opinion of the Compensation Committee the market for the Company’s
common Stock lacks sufficient liquidity to establish a market price in the
event
the value for the common stock for that quarter will be $1.00 per share. Mr.
Reid is entitled to 40 business days vacation for each calendar year, reimbursed
for business expenses, entitled to directors and officers liability insurance
during his employment with the Company and for a period of three years after
termination, shall receive up to $15,000 for relocation expenses to New York
and
up to $850 per month in lieu of specific reimbursement expenses for use of
a
personal vehicle and indemnification to the maximum extent permitted by law
against all costs and expenses incurred by him, including cost of his legal
counsel. Mr. Reid is also entitled to participate in all Company life, health
and disability insurance, pension, deferred compensation and incentive plans,
options and awards, performance bonuses and other benefits extended by the
Company as a matter of policy to its executive employees. He shall also be
entitled to, at the Company’s cost, to the benefit of a disability insurance
policy or plan during his employment.
Anthony
Davis
On
July
1, 2005, the Company entered into an Employment Agreement with Anthony Davis.
The Agreement commenced on July 1, 2005 and has an indefinite term until
terminated pursuant to said Agreement. Mr. Davis agreed to serve as
Vice-President, Commercial Division. Pursuant to said Agreement, we are paying
Mr. Davis a base annual salary of approximately $150,000, which is subject
to
increase at the discretion of the Compensation Committee. Mr. Davis shall be
entitled to receive an annual cash and stock incentive bonus for each fiscal
year based upon a level of accomplishment of management and performance
objectives as established by the Compensation Committee. At its meeting held
in
October 2006 and in accordance with its remit the Compensation Committee
approved an increase in the base annual salary to $175,000 effective 1 November
2006.
Mr.
Davis
is entitled to receive 50,000 shares of the Company’s common stock for services
performed through October 31, 2006 and thereafter $12,500 of common stock paid
quarterly. Mr. Davis is entitled to 35 business days vacation for each calendar
year, reimbursed for business expenses, entitled to directors and officers
liability insurance during his employment with the Company and for a period
of
three years after termination, shall receive a mutually agreed upon amount
of
relocation expenses to New York and either provided with a vehicle or up to
$5,000 per annum in lieu of specific reimbursement expenses for use of a
personal vehicle and indemnification to the maximum extent permitted by law
against all costs and expenses incurred by him, including cost of his legal
counsel. Mr. Davis is also entitled to participate in all Company life, health
and disability insurance, pension, deferred compensation and incentive plans,
options and awards, performance bonuses and other benefits extended by the
Company as a matter of policy to its executive employees. He shall also be
entitled to, at the Company’s cost, to the benefit of a disability insurance
policy or plan during his employment.
Blair
Cunningham
On
July
1, 2005, the Company entered into an Employment Agreement with Blair Cunningham.
The Agreement commenced on July 1, 2005 and has an indefinite term until
terminated pursuant to said Agreement. Mr. Cunningham agreed to serve as
Vice-President, Products Division. Pursuant to said Agreement, we are paying
Mr.
Cunningham a base annual salary of approximately $150,000, which is subject
to
increase at the discretion of the Compensation Committee. Mr. Cunningham shall
be entitled to receive an annual cash and stock incentive bonus for each fiscal
year based upon a level of accomplishment of management and performance
objectives as established by the Compensation Committee. At its meeting held
in
October 2006 and in accordance with its remit the Compensation Committee
approved an increase in the base annual salary to $350,000 effective 1 November
2006.
Mr.
Cunningham is entitled to receive 50,000 shares of the Company’s common stock
for services performed through October 31, 2006 and thereafter $12,500 of common
stock paid quarterly. Mr. Cunningham is entitled to 40 business days vacation
for each calendar year, reimbursed for business expenses, entitled to directors
and officers liability insurance during his employment with the Company and
for
a period of three years after termination, shall receive a mutually agreed
upon
amount of relocation expenses to New York and either provided with a vehicle
or
up to $5,000 per annum in lieu of specific reimbursement expenses for use of
a
personal vehicle and indemnification to the maximum extent permitted by law
against all costs and expenses incurred by him, including cost of his legal
counsel. Mr. Cunningham is also entitled to participate in all Company life,
health and disability insurance, pension, deferred compensation and incentive
plans, options and awards, performance bonuses and other benefits extended
by
the Company as a matter of policy to its executive employees. He shall also
be
entitled to, at the Company’s cost, to the benefit of a disability insurance
policy or plan during his employment.
Frank
B. Moore
On
May 1,
2006, the Company entered into an Employment Agreement with Frank B. Moore.
The
Agreement commenced on May 1, 2006 and has an indefinite term until terminated
pursuant to said Agreement. Mr. Moore agreed to serve as Senor Vice-President,
Government Relations. Pursuant to said Agreement, we are paying Mr. Moore a
base
annual salary of approximately $150,000, which is subject to increase at the
discretion of the Compensation Committee. Mr. Moore shall be entitled to receive
an annual cash and stock incentive bonus for each fiscal year based upon a
level
of accomplishment of management and performance objectives as established by
the
Compensation Committee. At its meeting held in October 2006 and in accordance
with its remit the Compensation Committee approved an increase in the base
annual salary to $350,000 effective 1 November 2006.
Mr.
Moore
is entitled to receive 25,000 shares of the Company’s common stock for services
performed through October 31, 2006 and thereafter $12,500 of common stock paid
quarterly. Mr. Moore is entitled to 30 business days vacation for each calendar
year, reimbursed for business expenses, entitled to directors and officers
liability insurance during his employment with the Company and for a period
of
three years after termination, shall be provided with either a vehicle or paid
up to $5,000 per annum in lieu of specific reimbursement expenses for use of
a
personal vehicle and indemnification to the maximum extent permitted by law
against all costs and expenses incurred by him, including cost of his legal
counsel. Mr. Moore is also entitled to participate in all Company life, health
and disability insurance, pension, deferred compensation and incentive plans,
options and awards, performance bonuses and other benefits extended by the
Company as a matter of policy to its executive employees. He shall also be
entitled to, at the Company’s cost, to the benefit of a disability insurance
policy or plan during his employment.
Geoff
Turner
On
November 1, 2005, the Company entered into a one year Consulting Agreement
with
Taktos Ltd., a United Kingdom corporation owned by Geoff Turner. The Agreement
requires Taktos Ltd. to provide the services of Geoff Turner during the term
of
the Agreement to provide the following services:
| |
·
|
assist
management with the analysis and implementation of its business
plan;
|
| |
·
|
explore
acquisitions, strategic alliances, partnering opportunities and other
cooperative ventures within and without its present industry
focus;
|
| |
·
|
evaluate
possible acquisition and strategic partnering candidates;
|
| |
·
|
evaluate
merger and acquisition strategies, including the evaluation of targets
and
the structuring of transactions;
and
|
| |
·
|
advise
and consult with executive officers with respect to any of the above
described matters.
|
The
Company is paying approximately $178,000 per annum to the consultant for
providing the services of Mr. Turner. Consultant is also entitled to
reimbursement of travel and other expenses. Pursuant to a separate option
agreement with Mr. Turner who serves as an executive officer, the Company has
granted him five year options to purchase 150,000 shares of common stock with
34% having invested on November 1, 2005 and with 33% vesting on each on each
of
November 1, 2006 and 2007. The Remuneration Committee approved in October 2006
the renewal of this contract and approved an increase in the
compensation package paid for the services of Mr. Turner and with effect from
1
November 2006 we are paying Taktos Limited $175,000 for his services.
Scott
DeBo
On
April
6, 2007, our key subsidiary, Colmek Engineering Systems, entered into an
Employment Agreement with Mr. Scott DeBo. The Agreement commenced on April
6, 2007 and has an indefinite term until terminated pursuant to said
Agreement. Mr. DeBo agreed to serve as Chief Executive Officer of
Colmek. Pursuant to said Agreement, we are paying Mr. DeBo a base annual
salary of approximately $135,000 which is subject to increase at the discretion
of the Compensation Committee. He is also entitled to certain incentive
bonus for each fiscal year based upon certain performance related measures
such
as revenues and net profits achieved in the fiscal year by Colmek and
ascertained from Colmek audited financials for the fiscal year in question.
Mr.
DeBo
is entitled to receive $40,000 shares of the Company’s common stock for services
performed and a Company car. He is entitled to 35 business days vacation for
each calendar year, reimbursed for business expenses, entitled to directors
and
officers liability insurance during his employment with the Company and
indemnification to the maximum extent permitted by law against all costs and
expenses incurred by him, including cost of his legal counsel. Mr. DeBo is
also entitled to participate in all Colmek’s life, health and disability
insurance, pension, deferred compensation and incentive plans, options and
awards, performance bonuses and other benefits extended by the Company as a
matter of policy to its executive employees. He shall also be entitled to,
at the Company’s cost, to the benefit of a disability insurance policy or plan
during his employment.
Termination
provisions of the Employment Agreements of Messrs. Reid, Davis, Moor, Cunningham
and DeBo
The
Company may terminate Executive’s employment at any time upon 90 days prior
written notice, if such termination is for cause as defined in the Agreement.
Executive may terminate his or her Employment Agreement without good reason
upon
giving the Company 90 days written notice or at the Company’s sole discretion,
it may substitute 90 days salary in lieu of notice. Executive may also terminate
his or her Employment Agreement upon written notice to the Company for good
reason as defined in the Agreement. His or her Employment Agreement shall also
terminate upon his or her death or, upon 30 days prior written notice of his
or
her disability, which lasts for a period of at least 90 days. In the event
Executive’s employment is terminated for cause or without good reason, Executive
shall be entitled to the following (“Minimum Termination Pay and Benefits”):
| |
·
|
the
unpaid portion of his or her base salary;
|
| |
·
|
reimbursement
for out-of-pocket expenses;
|
| |
·
|
continued
insurance benefits to the extent required by
law;
|
| |
·
|
payment
of any vested but unpaid rights as required by any bonus or incentive
pay
or stock plan or any other employee benefit plan;
and
|
| |
·
|
any
unpaid bonus or incentive compensation that was approved (except
in the
case of termination for cause).
|
In
the
event his or her termination is by the Company without cause or by Executive
for
good reason, he or she shall be entitled to the Minimum Termination Pay and
Benefits in addition to the following:
| |
·
|
a
lump sum payment equal to one times the sum of (x) the Executive’s then
current Base Salary and (y) the greater of (A) the average of the
Executive’s bonuses (taking into account a payment of no bonus or a
payment of a bonus of $0) with respect to the preceding three fiscal
years
(or the period of the Executive’s employment if shorter), (B) the
Executive’s bonus with respect to the preceding fiscal year and (C) in the
event that such termination of employment occurs before the first
anniversary of the Commencement Date, the Executive’s annualized projected
bonus for such year (the “Severance Payment”). The Severance Payment shall
be paid to the Executive within 60 days following the Date of
Termination;
|
| |
·
|
continued
payment by Coda Octopus for life, health and disability insurance
coverage
and salary and other benefits for the Executive and the Executive’s spouse
and dependents for one year following the Date of Termination to
the same
extent that Coda Octopus paid for such coverage immediately prior
to the
termination of the Executive’s employment and subject to the eligibility
requirements and other terms and conditions of such insurance coverage,
provided that if any such insurance coverage shall become unavailable
during the one year period, Coda Octopus thereafter shall be obliged
only
to pay to the Executive an amount which, after reduction for income
and
employment taxes, is equal to the employer premiums for such insurance
for
the remainder of such severance period;
and
|
| |
·
|
vesting
as of the Date of Termination in any unvested portion of any stock
option,
restricted stock and any other long term incentive award previously
issued
to the Executive by Coda Octopus. Each such stock option must be
exercised
by the Executive within 180 days after the Date of Termination or
the date
of the remaining option term, if
earlier.
|
Termination
Following Change in Control
If
during
the employment period and within 12 months following a change in control as
defined in the Employment Agreement, Coda Octopus (or its successor) terminates
the Executive’s employment without cause or the Executive terminates his or her
employment for Good Reason, or the Executive, by notice given during the 90
day
period commencing on the three-month anniversary of the date of the Change
in
Control (the “Notice Period”), terminates his or her employment for any reason,
which termination shall be effective on the last day of the Notice Period,
the
Executive shall be entitled to receive the same termination pay and benefits
as
if he or she were terminated by the Company without cause or by the Executive
for good reason, plus a Tax Gross-up Payment. In the event that any termination
payment or any insurance benefits, accelerated vesting, pro-rated bonus or
other
benefit payable to the Executive (under the Employment Agreement or otherwise),
constitute “parachute payments” within the meaning of Section 280G (as it may be
amended or replaced) of the Internal Revenue Code of 1986, as amended (the
“Code”) and are subject to the excise tax imposed by Section 4999 (as it may be
amended or replaced) of the Code (“the Excise Tax”), then Coda Octopus shall pay
to the Executive an additional amount (the “Gross-Up Amount”) such that the net
benefits retained by the Executive after the deduction of the Excise Tax
(including interest and penalties) and any federal, or local income and
employment taxes (including interest and penalties) upon the Gross-Up Amount
shall be equal to the benefits that would have been delivered hereunder had
the
Excise Tax not been applicable and the Gross-Up Amount not been
paid.
Termination
Provisions of Consulting Agreement Geoff Turner
Consulting
Agreement with Taktos Limited under which the services of Mr. Turner are
provided stipulates that the agreement is for a fixed period of one year and,
unless renewed by mutual consent, terminates thereafter.
Stock
Option Plans
2004
Plan
In
October 2004, the Board approved and on June 27, 2006, the stockholders ratified
the Company’s 2004 Employees, Directors, Officers and Consultants Stock Option
and Stock Award Plan(the “2004 Plan”), which provides for, among other things,
the award of up to 2,500,000 shares of Common Stock.
Pursuant
to the 2004 Plan, officers, employees, directors and consultants of the Company
and certain of its subsidiaries are eligible to receive awards of stock options
and restricted stock. Options granted under the 2004 Plan may be or
non-qualified stock options (“NQSOs”). Restricted stock may be granted in
addition to or in lieu of any other award made under the 2004 Plan.
The
maximum number of shares of Common Stock reserved for the grant of awards under
the 2004 Plan is 2,500,000. Such share reserves are subject to further
adjustment in the event of specified changes to the capital structure of the
Company. The shares may be made available either from the Company’s authorized
but unissued capital stock or from capital stock reacquired by the
Company.
The
Compensation Committee of the Board of Directors administers the 2004 Plan.
Subject to the provisions of the plan, the Compensation Committee will determine
the type of awards, when and to which executives awards will be granted, the
number of shares covered by each award and the terms, provisions and kind of
consideration payable (if any), with respect to awards. The Compensation
Committee may interpret the plan and may at any time adopt such rules and
regulations for the plan as it deems advisable, including the delegation of
certain of its authority. In determining the persons to whom awards shall be
granted and the number of shares covered by each award, the Compensation
Committee takes into account the duties of the respective persons, their present
and potential contributions to the success of the Company and such other factors
as the Compensation Committee deems relevant.
The
Compensation Committee may provide for the payment of the option price in cash,
by delivery of common stock having a fair market value equal to such option
price, by delivery of options or warrants having an intrinsic value equal to
such option price or by a combination thereof or by any other method. Options
granted under the 2004 Plan will become exercisable at such times and under
such
conditions as the Compensation Committee shall determine.
The
Board
of Directors may at any time and from time to time suspend, amend, modify or
terminate the 2005 Plan; provided, however, that, to the extent required by
any
other law, regulation or stock exchange rule, no such change shall be effective
without the requisite approval of the Company’s stockholders. In addition, no
such change may adversely affect an award previously granted, except with the
written consent of the grantee.
The
Company has issued all the options allowable under the 2004 Plan and all of
said
options are Non-qualified options. As stockholder approval of the 2004 Plan
was
not obtained within one year of Board approval, as required under the Internal
Revenue Code of 1986, as amended, no stock options can be granted in the future
under the 2004 Plan.
2006
Plan
On
March
2, 2006,, the Board approved and on June 27, 2006, the stockholders ratified
the
Company’s 2006 Employees, Directors, Officers and Consultants Stock Option and
Stock Award Plan(the “2006 Plan”), which provides for, among other things, the
award of up to 2,500,000 shares of Common Stock.
Pursuant
to the 2006 Plan, officers, employees, directors and consultants of the Company
and certain of its subsidiaries are eligible to receive awards of stock options
and restricted stock. Options granted under the 2006 Plan may be ISOs or
non-qualified stock options (“NQSOs”). Restricted stock may be granted in
addition to or in lieu of any other award made under the 2006 Plan.
The
maximum number of shares of Common Stock reserved for the grant of awards under
the 2006 Plan is 2,500,000. Such share reserves are subject to further
adjustment in the event of specified changes to the capital structure of the
Company. The shares may be made available either from the Company’s authorized
but unissued capital stock or from capital stock reacquired by the
Company.
The
Compensation Committee of the Board of Directors administers the 2006 Plan.
Subject to the provisions of the plan, the Compensation Committee will determine
the type of awards, when and to which executives awards will be granted, the
number of shares covered by each award and the terms, provisions and kind of
consideration payable (if any), with respect to awards. The Compensation
Committee may interpret the plan and may at any time adopt such rules and
regulations for the plan as it deems advisable, including the delegation of
certain of its authority. In determining the persons to whom awards shall be
granted and the number of shares covered by each award, the Compensation
Committee takes into account the duties of the respective persons, their present
and potential contributions to the success of the Company and such other factors
as the Compensation Committee deems relevant.
An
option
may be granted on such terms and conditions as the Compensation Committee may
approve, and generally may be exercised for a period of up to ten years from
the
date of grant. Generally, ISOs will be granted with an exercise price at the
minimum equal to the “Fair Market Value” on the date of grant. In the case of
ISOs, certain limitations will apply with respect to the aggregate value of
option shares which can become exercisable for the first time during any one
calendar year, and certain additional limitations will apply to ISOs granted
to
“Ten Percent Stockholders” of the Company (as defined in the 2006 Plan). The
Compensation Committee may provide for the payment of the option price in cash,
by delivery of common stock having a fair market value equal to such option
price, by delivery of options or warrants having an intrinsic value equal to
such option price or by a combination thereof or by any other method. Options
granted under the 2006 Plan will become exercisable at such times and under
such
conditions as the Compensation Committee shall determine.
The
Board
of Directors may at any time and from time to time suspend, amend, modify or
terminate the 2006 Plan; provided, however, that, to the extent required by
any
other law, regulation or stock exchange rule, no such change shall be effective
without the requisite approval of the Company’s stockholders. In addition, no
such change may adversely affect an award previously granted, except with the
written consent of the grantee.
As
of May
1, 2007, we had granted non-qualified options to purchase an aggregate of
3,430,000 shares of its common stock at exercise prices ranging from $1.00
per
share to $1.50 per share, of which 2,826,000 have vested.
Section
16(a) Beneficial Ownership Reporting Compliance
Our
common stock is not registered under the 1934 Act. Therefore, none of our
executive officers, directors and all persons who own more than ten percent
of
our common stock was required to comply with Section 16(a) filing requirements
during the relevant time periods.
The
following table sets forth information as of May 11, 2007 regarding the
beneficial ownership of our Common Stock, based on information provided by
(i)
each of our executive officers and directors; (ii) all executive officers and
directors as a group; and (iii) each person who is known by us to beneficially
own more than 5% of the outstanding shares of our Common Stock.
Unless
otherwise indicated, the address of each beneficial owner is in care of the
Company, 164 West 25th
Street,
6th
Floor,
New York, NY 10001.
Unless otherwise indicated, we believe that all persons named in the following
table have sole voting and investment power with respect to all shares of Common
Stock that they beneficially own.
|
Name
and Address of Beneficial Owner (1)
|
|
Amount
and Nature of
Beneficial
Ownership of
Common
Stock (2)
|
|
Percent
of
Common
Stock
|
|
|
Jason
Reid (3)
|
|
|
23,695,112
|
|
|
49.56
|
%
|
|
Paul
Nussbaum (4)
|
|
|
496,293
|
|
|
1.0
|
%
|
|
Rodney
Peacock (5)
|
|
|
458,211
|
|
|
*
|
|
|
Blair
Cunningham (6)
|
|
|
474,797
|
|
|
*
|
|
|
Anthony
Davis (7)
|
|
|
372,797
|
|
|
*
|
|
|
Frank
B. Moore (8)
|
|
|
247,797
|
|
|
*
|
|
|
Geoff
Turner (9)
|
|
|
172,797
|
|
|
*
|
|
|
Scott
Debo (10)
|
|
|
139,358
|
|
|
*
|
|
|
Vision
Opportunity Master Fund Limited (11)
317
Madison Avenue, Suite 1220
New
York, NY 10017
|
|
|
13,014,100
|
|
|
|
|
|
All
Directors and Executive Officers as a Group (eight
persons):
|
|
|
26,057,162
|
|
|
54.501
|
%
|
|
*
|
Less
than 1%.
|
| |
|
|
(1)
|
Unless
otherwise indicated, the address of all individual and entities listed
below is c/o Coda Octopus Group, Inc.,164 West 25th
Street, 6th
Floor, New York NY10001.
|
| |
|
|
(2)
|
The
number of shares indicated includes (i) shares issuable upon the
exercise
of outstanding stock options or warrants held by each individual
or group
to the extent such options and warrants are exercisable within sixty
days
of May 11, 2007 and (ii) shares of restricted stock, including restricted
stock awards issuable within 60 days of May 11, 2007.
|
| |
|
|
(3)
|
Includes
the following: (i) 400,000
shares issuable upon exercise of options,
(ii) 19,515,084 shares and 2,746,418 shares issuable upon exercise
of
warrants held by Fairwater Technology Group Ltd., of which Mr. Reid
may be
deemed to be a control person, and (iii) 280,720 shares and 50,000
shares
issuable upon exercise of warrants held by Softworks Business Systems
Solutions and Softworks Limited, of which Mr. Reid may be deemed
to be a
control person; includes 511,266 shares held by Mr. Jason Reid, and
(iv)
includes 172,540 held by Mr. Reid’s wife and (v) includes 19,084 shares
earned during the quarter ended April 30, 2007 that have not been
issued
to date.
|
| |
|
|
(4)
|
Includes
200,000 shares issuable upon exercise of options and includes 4,771
shares
earned during
the quarter ended April 30, 2007 that have not been
issued to date.
|
| |
|
|
(5)
|
Includes
200,000 shares issuable upon exercise of options and
includes 2,863 shares earned during
the quarter ended April 30, 2007 that have not
been issued to date.
|
| |
|
|
(6)
|
Includes
200,000 shares issuable upon exercise of options and 50,000 shares
held by
Softworks Limited of which Mr. Cunningham is a director and
includes 11,927 shares earned during
the quarter ended April 30, 2007 that have not
been issued to date.
|
| |
|
|
(7)
|
Includes
150,000 shares issuable upon exercise of option
and includes 11,927 shares earned during
the quarter ended April 30, 2007 that have not
been issued to date.
|
| |
|
|
(8)
|
Includes
150,000 shares issuable upon exercise of options and
includes 11,927 shares earned during
the quarter ended April 30, 2007 that have not
been issued to date.
|
| |
|
|
(9)
|
Includes
150,000 shares issuable upon exercise of options.
|
| |
|
|
(10)
|
Includes
80,000 shares issuable upon exercise of option and includes 2,144
shares
earned during the quarter ended April 30, 2007 that have not
been issued to date.
|
| |
|
|
(11)
|
Includes
9,200,000 shares issuable upon exercise of warrants. The percentage
ownership for Vision reflects a provision in the warrants owned by
Vision
that limits exercise of the warrants to the extent that its ownership
percentage would exceed 9.9% of our issued and outstanding common
stock of
the Company.
|
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market
Information
Our
common stock is currently traded in the pink sheets under the symbol CDOC.
We
intend to take the necessary steps to have our common stock included for
quotation on the OTC Bulletin Board. However, there can be no assurance that
our
stock will be accepted for quotation.
The
following table shows the reported high and low closing bid quotations per
share
for our common stock based on information provided by the Pink Sheets Quotation
Service. Particularly since our common stock is traded infrequently, such
over-the-counter market quotations reflect inter-dealer prices, without markup,
markdown or commissions and may not necessarily represent actual transactions
or
a liquid trading market.
|
Year
Ended October 31, 2005
|
|
HIGH
|
|
LOW
|
|
|
First
Quarter
|
|
|
1.05
|
|
|
0.35
|
|
|
Second
Quarter
|
|
|
1.01
|
|
|
0.30
|
|
|
Third
Quarter
|
|
|
1.01
|
|
|
0.35
|
|
|
Fourth
Quarter
|
|
|
0.75
|
|
|
0.30
|
|
| |
|
|
|
|
|
|
Year
Ended October 31, 2006
|
|
HIGH
|
|
LOW
|
|
|
First
Quarter
|
|
|
0.65
|
|
|
0.45
|
|
|
Second
Quarter
|
|
|
0.75
|
|
|
0.40
|
|
|
Third
Quarter
|
|
|
1.40
|
|
|
0.65
|
|
|
Fourth
Quarter
|
|
|
1.50
|
|
|
1.00
|
|
| |
|
|
|
|
|
|
Year
Ended October 31, 2007
|
|
HIGH
|
|
LOW
|
|
|
First
Quarter
|
|
|
1.55
|
|
|
0.72
|
|
|
Second
Quarter
|
|
|
1.70
|
|
|
1.05
|
|
Number
of Stockholders
As
of May
11, 2007, there were approximately 543 holders of record of our common
stock.
Historically,
we have not paid any dividends to the holders of our common stock and we do
not
expect to pay any such dividends in the foreseeable future as we expect to
retain our future earnings for use in the operation and expansion of our
business.
The
following table presents information regarding the selling
stockholders.
|
Selling
Stockholder
|
|
Shares
Benficially Owned Prior to Offering*
|
|
Shares
to be Sold in Offering
|
|
Shares
Beneficially Owned After Offering
|
|
Perecentage
Beneficial Ownership After Offering
|
|
|
JMG
Capital Partners, LP (1)
|
|
|
2,000,000
|
|
|
2,000,000
|
|
|
-0-
|
|
|
n/a
|
|
|
JMG
Triton Offshore Fund, Ltd. (2)
|
|
|
2,000,000
|
|
|
2,000,000
|
|
|
-0-
|
|
|
n/a
|
|
|
MM
& B Holdings, a California general partnership (3)
|
|
|
2,000,000
|
|
|
2,000,000
|
|
|
-0-
|
|
|
n/a
|
|
|
IRA
FBO J. Steven Emerson Rollover II Pershing LLC as Custodian
(4)
|
|
|
1,600,000
|
|
|
1,600,000
|
|
|
-0-
|
|
|
n/a
|
|
|
IRA
FBO J. Steven Emerson Roth Pershing LLC as Custodian (4)
|
|
|
1,300,000
|
|
|
1,300,000
|
|
|
-0-
|
|
|
n/a
|
|
|
Emerson
Partners (4)
|
|
|
400,000
|
|
|
400,000
|
|
|
-0-
|
|
|
n/a
|
|
|
J.
Steven Emerson Investment Account (4)
|
|
|
500,000
|
|
|
500,000
|
|
|
-0-
|
|
|
n/a
|
|
|
JMB
Capital Partners, L.P. (5)
|
|
|
4,000,000
|
|
|
4,000,000
|
|
|
-0-
|
|
|
n/a
|
|
|
The
Jay Goldman Master L.P. (6)
|
|
|
500,000
|
|
|
500,000
|
|
|
-0-
|
|
|
n/a
|
|
|
Woodmont
Investments, Ltd. (6)
|
|
|
500,000
|
|
|
500,000
|
|
|
-0-
|
|
|
n/a
|
|
|
John
B. Davies
|
|
|
200,000
|
|
|
200,000
|
|
|
-0-
|
|
|
n/a
|
|
|
Steven
B. Dunn
|
|
|
500,000
|
|
|
500,000
|
|
|
-0-
|
|
|
n/a
|
|
|
The
Muhl Family Trust, Phillip E. Muhl & Kristin A. Muhl TTEE DTD
10-11-95
|
|
|
200,000
|
|
|
200,000
|
|
|
-0-
|
|
|
n/a
|
|
|
Apex
Investment Fund, Ltd. (7)
|
|
|
1,000,000
|
|
|
1,000,000
|
|
|
-0-
|
|
|
n/a
|
|
|
G.
Tyler Runnels or Jasmine Niklas Runnels TTEES The Runnels Family
Trust DTD
1-11-2000
|
|
|
300,000
|
|
|
300,000
|
|
|
-0-
|
|
|
n/a
|
|
|
TRW
Capital Growth Fund, LP (8)
|
|
|
300,000
|
|
|
300,000
|
|
|
-0-
|
|
|
n/a
|
|
|
Joseph
H. Merback & Tema N. Merback Co-TTEE FBO Merback Family Trust UTD
8-30-89
|
|
|
200,000
|
|
|
200,000
|
|
|
-0-
|
|
|
n/a
|
|
|
B
& R Richie's (9)
|
|
|
100,000
|
|
|
100,000
|
|
|
-0-
|
|
|
n/a
|
|
|
Charles
B. Runnels Family Trust DTD 10-14-93 Charles B. Runnels & Amy Jo
Runnels TTEES
|
|
|
50,000
|
|
|
50,000
|
|
|
--0-
|
|
|
n/a
|
|
|
Karen
Kang
|
|
|
20,000
|
|
|
20,000
|
|
|
-0-
|
|
|
n/a
|
|
|
Christopher
G. Niklas
|
|
|
20,000
|
|
|
20,000
|
|
|
-0-
|
|
|
n/a
|
|
|
Newberg
Family Trust UTD 12/18/90
|
|
|
800,000
|
|
|
800,000
|
|
|
-0-
|
|
|
n/a
|
|
|
John
W. Galuchie, Jr. & Marianne C. Galuchie Trustees Galuchie Living Trust
DTD 9/11/00
|
|
|
20,000
|
|
|
20,000
|
|
|
-0-
|
|
|
n/a
|
|
|
Rockmore
Investment Master Fund Ltd. (10)
|
|
|
500,000
|
|
|
500,000
|
|
|
-0-
|
|
|
n/a
|
|
|
Bristol
Investment Fund, Ltd. (11)
|
|
|
1,000,000
|
|
|
1,000,000
|
|
|
-0-
|
|
|
n/a
|
|
|
Whalehaven
Capital Fund Limited (12)
|
|
|
800,000
|
|
|
800,000
|
|
|
-0-
|
|
|
n/a
|
|
|
Cranshire
Capital, LP (13)
|
|
|
500,000
|
|
|
500,000
|
|
|
-0-
|
|
|
n/a
|
|
|
Scot
Cohen
|
|
|
600,000
|
|
|
600,000
|
|
|
-0-
|
|
|
n/a
|
|
|
Iroquois
Master Fund, Ltd. (14)
|
|
|
800,000
|
|
|
800,000
|
|
|
-0-
|
|
|
n/a
|
|
|
David
Sidoo
|
|
|
200,000
|
|
|
200,000
|
|
|
-0-
|
|
|
n/a
|
|
|
Andrew
Lessman
|
|
|
2,000,000
|
|
|
2,000,000
|
|
|
-0-
|
|
|
n/a
|
|
|
Arden
Merback
|
|
|
100,000
|
|
|
100,000
|
|
|
-0-
|
|
|
n/a
|
|
|
Andrew
C. Sankin
|
|
|
300,000
|
|
|
300,000
|
|
|
-0-
|
|
|
n/a
|
|
|
Matthew
Weiss and Michele Weiss JT TEN
|
|
|
200,000
|
|
|
200,000
|
|
|
-0-
|
|
|
n/a
|
|
|
Epsom
Investment Services, N.V. (15)
|
|
|
200,000
|
|
|
200,000
|
|
|
-0-
|
|
|
n/a
|
|
|
Asset
Protection Fund Ltd. (16)
|
|
|
1,000,000
|
|
|
1,000,000
|
|
|
-0-
|
|
|
n/a
|
|
|
Lord
Robin Russell
|
|
|
200,000
|
|
|
200,000
|
|
|
-0-
|
|
|
n/a
|
|
|
W
Robert Ramsdell & Majorie F Ramsdell TTEE Ramsdell Family Trust DTD
77/94
|
|
|
200,000
|
|
|
200,000
|
|
|
-0-
|
|
|
n/a
|
|
|
Core
Fund L.P. (17)
|
|
|
200,000
|
|
|
200,000
|
|
|
-0-
|
|
|
n/a
|
|
|
Ganesha
Capital LLP (18)
|
|
|
300,000
|
|
|
300,000
|
|
|
-0-
|
|
|
n/a
|
|
|
Scot
J Cohen
|
|
|
1,400,000
|
|
|
1,400,000
|
|
|
-0-
|
|
|
n/a
|
|
|
Philip
Mirabelli
|
|
|
100,000
|
|
|
100,000
|
|
|
-0-
|
|
|
n/a
|
|
|
Andrew
C Sankin
|
|
|
590,000
|
|
|
590,000
|
|
|
-0-
|
|
|
n/a
|
|
|
Joshua
Silverman
|
|
|
100,000
|
|
|
100,
000
|
|
|
-0-
|
|
|
n/a
|
|
|
Richard
K Abbe Custodian for Talia Abbe
|
|
|
66,668
|
|
|
66,668
|
|
|
-0-
|
|
|
n/a
|
|
|
Richard
K Abbe Custodia for Samantha Abbe
|
|
|
66,666
|
|
|
66,666
|
|
|
-0-
|
|
|
n/a
|
|
|
Richard
K Abbe Custodian for Bennett Abbe
|
|
|
66,666
|
|
|
66,666
|
|
|
-0-
|
|
|
n/a
|
|
|
T
R
Winston & Company (19)
|
|
|
2,400,000
|
|
|
2,400,000
|
|
|
-0-
|
|
|
n/a
|
|
|
Total
|
|
|
32,400,000
|
|
|
32,400,000
|
|
|
|
|
|
|
|
| * |
The
number and percentage of shares beneficially owned is determined
in
accordance with Rule 13d-3 of the Securities Exchange Act of
1934, and the
information is not necessarily indicative of beneficial ownership
for any
other purpose. Under such rule, beneficial ownership includes
any shares
as to which the selling stockholder has sole or shared voting
power or
investment power and also any shares, which the selling stockholder
has
the right to acquire within 60 days. Nevertheless, for purposes
hereof,
for each selling stockholder does not give effect to the 4.9%
limitation
on the number of shares that may be held by each stockholder
as agreed to
in the warrant held by each selling stockholder which limitation
is
subject to waiver by the holder upon 61 days prior written notice
to us
(subject to a further non-waivable limitation of 9.99%). For
each selling
stockholder, the number of shares beneficially owned prior to
this
offering consists of shares of common stock currently owned by
the selling
stockholder as well as an equal number of shares of common stock
issuable
upon the exercise of
warrants.
|
|
|
JMG
Capital Partners, LP (“JMG Partners”) is a California limited partnership.
Its general partner is JMG Capital Management, LLC (the “Manager”), a
Delaware limited liability company and an investment advisor that
has
voting and dispositive power over JMG Partners’ investments, including the
securities included herein. The equity interests of the Manager are
owned
by JMG Capital Management, Inc., a California corporation and Asset
Alliance Holding Corp., a Delaware corporation. Jonathan M. Glaser
is the
executive officer and director of JMG Capital and has sole investment
discretion over JMG Partners’ portfolio holdings.
|
|
(2)
|
JMG
Triton Offshore Fund, Ltd. (the “Fund”) is and international business
company organized under the laws of the British Virgin Islands. The
Fund’s
investment manager is Pacific Assets Management LLC, a Delaware limited
liability company (the “Manager”) that has voting and dispositive power
over the Fund’s investments, including the securities included herein. The
equity interests of the Manager are owned by Pacific Capital Management
Inc., a California corporation (“Pacific”) and Asset Alliance Holding
Corp., a Delaware corporation. The equity interests of Pacific are
owned
by Roger Richter, Jonathan Glaser and Daniel David. Messrs. Glaser
and
Richter share investment and voting control over the Fund’s portfolio
holdings.
|
|
(3)
|
Bryan
Ezralow as trustee of the Bryan Ezralow 1994 Trust, general partner
of MM
& B Holdings has voting and dispositive power over the shares held
by
that entity.
|
|
(4)
|
J
Steven Emerson has voting and dispositive control over the shares
held by
these selling stockholders.
|
|
(5)
|
Jon
Brooks has voting and dispositive control over the shares held by
JMB
Capital Partners.
|
|
(6)
|
Jay
Goldman has voting and dispositive control over the shares held by
The Jay
Goldman Master L.P.
|
|
(7)
|
Susan
Fairhurst voting and dispositive control over the shares held by
Apex.
|
|
(8)
|
G.
Tyler Runnels has voting and dispositive power over the shares held
by TRW
Capital Growth Fund, LP.
|
|
(9)
|
Bradley
Ross has voting and dispositive control over the shares held by B&R
Richies.
|
| (10) |
Rockmore
Capital, LLC (“Rockmore Capital”) and Rockmore Partners, LLC (“Rockmore
Partners”), each a limited liability company formed under the laws of the
State of Delaware, serve as the investment manager and general partner,
respectively, to Rockmore Investments (US) LP, a Delaware limited
partnership, which invests all of its assets through Rockmore Investment
Master Fund Ltd., an exempted company formed under the laws of Bermuda
(“Rockmore Master Fund”). By reason of such relationships, Rockmore
Capital and Rockmore Partners may be deemed to share dispositive
power
over the shares of our common stock owned by Rockrnore Master Fund.
Rockmore Capital and Rockmore Partners disclaim beneficial ownership
of
such shares of our common stock. Rockmore Partners has delegated
authority
to Rockmore Capital regarding the portfolio management decisions
with
respect to the shares of common stock owned by Rockmore Master Fund
and,
as of September 17th,
2006,
Mr. Bruce T. Bernstein and Mr. Brian Daly, as officers of Rockmore
Capital, are responsible for the portfolio management decisions of
the
shares of common stock owned by Rockmore Master Fund. By reason of
such
authority, Messrs. Bernstein and Daly may be deemed to share dispositive
power over the shares of our common stock owned by Rockmore Master
Fund.
Messrs. Bernstein and Daly disclaim beneficial ownership of such
shares of
our common stock and neither of such persons has any legal right
to
maintain such authority. No other person has sole or shared voting
or
dispositive power with respect to the shares of our common stock
as those
terms are used for purposes under Regulation 13D-G of the Securities
Exchange Act of 1934, as amended. No person or “group” (as that term is
used in Section 13(d) of the Securities Exchange Act of 1934, as
amended,
or the SEC’s Regulation 13D-G) controls Rockmore Master
Fund.
|
|
(11)
|
Bristol
Capital Advisers, LLC (“BCA”) is the investment advisor to Bristol
Investment Fund, Ltd. (“Bristol”). Paul Kessler is the manager of BCA and
as such has voting and investment control over the securities held
by
Bristol. Mr. Kessler disclaims beneficial ownership of these
securities.
|
|
(12)
|
Michael
Finkelstein (Investment Manager), Arthur Jones, Trevor Williams,
and Marco
Weisfeld (Directors) have voting and dispositive control over the
shares
held by Whalehaven Capital Fund
Limited.
|
|
(13)
|
Mitchell
P. Kopin, president of Downsview Capital, Inc., the general partner
of
Cranshire Capital, LP has sole voting and investment power of these
securities.
|
|
(14)
|
Joshua
Silverman has voting and investment control over the shares held
by
Iroquois Master Fund Ltd. Mr. Silverstein disclaims beneficial ownership
of these shares.
|
|
(15)
|
Steven
Drayton has sole voting and investment power of the securities held
by
Epsom.
|
|
(16)
|
David
Dawes and Christoph Langenauer share voting and dispositive control
over
the shares held by Asset Protection Fund
Ltd.
|
|
(17)
|
Steven
Shum has sole voting and investment power over the securities held
by Core
Fund, L.P.
|
|
(18)
|
Simon
John Evans has sole voting and investment power over the securities
held
by Ganesha Capital.
|
|
(19)
|
G.
Tyler Runnels, the firm’s Chairman and Chief Executive Officer has voting
and investment power over the shares held by T.R.
Winston.
|
RECENT
FINANCING
Between
April and May, 2007, we entered into and consummated a securities purchase
agreement with a group of accredited investors providing for the sale and
issuance of 15,000,000 shares of our common, five-year warrants to purchase
7,500,000 shares of common stock at $1.30 per share and five-year warrants
to
purchase 7,500,000 shares of common stock at $1.70 per share. Gross proceeds
from the offering amounted to $15,000,000. We also issued five-year warrants
to
purchase 2,400,000 shares of our common stock at $1.00 per share as part of
the
placement agent fees.
We
agreed
to file the registration statement of which this prospectus forms a part for
the
registration of the shares as well as the issuable upon exercise of the warrants
within 45 days after the closing date of each offering and cause it to be
declared effective within 90 days after the closing date (135 days assuming
a
full review). Only investors who participated in this financing are having
shares included in this prospectus. If the registration statement is not
declared effective within the time period required, we must pay liquidated
damages of 1.5% of the purchase price per month or part thereof up to a maximum
of 24% in the aggregate of the purchase price paid. Such damages are payable
in
cash.
Since
August 2004, our principal stockholder is Fairwater Technology Group Ltd. The
voting shares of Fairwater Technology are controlled 54.8% by Jason Reid, who
also beneficially owns 57.9% of the non-voting preferred shares of Fairwater
Technology Group Limited. The balance of the voting and non-voting shares of
Fairwater are principally owned by members of Mr. Reid’s family.
Between
June 2006 and January 2007, we sold to Vision Opportunity Masters Fund, Ltd.,
46,000 shares of Series B preferred Stock and 650,000 shares of common stock
for a total of $4,600,000. We also granted five-year warrants to purchase
an aggregate of 9,200,000 shares of Common Stock at an exercise
price ranging from $1.30 to $2 per share. The warrants contained cashless
exercise provisions, anti-dilution provisions in the event of stock splits,
stock dividends, combinations, reclassifications and the like and sales of
stock
below the exercise price. The cashless exercise provisions have now been
amended
by way of agreement between the parties in March 2007. The warrants are also
redeemable on the fifth anniversary from the date of grant at an amount equal
to
three times the conversion price. We also granted Vision a nine month option
to
subscribe for and purchase up to 10,000 Units consisting of one share of
Series
B Preferred Stock, one Series A Warrant and one Series B Warrant at a purchase
price of $100.00 per Unit. This option has now been exercised. At the time
of
Vision’s purchase of our securities, it also entered into a registration rights
agreement for us to register the resale of Vision’s shares of Common Stock
issuable upon conversion of the Series B Preferred Stock and upon exercise
of
the Series A and Series B Common Stock Warrants. The agreement had provided
for
this be filed within 75 days of the closing date and effective within 175
days
after the closing date. The Unit Purchase Warrant also contains certain
registration rights to file within 45 days after the Unit Purchase Warrant
is
exercised in whole or in part, but not more than two registration statements
and
to have the registration statement declared effective within 135 days after
the
Unit Purchase Warrant is partially or fully exercised. Contemporaneously
with
Vision’s purchase of securities, Mr. Jason Reid , Mr. Bill Ahearn_ and the
Company_ entered into lock-up agreements to prohibit the resale of their
Common
Stock until six months after an effective registration statement (the “Lock-up
Period”) registering the resale of Vision’s overlying Common Stock, except that
the said named individuals may transfer a maximum of 200,000 shares every
three
months during the Lock-up Period. We
also issued to Ulysses Financial LLC, two five-year warrants to purchase
160,000
shares exercisable at $1.30 per share and five-year warrants to purchase
an
aggregate of 160,000 shares exercisable at $1.70 per share.
In March 2007, the Company and Vision entered into an Amendment of the
Securities Purchase Agreement whereby, amongst other things, the obligations
of
the Company to register the securities sold were waived and deemed to have
effect from the inception of the parties’ agreement. Vision also entered into an
agreement for the lock up of all its securities for a period of 12 months
from
March 21, 2007. Between March 2007 and May 2007 Vision exercised its rights
to
convert its preferred stock into the Company’s Common Stock and 27, 819 shares
of preferred stock were converted into 2,781,900 shares of the Company’s Common
Stock. Further, pursuant to the terms of the offering of the Company dated
May
3, 2007, the Company repurchased on May 10 2007, 18,181 shares of Series
B
Preferred Stock from Vision at a purchase price of $110 per share. A total
of
$1,999,910 was paid for the repurchase of these shares. These repurchased
shares
were cancelled by the Company. This amount was financed from the proceeds
of the
offering and accords with the use of proceeds provision in the offering.
In
May
2006 we issued Warrants to purchase 250,000 of our shares of common stock at
a
purchase price of $0.50 per share to Mr. Joel Pensley who was then an executive
officer of the Company.
On
October 31, 2006 we issued to Softworks Limited, a company incorporated under
the laws of the United Kingdom and being an affiliate of Mr. Jason Reid and
Mr.
Blair Cunningham 500 Series A Preferred Stock in settlement of a debt of
£28,248.59 owed by the Company. At the option of the holder, in April 2007
these were converted into 50,000 shares of Common Stock and, in consideration
for this early conversion, we issued warrants
to purchase 50,000 shares of common stock at a price ranging from $1.30 and
$1.70.
In
April
2007 all officers and directors of the Company entered into lock-up agreements
to prohibit the resale of the Common Stock until the 12
month
anniversary after
an
effective registration statement for the offering which is the subject matter
of
this registration statement.
In
April 2007, Fairwater Technology Group Limited exercised the option to convert
15,000 shares of its Series A Sterling Denominated Preferred stock, which
Fairwater Technology had purchased from the Company in October 2005 for
£1,500,000, equivalent to approximately $2,655,000, based upon a conversion
ratio of $1.77, for each UK Pound at the time of the investment and 914.8
Series
A $ Denominated Preferred Stock purchased from the Company in April 2006
for a
total consideration of $91,418. In consideration for early conversion, the
Company granted Fairwater Technology Group Limited two five year warrants
to
purchase 1,373,209 of its shares of common stock at a purchase price of $1.30
and 1,373,209 at a purchase price of $1.70.
In
April
2007, as consideration for two officers of the Company early conversion of
820
Series A Preferred Stock, we issued to these two investors 5 year warrants
to
purchase 164,000 shares of our common stock at a purchase price ranging from
$1.30 to $1.70 per share.
Our
wholly owned subsidiary Coda Octopus (UK) Holdings Limited (guaranteed by the
Company) entered into an acquisition agreement on June 26, 2006 for the sale
and
purchase of the entire issued outstanding share capital of Martech Systems
(Weymouth) Limited. Pursuant to this agreement certain parts of the purchase
price remain outstanding and in this regard we are indebted to the sellers
of
Martech Systems (Weymouth) Limited: Mr. Colin Richard Pegrum, Mr. Barry
Granville Brookes, Mr. Lawrence Lucian Short, Mrs. Elizabeth Short, Mrs. Janice
Brookes and Mrs. Jennifer Pegrum for an amount of £200,000 or $392,000 (using an
exchange rate of $1.96) which, under the terms of the acquisition agreement
is
due to be paid on June 26, 2007 (first anniversary of closing). This amount
is
guaranteed by Coda Octopus Group, Inc. The Dollar amount disclosed is subject
to
exchange rate fluctuations. Mr. Colin Richard Pegrum, Mr. Barry Granville
Brookes and Mr. Lawrence Lucian Short each serve as Directors on the Board
of
Directors of Martech and are considered key employees of Martech.
Our
wholly owned subsidiary Coda Octopus (US) Holdings Limited entered into an
acquisition agreement on April 6, 2007 for the sale and purchase of the entire
issued and outstanding share capital of Colmek Systems Engineering. Pursuant
to
this agreement certain parts of the purchase price remain outstanding and
in
this regard our wholly owned subsidiary is indebted to the sellers of Colmek
Systems Engineering (now a wholly owned subsidiary of the Company) an amount
of
$700,000 which, under the terms of the acquisition agreement is due to be
paid
on April 6, 2008 (first anniversary of closing). This amount is guaranteed
by
the Company and is secured by a pledge in favour of the Colmek sellers, and
is
also guaranteed by Coda Octopus Group, Inc. Certain of the sellers to whom
this
amount is owed are key employees within Colmek.
Our
authorized capital consists of 100,000,000 shares of common stock, $.001 par
value per share, of which 47,809,750 shares were issued and outstanding as
of
May 11, 2007, and 5,000,000 shares of Preferred Stock, of which 50,000 shares
have been designated as Series A Preferred Stock and 50,000 have been designated
as Series B Convertible Preferred Stock.
As
of
April 30, 2007, 6,407 shares of Series A Preferred Stock were issued and
outstanding
The
following description is a summary and is qualified in its entirety by our
Certificate of Incorporation and By-laws as currently in effect.
Common
Stock
Each
holder of common stock is entitled to receive ratable dividends, if any, as
may
be declared by the Board of Directors out of funds legally available for the
payment of dividends. As of the date of this prospectus, we have not paid any
dividends on our common stock, and none are contemplated in the foreseeable
future. We anticipate that all earnings that may be generated from our
operations will be used to finance our growth.
Holders
of common stock are entitled to one vote for each share held of record. There
are no cumulative voting rights in the election of directors. Thus the holders
of more than 50% of the outstanding shares of common stock can elect all of
our
directors if they choose to do so.
The
holders of our common stock have no preemptive, subscription, conversion or
redemption rights. Upon our liquidation, dissolution or winding-up, the holders
of our common stock are entitled to receive our assets pro rata.
Preferred
Stock
Series
A Preferred Stock
Each
holder of our Series A Preferred Stock is entitled in preference to holders
of
our common stock to receive dividends in the amount of 12% per annum, payable
semi-annually. Such dividends are payable, at the option of the holder, in
cash
or shares of common stock valued at the average closing price for the ten
trading days preceding the dividend date. Each share of Series A Preferred
entitled the holder to 100 votes on all matters submitted to a vote of the
stockholders
Until
the
seventh anniversary of the date of issuance, each share of Series A Preferred
is
convertible at the option of the holder into 100 shares of common stock if
the
Series A Preferred was acquired in US dollars and 177 shares if the Series
A
Preferred Stock was acquired in pound sterling.
As
amended, the certificate of designation for the Series A Preferred Stock
provides that, at the option of the company, the Series A Preferred may be
converted into such number of shares of common stock as is equal to their
purchase price plus any accrued and unpaid dividends commencing one year after
the date of issuance if the closing price of common stock is at least $3.00
for
the twenty days prior to the receipt by the holders of a conversion notice.
Series
B Preferred Stock
Currently,
no Series B Preferred Stock are issued. With respect to dividends, a liquidation
of the Company and the payment of consideration in the event of a merger or
sale
of the Company’s assets, the Series B Preferred Stock ranks junior to the Series
A Preferred Stock and senior to all other classes of stock, including common
stock.
The
transfer agent and registrar for our common stock is Olde Monmouth Stock
Transfer Co., Inc with a mailing address of 200 Memorial Parkway, Atlantic
Highlands, New Jersey 07716.
Each
Selling Stockholder (the “Selling
Stockholders”)
of the
common stock and any of their pledgees, assignees and successors-in-interest
may, from time to time, sell any or all of their shares of common stock on
the
OTC Bulletin Board or any other stock exchange, market or trading facility
on
which the shares are traded or in private transactions. These sales may be
at
fixed or negotiated prices. A Selling Stockholder may use any one or more of
the
following methods when selling shares:
| |
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
| |
·
|
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
| |
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
| |
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
| |
·
|
privately
negotiated transactions;
|
| |
·
|
settlement
of short sales entered into after the effective date of the registration
statement of which this prospectus is a part;
|
| |
·
|
broker-dealers
may agree with the Selling Stockholders to sell a specified number
of such
shares at a stipulated price per
share;
|
| |
·
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise;
|
| |
·
|
a
combination of any such methods of sale;
or
|
| |
·
|
any
other method permitted pursuant to applicable
law.
|
The
Selling Stockholders may also sell shares under Rule 144 under the Securities
Act of 1933, as amended (the “Securities
Act”),
if
available, rather than under this prospectus.
Broker-dealers
engaged by the Selling Stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the Selling Stockholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated, but,
except as set forth in a supplement to this Prospectus, in the case of an agency
transaction not in excess of a customary brokerage commission in compliance
with
NASDR Rule 2440; and in the case of a principal transaction a markup or markdown
in compliance with NASDR IM-2440.
In
connection with the sale of the common stock or interests therein, the Selling
Stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The Selling
Stockholders may also sell shares of the common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The Selling
Stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
Selling Stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Each Selling Stockholder has informed the
Company that it does not have any written or oral agreement or understanding,
directly or indirectly, with any person to distribute the Common Stock. In
no
event shall any broker-dealer receive fees, commissions and markups which,
in
the aggregate, would exceed eight percent (8%).
The
Company is required to pay certain fees and expenses incurred by the Company
incident to the registration of the shares. The Company has agreed to indemnify
the Selling Stockholders against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.
Because
Selling Stockholders may be deemed to be “underwriters” within the meaning of
the Securities Act, they will be subject to the prospectus delivery requirements
of the Securities Act including Rule 172 thereunder. In addition, any securities
covered by this prospectus which qualify for sale pursuant to Rule 144 under
the
Securities Act may be sold under Rule 144 rather than under this prospectus.
There is no underwriter or coordinating broker acting in connection with the
proposed sale of the resale shares by the Selling Stockholders.
We
agreed
to keep this prospectus effective until the earlier of (i) the date on which
the
shares may be resold by the Selling Stockholders without registration and
without regard to any volume limitations by reason of Rule 144(k) under the
Securities Act or any other rule of similar effect or (ii) all of the shares
have been sold pursuant to this prospectus or Rule 144 under the Securities
Act
or any other rule of similar effect. The resale shares will be sold only through
registered or licensed brokers or dealers if required under applicable state
securities laws. In addition, in certain states, the resale shares may not
be
sold unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement is
available and is complied with.
Under
applicable rules and regulations under the Exchange Act, any person engaged
in
the distribution of the resale shares may not simultaneously engage in market
making activities with respect to the common stock for the applicable restricted
period, as defined in Regulation M, prior to the commencement of the
distribution. In addition, the Selling Stockholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the timing of purchases
and
sales of shares of the common stock by the Selling Stockholders or any other
person. We will make copies of this prospectus available to the Selling
Stockholders and have informed them of the need to deliver a copy of this
prospectus to each purchaser at or prior to the time of the sale (including
by
compliance with Rule 172 under the Securities Act).
The
validity of the common stock has been passed upon by Sichenzia Ross Friedman
Ference LLP, New York, New York.
The
Company's balance sheet as of October 31, 2006, and the related statements
of
operations, changes in stockholders’ equity and cash flows for the years
ended October 31, 2006 and 2005 included in this Prospectus have been audited
by
Russell Bedford Stefanou Mirchandani LLP, as set forth in their report appearing
elsewhere herein and are included in reliance upon such report given upon the
authority of said firm as experts in auditing and accounting.
WHERE
YOU CAN FIND MORE INFORMATION
We
filed
with the SEC a registration statement on Form SB-2 under the Securities Act
for
the common stock to be sold in this offering. This prospectus does not contain
all of the information in the registration statement and the exhibits and
schedules that were filed with the registration statement. For further
information with respect to the common stock and us, we refer you to the
registration statement and the exhibits and schedules that were filed with
the
registration statement. Statements made in this prospectus regarding the
contents of any contract, agreement or other document that is filed as an
exhibit to the registration statement are not necessarily complete, and we
refer
you to the full text of the contract or other document filed as an exhibit
to
the registration statement. A copy of the registration statement and the
exhibits and schedules that were filed with the registration statement may
be
inspected without charge at the public reference facilities maintained by the
SEC, 100 F Street, Washington, DC 20549. Copies of all or any part of the
registration statement may be obtained from the SEC upon payment of the
prescribed fee. Information regarding the operation of the public reference
rooms may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains
a
web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC. The
address of the site is http://www.sec.gov.
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Section
145 (“Section 145”) of the Delaware General Corporation Law, as amended (the
“DGCL”), permits indemnification of directors, officers, agents and controlling
persons of a corporation under certain conditions and subject to certain
limitations. Section 145 empowers a corporation to indemnify any person who
was
or is a party or is threatened to be made a party to any threatened, pending
or
completed action, suit or proceeding whether civil, criminal, administrative
or
investigative, by reason of the fact that he or she is or was a director,
officer or agent of the corporation or another enterprise if serving at the
request of the corporation. Depending on the character of the proceeding, a
corporation may indemnify against expenses (including attorneys’ fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with such action, suit or proceeding if the person indemnified
acted in good faith and in a manner he or she reasonably believed to be in
or
not opposed to, the best interests of the corporation, and, with respect to
any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. In the case of an action by or in the right of the
corporation, no indemnification may be made with respect to any claim, issue
or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine that despite
the
adjudication of liability such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper. Section 145
further provides that to the extent a present or former director or officer
of a
corporation has been successful in the defense of any action, suit or proceeding
referred to above or in the defense of any claim, issue or matter therein,
such
person shall be indemnified against expenses (including attorneys’ fees)
actually and reasonably incurred by such person in connection
therewith.
Our
Amended and Restated Certificate of Incorporation, as amended (the “Charter”),
provides that no current or former director of the Registrant shall be
personally liable to the Registrant or its stockholders for monetary damages
for
breach of fiduciary duty as a director, except for liability: (a) for any breach
of the director’s duty of loyalty to the Registrant or its stockholders; (b) for
acts or omissions not in good faith or which involve intentional misconduct
or a
knowing violation of law; (c) under Section 174 of the DGCL; or (d) for any
transaction from which the director derived any improper personal benefit.
The
Registrant’s Charter also authorizes the Registrant, to the fullest extent
permitted by applicable law, to provide indemnification of, and advanced
expenses to, the Registrant’s agents and any other persons to which the DGCL
permits.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
INDEX
TO FINANCIAL STATEMENTS
CODA
OCTOPUS GROUP, INC.
|
Coda
Octopus Group, Inc.
Consolidated
Financial Statements
October
31, 2006 and 2005
|
| |
|
Contents
|
Page
|
|
Report
of Independent Registered Certified Public Accounting Firm
|
F-2
|
|
Consolidated
Balance Sheet
|
F-3
|
|
Consolidated
Statements of Operations and Comprehensive Loss
|
F-4
|
|
Consolidated
Statements of Stockholders’ Equity
|
F-5
|
|
Consolidated
Statement of Cash Flows
|
F-6
|
|
Notes
to Consolidated Financial Statements
|
F-7
|
| |
|
|
Coda
Octopus Group, Inc.
Consolidated
Financial Statements
January
31, 2007 and 2006
(unaudited)
|
| |
|
|
Consolidated
Balance Sheet
|
F-17
|
|
Consolidated
Statements of Operations and Comprehensive Loss
|
F-18
|
|
Consolidated
Statements of Stockholders’ Equity
|
F-19
|
|
Consolidated
Statement of Cash Flows
|
F-20
|
|
Notes
to Consolidated Financial Statements
|
F-21
|
| |
|
|
Martech
Systems (Weymouth) Limited
Financial
Statements
October
31, 2005 and 2004
|
| |
|
|
Officers
and Advisors
|
F-32
|
|
Directors’
Report
|
F-33
|
|
Independent
Auditors’ Report
|
F-34
|
|
Profit
and Loss Account
|
F-35
|
|
Balance
Sheet
|
F-36
|
|
Notes
to the Financial Statements
|
F-37
|
|
Martech
Systems (Weymouth) Limited
Management
Accounts
April
30, 2005 and 2006
(unaudited)
|
| |
|
|
Balance
Sheet 30 April, 2005
|
F-39
|
| Profit
and Loss Report 30 April, 2005 |
F-40
|
Balance
Sheet 30 April, 2006
|
F-41
|
|
Profit
and Loss Report 30 April, 2006
|
F-42
|
|
Miller
and Hilton, Inc.
Financial
Statements
October
31, 2006 and 2005
|
| |
|
| Contents |
F-43
|
| Report
of Independent Registered Certified Public Accounting Firm |
F-44
|
|
Balance
Sheets
|
F-45
|
|
Statements
of Operations
|
F-46
|
|
Statements
of Stockholders’ Equity
|
F-47
|
|
Statements
of Cash Flows
|
F-48
|
|
Notes
to Financial Statements
|
F-49
|
| |
|
|
Coda
Octopus Group, Inc.
Pro
Forma Financial Statements
October
31, 2006
|
| |
|
|
Balance
Sheet
|
F-58
|
|
Statement
of Operations
|
F-59
|
REPORT
OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING
FIRM
Board
of
Directors
Coda
Octopus Group Inc.
New
York,
New York
We
have
audited the accompanying consolidated balance sheets of Coda
Octopus Group Inc.
and it’s
wholly owned subsidiaries (the “Company”), as of October 31, 2006 and 2005, and
the related consolidated statements of stockholder’s equity, operations and
comprehensive loss and cash flows for each of the two years in the period
ended
October 31, 2006. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe our audit
provide a reasonable basis for our opinion.
As
discussed in Note 1 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No.
123(R), “Share-Based Payments”, effective January 1, 2006.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Coda
Octopus Group Inc. and
it’s
wholly owned subsidiaries as of October 31, 2006 and 2005, and the results
of
its operations and its cash flows for each of the two years in the period
ended
October 31, 2006 in conformity with accounting principles generally accepted
in
the United States of America.
| |
/S/
Russell Bedford Stefanou Mirchandani LLP
|
|
New
York, New York
|
Russell
Bedford Stefanou Mirchandani LLP
|
|
March
13, 2007
|
|
CODA
OCTOPUS GROUP, INC.
CONSOLIDATED
BALANCE SHEETS
OCTOBER
31, 2006 and 2005
|
ASSETS
|
|
October
31, 2006
|
|
October
31, 2005
|
|
| |
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,377,972
|
|
$
|
142,936
|
|
|
Accounts
receivable, net of allowance for doubtful accounts
|
|
|
1,120,968
|
|
|
1,104,509
|
|
|
Inventory
|
|
|
1,951,392
|
|
|
1,044,051
|
|
|
Receivable
on sale of preferred stock
|
|
|
-
|
|
|
2,655,000
|
|
|
Tax
credit receivable
|
|
|
234,593
|
|
|
463,411
|
|
|
Due
from MSGI Security Solutions, Inc. (Note 12)
|
|
|
533,147
|
|
|
-
|
|
|
Due
from related parties
|
|
|
104,720
|
|
|
-
|
|
|
Other
current assets
|
|
|
103,296
|
|
|
93,837
|
|
|
Prepaid
expenses
|
|
|
159,969
|
|
|
216,846
|
|
| |
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
5,586,057
|
|
|
5,720,590
|
|
| |
|
|
|
|
|
|
|
|
Property
and equipment, net (Note 2)
|
|
|
155,730
|
|
|
166,648
|
|
|
Rental
equipment, net (Note 2)
|
|
|
120,851
|
|
|
66,910
|
|
|
Goodwill
and other intangible assets, net (Note 3)
|
|
|
1,071,700
|
|
|
71,480
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
6,934,338
|
|
$
|
6,025,628
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable, trade
|
|
$
|
1,997,817
|
|
$
|
403,816
|
|
|
Accrued
expenses and other current liabilities
|
|
|
2,542,918
|
|
|
1,412,159
|
|
|
Deferred
payment related to acquisition of Martech Systems Ltd
|
|
|
381,680
|
|
|
-
|
|
|
Accrued
dividends on Series A & B Preferred Stock
|
|
|
304,394
|
|
|
-
|
|
|
Due
to related parties (Note 9)
|
|
|
302,877
|
|
|
576,981
|
|
|
Notes
and Loans payable (Note 8)
|
|
|
1,119,496
|
|
|
3,029,015
|
|
| |
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
6,649,182
|
|
|
5,421,971
|
|
| |
|
|
|
|
|
|
|
|
Loans
and notes payable, long term
|
|
|
-
|
|
|
114,990
|
|
| |
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
6,649,182
|
|
|
5,536,961
|
|
| |
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
Preferred
stock, $.001 par value; 5,000,000 shares authorized, 23,641
and 15,000 shares Series A issued and outstanding, as of October
31st, 2006 and 2005 respectively (Note
4)
|
|
|
24
|
|
|
15
|
|
|
41,000
shares Series B issued and outstanding as of October 31, 2006 (Note
4)
|
|
|
41
|
|
|
-
|
|
Common
stock, $.001 par value; 70,000,000 shares authorized,
24,301,980 and 23,667,656 shares issued and outstanding as
of October 31, 2006 and 2005 respectively (Note
4)
|
|
|
24,302
|
|
|
23,668
|
|
|
Common
Stock subscribed
|
|
|
153,750
|
|
|
-
|
|
|
Additional
paid-in capital
|
|
|
25,858,307
|
|
|
13,837,534
|
|
|
Foreign
currency translation adjustment
|
|
|
(292,821
|
)
|
|
(10,117
|
)
|
|
Accumulated
deficit
|
|
|
(25,458,447
|
)
|
|
(13,362,433
|
)
|
| |
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
285,156
|
|
|
488,667
|
|
| |
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
6,934,338
|
|
$
|
6,025,628
|
|
The
accompanying notes are an integral part of these
consolidated financial statements.
CODA
OCTOPUS GROUP, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR
THE
YEARS ENDED OCTOBER 31, 2006 and 2005
| |
|
October
31, 2006
|
|
October
31, 2005
|
|
| |
|
|
|
|
|
|
Net
revenue
|
|
$
|
7,291,291
|
|
$
|
4,288,416
|
|
| |
|
|
|
|
|
|
|
|
Cost
of revenue
|
|
|
2,611,590
|
|
|
2,464,800
|
|
| |
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
4,679,701
|
|
|
1,823,616
|
|
| |
|
|
|
|
|
|
|
|
Research
and development
|
|
|
3,130,821
|
|
|
1,044,695
|
|
|
Selling,
general and administrative expenses
|
|
|
7,453,946
|
|
|
4,349,674
|
|
|
Non-recurring
expenses
|
|
|
447,750
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(6,352,816
|
)
|
|
(3,570,753
|
)
|
| |
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Other
income
|
|
|
3,012
|
|
|
1,319
|
|
|
Interest
expense
|
|
|
(1,203,690
|
)
|
|
(219,855
|
)
|
| |
|
|
|
|
|
|
|
|
Total
other expense
|
|
|
(1,200,678
|
)
|
|
(218,536
|
)
|
| |
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(7,553,494
|
)
|
|
(3,789,289
|
)
|
| |
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
5,676
|
|
|
17,766
|
|
| |
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(7,559,170
|
)
|
|
(3,807,055
|
)
|
| |
|
|
|
|
|
|
|
|
Preferred
Stock Dividends:
|
|
|
|
|
|
|
|
|
Series
A
|
|
|
(309,914
|
)
|
|
|
|
|
Series
B
|
|
|
(74,130
|
)
|
|
|
|
|
Beneficial
Conversion Feature
|
|
|
(4,152,800
|
)
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
Net
Loss Applicable to Common Shares
|
|
$
|
(12,096,014
|
)
|
$
|
(3,807,055
|
)
|
| |
|
|
|
|
|
|
|
|
Loss
per share, basic and diluted
|
|
|
(0.50
|
)
|
|
(0.16
|
)
|
| |
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
24,030,423
|
|
|
23,103,396
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(7,559,170
|
)
|
$
|
(3,807,055
|
)
|
| |
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
(282,704
|
)
|
|
341,390
|
|
| |
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
$
|
(7,841,874
|
)
|
$
|
(3,465,665
|
)
|
| |
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these
consolidated financial statements.
CODA
OCTOPUS GROUP, INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR
THE
TWO YEARS ENDED OCTOBER 31, 2006
| |
|
Preferred
Stock Series A
|
|
Preferred
Stock Series B
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
| |
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Subscribed
|
|
Capital
|
|
Adjustment
|
|
Deficit
|
|
Total
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
October 31, 2004
|
|
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
22,172,656
|
|
$
|
22,173
|
|
|
-
|
|
$
|
9,682,541
|
|
$
|
(351,507
|
)
|
$
|
(9,555,378
|
)
|
$
|
(202,171
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of preferred stock
|
|
|
15,000
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,654,985
|
|
|
|
|
|
|
|
|
2,655,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of shares for cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
|
1,000
|
|
|
|
|
|
799,534
|
|
|
|
|
|
|
|
|
800,534
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for accrued compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
495,000
|
|
|
495
|
|
|
|
|
|
49,005
|
|
|
|
|
|
|
|
|
49,500
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of options and warrants issued as
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
651,469
|
|
|
|
|
|
|
|
|
651,469
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
341,390
|
|
|
|
|
|
341,390
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,807,055
|
)
|
|
(3,807,055
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
October 31, 2005
|
|
|
15,000
|
|
|
15
|
|
|
-
|
|
|
-
|
|
|
23,667,656
|
|
|
23,668
|
|
|
-
|
|
|
13,837,534
|
|
|
(10,117
|
)
|
|
(13,362,433
|
)
|
|
488,667
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of preferred stock
|
|
|
2,947
|
|
|
3
|
|
|
41,000
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
4,564,056
|
|
|
|
|
|
|
|
|
4,564,100
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock issued for debt
|
|
|
5,694
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
809,622
|
|
|
|
|
|
|
|
|
809,628
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of shares for cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
634,324
|
|
|
634
|
|
|
-
|
|
|
316,528
|
|
|
|
|
|
|
|
|
317,162
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock subscribed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
153,750
|
|
|
|
|
|
|
|
|
|
|
|
153,750
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of options and warrants issued as
compensation and for financing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,177,767
|
|
|
|
|
|
|
|
|
2,177,767
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature of preferred
stock, Series A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,800
|
|
|
|
|
|
(52,800
|
)
|
|
-
|
|
|
preferred
stock, Series B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,100,000
|
|
|
|
|
|
(4,100,000
|
)
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
dividend
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(309,914
|
)
|
|
(309,914
|
)
|
|
Series
B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(74,130
|
)
|
|
(74,130
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(282,704
|
)
|
|
|
|
|
(282,704
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,559,170
|
)
|
|
(7,559,170
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
October 31, 2006
|
|
|
23,641
|
|
$
|
24
|
|
|
41,000
|
|
$
|
41
|
|
|
24,301,980
|
|
$
|
24,302
|
|
$
|
153,750
|
|
$
|
25,858,307
|
|
$
|
(292,821
|
)
|
$
|
(25,458,447
|
)
|
$
|
285,156
|
|
The
accompanying notes are an integral part of these
consolidated financial statements.
CODA
OCTOPUS GROUP, INC.
CONSOLIDATED
STATEMENT OF CASH FLOWS
FOR
THE YEARS ENDED OCTOBER 31, 2006 AND 2005
| |
|
October
31, 2006
|
|
October
31, 2005
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(12,096,014
|
)
|
$
|
(3,807,055
|
)
|
|
Adjustments
to reconcile net loss to net cash used
by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
137,189
|
|
|
132,929
|
|
|
Stock
based compensation
|
|
|
2,005,056
|
|
|
651,469
|
|
|
Financing
costs
|
|
|
784,873
|
|
|
-
|
|
|
Beneficial
conversion feature, preferred stock
|
|
|
4,152,800
|
|
|
-
|
|
|
Preferred
stock dividends
|
|
|
384,044
|
|
|
-
|
|
|
Bad
debt expense
|
|
|
16,008
|
|
|
37,766
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase)
decrease in:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
491,922
|
|
|
(234,725
|
)
|
|
Inventory
|
|
|
(482,882
|
)
|
|
447,203
|
|
|
Prepaid
expenses
|
|
|
89,953
|
|
|
(45,859
|
)
|
|
Other
receivables
|
|
|
2,260,315
|
|
|
(567,950
|
)
|
|
Increase
(decrease) in:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
|
1,855,467
|
|
|
(356,046
|
)
|
|
Due
to related parties
|
|
|
523,076
|
|
|
172,344
|
|
| |
|
|
|
|
|
|
|
|
Net
cash (used)/generated by operating activities
|
|
|
121,807
|
|
|
(3,569,924
|
)
|
| |
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(138,172
|
)
|
|
(272,157
|
)
|
|
Purchases
of intangible assets
|
|
|
(6,543
|
)
|
|
-
|
|
|
Acquisition
of Martech Systems Ltd
|
|
|
(1,154,590
|
)
|
|
-
|
|
|
Cash
acquired from Martech Systems Ltd
|
|
|
195,684
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
Net
cash used by investing activities
|
|
|
(1,103,621
|
)
|
|
(272,157
|
)
|
| |
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds
from/(repayment of) loans
|
|
|
(2,106,342
|
)
|
|
2,898,126
|
|
|
Proceeds
from sale of stock
|
|
|
4,564,100
|
|
|
800,534
|
|
|
Preferred
stock dividend
|
|
|
(79,650
|
)
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
2,378,108
|
|
|
3,698,660
|
|
| |
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
(161,258
|
)
|
|
244,503
|
|
| |
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
1,235,036
|
|
|
101,082
|
|
| |
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of year
|
|
|
142,936
|
|
|
41,854
|
|
| |
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of year
|
|
$
|
1,377,972
|
|
$
|
142,936
|
|
| |
|
|
|
|
|
|
|
|
Cash
paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
418,817
|
|
$
|
144,185
|
|
|
Income
taxes
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
Supplemental
Disclosures:
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
During
the year ended October 31, 2006, 634,324 shares of common stock
were
issued as payment of $317,162 of compensation that was earned
for
the year to October 31, 2006. In addition,
|
| |
|
|
|
|
|
|
|
|
During
the year ended October 31, 2006 5,694 shares of series A preferred
stock
were issued as payment for $809,628 of debt
outstanding.
|
|
|
|
|
|
|
|
|
|
|
During
the year ended October 31, 2005, 495,000 shares of common stock
October
31, 2004.
|
| |
|
|
|
|
|
|
|
|
Acquisition
of Martech:
|
|
|
|
|
|
|
|
|
Current
assets acquired
|
|
|
798,133
|
|
|
|
|
|
Cash
acquired
|
|
|
195,684
|
|
|
|
|
|
Equipment
acquired
|
|
|
37,126
|
|
|
|
|
|
Goodwill
|
|
|
998,591
|
|
|
|
|
|
Liabilities
assumed
|
|
|
(493,264
|
)
|
|
|
|
|
Deferred
note payable
|
|
|
(381,680
|
)
|
|
|
|
| |
|
|
|
|
|
|
|
|
Cash
Paid for Acquisition
|
|
|
1,154,590
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Exchange
rate movements
|
|
|
25,535
|
|
|
|
|
|
Total
Paid for Acquisition
|
|
|
1,180,125
|
|
|
|
|
The
accompanying notes are an integral part of these
consolidated financial statements.
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2006 AND 2005
A
summary
of the significant accounting policies applied in the preparation of the
accompanying consolidated financial statements follows.
Business
and Basis of Presentation
Coda
Octopus Group, Inc. (”we”,
“us”, “our
company”
or
“Coda”),
was
formed under the laws of the State of Florida in 1992 as The Panda Project,
Inc.
(“Panda”). We changed our name in August, 2004, subsequent to the reverse
acquisition described below. We are a developer of underwater
technologies and equipment for imaging, mapping, defense and survey
applications. We
are
based in New York, with research and development, sales and manufacturing
facilities located in the United Kingdom and Norway, and additional sales
locations in Florida and Washington, D.C.
Effective
July 12, 2004, Panda acquired all of the issued and outstanding common stock
of
Coda Octopus Ltd, (“COL”) a U.K. operating company, which also owned United
States and Norwegian subsidiaries. As a result of this transaction, COL’s former
shareholders obtained control of Panda, a shell corporation with no operations.
In accordance with SFAS No. 141, Coda was the acquiring entity, while the
transaction was accounted for using the purchase method of accounting, in
substance the acquisition was a recapitalization of Coda’s capital structure.
For accounting purposes, this acquisition has been treated as a reverse
acquisition of Panda. The Company did not recognize any goodwill or any
intangible assets in connection with the transaction.
The
consolidated financial statements include the accounts of Coda and our domestic
and foreign subsidiaries that are more than 50% owned and controlled. All
significant intercompany transactions and balances have been eliminated in
the
consolidated financial statement.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the amounts reported in the consolidated financial statements and
accompanying disclosures. Although these estimates are based on management's
best knowledge of current events and actions that we may undertake in the
future, actual results may differ from those estimates.
Revenue
Recognition
Our
contracts typically require customer payments in advance of revenue recognition.
These deposit amounts are reflected as liabilities and recognized as revenue
when the Company has fulfilled its obligations under the respective contracts.
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2006 AND 2005
NOTE
1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Foreign
Currency Translation
Coda
translates the foreign currency financial statements of its foreign subsidiaries
in accordance with the requirements of Statement of Financial Accounting
Standards No. 52, "Foreign Currency Translation". Assets and liabilities
are
translated at current exchange rates, and related revenue and expenses are
translated at average exchange rates in effect during the period. Resulting
translation adjustments are recorded as a separate component in stockholders'
equity. Foreign currency transaction gains and losses are included in the
statement of income.
Income
Taxes
Deferred
income taxes are provided using the asset and liability method for financial
reporting purposes in accordance with the provisions of Statements of Financial
Standards No. 109, "Accounting for Income Taxes". Under this method, deferred
tax assets and liabilities are recognized for temporary differences between
the
tax bases of assets and liabilities and their carrying values for financial
reporting purposes, and for operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be removed or settled. The effect on deferred
tax
assets and liabilities of a change in tax rates is recognized in the
consolidated statements of operations in the period that includes the enactment
date.
Cash
and Cash Equivalents
Cash
equivalents are comprised of highly liquid investments with maturity of three
months or less when purchased. We maintain our cash in bank deposit accounts,
which at times, may exceed insured limits. We have not experienced any losses
in
such accounts.
Concentrations
of Credit Risk
Financial
instruments and related items, which potentially subject us to concentrations
of
credit risk, consist primarily of cash and cash equivalents and accounts
receivable. We place our cash and temporary cash investments with credit
quality
institutions. At times, such investments may be in excess of applicable
government mandated insurance limits. We periodically review our trade
receivables in determining our allowance for doubtful accounts. Allowance
for doubtful accounts was $79,177 and $74,447 for the years ended October
31,
2006 and 2005 respectively.
Fair
Value of Financial Instruments
SFAS
No.
107, "Disclosures About Fair Value of Financial Instruments", requires
disclosure of the fair value of certain financial instruments. The carrying
value of cash and cash equivalents, accounts receivable, other receivables,
accounts payable and short-term borrowings, as reflected in the balance sheets,
approximate fair value because of the short-term maturity of these instruments.
Our long term debt has interest rates that approximate market and therefore
the
carrying amounts approximate their fair values.
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2006 AND 2005
NOTE
1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Inventory
Inventory
is stated at the lower of cost or market using the first-in first-out method.
Inventory
is comprised of the following components at October 31, 2006 and
2005:
| |
|
2006
|
|
2005
|
|
|
Raw
materials
|
|
$
|
1,064,655
|
|
$
|
645,146
|
|
|
Work
in process
|
|
|
389,042
|
|
|
73,497
|
|
|
Finished
goods
|
|
|
497,695
|
|
|
325,408
|
|
| |
|
|
|
|
|
|
|
| |
|
$
|
1,951,392
|
|
$
|
1,044,051
|
|
Property
and Equipment
We
record
our equipment at historical cost. We expense maintenance and repairs as
incurred. Depreciation is provided for by the straight-line method over three
to
four years, the estimated useful lives of the property and
equipment.
Long-Lived
Assets
We
follow
SFAS No. 144, "Accounting for Impairment of Disposal of Long-Lived Assets",
which established a "primary asset" approach to determine the cash flow
estimation period for a group of assets and liabilities that represents the
unit
of accounting for a long-lived asset to be held and used. Long-lived assets
to
be held and used are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The carrying amount of a long-lived asset is not recoverable
if it
exceeds the sum of the undiscounted cash flows expected to result from the
use
and eventual disposition of the asset. Long-lived assets to be disposed of
are
reported at the lower of carrying amount or fair value less cost to sell.
No
impairment loss was recognized during the years ended October 31, 2006 and
2005.
Research
and Development
Research
and development costs consist of expenditures for the present and future
patents
and technology, which are not capitalizable. We are eligible for United Kingdom
tax credits related to our qualified research and development expenditures.
Tax
credits are classified as a reduction of research and development expense.
During the year ended October 31, 2006, we recorded no tax credits. We recorded
approximately $675,000 of tax credits during the year ended October 31,
2005.
Advertising
We
charge
the costs of advertising to expense as incurred. For the years ended October
31,
2006 and 2005, advertising costs were $275,285 and $234,768,
respectively.
Stock
Based Compensation
Stock
Based Compensation — SFAS No. 123, “Accounting for Stock-Based Compensation”,
establishes and encourages the use of the fair value based method of accounting
for stock-based compensation arrangements under which compensation cost is
determined using the fair value of stock-based compensation determined as
of the
date of the grant or the date at which the performance of the services is
completed and is recognized over the periods in which the related services
are
rendered. The statement also permits companies to elect to continue using
the
current intrinsic value accounting method specified in Accounting Principles
Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees”, to
account for stock-based compensation to employees. We use the fair value
method
for equity instruments granted to employees and non-employees and use the
Black
Scholes model for measuring the fair value. The stock based fair value
compensation is determined as of the date of the grant or the date at which
the
performance of the services is completed (measurement date) and is recognized
over the periods in which the related services are rendered.
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2006 AND 2005
NOTE
1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Comprehensive
Income
Statement
of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income," establishes standards for reporting and displaying of comprehensive
income, its components and accumulated balances. Comprehensive income is
defined
to include all changes in equity except those resulting from investments
by
owners and distributions to owners. Among other disclosures, SFAS 130 requires
that all items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. Comprehensive income includes gains and losses on foreign currency
translation adjustments and is included as a component of stockholders' equity.
Loss
Per Share
We
use
SFAS No. 128, “Earnings Per Share” for calculating the basic and diluted
loss per share. We compute basic loss per share by dividing net loss and
net
loss attributable to common shareholders by the weighted average number of
common shares outstanding. Diluted loss per share is computed similar to
basic
loss per share except that the denominator is increased to include the number
of
additional common shares that would have been outstanding if the potential
shares had been issued and if the additional shares were dilutive. Common
equivalent shares are excluded from the computation of net loss per share
if
their effect is anti-dilutive.
Per
share
basic and diluted net loss amounted to $0.50 and $0.16 for the years ended
October 31, 2006 and 2005, respectively. For the years ended
October 31, 2006 and 2005, 21,638,728 and 5,005,000 potential shares,
respectively, were excluded from the shares used to calculate diluted earnings
per share as their inclusion would reduce net loss per share.
Liquidity
As
of
October 31, 2006 we have cash and cash equivalents of $1,377,972 and negative
working capital of $1,063,125. For the year ended October 31, 2006 we had
a net
loss of $7,559,170 and positive cash flow from operations of $121,807. We
also
have an accumulated deficit of $25,458,447 at October 31, 2006.
NOTE
2 - FIXED ASSETS
Property
and equipment at October 31, 2006 and 2005 is summarized as
follows:
| |
|
2006
|
|
2005
|
|
|
Machinery
and Equipment
|
|
$
|
819,936
|
|
$
|
611,477
|
|
|
Accumulated
Depreciation
|
|
|
(664,206
|
)
|
|
(418,065
|
)
|
| |
|
|
|
|
|
|
|
| |
|
$
|
155,730
|
|
$
|
193,412
|
|
Depreciation
expense recorded in the statement of operations for the years ended October
31,
2006 and 2005 is $52,396 and $86,749, respectively.
Rental
equipment at October 31, 2006 and 2005 is summarized as follows:
| |
|
2006
|
|
2005
|
|
|
Rental
Equipment
|
|
$
|
240,876
|
|
|
80,292
|
|
|
Accumulated
Depreciation
|
|
|
(120,025
|
)
|
|
(40,146
|
)
|
| |
|
|
|
|
|
|
|
| |
|
$
|
120,851
|
|
$
|
40,146
|
|
Depreciation
expense recorded in the statement of operations for the years ended October
31,
2006 and 2005 is $79,879 and $40,146, respectively.
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2006 AND 2005
NOTE
3 - INTANGIBLE ASSETS
The
costs
and accumulated amortization of intangible assets at October 31, 2006 and
2005
are summarized as follows:
| |
|
2006
|
|
2005
|
|
|
Goodwill
|
|
$
|
1,060,906
|
|
$
|
62,315
|
|
|
Patents
|
|
|
30,055
|
|
|
23,512
|
|
| |
|
|
1,090,961
|
|
|
85,827
|
|
|
Accumulated
amortization of patents
|
|
|
19,261
|
|
|
14,347
|
|
| |
|
|
|
|
|
|
|
| |
|
$
|
1,071,700
|
|
$
|
71,480
|
|
NOTE
4 - CAPITAL STOCK
The
Company is authorized to issue 70,000,000 shares of common stock with a par
value of $.001 per share. As of October 31, 2006, the Company has issued
and
outstanding 24,301,980 shares of common stock. The Company is also authorized
to
issue 5,000,000 shares of preferred stock with a par value of $.001 per share.
We have designated 50,000 preferred shares as Series A preferred stock and
have
designated 50,000 preferred shares as Series B preferred stock. The remaining
4,900,000 shares of preferred stock is undesignated. There were 64,641 preferred
shares outstanding at October 31, 2006 of which 23,641 shares were Series
A and
41,000 shares were Series B.
During
the year ended October 31, 2006 we issued 634,324 shares of common stock,
valued
at $317,160 to employees, directors and consultants for services.
Series
A Preferred Stock
We
designated 50,000 shares of our preferred stock, par value $.001, as Series
A
Preferred Stock. The Series A Preferred Stock ranks senior to all classes
of
common and preferred stock. The Series A Preferred Stock has a dividend rate
of
12% per year. The Series A Preferred Stock and accrued dividends is convertible
at the option of the holder into shares of our common stock at a conversion
price of $1.00 per share.
During
the year ended October 31, 2006 we sold 2,947 shares of our Series A Preferred
Stock for cash proceeds of $464,100. We also issued 5,694 shares of our Series
A
Preferred Stock for debt outstanding to related and other parties aggregating
$809,628. Of the debt converted, approximately $577,000 was outstanding at
October 31, 2005 (see Notes 8 and 9). Each share of preferred stock is
denominated either in Pounds Sterling or US Dollars, convertible into 177
shares
or 100 shares of common stock respectively. We attributed a beneficial
conversion feature of $52,800 to certain of the Series A preferred
shares issued during the year ended October 31, 2006, based upon the difference
between the conversion price of those shares and the closing price of our
common
shares on the date of issuance. The beneficial conversion feature were recorded
as a dividend and is included in the accompanying financial statements. At
October 31, 2006, the total of Series A Preferred Stock outstanding is 23,641
shares, convertible into 3,928,728 shares of common stock. During the year
ended
October 31, 2005 we sold 15,000 shares of preferred stock for proceeds of
$2,655,000.
During
the year ended October 31, 2006 we recorded $309,914 of dividends on the
Series
A preferred stock, of which $79,650 was paid during the year (by advances
from
our principal stockholder), with the balance of $230,264 accrued at October
31,
2006.
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2006 AND 2005
NOTE
4 - CAPITAL STOCK (CONTINUED)
Series
B Preferred Stock
We
designated 50,000 shares of our preferred stock, par value $.001, as Series
B
Preferred Stock. The Series B Preferred Stock ranks junior to our issued
and
outstanding Series A preferred Stock and senior to all classes of common
stock.
The Series B Preferred Stock has a dividend rate of 8% per year. The Series
B
Preferred Stock and accrued dividends is convertible at the option of the
holder
into shares of our common stock at a conversion price of $1.00 per
share.
We
sold
41,000 preferred Series B stock units, each unit consisting of one share
of our
Series B Preferred Stock, 100 Series A warrants and 100 Series B warrants.
Each
Series A warrant and Series B warrant is exercisable into shares of our common
stock for a period of five years at exercise prices of $1.30 and $1.70 per
share, respectively. Gross proceeds from the sale of the units were
$4,100,000.
In
accordance with Emerging Issues Task Force (“EITF”) No.00-27, “Application
of EITF Issue No. 98-5, ‘Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Conversion Rates’, to Certain
convertible Instruments”, a
portion
of the proceeds were allocated to the warrants based on their relative fair
value, which totaled $2,919,412 using the Black Scholes option pricing
model. Further, we attributed a beneficial conversion feature of $1,180,589
to the Series B preferred shares based upon the difference between the
conversion price of those shares and the closing price of our common shares
on
the date of issuance, limited to the proceeds attributable to the sale of
the
preferred shares. The weighted average assumptions used in the Black Scholes
model are as follows: (1) dividend yield of 0%;
(2) expected volatility of 367%, (3) weighted average risk-free
interest rate of 4.86%, and (4) expected life of 2 years as the
conversion feature and warrants are immediately exercisable. Both the fair
value
of the warrants and the
beneficial conversion feature aggregating $4,100,000 were recorded as a dividend
and are included in the accompanying financial statements.
During
the year ended October 31, 2006 we accrued $74,130 of dividends on the Series
B
preferred stock, none of which was paid during the year.
Other
Equity Transactions
During
the year ended October 31, 2006 we issued 1,545,000 warrants for financial
and
other services. Of these warrants, 400,000 have an exercise price of $0.58,
750,000 have an exercise price of $0.50, 37,500 have an exercise price of
$1.00,
160,000 have an exercise price of $1.30, 37,500 have an exercise price of
$1.50
and 160,000 have an exercise of $1.70. All of these awards vested immediately.
We have recorded an expense related to the fair value of these warrants at
the
date of grant of $690,847, determined using the Black Scholes method based
on
the following assumption ranges: (1) risk free interest rate of 4.6% to 4.9%;
(2) dividend yield of 0%; (3) volatility factor of the expected market price
of
our common stock of 328% to 440%; and (4) an expected life of the options
of 2
years.
During
the year ended October 31, 2006, we issued in the aggregate 1,315,000 common
share purchase options to employees and consultants. The options were issued
with exercise prices of $1.00 and $1.50. Of these awards, 616,000 vested
immediately and the balance vests over various periods through July, 2008.
The
initial fair value of the options was $835,438 using the Black Scholes method
at
the date of grant of the options based on the following assumptions ranges:
(1)
risk free interest rate of 4.25% - 5.1%; (2) dividend yield of 0%; (3)
volatility factor of the expected market price of our common stock of 328%
-
563%; and (4) an expected life of the options of 2 years. The fair value
of the
options is being expensed over the vesting period. In accordance with EITF
96-18, the fair value of consultant vesting options will be recomputed at
each
reporting period and any increase will be charged to expense. During the
year
ended October 31, 2006 $672,361 was charged to expense.
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2006 AND 2005
NOTE
4 - CAPITAL STOCK (CONTINUED)
During
the year ended October 31, 2005, we issued in the aggregate 2,350,000 common
share purchase options to employees and consultants. The options were issued
with an exercise price of $1.00. Of these awards, 888,500 vested immediately
and
the balance vests over various periods through May, 2007. The initial fair
value
of the options was $1,221,497 using the Black Scholes method at the date
of
grant of the options based on the following assumptions ranges: (1) risk
free
interest rate of 4.5%; (2) dividend yield of 0%; (3) volatility factor of
the
expected market price of our common stock of 679%; and (4) an expected life
of
the options of 2 years. The fair value of the options is being expensed over
the
vesting period. In accordance with EITF 96-18, the fair value of consultant
vesting options will be recomputed at each reporting period and any increase
will be charged to expense. During the years ended October 31, 2006 and 2005
$396,372 and $651,469, respectively, was charged to expense.
NOTE
5 - WARRANTS AND STOCK OPTIONS
Transactions
involving stock options and warrants issued are summarized as
follows:
| |
|
2006
|
|
2005
|
|
| |
|
Number
|
|
Weighted
Average Exercise Price
|
|
Number
|
|
Weighted
Average Exercise Price
|
|
|
Outstanding
at beginning of period
|
|
|
2,350,000
|
|
$
|
1.00
|
|
|
—
|
|
$
|
—
|
|
|
Granted
during the period
|
|
|
11,060,000
|
|
|
1.35
|
|
|
2,350,000
|
|
|
1.00
|
|
|
Exercised
during the period
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Terminated
during the period
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.00
|
|
|
Outstanding
at end of the period
|
|
|
13,410,000
|
|
$
|
1.29
|
|
|
2,350,000
|
|
$
|
1.00
|
|
|
Exercisable
at end of the period
|
|
|
12,084,000
|
|
$
|
1.31
|
|
|
888,500
|
|
$
|
1.00
|
|
|
Range
of
Exercise
Prices
|
|
Number
Outstanding
|
|
Weighted
Average Contractual Life (Yrs)
|
|
Weighted
Average
Exercise
Price
|
|
0.50
- 0.58
|
|
1,150,000
|
|
4.47
|
|
$
0.53
|
|
1.00
|
|
3,492,500
|
|
3.76
|
|
$
1.00
|
|
1.30
|
|
4,260,000
|
|
4.77
|
|
1.30
|
|
1.50
|
|
247,500
|
|
4.65
|
|
1.50
|
|
1.70
|
|
4,260,000
|
|
4.77
|
|
1.70
|
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2006 AND 2005
NOTE
6 - INCOME TAXES
The
Company has adopted Financial Accounting Standard No. 109 which requires
the
recognition of deferred tax liabilities and assets for the expected future
tax
consequences of events that have been included in the financial statement
or tax
returns. Under this method, deferred tax liabilities and assets are determined
based on the difference between financial statements and tax bases of assets
and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Temporary differences between taxable
income reported for financial reporting purposes and income tax purposes
are
insignificant.
For
income tax reporting purposes, the Company's aggregate U.S. unused net operating
losses approximate $7,145,000 which expire through 2026, subject to limitations
of Section 382 of the Internal Revenue Code, as amended. The deferred tax
asset
related to the carry forward is approximately $2,429,000. The Company has
provided a valuation reserve against the full amount of the net operating
loss
benefit, because in the opinion of management based upon the earning history
of
the Company, it is more likely than not that the benefits will not be realized.
For
income tax reporting purposes, the Company's aggregate UK unused net operating
losses approximate $8,873,000, with no expiration. The deferred tax asset
related to the carryforward is approximately $2,662,000. The Company has
provided a valuation reserve against the full amount of the net operating
loss
benefit, because in the opinion of management based upon the earning history
of
the Company, it is more likely than not that the benefits will not be realized.
Income
tax expense for 2006 represents income taxes on our Norwegian and British
subsidiary.
Components
of deferred tax assets as of October 31, 2006 are as follows:
|
Non-Current:
|
|
Oct
31, 2006
|
|
Oct
31, 2005
|
|
| |
|
|
|
|
|
|
Net
Operating Loss Carry Forward
|
|
$
|
2,429,000
|
|
$
|
2,909,000
|
|
|
Valuation
Allowance
|
|
|
(2,429,000
|
)
|
|
(2,909,000
|
)
|
| |
|
|
|
|
|
|
|
|
Net
Deferred Tax Asset
|
|
$
|
-
|
|
$
|
-
|
|
Litigation
We
may
become subject to legal proceedings and claims, which arise in the ordinary
course of its business. Although occasional adverse decisions or settlements
may
occur, we believe that the final disposition of any matters should not have
a
material adverse effect on our financial position, results of operations
or
liquidity.
Factoring
Agreement
We
factor
certain of our receivables pursuant to a factoring agreement. Advances received
pursuant to the agreement are secured by our accounts receivable.
This
factoring agreement was entered into on August 17, 2005 with Faunus Group
International, Inc. (“FGI”) for a maximum borrowing of up to $1 million. Over
the course of the year, we factored invoices totaling $5,503,518 in receivables
and we received $5,172,774 in proceeds from FGI. This compares with 2005,
where,
between the date of signing and the year end, we factored invoices totaling
$791,016 in receivables and we received $571,376 in proceeds from
FGI.
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2006 AND 2005
NOTE
7 - CONTINGENCIES AND COMMITMENTS (CONTINUED)
Under
the
arrangement, FGI typically advances to the Company 80% of the total amount
of
accounts receivable factored. FGI retains 20% of the outstanding factored
accounts receivable as a reserve, which it holds until the customer pays
the
factored invoice to FGI. The cost of funds for the accounts receivable portion
of the borrowings with FGI is 1.85% for the initial 30 day credit period,
up to
a maximum of 45 days; thereafter, an additional fee of 0.5% is charged for
each
10 day period.
Operating
Leases
We
occupy
our various office and warehouse facilities pursuant to both term and
month-to-month leases. Our term leases expire at various times through September
2011. Future minimum lease obligations are approximately $797,092.
Concentrations
During
the year ended October 31, 2006, we had no concentrations of sales or purchases
of over 5%, compared with 2005 where we purchased approximately 11% of our
raw
materials from one supplier.
NOTE
8 - NOTES AND LOANS PAYABLE
At
October 31, 2006 we had an outstanding balance under our UK bank revolving
credit facility of $1,119,496. The advances bear interest at 2.0% over UK
Bank
Base Rate and are due on demand. The advances are secured by a bond and a
security interest in the assets of our subsidiary, Coda Octopus Ltd, exclusive
of accounts receivable.
At
October 31, 2005 we had an outstanding liability to a Norwegian bank in the
amount of $184,755. The loan bore interest at 10% and matured on November
22,
2005
During
the year to October 31, 2005 we had received loans from other parties, which
were unsecured, bore interest at the rate of 12% per year, and were payable
24
months after a demand for repayment was received. These loans totaled $134,335,
including accrued interest, when they were converted into preferred stock
during
the year ended October 31, 2006.
NOTE
9 - DUE TO RELATED PARTIES
We
are
indebted to various related parties for advances for payments of operating
expenses and dividends. These related parties include our parent and other
entities controlled by our parent. Advances are non interest bearing and
are due
on demand. During the year ended October 31, 2005, approximately $432,000
of the
$577,000 outstanding balance at October 31, 2005 was converted into shares
of
our Series A Preferred Stock, leaving an outstanding balance at October 31,
2006
of $302,877.
Part
of
this balance, a sum of $95,420, is owed to Jason Reid, President and CEO,
by one
of the Group's subsidiaries, Coda Octopus Ltd. Mr. Reid also owes a balance
of
$104,720 to Coda Octopus Group, Inc., leaving a net balance owed to the Group
of
$9,300.
NOTE
10 - ACQUISITION
On
June
26, 2006, we acquired all of the issued and outstanding capital stock of
Martech
Systems (Weymouth) Limited, a UK company. This company specializes in
engineering projects and sales to the UK Ministry of Defense, adding these
capabilities to the Group. The purchase price was approximately $1,536,000,
payable as follows: approximately $1,180,000 in cash at closing; approximately
$364,000 in cash one year after closing, which is accrued as $382,000 as
at
October 31, 2006, due to exchange rate movements. Approximately $286,000
in
common stock could become due on October 31, 2007, though this dependent
upon
the performance of Martech, and is in no way guaranteed. The result of
operations of Martech have been included in the consolidated financial
statements from the date of acquisition. The purchase price was allocated
as
follows:
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2006 AND 2005
NOTE
10 - ACQUISITION (CONTINUED)
|
Current
assets
|
|
$
|
993,817
|
|
|
Equipment
|
|
|
37,126
|
|
|
Goodwill
|
|
|
998,591
|
|
|
Current
liabilities
|
|
|
(493,262
|
)
|
| |
|
|
|
|
|
Purchase
price
|
|
$
|
1,536,271
|
|
The
following unaudited pro forma results of operations for the years ended October
31, 2006 and 2005 assume that the acquisition of Martech occurred on November
1,
2004. These unaudited pro forma results are not necessarily indicative of
the
actual results of operations that would have been achieved nor are they
necessarily indicative of future results of operations.
| |
|
Oct
31, 2006
|
|
Oct
31, 2005
|
|
| |
|
|
|
|
|
|
Revenue
|
|
$
|
8,656,396
|
|
$
|
6,448,291
|
|
|
Net
loss
|
|
|
(7,536,584
|
)
|
|
(3,646,510
|
)
|
|
Loss
per common share
|
|
|
(0.50
|
)
|
|
(0.16
|
)
|
NOTE
11 - SEGMENT INFORMATION
Since
the
acquisition of Martech on June 26, 2006, we are operating in two reportable
segments. Martech operates as an engineering contractor, and the balance
of our
operations are comprised of product sales. Segment information is as
follows:
| |
|
Contracting
|
|
Product
Sales
|
|
Corporate
|
|
Oct
31, 2006
|
|
| |
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
661,589
|
|
$
|
6,629,702
|
|
|
-
|
|
$
|
7,291,291
|
|
|
Segment
operating profit/(loss)
|
|
|
(120,532
|
)
|
|
245,858
|
|
|
(6,478,142
|
)
|
|
(6,352,816
|
)
|
|
Identifiable
assets
|
|
|
1,899,209
|
|
|
2,987,334
|
|
|
2,047,795
|
|
|
6,934,338
|
|
|
Capital
expenditure
|
|
|
2,340
|
|
|
111,734
|
|
|
22,165
|
|
|
136,239
|
|
|
Selling,
general & administrative
|
|
|
366,732
|
|
|
3,331,112
|
|
|
4,203,852
|
|
|
6,535,430
|
|
|
Depreciation
and amortization
|
|
|
12,037
|
|
|
123,844
|
|
|
1,307
|
|
|
137,188
|
|
|
Interest
expense
|
|
|
1,680
|
|
|
406,638
|
|
|
795,372
|
|
|
1,203,690
|
|
NOTE
12 - SUBSEQUENT EVENTS
In
November 2006, we entered into new agreements with our factor, with each
of our
corporate entities covered by its own agreement. The new agreements are secured
by substantially all of our assets.
On
January 31, 2007, we sold a further 8,000 preferred stock units, each unit
consisting of one share of our Series B Preferred Stock, 100 Series A warrants
and 100 Series B warrants. Each Series A warrant and Series B warrant is
exercisable into shares of our common stock for a period of five years at
exercise prices of $1.30 and $1.70 per share, respectively. Gross proceeds
from
the sale of the units were $800,000.
We
issued
453,180 shares of common stock as compensation to employees, directors and
consultants, for services.
We
granted 125,000 common stock options to employees, directors and consultants
for
services.
During
the year to October 31, 2006, we advanced a sum of $533,147 to MSGI Security
Solutions, Inc. (OTC: MSGI.PK). This sum was repaid on March 6, 2007 through
the
issuance of 850,000 common shares in MSGI (approximate value on issuance
of
$697,000) and 425,000 warrants to purchase common shares with an exercise
price
of $1. A license was also granted on March 6, 2007 to utilize MSGI’s wireless
video encryption capabilities within the company and its products.
CODA
OCTOPUS GROUP, INC.
CONSOLIDATED
BALANCE SHEET
JANUARY
31, 2007 and 2006
(UNAUDITED)
| |
|
January
31,
|
|
January
31,
|
|
|
|
|
2007
|
|
2006
|
|
|
ASSETS
|
|
|
|
|
|
| |
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
22,802
|
|
$
|
46,010
|
|
|
Accounts
receivable, net of allowance for doubtful accounts
|
|
|
1,066,672
|
|
|
1,696,539
|
|
|
Inventory
|
|
|
2,345,010
|
|
|
1,204,454
|
|
|
Tax
credit receivable
|
|
|
-
|
|
|
466,843
|
|
|
Due
from MSGI Security Solutions, Inc.
|
|
|
533,147
|
|
|
-
|
|
|
Due
from related parties
|
|
|
144,134
|
|
|
99,585
|
|
|
Other
current assets
|
|
|
479,973
|
|
|
112,375
|
|
|
Prepaid
expenses
|
|
|
197,189
|
|
|
66,593
|
|
| |
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
4,788,928
|
|
|
3,692,399
|
|
| |
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
143,308
|
|
|
212,749
|
|
|
Rental
equipment, net
|
|
|
102,330
|
|
|
|
|
|
Goodwill
and other intangible assets, net
|
|
|
1,071,201
|
|
|
74,444
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
6,105,767
|
|
$
|
3,979,592
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable, trade
|
|
$
|
2,623,987
|
|
$
|
1,460,172
|
|
|
Accrued
expenses and other current liabilities
|
|
|
1,569,601
|
|
|
1,344,060
|
|
|
Deferred
payment related to acquisition of Martech Systems Ltd
|
|
|
392,220
|
|
|
-
|
|
|
Accrued
dividends on Series A & B Preferred Stock
|
|
|
241,023
|
|
|
-
|
|
|
Due
to related parties
|
|
|
328,690
|
|
|
576,981
|
|
|
Loans
payable
|
|
|
802,253
|
|
|
954,977
|
|
| |
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
5,957,774
|
|
|
4,336,190
|
|
| |
|
|
|
|
|
|
|
|
Loans
and notes payable, long term
|
|
|
-
|
|
|
112,229
|
|
| |
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
5,957,774
|
|
|
4,448,419
|
|
| |
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, $.001 par value; 5,000,000 shares authorized,
|
|
|
|
|
|
|
|
|
23,641
and 15,000 shares Series A issued and outstanding, as of
|
|
|
|
|
|
|
|
|
January
31st, 2007 and 2006 respectively
|
|
|
24
|
|
|
15
|
|
|
49,000
shares and 0 Series B issued and outstanding as of January 31,
2007 and
2006
respectively
|
|
|
49
|
|
|
-
|
|
|
Common
stock, $.001 par value; 70,000,000 shares
|
|
|
|
|
|
|
|
|
authorized,
26,312,980 and 23,667,656 shares issued and outstanding
|
|
|
|
|
|
|
|
|
as
of January 31, 2007 and 2006 respectively
|
|
|
26,313
|
|
|
23,668
|
|
|
Common
Stock subscribed
|
|
|
-
|
|
|
-
|
|
|
Additional
paid-in capital
|
|
|
29,239,252
|
|
|
13,985,227
|
|
|
Foreign
currency translation adjustment
|
|
|
(328,280
|
)
|
|
26,274
|
|
|
Accumulated
deficit
|
|
|
(28,789,365
|
)
|
|
(14,504,012
|
)
|
| |
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
147,993
|
|
|
(468,828
|
)
|
| |
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
6,105,767
|
|
$
|
3,979,591
|
|
The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
CODA
OCTOPUS GROUP, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR
THE
THREE MONTHS ENDED JANUARY 31, 2007 and 2006
(UNAUDITED)
| |
|
January
31,
|
|
January
31,
|
|
| |
|
2007
|
|
2006
|
|
| |
|
|
|
|
|
|
Net
revenue
|
|
$
|
2,701,275
|
|
$
|
975,581
|
|
| |
|
|
|
|
|
|
|
|
Cost
of revenue
|
|
|
941,029
|
|
|
357,873
|
|
| |
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
1,760,246
|
|
|
617,708
|
|
| |
|
|
|
|
|
|
|
|
Research
and development
|
|
|
518,393
|
|
|
532,128
|
|
|
Selling,
general and administrative expenses
|
|
|
3,224,659
|
|
|
1,108,106
|
|
|
Non-recurring
expenses
|
|
|
435,000
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
Operating
income
|
|
|
(2,417,806
|
)
|
|
(1,022,526
|
)
|
| |
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Other
income
|
|
|
2,098
|
|
|
615
|
|
|
Interest
expense
|
|
|
(115,211
|
)
|
|
(57,100
|
)
|
| |
|
|
|
|
|
|
|
|
Total
other income (expense)
|
|
|
(113,113
|
)
|
|
(56,485
|
)
|
| |
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(2,530,919
|
)
|
|
(1,079,011
|
)
|
| |
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(2,530,919
|
)
|
|
(1,079,011
|
)
|
| |
|
|
|
|
|
|
|
|
Preferred
Stock Dividends:
|
|
|
|
|
|
|
|
|
Series
A
|
|
|
-
|
|
|
|
|
|
Series
B
|
|
|
-
|
|
|
|
|
|
Beneficial
Conversion Feature
|
|
|
(800,000
|
)
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
Net
Loss Applicable to Common Shares
|
|
$
|
(3,330,919
|
)
|
$
|
(1,079,011
|
)
|
| |
|
|
|
|
|
|
|
|
Loss
per share, basic and diluted
|
|
|
(0.13
|
)
|
|
(0.05
|
)
|
| |
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
25,526,067
|
|
|
23,667,656
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,530,919
|
)
|
$
|
(1,079,011
|
)
|
| |
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
(328,280
|
)
|
|
(62,569
|
)
|
| |
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
$
|
(2,859,199
|
)
|
$
|
(1,141,580
|
)
|
The
accompanying footnotes are an integral part of these unaudited consolidated
financial statements.
CODA
OCTOPUS GROUP, INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR
THE
THREE MONTHS ENDED JANUARY 31, 2007 and 2006
(UNAUDITED)
|
Three
Months Ended January 31,
|
|
Preferred
Stock Series A
|
|
Preferred
Stock Series B
|
|
Common
Stock
|
|
Common
Stock
|
|
Additional
Paid-in
|
|
Foreign
Currency Translation
|
|
Accumulated
|
|
|
|
|
2006
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Subscribed
|
|
Capital
|
|
Adjustment
|
|
Deficit
|
|
Total
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
October 31, 2005
|
|
|
15,000
|
|
$
|
15
|
|
|
-
|
|
$
|
-
|
|
|
23,667,656
|
|
$
|
23,668
|
|
$
|
-
|
|
$
|
13,837,534
|
|
$
|
(10,117
|
)
|
$
|
(13,362,433
|
)
|
$
|
488,667
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of shares for cash
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for compensation
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock subscribed
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of options and warrants issued as compensation and for
financing
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
147,693
|
|
|
- |
|
|
- |
|
|
147,693
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
36,391
|
|
|
- |
|
|
36,391
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,141,580
|
)
|
|
(1,141,580
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 31, 2006
|
|
|
15,000
|
|
$
|
15
|
|
|
-
|
|
$
|
-
|
|
|
23,667,656
|
|
$
|
23,668
|
|
$
|
-
|
|
$
|
13,985,227
|
|
$
|
26,274
|
|
$
|
(14,504,013
|
)
|
$
|
(468,829
|
)
|
| Three
Months Ended January 31, |
|
Preferred
Stock Series A
|
|
Preferred
Stock Series B
|
|
Common
Stock
|
|
Common
Stock
|
|
Additional
Paid-in
|
|
Foreign
Currency Translation
|
|
Accumulated
|
|
|
|
|
2007
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Subscribed
|
|
Capital
|
|
Adjustment
|
|
Deficit
|
|
Total
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
October 31, 2006
|
|
|
23,641
|
|
$
|
24
|
|
|
41,000
|
|
$
|
41
|
|
|
24,301,980
|
|
$
|
24,302
|
|
$
|
153,750
|
|
$
|
25,858,307
|
|
$
|
(292,821
|
)
|
$
|
(25,458,447
|
)
|
$
|
285,156
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of preferred stock
|
|
|
- |
|
|
- |
|
|
8,000
|
|
|
8
|
|
|
- |
|
|
- |
|
|
- |
|
|
799,992
|
|
|
- |
|
|
- |
|
|
800,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of shares for cash
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
650,000
|
|
|
650
|
|
|
- |
|
|
-
|
|
|
- |
|
|
- |
|
|
650
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for compensation
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
1,361,000
|
|
|
1,361
|
|
|
- |
|
|
1,422,659
|
|
|
- |
|
|
- |
|
|
1,424,020
|
|
| |
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock subscribed
|
|
|
- |
|
|
|
|
|
- |
|
|
- |
|
|
-
|
|
|
- |
|
|
(153,750
|
)
|
|
153,750
|
|
|
- |
|
|
- |
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of options and warrants issued as compensation and for
financing
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
205,194
|
|
|
- |
|
|
- |
|
|
205,194
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
preferred
stock, Series A
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
-
|
|
|
preferred
stock, Series B
|
|
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
799,350
|
|
|
- |
|
|
(800,000
|
)
|
|
(650
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(35,459
|
)
|
|
- |
|
|
(35,459
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,530,919
|
)
|
|
(2,530,919
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
23,641
|
|
$
|
24
|
|
|
49,000
|
|
$
|
49
|
|
|
26,312,980
|
|
$
|
26,313
|
|
$
|
-
|
|
$
|
29,239,252
|
|
$
|
(328,280
|
)
|
$
|
(28,789,366
|
)
|
$
|
147,992
|
|
The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
CODA
OCTOPUS GROUP, INC.
STATEMENT
OF CASH FLOWS
FOR
THE
PERIODS ENDED JANUARY 31, 2007 and 2006
(UNAUDITED)
| |
|
January
31,
|
|
January
31,
|
|
| |
|
2007
|
|
2006
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(3,330,919
|
)
|
$
|
(1,079,011
|
)
|
|
Adjustments
to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
used
by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
68,282
|
|
|
34,768
|
|
|
Stock
based compensation
|
|
|
1,594,694
|
|
|
147,693
|
|
|
Financing
costs
|
|
|
-
|
|
|
-
|
|
|
Beneficial
conversion feature, preferred stock
|
|
|
800,000
|
|
|
-
|
|
|
Preferred
stock dividends
|
|
|
-
|
|
|
-
|
|
|
Bad
debt expense
|
|
|
-
|
|
|
-
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase)
decrease in:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
54,296
|
|
|
(592,030
|
)
|
|
Inventory
|
|
|
(393,618
|
)
|
|
(160,403
|
)
|
|
Prepaid
expenses
|
|
|
(37,220
|
)
|
|
150,253
|
|
|
Other
receivables
|
|
|
(181,498
|
)
|
|
(121,555
|
)
|
|
Increase
(decrease) in:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
|
(336,607
|
)
|
|
988,257
|
|
|
Due
to related parties
|
|
|
102,562
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
Net
cash used by operating activities
|
|
|
(1,660,028
|
)
|
|
(632,028
|
)
|
| |
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(36,840
|
)
|
|
(13,959
|
)
|
|
Purchases
of intangible assets
|
|
|
-
|
|
|
(2,964
|
)
|
|
Acquisition
of Martech Systems Ltd
|
|
|
-
|
|
|
-
|
|
|
Cash
acquired from Martech Systems Ltd
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
Net
cash used by investing activities
|
|
|
(36,840
|
)
|
|
(16,923
|
)
|
| |
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds
from/(repayment of) loans
|
|
|
(317,243
|
)
|
|
(2,076,799
|
)
|
|
Proceeds
from sale of stock
|
|
|
800,000
|
|
|
2,655,000
|
|
|
Preferred
stock dividend
|
|
|
(63,371
|
)
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
419,386
|
|
|
578,201
|
|
| |
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
(77,688
|
)
|
|
(26,177
|
)
|
| |
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash
|
|
|
(1,355,170
|
)
|
|
(96,927
|
)
|
| |
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of year
|
|
|
1,377,972
|
|
|
142,936
|
|
| |
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of year
|
|
$
|
22,802
|
|
$
|
46,009
|
|
| |
|
|
|
|
|
|
|
|
Cash
paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
115,211
|
|
$
|
57,100
|
|
|
Income
taxes
|
|
|
-
|
|
|
-
|
|
Supplemental
Disclosures:
During
the three months to January 31, 2007, 1,361,000 shares of common stock
were
issued as payment of $1,424,020 of compensation that was earned.
The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
January
31, 2007
UNAUDITED
A
summary
of the significant accounting policies applied in the preparation of the
accompanying unaudited consolidated financial statements follows.
Business
and Basis of Presentation
Coda
Octopus Group, Inc. (”we”,
“us”, “our
company”
or
“Coda”),
was
formed under the laws of the State of Florida in 1992 as The Panda Project,
Inc.
(“Panda”). We changed our name in August, 2004, subsequent to the reverse
acquisition described below. We are a developer of underwater
technologies and equipment for imaging, mapping, defense and survey
applications. We
are
based in New York, with research and development, sales and manufacturing
facilities located in the United Kingdom and Norway, and additional sales
locations in Florida and Washington, D.C.
Effective
July 12, 2004, Panda acquired all of the issued and outstanding common stock
of
Coda Octopus Ltd, (“COL”) a U.K. operating company, which also owned United
States and Norwegian subsidiaries. As a result of this transaction, COL’s former
shareholders obtained control of Panda, a shell corporation with no operations.
In accordance with SFAS No. 141, Coda was the acquiring entity, while the
transaction was accounted for using the purchase method of accounting, in
substance the acquisition was a recapitalization of Coda’s capital structure.
For accounting purposes, this acquisition has been treated as a reverse
acquisition of Panda. The Company did not recognize any goodwill or any
intangible assets in connection with the transaction.
The
unaudited consolidated financial statements include the accounts of Coda
and our
domestic and foreign subsidiaries that are more than 50% owned and controlled.
All significant intercompany transactions and balances have been eliminated
in
the consolidated financial statement.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the amounts reported in the consolidated financial statements and
accompanying disclosures. Although these estimates are based on management's
best knowledge of current events and actions that we may undertake in the
future, actual results may differ from those estimates.
Revenue
Recognition
Our
contracts typically require customer payments in advance of revenue recognition.
These deposit amounts are reflected as liabilities and recognized as revenue
when the Company has fulfilled its obligations under the respective contracts.
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
January
31, 2007
UNAUDITED
NOTE
1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Foreign
Currency Translation
Coda
translates the foreign currency financial statements of its foreign subsidiaries
in accordance with the requirements of Statement of Financial Accounting
Standards No. 52, "Foreign Currency Translation". Assets and liabilities
are
translated at current exchange rates, and related revenue and expenses are
translated at average exchange rates in effect during the period. Resulting
translation adjustments are recorded as a separate component in stockholders'
equity. Foreign currency transaction gains and losses are included in the
statement of income.
Income
Taxes
Deferred
income taxes are provided using the asset and liability method for financial
reporting purposes in accordance with the provisions of Statements of Financial
Standards No. 109, "Accounting for Income Taxes". Under this method, deferred
tax assets and liabilities are recognized for temporary differences between
the
tax bases of assets and liabilities and their carrying values for financial
reporting purposes, and for operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be removed or settled. The effect on deferred
tax
assets and liabilities of a change in tax rates is recognized in the
consolidated statements of operations in the period that includes the enactment
date.
Cash
and Cash Equivalents
Cash
equivalents are comprised of highly liquid investments with maturity of three
months or less when purchased. We maintain our cash in bank deposit accounts,
which at times, may exceed insured limits. We have not experienced any losses
in
such accounts.
Concentrations
of Credit Risk
Financial
instruments and related items, which potentially subject us to concentrations
of
credit risk, consist primarily of cash and cash equivalents and accounts
receivable. We place our cash and temporary cash investments with credit
quality
institutions. At times, such investments may be in excess of applicable
government mandated insurance limits. We periodically review our trade
receivables in determining our allowance for doubtful accounts. Allowance
for doubtful accounts was nil and ($9,573) for the periods ended January
31,
2007 and 2006 respectively.
Fair
Value of Financial Instruments
SFAS
No.
107, "Disclosures About Fair Value of Financial Instruments", requires
disclosure of the fair value of certain financial instruments. The carrying
value of cash and cash equivalents, accounts receivable, other receivables,
accounts payable and short-term borrowings, as reflected in the balance sheets,
approximate fair value because of the short-term maturity of these instruments.
Our long term debt has interest rates that approximate market and therefore
the
carrying amounts approximate their fair values.
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
January
31, 2007
UNAUDITED
NOTE
1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Inventory
Inventory
is stated at the lower of cost or market using the first-in first-out method.
Inventory
is comprised of the following components at January 31, 2007 and
2006:
| |
|
2007
|
|
2006
|
|
|
Raw
materials
|
|
$
|
634,957
|
|
$
|
667,198
|
|
|
Work
in process
|
|
|
805,867
|
|
|
154,384
|
|
|
Finished
goods
|
|
|
904,186
|
|
|
382,872
|
|
| |
|
|
|
|
|
|
|
| |
|
$
|
2,345,010
|
|
$
|
1,204,454
|
|
Property
and Equipment
We
record
our equipment at historical cost. We expense maintenance and repairs as
incurred. Depreciation is provided for by the straight-line method over three
to
four years, the estimated useful lives of the property and
equipment.
Long-Lived
Assets
We
follow
SFAS No. 144, "Accounting for Impairment of Disposal of Long-Lived Assets",
which established a "primary asset" approach to determine the cash flow
estimation period for a group of assets and liabilities that represents the
unit
of accounting for a long-lived asset to be held and used. Long-lived assets
to
be held and used are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The carrying amount of a long-lived asset is not recoverable
if it
exceeds the sum of the undiscounted cash flows expected to result from the
use
and eventual disposition of the asset. Long-lived assets to be disposed of
are
reported at the lower of carrying amount or fair value less cost to sell.
No
impairment loss was recognized during the periods ended January 31, 2007
and
2006.
Research
and Development
Research
and development costs consist of expenditures for the present and future
patents
and technology, which are not capitalizable. We are eligible for United Kingdom
tax credits related to our qualified research and development expenditures.
Tax
credits are classified as a reduction of research and development expense.
We
recorded no tax credits during either quarter.
Marketing
We
charge
the costs of marketing to expense as incurred. For the periods ended January
31,
2007 and 2006, marketing costs were $50,295 and $67,977,
respectively.
Stock
Based Compensation
Stock
Based Compensation — SFAS No. 123, “Accounting for Stock-Based Compensation”,
establishes and encourages the use of the fair value based method of accounting
for stock-based compensation arrangements under which compensation cost is
determined using the fair value of stock-based compensation determined as
of the
date of the grant or the date at which the performance of the services is
completed and is recognized over the periods in which the related services
are
rendered. The statement also permits companies to elect to continue using
the
current intrinsic value accounting method specified in Accounting Principles
Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees”, to
account for stock-based compensation to employees. We use the fair value
method
for equity instruments granted to employees and non-employees and use the
Black
Scholes model for measuring the fair value. The stock based fair value
compensation is determined as of the date of the grant or the date at which
the
performance of the services is completed (measurement date) and is recognized
over the periods in which the related services are rendered.
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
January
31, 2007
UNAUDITED
NOTE
1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Comprehensive
Income
Statement
of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income," establishes standards for reporting and displaying of comprehensive
income, its components and accumulated balances. Comprehensive income is
defined
to include all changes in equity except those resulting from investments
by
owners and distributions to owners. Among other disclosures, SFAS 130 requires
that all items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. Comprehensive income includes gains and losses on foreign currency
translation adjustments and is included as a component of stockholders' equity.
Loss
Per Share
We
use
SFAS No. 128, “Earnings Per Share” for calculating the basic and diluted
loss per share. We compute basic loss per share by dividing net loss and
net
loss attributable to common shareholders by the weighted average number of
common shares outstanding. Diluted loss per share is computed similar to
basic
loss per share except that the denominator is increased to include the number
of
additional common shares that would have been outstanding if the potential
shares had been issued and if the additional shares were dilutive. Common
equivalent shares are excluded from the computation of net loss per share
if
their effect is anti-dilutive.
Per
share
basic and diluted net loss amounted to $0.13 and $0.05 for the periods
ended January 31, 2007 and 2006, respectively. For the periods ended
January 31, 2007 and 2006, 24,088,728 and 5,310,000 potential shares,
respectively, were excluded from the shares used to calculate diluted earnings
per share as their inclusion would reduce net loss per share.
Liquidity
As
of
January 31, 2007 we have cash and cash equivalents of $22,802 and negative
working capital of $1,168,846. For the period ended January 31, 2007 we had
a
net loss of $2,530,919 and negative cash flow from operations of $1,660,028.
We
also have an accumulated deficit of $28,789,365 at January 31,
2007.
NOTE
2 - FIXED ASSETS
Property
and equipment at January 31, 2007 and 2006 is summarized as
follows:
| |
|
2007
|
|
2006
|
|
|
Machinery
and Equipment
|
|
$
|
852,668
|
|
$
|
704,638
|
|
|
Accumulated
Depreciation
|
|
|
(709,360
|
)
|
|
(491,890
|
)
|
| |
|
|
|
|
|
|
|
| |
|
$
|
143,308
|
|
$
|
212,748
|
|
Depreciation
expense recorded in the statement of operations for the periods ended January
31, 2007 and 2006 is $19,071 and $14,055, respectively.
Rental
equipment at January 31, 2007 and 2006 is summarized as follows:
| |
|
2007
|
|
2006
|
|
|
Rental
Equipment
|
|
$
|
245,592
|
|
|
0
|
|
|
Accumulated
Depreciation
|
|
|
(143,262
|
)
|
|
0
|
|
| |
|
|
|
|
|
|
|
| |
|
$
|
102,330
|
|
$
|
0
|
|
Depreciation
expense recorded in the statement of operations for the periods ended January
31, 2007 and 2006 is $22,406 and nil respectively.
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
January
31, 2007
UNAUDITED
NOTE
3 - INTANGIBLE ASSETS
The
costs
and accumulated amortization of intangible assets at January 31, 2007 and
2006
are summarized as follows:
| |
|
2007
|
|
2006
|
|
|
Goodwill
|
|
$
|
1,060,906
|
|
$
|
62,315
|
|
|
Patents
|
|
|
30,055
|
|
|
26,475
|
|
| |
|
|
1,090,961
|
|
|
88,790
|
|
|
Accumulated
amortization of patents
|
|
|
19,761
|
|
|
14,347
|
|
| |
|
|
|
|
|
|
|
| |
|
$
|
1,071,200
|
|
$
|
74,343
|
|
NOTE
4 - CAPITAL STOCK
The
Company is authorized to issue 100,000,000 shares of common stock with a
par
value of $.001 per share. As of January 31, 2007, the Company has issued
and
outstanding 26,312,980 shares of common stock. The Company is also authorized
to
issue 5,000,000 shares of preferred stock with a par value of $.001 per share.
We have designated 50,000 preferred shares as Series A preferred stock and
have
designated 50,000 preferred shares as Series B preferred stock. The remaining
4,900,000 shares of preferred stock is undesignated. There were 72,641 preferred
shares outstanding at January 31, 2007, of which 23,641 shares were Series
A and
49,000 shares were Series B.
During
the period ended January 31, 2007 we issued 1,361,000 shares of common stock,
valued at $1,424,020 to employees, directors and consultants for services
and
650,000 shares of common stock to an investor.
Series
A Preferred Stock
We
designated 50,000 shares of our preferred stock, par value $.001, as Series
A
Preferred Stock. The Series A Preferred Stock ranks senior to all classes
of
common and preferred stock. The Series A Preferred Stock has a dividend rate
of
12% per year. The Series A Preferred Stock and accrued dividends is convertible
at the option of the holder into shares of our common stock at a conversion
price of $1.00 per share.
During
the period ended January 31, 2007 we did not issue any further Series A
Preferred Stock. At January 31, 2007, the total of Series A Preferred Stock
outstanding is 23,641 shares, convertible into 3,928,728 shares of common
stock.
During the period ended January 31, 2006 we did not sell any of our preferred
stock.
Series
B Preferred Stock
We
designated 50,000 shares of our preferred stock, par value $.001, as Series
B
Preferred Stock. The Series B Preferred Stock ranks junior to our issued
and
outstanding Series A preferred Stock and senior to all classes of common
stock.
The Series B Preferred Stock has a dividend rate of 8% per year. The Series
B
Preferred Stock and accrued dividends is convertible at the option of the
holder
into shares of our common stock at a conversion price of $1.00 per
share.
During
the period that ended January 31, 2007, we sold 8,000 preferred Series B
stock
units, each unit consisting of one share of our Series B Preferred Stock,
100
Series A warrants, 100 Series B warrants, and 81.25 shares of common stock
(650,000 shares of common stock in total). Each Series A warrant and Series
B
warrant is exercisable into shares of our common stock for a period of five
years at exercise prices of $1.30 and $1.70 per share, respectively. Gross
proceeds from the sale of the units were $800,000.
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
January
31, 2007
UNAUDITED
NOTE
4 - CAPITAL STOCK (CONTINUED)
In
accordance with Emerging Issues Task Force (“EITF”) No.00-27, “Application
of EITF Issue No. 98-5, ‘Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Conversion Rates’, to Certain
convertible Instruments”, a
portion
of the proceeds were allocated to the warrants based on their relative fair
value, which totaled $546,566 using the Black Scholes option pricing model.
Further, we attributed a beneficial conversion feature of $253,434 to the
Series B preferred shares based upon the difference between the conversion
price of those shares and the closing price of our common shares on the date
of
issuance, limited to the proceeds attributable to the sale of the preferred
shares. The weighted average assumptions used in the Black Scholes model
are as
follows: (1) dividend yield of 0%; (2) expected volatility
of 304%, (3) risk-free interest rate of 4.90%, and
(4) expected life of 2 years as the conversion feature and warrants
are immediately exercisable. Both the fair value of the warrants and
the
beneficial conversion feature aggregating $800,000 were recorded as a dividend
and are included in the accompanying financial statements.
Other
Equity Transactions
During
the period ended January 31, 2007, we issued in the aggregate 125,000 common
share purchase options to employees and consultants. The options were issued
with exercise prices of $1.50 The initial fair value of the options was $168,271
using the Black Scholes method at the date of grant of the options based
on the
following assumptions: (1) risk free interest rate of 4.90%; (2) dividend
yield
of 0%; (3) volatility factor of the expected market price of our common stock
of
328%; and (4) an expected life of the options of 2 years. The fair value
of the
options has been expensed in this period. In accordance with EITF 96-18,
the
fair value of consultant vesting options will be recomputed at each reporting
period and any increase will be charged to expense.
During
the year ended October 31, 2006, we issued in the aggregate 1,315,000 common
share purchase options to employees and consultants. The options were issued
with exercise prices of $1.00 and $1.50. Of these awards, 616,000 vested
immediately and the balance vests over various periods through July, 2008.
The
initial fair value of the options was $835,438 using the Black Scholes method
at
the date of grant of the options based on the following assumptions ranges:
(1)
risk free interest rate of 4.25% - 5.1%; (2) dividend yield of 0%; (3)
volatility factor of the expected market price of our common stock of 328%
-
563%; and (4) an expected life of the options of 2 years. The fair value
of the
options is being expensed over the vesting period. In accordance with EITF
96-18, the fair value of consultant vesting options will be recomputed at
each
reporting period and any increase will be charged to expense. During the
period
ended January 31, 2007, $36,923 was charged to expense.
During
the year ended October 31, 2005, we issued in the aggregate 2,350,000 common
share purchase options to employees and consultants. The options were issued
with an exercise price of $1.00. Of these awards, 888,500 vested immediately
and
the balance vests over various periods through May, 2007. The initial fair
value
of the options was $1,221,497 using the Black Scholes method at the date
of
grant of the options based on the following assumptions ranges: (1) risk
free
interest rate of 4.5%; (2) dividend yield of 0%; (3) volatility factor of
the
expected market price of our common stock of 679%; and (4) an expected life
of
the options of 2 years. The fair value of the options is being expensed over
the
vesting period. In accordance with EITF 96-18, the fair value of consultant
vesting options will be recomputed at each reporting period and any increase
will be charged to expense. During the periods ending January 31, 2007 and
2006,
nil and $147,692, respectively, was charged to expense.
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
January
31, 2007
UNAUDITED
NOTE
5 - WARRANTS AND STOCK OPTIONS
Transactions
involving stock options and warrants issued are summarized as follows:
| |
|
2007
|
|
2006
|
|
|
|
|
Number
|
|
Weighted
Average Exercise Price
|
|
Number
|
|
Weighted
Average Exercise Price
|
|
|
Outstanding
at beginning of period
|
|
|
13,410,000
|
|
$
|
1.29
|
|
|
2,350,000
|
|
$
|
1.00
|
|
|
Granted
during the period
|
|
|
1,725,000
|
|
|
1.50
|
|
|
305,000
|
|
|
1.00
|
|
|
Exercised
during the period
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Terminated
during the period
|
|
|
90,000
|
|
|
1.00
|
|
|
—
|
|
|
1.00
|
|
|
Outstanding
at end of the period
|
|
|
15,045,000
|
|
$
|
1.31
|
|
|
2,655,000
|
|
$
|
1.00
|
|
|
Exercisable
at end of the period
|
|
|
13,913,500
|
|
$
|
1.33
|
|
|
1,079,500
|
|
$
|
1.00
|
|
|
Range
of
Exercise
Prices
|
|
Number
Outstanding
|
|
Weighted
Average Contractual Life (Yrs)
|
|
Weighted
Average
Exercise
Price
|
|
|
0.50
- 0.58
|
|
|
1,150,000
|
|
|
4.22
|
|
$
|
0.53
|
|
|
1.00
|
|
|
3,440,000
|
|
|
3.45
|
|
|
1.00
|
|
|
1.30
|
|
|
5,060,000
|
|
|
4.60
|
|
|
1.30
|
|
|
1.50
|
|
|
335,000
|
|
|
4.15
|
|
|
1.50
|
|
|
1.70
|
|
|
5,060,000
|
|
|
4.60
|
|
|
1.70
|
|
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
January
31, 2007
UNAUDITED
NOTE
6 - INCOME TAXES
The
Company has adopted Financial Accounting Standard No. 109 which requires
the
recognition of deferred tax liabilities and assets for the expected future
tax
consequences of events that have been included in the financial statement
or tax
returns. Under this method, deferred tax liabilities and assets are determined
based on the difference between financial statements and tax bases of assets
and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Temporary differences between taxable
income reported for financial reporting purposes and income tax purposes
are
insignificant.
For
income tax reporting purposes, the Company's aggregate U.S. unused net operating
losses approximate $9,413,000 which expire through 2026, subject to limitations
of Section 382 of the Internal Revenue Code, as amended. The deferred tax
asset
related to the carry forward is approximately $3,200,000. The Company has
provided a valuation reserve against the full amount of the net operating
loss
benefit, because in the opinion of management based upon the earning history
of
the Company, it is more likely than not that the benefits will not be realized.
For
income tax reporting purposes, the Company's aggregate UK unused net operating
losses approximate $8,963,000, with no expiration. The deferred tax asset
related to the carryforward is approximately $2,689,000. The Company has
provided a valuation reserve against the full amount of the net operating
loss
benefit, because in the opinion of management based upon the earning history
of
the Company, it is more likely than not that the benefits will not be realized.
Components
of deferred tax assets as of January 31, 2007 and 2006 are as follows:
|
Non-Current:
|
|
Jan
31, 2007
|
|
Jan
31, 2006
|
|
| |
|
|
|
|
|
|
Net
Operating Loss Carry Forward
|
|
$
|
3,200,000
|
|
$
|
3,018,000
|
|
|
Valuation
Allowance
|
|
|
(3,200,000
|
)
|
|
(3,018,000
|
)
|
| |
|
|
|
|
|
|
|
|
Net
Deferred Tax Asset
|
|
$
|
-
|
|
$
|
-
|
|
Litigation
We
may
become subject to legal proceedings and claims, which arise in the ordinary
course of its business. Although occasional adverse decisions or settlements
may
occur, we believe that the final disposition of any matters should not have
a
material adverse effect on our financial position, results of operations
or
liquidity.
Factoring
Agreement
We
factor
certain of our receivables pursuant to a factoring agreement. Advances received
pursuant to the agreement are secured by our accounts receivable.
This
factoring agreement was entered into on August 17, 2005 with Faunus Group
International, Inc. (“FGI”) for a maximum borrowing of up to $1 million. Over
the course of the period, we factored invoices totaling $1,492,755.74 in
receivables and we received $904,241.51 in proceeds from FGI. This compares
with
the 2006 period, where, we factored invoices totaling $748,601.16 in receivables
and we received $1,085,969.57 in proceeds from FGI.
Under
the
arrangement, FGI typically advances to the Company 80% of the total amount
of
accounts receivable factored. FGI retains 20% of the outstanding factored
accounts receivable as a reserve, which it holds until the customer pays
the
factored invoice to FGI. The cost of funds for the accounts receivable portion
of the borrowings with FGI is 1.85% for the initial 30 day credit period,
up to
a maximum of 45 days; thereafter, an additional fee of 0.5% is charged for
each
10 day period.
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
January
31, 2007
UNAUDITED
NOTE
7 - CONTINGENCIES AND COMMITMENTS (CONTINUED)
Operating
Leases
We
occupy
our various office and warehouse facilities pursuant to both term and
month-to-month leases. Our term leases expire at various times through September
2013. Future minimum lease obligations are approximately
$1,133,638.
Concentrations
We
had no
concentrations of sales or purchases of over 5% during either of the periods
ended 2007 and 2006.
NOTE
8 - NOTES AND LOANS PAYABLE
At
January 31, 2007 we had an outstanding balance under our UK bank revolving
credit facility of $802,253. The advances bear interest at 2.0% over UK Bank
Base Rate and are due on demand. The advances are secured by a bond and a
security interest in the assets of our subsidiary, Coda Octopus Products
Ltd,
exclusive of accounts receivable.
NOTE
9 - DUE TO RELATED PARTIES
We
are
indebted to various related parties for advances for payments of operating
expenses and dividends. These related parties include our parent and other
entities controlled by our parent. Advances are non interest bearing and
are due
on demand. At the end of the period ending January 31, 2007, $328,690 was
due to
related parties. Part of this balance, a sum of $98,055, is owed to Jason
Reid,
President and CEO, by one of the Group's subsidiaries, Coda Octopus Products,
Ltd. Mr. Reid also owes a balance of $130,133 to Coda Octopus Group, Inc.,
leaving a net balance owed to the Group of $32,078.
NOTE
10 - SEGMENT INFORMATION
Since
the
acquisition of Martech on June 26, 2006, we are operating in two reportable
segments. Martech operates as an engineering contractor, and the balance
of our
operations are comprised of product sales. Segment information is as
follows:
| |
|
Contracting
|
|
Product
Sales
|
|
Corporate
|
|
Jan
31, 2007
|
|
| |
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,171,434
|
|
$
|
1,529,841
|
|
|
-
|
|
$
|
2,701,275
|
|
|
Segment
operating profit/(loss)
|
|
|
188,738
|
|
|
(411,050
|
)
|
|
(2,195,493
|
)
|
|
(2,417,805
|
)
|
|
Identifiable
assets
|
|
|
2,011,073
|
|
|
3,513,109
|
|
|
581,585
|
|
|
6,105,767
|
|
|
Capital
expenditure
|
|
|
25,933
|
|
|
100,555
|
|
|
21,899
|
|
|
148,387
|
|
|
Selling,
general & administrative
|
|
|
630,191
|
|
|
917,890
|
|
|
1,676,578
|
|
|
3,224,659
|
|
|
Depreciation
and amortization
|
|
|
7,938
|
|
|
59,768
|
|
|
576
|
|
|
68,282
|
|
|
Interest
expense
|
|
|
17,870
|
|
|
93,544
|
|
|
3,797
|
|
|
115,211
|
|
NOTE
11 - SUBSEQUENT EVENTS
We
issued
161,180 shares of common stock as compensation to employees, directors and
consultants, for services.
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
January
31, 2007
UNAUDITED
NOTE
11 - SUBSEQUENT EVENTS (CONTINUED)
During
the year to October 31, 2006, we advanced a sum of $533,147 to MSGI Security
Solutions, Inc. (OTC: MSGI.PK). This sum was repaid in May 2007 through the
issuance of 850,000 common shares in MSGI
(approximate value on issuance of $697,000) and 425,000 warrants to purchase
common shares with an exercise price of $1. A license was also granted in
May
2007 to utilize MSGI’s wireless video encryption capabilities within the company
and its products.
In
April/May 2007, we sold 15,000,000 units comprising of one share of common
stock, 5 year warrants to
purchase 15,000,000 shares of our common stock at a purchase price ranging
from
$1.30 to $1.70 priced at $1 for the unit, for a total consideration of
$15,000,000.
In
April
2007, we acquired a company, Colmek Systems Engineering, an engineering
contractor in the defense industry. We paid a sum of $800,000 and 532,090
shares
at closing with a deferred amount of $700,000 due 12 months after
closing.
In
March
2007, we converted 48,054 shares of our Series A and B Preferred Stock into
2,878,418 shares of common stock, 1,439,209 warrants exercisable at a $1.30
with
1,439,209 exercisable at $1.70.
In
April
2007, we repurchased from
Vision Opportunity Master Fund 18,181 shares of our Series B
Preferred Stock at a price of $110 per share for
a
total repurchase price of 19,999,910. This was financed from the proceeds
realized from the private placement concluded in April/May.
MARTECH
SYSTEMS (WEYMOUTH) LIMITED
*************************************
REPORT
AND AUDITED FINANCIAL STATEMENTS
*************************************
COYNE,
BUTTERWORTH & CHALMERS
CHARTERED
ACCOUNTANTS
LUPINS
BUSINESS CENTRE
1-3
GREENHILL
WEYMOUTH
DORSET
DT4 7SP
MARTECH
SYSTEMS (WEYMOUTH) LIMITED
|
DIRECTORS
|
B
G
BROOKES
|
| |
|
|
SECRETARY
|
C
R
PEGRUM
|
| |
|
|
REGISTERED
OFFICE
|
14
ALBANY ROAD
|
| |
|
|
|
2300406
|
| |
|
|
BANKERS
|
NATIONAL
WESTMINSTER BANK PLC
76
ST THOMAS STREET
WEYMOUTH
|
| |
|
|
AUDITORS
|
COYNE,
BUTTERWORTH & CHALMERS
|
MARTECH
SYSTEMS (WEYMOUTH) LIMITED
DIRECTORS'
REPORT
The
directors present their annual report and the audited financial statements
of
the company for the year ended 31 October 2005.
ACTIVITIES
The
principal activity of the company is that of electronic and electrical
designers
and engineers.
DIRECTORS
The
directors who served during the year and their interests in the share
capital of
the company were as follows:
| |
|
2005
|
|
2004
|
|
|
"A"
Ordinary shares
|
|
|
|
|
|
|
Mr
C R Pegrum
|
|
|
2500
|
|
|
2500
|
|
| |
|
|
|
|
|
|
|
|
"B"
Ordinary shares
|
|
|
|
|
|
|
|
|
Mr
B G Brookes
|
|
|
2500
|
|
|
2500
|
|
| |
|
|
|
|
|
|
|
|
"C"
Ordinary shares
|
|
|
|
|
|
|
|
|
Mr
L L Short
|
|
|
2500
|
|
|
2500
|
|
| |
|
|
|
|
|
|
|
|
"D"
Ordinary shares
|
|
|
|
|
|
|
|
|
Mr
L L Short
|
|
|
2500
|
|
|
2500
|
|
| |
|
|
|
|
|
|
|
|
"E"
Ordinary shares
|
|
|
|
|
|
|
|
|
Mr
B G Brookes
|
|
|
2500
|
|
|
2500
|
|
| |
|
|
|
|
|
|
|
|
"F"
Ordinary shares
|
|
|
|
|
|
|
|
|
Mr
C R Pegrum
|
|
|
2500
|
|
|
2500
|
|
DIRECTORS'
RESPONSIBILITIES
Company
law requires the directors to prepare financial statements for each
financial
year which give a true and fair view of the state of affairs of the
company and
of the profit or loss of the company for that year. In preparing those
financials, the directors are required to:
Select
suitable accounting policies and then apply them consistently;
Make
judgments and estimates that are reasonable and prudent;
Prepare
the financial statements on the going concern basis unless it is
inappropriate
to presume that the company will continue in business.
The
directors are responsible for keeping proper accounting records
which disclose
with reasonable accuracy at any time the financial position of
the company and
to enable them to ensure that the financial statements comply with
the Companies
Act 1985. They are also responsible for safeguarding the assets
of the company
and hence for taking reasonable steps for the prevention and detection
of fraud
and other irregularities.
This
report has been prepared in accordance with the special provisions
of Part VII
of the Companies Act 1985 applicable to small companies.
INDEPENDENT
AUDITORS' REPORT TO THE
SHAREHOLDERS
OF MARTECH SYSTEMS (WEYMOUTH)
LIMITED
We
have
audited the financial statements of Martech Systems (Weymouth)
Limited for the
year ended 31 October 2005, which comprise the Profit and Loss
Account, Balance
Sheet and the related notes.
These
financial statements have been prepared under the historical
cost convention and
the accounting policies set out therein.
This
report is made solely to the company's members, as a body, in
accordance with
section 235 of the Companies Act 1985. Our audit work has been
undertaken so
that we might state to the company'smembers those matters we
are required to
state to them in the auditor's report and for no other purpose.
To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone
other than the company and the company's members as a body, for
our audit work,
for this report, or for the opinions we have formed.
Respective
responsibilities of directors and auditors
As
described in the statement of Directors' Responsibilities the
company's
directors are responsible for the preparation of the financial
statements in
accordance with applicable law and United Kingdom Accounting
Standards.
Our
responsibility is to audit the financial statements in accordance
with relevant
legal and regulatory requirements and United Kingdom Auditing
Standards.
We
report
to you our opinion as to whether the financial statements give
a true and fair
view and are properly prepared in accordance with the Companies
Act 1985. We
also report to you if, in our opinion, the Directors' Report
is not consistent
with the financial statements, if the company has not kept proper
accounting
records, if we have not received all the information and explanations
we require
for our audit, or if information specified by law regarding directors'
remuneration and transactions with the company is not disclosed.
We
read
the Directors' Report and consider the implications for our report
if we become
aware of any apparent misstatements within it.
Basis
of audit opinion
We
conducted our audit in accordance with United Kingdom Auditing
Standards issued
by the Auditing Practices Board. An audit includes examination,
on a test basis,
of evidence relevant to the amounts and disclosures in the financial
statements.
It also includes an assessment of the significant estimates and
judgements made
by the directors in the preparation of the financial statements,
and of whether
the accounting policies are appropriate to the company's circumstances,
consistently applied and adequately disclosed.
We
planned and performed our audit so as to obtain all the information
and
explanations which we considered necessary in order to provide
us with
sufficient evidence to give reasonable assurance that the financial
statements
are free from material misstatement, whether caused by fraud
or other
irregularity or error. In forming our opinion we also evaluated
the overall
adequacy of the presentation of information in the financial
statements.
Opinion
In
our
opinion the financial statements give a true and fair view of
the state of the
company's affairs at 31 October 2005 and of its profit for the
year then ended
and have been properly prepared in accordance with the provisions
of the
Companies Act 1985.
|
Weymouth
|
COYNE,
BUTTERWORTH & CHALMERS
|
|
5
December 2006
|
Registered
Auditors
|
| |
Chartered
Accountants
|
MARTECH
SYSTEMS (WEYMOUTH) LIMITED
PROFIT
AND LOSS ACCOUNT FOR THE YEAR ENDED 31 OCTOBER 2005
| |
|
|
|
2005
|
|
|
|
2004
|
|
|
|
| |
|
Note
|
|
£
|
|
£
|
|
£
|
|
£
|
|
|
TURNOVER
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
|
|
|
|
|
|
|
|
|
1170220
|
|
|
|
|
|
1898763
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST
OF SALES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
|
|
|
111245
|
|
|
|
|
|
274015
|
|
|
|
|
|
Consultancy
|
|
|
|
|
|
191324
|
|
|
|
|
|
563222
|
|
|
|
|
|
Production
staff
|
|
|
|
|
|
426825
|
|
|
|
|
|
529686
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
729394
|
|
|
|
|
|
1366923
|
|
|
GROSS
PROFIT
|
|
|
|
|
|
|
|
|
440826
|
|
|
|
|
|
531840
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADMINISTRATIVE
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors
remuneration
|
|
|
2
|
|
|
115914
|
|
|
|
|
|
119221
|
|
|
|
|
|
Staff
salaries
|
|
|
|
|
|
47050
|
|
|
|
|
|
63600
|
|
|
|
|
|
Rent
|
|
|
|
|
|
28360
|
|
|
|
|
|
26947
|
|
|
|
|
|
Business
rates
|
|
|
|
|
|
6847
|
|
|
|
|
|
6856
|
|
|
|
|
|
Light
heat and power
|
|
|
|
|
|
2614
|
|
|
|
|
|
2087
|
|
|
|
|
|
Water
and effluent
|
|
|
|
|
|
458
|
|
|
|
|
|
467
|
|
|
|
|
|
Insurance
|
|
|
|
|
|
11276
|
|
|
|
|
|
12011
|
|
|
|
|
|
Repairs
and renewals
|
|
|
|
|
|
7209
|
|
|
|
|
|
5870
|
|
|
|
|
|
Postage
and stationery
|
|
|
|
|
|
6692
|
|
|
|
|
|
6402
|
|
|
|
|
|
Telephone
and facsimile
|
|
|
|
|
|
2702
|
|
|
|
|
|
3180
|
|
|
|
|
|
Computer
consumables
|
|
|
|
|
|
6210
|
|
|
|
|
|
5360
|
|
|
|
|
|
Travel
and subsistence
|
|
|
|
|
|
8122
|
|
|
|
|
|
9694
|
|
|
|
|
|
Advertising
|
|
|
|
|
|
152
|
|
|
|
|
|
418
|
|
|
|
|
|
Entertaining
|
|
|
|
|
|
1564
|
|
|
|
|
|
3296
|
|
|
|
|
|
Legal
fees
|
|
|
|
|
|
200
|
|
|
|
|
|
2390
|
|
|
|
|
|
Accountancy
fees
|
|
|
|
|
|
8920
|
|
|
|
|
|
5450
|
|
|
|
|
|
Other
professional fees
|
|
|
|
|
|
17926
|
|
|
|
|
|
40036
|
|
|
|
|
|
Equipment
hire
|
|
|
|
|
|
87
|
|
|
|
|
|
346
|
|
|
|
|
|
Bank
charges
|
|
|
|
|
|
1580
|
|
|
|
|
|
1918
|
|
|
|
|
|
Cleaning
and laundry
|
|
|
|
|
|
2558
|
|
|
|
|
|
2489
|
|
|
|
|
|
Staff
amenities
|
|
|
|
|
|
1323
|
|
|
|
|
|
1097
|
|
|
|
|
|
Staff
training
|
|
|
|
|
|
5807
|
|
|
|
|
|
3559
|
|
|
|
|
|
Sundry
|
|
|
|
|
|
1517
|
|
|
|
|
|
598
|
|
|
|
|
|
Lease
amortisation
|
|
|
3
|
|
|
383
|
|
|
|
|
|
383
|
|
|
|
|
|
Depreciation
|
|
|
3
|
|
|
11559
|
|
|
|
|
|
20911
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
297030
|
|
|
|
|
|
344586
|
|
|
OPERATING
PROFIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
carried
forward
|
|
|
|
|
|
|
|
|
143796
|
|
|
|
|
|
187254
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
PROFIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
brought
forward
|
|
|
|
|
|
|
|
|
143796
|
|
|
|
|
|
187254
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST
RECEIVABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AND
SIMILAR INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
tax
|
|
|
|
|
|
-
|
|
|
|
|
|
14
|
|
|
|
|
|
Bank
|
|
|
|
|
|
3892
|
|
|
|
|
|
3603
|
|
|
|
|
|
Overdrawn
loan accounts
|
|
|
|
|
|
-
|
|
|
|
|
|
48
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
3892
|
|
|
|
|
|
3665
|
|
|
PROFIT
ON ORDINARY ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BEFORE
TAXATION
|
|
|
|
|
|
|
|
|
147688
|
|
|
|
|
|
190919
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TAX
ON PROFIT ON
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ORDINARY
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
tax
|
|
|
|
|
|
|
|
|
29405
|
|
|
|
|
|
43852
|
|
|
PROFIT
FOR FINANCIAL YEAR
|
|
|
|
|
|
|
|
|
118283
|
|
|
|
|
|
147067
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brought
forward
|
|
|
|
|
|
|
|
|
286069
|
|
|
|
|
|
270724
|
|
|
DISTRIBUTABLE
PROFIT
|
|
|
|
|
|
|
|
|
404352
|
|
|
|
|
|
417791
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
|
|
|
|
|
|
31300
|
|
|
|
|
|
131722
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried
forward
|
|
|
|
|
|
|
|
|
373052
|
|
|
|
|
|
286069
|
|
The
company has no recognized gains or losses other than the profit
or loss for the
above two financial years.
A
separate statement of the movement of shareholders funds is not
provided as
there are no changes for the current or previous year other than
those shown in
the profit and loss account.
MARTECH
SYSTEMS (WEYMOUTH) LIMITED
BALANCE
SHEET AS AT 31 OCTOBER 2005
| |
|
|
|
2005
|
|
|
|
2004
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Note
|
|
£
|
|
£
|
|
£
|
|
£
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
FIXED
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible
assets
|
|
|
3
|
|
|
|
|
|
24646
|
|
|
|
|
|
30489
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Work
in progress
|
|
|
|
|
|
50753
|
|
|
|
|
|
37374
|
|
|
|
|
|
Debtors
|
|
|
4
|
|
|
220313
|
|
|
|
|
|
402638
|
|
|
|
|
|
Cash
at bank and in hand
|
|
|
5
|
|
|
224156
|
|
|
|
|
|
142383
|
|
|
|
|
| |
|
|
|
|
|
495222
|
|
|
|
|
|
582395
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CREDITORS:
Amounts falling
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due
within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors
|
|
|
|
|
|
18372
|
|
|
|
|
|
50238
|
|
|
|
|
|
Other
creditors
|
|
|
6
|
|
|
113444
|
|
|
|
|
|
261577
|
|
|
|
|
| |
|
|
|
|
|
131816
|
|
|
|
|
|
311815
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
363406
|
|
|
|
|
|
270580
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS LESS LIABILITIES
|
|
|
|
|
|
|
|
|
388052
|
|
|
|
|
|
301069
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAPITAL
AND RESERVES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Called
up share capital
|
|
|
7
|
|
|
|
|
|
15000
|
|
|
|
|
|
15000
|
|
|
Profit
and loss account
|
|
|
|
|
|
|
|
|
373052
|
|
|
|
|
|
286069
|
|
|
SHAREHOLDERS
FUNDS
|
|
|
|
|
|
|
|
|
388052
|
|
|
|
|
|
301069
|
|
The
financial statements have been prepared in accordance with
the special
provisions of Part VII of the Companies Act 1985 applicable
to small companies
and in accordance with the Financial Reporting Standard for
Smaller Entities
(effective June 2002).
The
financial statements were approved by the board of directors
on 22 March
2006.
B
G
BROOKES
L
L
SHORT
C
R
PEGRUM
MARTECH
SYSTEMS (WEYMOUTH) LIMITED
NOTES
TO THE FINANCIAL STATEMENTS
FOR
THE YEAR ENDED 31 OCTOBER 2005
Accounting
convention
The
financial statements are prepared under the historical cost
convention and in
accordance with the Financial Reporting Standard for Smaller
Entities (effective
June 2002).
Tangible
assets
Depreciation
is provided on assets so as to write off their cost during
the expected useful
life of the asset.
|
The
rates of depreciation are as follows:
|
|
| Leasehold improvements
|
Over the term of the
lease |
| Equipment |
15% of written down
value |
| Computer equipment
|
3 years straight
line |
Work
in progress
Work
in
progress is stated at the lower of cost and net realisable
value. Cost
represents materials, direct labour and where appropriate,
production overheads.
Leasing
Rental
costs under operating leases are charged to the Profit and
Loss Account as
incurred.
Turnover
Turnover
represents amounts derived from the provision of goods and
services falling
within the company's ordinary activities, net of value added
tax and discounts.
Pensions
The
company operates a defined contribution scheme and the pension
charge represents
the amounts payable by the company to the fund in respect
of the
year.
| |
|
2005
|
|
2004
|
|
| |
|
£
|
|
£
|
|
|
2.
DIRECTORS
REMUNERATION
|
|
|
|
|
|
|
Salary
|
|
|
69143
|
|
|
69143
|
|
|
Social
security costs
|
|
|
6971
|
|
|
7028
|
|
|
Other
pension costs
|
|
|
39800
|
|
|
43050
|
|
| |
|
|
115914
|
|
|
119221
|
|
|
3.
TANGIBLE
FIXED ASSETS
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Leasehold
|
|
|
|
|
|
| |
|
|
|
Improvements
|
|
Equipment
|
|
Total
|
|
| |
|
|
|
£
|
|
£
|
|
£
|
|
|
Cost:
|
|
|
|
|
|
|
|
|
|
|
Brought
forward
|
|
|
|
|
|
5641
|
|
|
128477
|
|
|
134118
|
|
|
Additions
|
|
|
|
|
|
-
|
|
|
6099
|
|
|
6099
|
|
|
Carried
forward
|
|
|
|
|
|
5641
|
|
|
134576
|
|
|
140217
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brought
forward
|
|
|
|
|
|
2193
|
|
|
101436
|
|
|
103629
|
|
|
Provision
|
|
|
|
|
|
383
|
|
|
11559
|
|
|
11942
|
|
|
Carried
forward
|
|
|
|
|
|
2576
|
|
|
112995
|
|
|
115571
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
book value
|
|
|
|
|
|
3065
|
|
|
21581
|
|
|
24646
|
|
| |
|
|
|
2005
|
|
2004
|
|
|
4.
DEBTORS:
|
|
|
|
£
|
|
£
|
|
|
Amounts
due within one year
|
|
|
|
|
|
|
|
|
Trade
debtors
|
|
|
|
|
|
216784
|
|
|
398914
|
|
|
Other
|
|
|
|
|
|
1385
|
|
|
1257
|
|
|
Prepayments
|
|
|
|
|
|
2144
|
|
|
2467
|
|
| |
|
|
|
|
|
220313
|
|
|
402638
|
|
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
5.
CASH
AT BANK AND IN HAND
|
|
|
|
|
|
|
|
|
|
|
|
Business
reserve
|
|
|
|
|
|
214385
|
|
|
56574
|
|
|
Current
account
|
|
|
|
|
|
9655
|
|
|
85729
|
|
|
Cash
in hand
|
|
|
|
|
|
116
|
|
|
80
|
|
| |
|
|
|
|
|
224156
|
|
|
142383
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
6.
OTHER
CREDITORS:
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
falling due within one year
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
tax
|
|
|
|
|
|
29405
|
|
|
43852
|
|
|
Other
taxation and social security
|
|
|
|
|
|
59405
|
|
|
85682
|
|
|
Trade
creditors
|
|
|
|
|
|
11652
|
|
|
68744
|
|
|
Accruals
|
|
|
|
|
|
12982
|
|
|
63299
|
|
| |
|
|
|
|
|
113444
|
|
|
261577
|
|
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
£
|
|
|
£
|
|
|
7.
SHARE
CAPITAL:
|
|
|
|
|
|
|
|
|
|
|
|
Authorised
|
|
|
|
|
|
|
|
|
|
|
|
1000000
Ordinary "A" shares of £1 each
|
|
|
|
|
|
1000000
|
|
|
1000000
|
|
|
1000000
Ordinary "B" shares of £1 each
|
|
|
|
|
|
1000000
|
|
|
1000000
|
|
|
1000000
Ordinary "C" shares of £1 each
|
|
|
|
|
|
1000000
|
|
|
1000000
|
|
|
1000000
Ordinary "D" shares of £1 each
|
|
|
|
|
|
1000000
|
|
|
1000000
|
|
|
1000000
Ordinary "E" shares of £1 each
|
|
|
|
|
|
1000000
|
|
|
1000000
|
|
|
1000000
Ordinary "F" shares of £1 each
|
|
|
|
|
|
1000000
|
|
|
1000000
|
|
|
1000000
Redeemable Non Preferred Equity shares of £1 each
|
|
|
|
|
|
1000000
|
|
|
1000000
|
|
|
1000000
Redeemable Non Preferred Voting shares of £1 each
|
|
|
|
|
|
1000000
|
|
|
1000000
|
|
|
1000000
Redeemable Non Preferred Non Voting shares of £1 each
|
|
|
|
|
|
1000000
|
|
|
1000000
|
|
|
1000000
Redeemable Preference shares of £1 each
|
|
|
|
|
|
1000000
|
|
|
1000000
|
|
|
1000000
Convertible Deferred shares of £1 each
|
|
|
|
|
|
1000000
|
|
|
1000000
|
|
|
1000000
Deferred Founder shares of £1 each
|
|
|
|
|
|
1000000
|
|
|
1000000
|
|
| |
|
|
|
|
|
12000000
|
|
|
12000000
|
|
|
Called
up, allotted and fully paid
|
|
|
|
|
|
|
|
|
|
|
|
2500
Ordinary "A" shares of £1 each
|
|
|
|
|
|
2500
|
|
|
2500
|
|
|
2500
Ordinary "B" shares of £1 each
|
|
|
|
|
|
2500
|
|
|
2500
|
|
|
2500
Ordinary "C" shares of £1 each
|
|
|
|
|
|
2500
|
|
|
2500
|
|
|
2500
Ordinary "D" shares of £1 each
|
|
|
|
|
|
2500
|
|
|
2500
|
|
|
2500
Ordinary "E" shares of £1 each
|
|
|
|
|
|
2500
|
|
|
2500
|
|
|
2500
Ordinary "F" shares of £1 each
|
|
|
|
|
|
2500
|
|
|
2500
|
|
| |
|
|
|
|
|
15000
|
|
|
15000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
8.
LEASING
COMMITMENTS
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
At
the year end the Company had annual committments
under
non-cancellable operating leases as detailed belwo
|
|
|
|
|
|
|
|
|
|
|
|
Operating
leases which expire:
|
|
|
|
|
|
|
|
|
|
|
|
After
more than five years
|
|
|
|
|
|
26860
|
|
|
26131
|
|
| 9. |
SUMMARY
OF PRINCIPAL DIFFERENCES OF GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
BETWEEN THE UNITED KINGDOM AND THE UNITED STATES
GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
|
The
company's financial statements have been prepared under United
Kingdom Generally
Accepted Accounting Principles (“UK GAAP”), which differs in certain significant
respects from the United States Generally Accepted Accounting
Principles ("US
GAAP"). The principal differences between the Company's accounting
policies
under UK GAAP and US GAAP are set out below:
1.
Reconciliation of net loss and net assets between UK GAAP
and US
GAAP.
There
are
no significant differences between the net loss and stockholders'
equity as
reported under UK GAAP and as reported under US GAAP.
2.
Loss
per share.
There
are
no significant differences between the loss per share as
reported under UK GAAP
and as reported under US GAAP.
3.
Statements of cash flows.
There
are
no significant differences between the statement of cash
flows as reported under
UK GAAP and as reported under US GAAP.
|
Martech
Systems (Weymouth) Limited
|
| |
|
|
|
|
|
|
|
Management
accounts (unaudited) 30 April 2005
|
| |
|
|
|
|
|
|
|
Balance
sheet
|
| |
|
|
|
|
|
|
| |
|
2005
|
|
| |
|
£
|
|
£
|
|
| |
|
|
|
|
|
|
Tangible
fixed assets
|
|
|
|
|
|
24,518
|
|
| |
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
Work
in progress
|
|
|
45,474
|
|
|
|
|
|
Trade
debtors
|
|
|
213,152
|
|
|
|
|
|
Other
debtors
|
|
|
1,257
|
|
|
|
|
|
Prepayments
|
|
|
2,467
|
|
|
|
|
|
Cash
at bank
|
|
|
231,181
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
493,531
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Directors
|
|
|
1,913
|
|
|
|
|
|
Corporation
tax
|
|
|
57,882
|
|
|
|
|
|
Other
taxation and social security
|
|
|
31,489
|
|
|
|
|
|
Trade
creditors
|
|
|
55,397
|
|
|
|
|
|
Accruals
|
|
|
10,485
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
157,166
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Net
current assets
|
|
|
|
|
|
336,365
|
|
| |
|
|
|
|
|
|
|
|
Total
assets less liabilities
|
|
|
|
|
|
360,883
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Capital
and reserves
|
|
|
|
|
|
|
|
|
Share
capital
|
|
|
|
|
|
15,000
|
|
|
Profit
and loss account
|
|
|
|
|
|
345,883
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
360,883
|
|
|
Martech
Systems (Weymouth) Limited
|
| |
|
|
|
|
|
|
Management
accounts (unaudited) 30 April 2005
|
| |
|
|
|
|
|
|
Profit
and loss account
|
| |
|
|
|
2005
|
|
| |
|
|
|
£
|
|
| |
|
|
|
|
|
|
Turnover
|
|
|
|
|
|
589,377
|
|
| |
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
43,553
|
|
|
|
|
|
Consultancy
|
|
|
120,083
|
|
|
|
|
|
Production
staff
|
|
|
215,020
|
|
|
|
|
| |
|
|
|
|
|
(378,656
|
)
|
| |
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
|
|
|
210,721
|
|
| |
|
|
|
|
|
|
|
|
Administrative
expenses
|
|
|
|
|
|
|
|
|
Indirect
wages
|
|
|
76,881
|
|
|
|
|
|
Rent
|
|
|
14,922
|
|
|
|
|
|
Depreciation
|
|
|
5,971
|
|
|
|
|
|
Other
expenses
|
|
|
41,127
|
|
|
|
|
| |
|
|
|
|
|
(138,901
|
)
|
| |
|
|
|
|
|
|
|
|
Operating
profit
|
|
|
|
|
|
71,820
|
|
| |
|
|
|
|
|
|
|
|
Interest
receivable
|
|
|
|
|
|
2,024
|
|
| |
|
|
|
|
|
|
|
|
Pre
tax profit
|
|
|
|
|
|
73,844
|
|
| |
|
|
|
|
|
|
|
|
Corporation
tax
|
|
|
|
|
|
(14,030
|
)
|
| |
|
|
|
|
|
|
|
|
Dividends
|
|
|
|
|
|
0
|
|
| |
|
|
|
|
|
|
|
|
Profit
brought forward
|
|
|
|
|
|
286,069
|
|
| |
|
|
|
|
|
|
|
|
Profit
carried forward
|
|
|
|
|
|
345,883
|
|
|
Martech
Systems (Weymouth) Limited
|
|
|
|
|
|
|
|
|
Management
accounts (unaudited) 30 April 2006
|
|
|
|
|
|
|
|
|
Balance
sheet
|
| |
|
|
|
|
|
| |
|
2006
|
|
| |
|
£
|
|
£
|
|
| |
|
|
|
|
|
|
Tangible
fixed assets
|
|
|
|
|
|
22,039
|
|
| |
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
Work
in progress
|
|
|
70,160
|
|
|
|
|
|
Trade
debtors
|
|
|
189,805
|
|
|
|
|
|
Other
debtors
|
|
|
1,385
|
|
|
|
|
|
Prepayments
|
|
|
2,145
|
|
|
|
|
|
Cash
at bank
|
|
|
242,839
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
506,334
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Directors
|
|
|
3,978
|
|
|
|
|
|
Corporation
tax
|
|
|
33,759
|
|
|
|
|
|
Other
taxation and social security
|
|
|
46,560
|
|
|
|
|
|
Trade
creditors
|
|
|
53,562
|
|
|
|
|
|
Accruals
|
|
|
12,982
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
150,841
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Net
current assets
|
|
|
|
|
|
355,493
|
|
| |
|
|
|
|
|
|
|
|
Total
assets less liabilities
|
|
|
|
|
|
377,532
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Capital
and reserves
|
|
|
|
|
|
|
|
|
Share
capital
|
|
|
|
|
|
15,000
|
|
|
Profit
and loss account
|
|
|
|
|
|
362,532
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
377,532
|
|
|
Martech
Systems (Weymouth) Limited
|
| |
|
|
|
|
|
|
Management
accounts (unaudited) 30 April 2006
|
| |
|
|
|
|
|
|
Profit
and loss account
|
| |
|
|
|
|
|
| |
|
|
|
2006
|
|
| |
|
|
|
£
|
|
| |
|
|
|
|
|
|
Turnover
|
|
|
|
|
|
484,005
|
|
| |
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
58,146
|
|
|
|
|
|
Consultancy
|
|
|
49,642
|
|
|
|
|
|
Production
staff
|
|
|
222,836
|
|
|
|
|
| |
|
|
|
|
|
(330,624
|
)
|
| |
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
|
|
|
153,381
|
|
| |
|
|
|
|
|
|
|
|
Administrative
expenses
|
|
|
|
|
|
|
|
|
Indirect
wages
|
|
|
80,961
|
|
|
|
|
|
Rent
|
|
|
14,718
|
|
|
|
|
|
Depreciation
|
|
|
2,607
|
|
|
|
|
|
Other
expenses
|
|
|
34,735
|
|
|
|
|
| |
|
|
|
|
|
(133,021
|
)
|
| |
|
|
|
|
|
|
|
|
Operating
profit
|
|
|
|
|
|
20,360
|
|
| |
|
|
|
|
|
|
|
|
Interest
receivable
|
|
|
|
|
|
2,554
|
|
| |
|
|
|
|
|
|
|
|
Pre
tax profit
|
|
|
|
|
|
22,914
|
|
| |
|
|
|
|
|
|
|
|
Corporation
tax
|
|
|
|
|
|
(4,354
|
)
|
| |
|
|
|
|
|
|
|
|
Dividends
|
|
|
|
|
|
0
|
|
| |
|
|
|
|
|
|
|
|
Profit
brought forward
|
|
|
|
|
|
343,972
|
|
| |
|
|
|
|
|
|
|
|
Profit
carried forward
|
|
|
|
|
|
362,532
|
|
MILLER
AND HILTON, INC.
d/b/a
COLMEK SYSTEMS
ENGINEERING
FINANCIAL
STATEMENTS
OCTOBER
31, 2006 and 2005
| Report of
Independent Registered
Certified Public Accounting Firm |
F-40
|
| |
|
| Financial
Statements |
|
| |
|
| Balance Sheets |
|
| Statement of Operations |
|
| Statement of Changes
in Stockholders’
Equity |
|
| Statement of Cash
Flows |
|
| Notes to the Financial
Statements |
|
RUSSELL
BEDFORD STEFANOU MIRCHANDANI LLP
CERTIFIED
PUBLIC ACCOUNTANTS
REPORT
OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING
FIRM
Board
of
Directors
Miller
& Hilton Inc.
Salt
Lake
City, Utah
We
have
audited the accompanying balance sheets of Miller
& Hilton Inc.
(the
“Company”), as of October 31, 2006 and 2005, and the related statements of
stockholder’s equity, operations and cash flows for each of the two years in the
period ended October 31, 2006. These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe our audit
provide a reasonable basis for our opinion.
As
discussed in Note 1 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No.
123(R), “Share-Based Payments”, effective January 1, 2006.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Miller
& Hilton Inc. as
of
October 31, 2006 and 2005, and the results of its operations and its cash
flows
for each of the two years in the period ended October 31, 2006 in conformity
with accounting principles generally accepted in the United States of
America.
| |
/S/
Russell Bedford Stefanou Mirchandani LLP
|
|
New York, New York
April 23, 2007
|
Russell Bedford Stefanou Mirchandani
LLP |
MILLER
AND HILTON, INC
BALANCE
SHEETS
OCTOBER
31, 2006 and 2005
|
ASSETS
|
|
2006
|
|
2005
|
|
| |
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
23,161
|
|
$
|
210,311
|
|
|
Accounts
receivable, Net (Note 2)
|
|
|
448,356
|
|
|
301,045
|
|
|
Unbilled
receivables (Note 3)
|
|
|
26,372
|
|
|
211,163
|
|
|
Other
current assets
|
|
|
-
|
|
|
53
|
|
| |
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
497,889
|
|
|
722,572
|
|
| |
|
|
|
|
|
|
|
|
Property
and equipment, net (Note 4)
|
|
|
86,635
|
|
|
58,305
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
584,524
|
|
$
|
780,877
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
LIABILITIES
AND DEFICIENCY IN STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
336,242
|
|
$
|
89,497
|
|
|
Deferred
revenue (Note 3)
|
|
|
110,145
|
|
|
535,135
|
|
|
Accrued
expenses (Note 7)
|
|
|
150,702
|
|
|
192,838
|
|
|
Line
of credit (Note 8)
|
|
|
34,375
|
|
|
45,411
|
|
|
Notes
payable -related party-short term (Note 9)
|
|
|
44,129
|
|
|
44,130
|
|
|
Notes
payable-autos-short term (Note 11)
|
|
|
12,797
|
|
|
11,190
|
|
|
Deferred
compensation-short term (Note 10)
|
|
|
21,850
|
|
|
21,850
|
|
| |
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
710,240
|
|
|
940,051
|
|
| |
|
|
|
|
|
|
|
|
NON-CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
Notes
payable -related party-short term
|
|
|
44,130
|
|
|
88,259
|
|
|
Notes
payable-autos-short term
|
|
|
42,075
|
|
|
26,899
|
|
|
Deferred
compensation-short term
|
|
|
69,191
|
|
|
91,041
|
|
| |
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
865,636
|
|
|
1,146,250
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Deficiency
in Stockholders' equity: (Notes 12, and 13)
|
|
|
|
|
|
|
|
Common
stock- $1 par value, 1000 shares authorized;
402 shares issued at as
of October 31, 2006 and 2005
|
|
|
402
|
|
|
402
|
|
|
Retained
earnings
|
|
|
138,091
|
|
|
133,165
|
|
|
Additional
paid-in capital
|
|
|
67,500
|
|
|
-
|
|
|
Less:
Cost of treasury stock
|
|
|
(244,611
|
)
|
|
(284,604
|
)
|
|
Less:
Cost of stock subscribed
|
|
|
(147,994
|
)
|
|
(214,336
|
)
|
|
Less:
Stock subscription receivable (Note 5)
|
|
|
(94,500
|
)
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
Total
deficiency in stockholders' equity
|
|
|
(281,112
|
)
|
|
(365,373
|
)
|
| |
|
|
|
|
|
|
|
|
Total
liabilities and deficiency in stockholders' equity
|
|
$
|
584,524
|
|
$
|
780,877
|
|
The
accompanying notes are an integral part of these financial
statements.
MILLER
AND HILTON INC.
STATEMENTS
OF OPERATIONS
FOR
THE
YEARS ENDED OCTOBER 31, 2006 and 2005
| |
|
2006
|
|
2005
|
|
| |
|
|
|
|
|
|
Net
revenue
|
|
$
|
2,969,164
|
|
$
|
1,595,468
|
|
| |
|
|
|
|
|
|
|
|
Cost
of revenue
|
|
|
1,515,785
|
|
|
773,065
|
|
| |
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
1,453,379
|
|
|
822,403
|
|
| |
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
1,345,408
|
|
|
1,005,235
|
|
| |
|
|
|
|
|
|
|
|
Operating
income ( loss)
|
|
|
107,971
|
|
|
(182,832
|
)
|
| |
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
16,790
|
|
|
(11,744
|
)
|
| |
|
|
|
|
|
|
|
|
Net
income (loss) before income taxes
|
|
|
124,761
|
|
|
(194,576
|
)
|
| |
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
New
income (loss)
|
|
$
|
124,761
|
|
$
|
(194,576
|
)
|
The
accompanying notes are an integral part of
these financial statements.
MILLER
AND HILTON INC.
STATEMENTS
OF CHANGES IN STOCKHOLDERS' EQUITY
FOR
THE
TWO YEARS ENDED OCTOBER 31, 2006
| |
|
|
|
|
|
|
|
|
|
Common
|
|
Stock
|
|
Additional
|
|
|
|
|
|
| |
|
Common
Stock
|
|
Treasury
Stock
|
|
Stock
|
|
Subscription
|
|
Paid-in
|
|
Retained
|
|
|
|
| |
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Subscribed
|
|
Receivable
|
|
Capital
|
|
Earnings
|
|
Total
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
October 31, 2004
|
|
|
402
|
|
$
|
402.00
|
|
|
(25
|
)
|
$
|
(110,262
|
)
|
$
|
(280,678
|
)
|
$
|
-
|
|
$
|
-
|
|
$
|
327,741
|
|
$
|
(62,797
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
buy-back from the Hilton Estate
|
|
|
|
|
|
|
|
|
(13
|
)
|
|
(66,342
|
)
|
|
66,342
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
buy-back from Brent Miller
|
|
|
|
|
|
|
|
|
(24
|
)
|
|
(108,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(108,000
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(194,576
|
)
|
$
|
(194,576
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
October 31, 2005
|
|
|
402
|
|
|
402
|
|
|
(62
|
)
|
|
(284,604
|
)
|
|
(214,336
|
)
|
|
-
|
|
|
-
|
|
|
133,165
|
|
|
(365,373
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
buy-back from the Hilton Estate
|
|
|
|
|
|
|
|
|
(13
|
)
|
|
(66,342
|
)
|
|
66,342
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
buy-back from Brent Miller
|
|
|
|
|
|
|
|
|
(20
|
)
|
|
(108,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(108,000
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of options issued to employees and and officers as
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,500
|
|
|
|
|
|
67,500
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury
stock issued to officers in exchange for
note receivables
|
|
|
|
|
|
|
|
|
42
|
|
|
214,335
|
|
|
|
|
|
(94,500
|
)
|
|
|
|
|
(119,835
|
)
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124,761
|
|
|
124,761
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
October 31, 2006
|
|
|
402
|
|
$
|
402
|
|
|
(53
|
)
|
$
|
(244,611
|
)
|
$
|
(147,994
|
)
|
$
|
(94,500
|
)
|
$
|
67,500
|
|
$
|
138,091
|
|
$
|
(281,112
|
)
|
The
accompanying notes are an integral part of
these financial statements.
MILLER
AND HILTON, INC.
STATEMENT
OF CASH FLOWS
FOR
THE
YEARS ENDED OCTOBER 31, 2006 and 2005
| |
|
2006
|
|
2005
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
$
|
124,761
|
|
$
|
(194,576
|
)
|
| |
|
|
|
|
|
|
|
Adjustments
to reconcile income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
15,295
|
|
|
15,885
|
|
|
Stock
compensation
|
|
|
67,500
|
|
|
-
|
|
|
Gain
on sale of asset
|
|
|
(17,534
|
)
|
|
-
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(147,311
|
)
|
|
(52,104
|
)
|
|
Unbilled
receivables
|
|
|
184,791
|
|
|
(149,232
|
)
|
|
Inventories
|
|
|
-
|
|
|
46,934
|
|
|
Other
current assets
|
|
|
53
|
|
|
47
|
|
|
Accounts
payable
|
|
|
246,745
|
|
|
17,568
|
|
|
Accrued
expenses
|
|
|
(424,990
|
)
|
|
55,106
|
|
|
Deferred
compensation
|
|
|
(21,850
|
)
|
|
(21,350
|
)
|
|
Deferred
revenue
|
|
|
(42,136
|
)
|
|
531,066
|
|
|
Net
cash provided by operating activities
|
|
|
(14,676
|
)
|
|
249,344
|
|
| |
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment
|
|
|
-
|
|
|
(11,105
|
)
|
|
Proceeds
from sale of equipment
|
|
|
17,000
|
|
|
-
|
|
|
Net
cash provided by (used in) investing activities
|
|
|
17,000
|
|
|
(11,105
|
)
|
| |
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
(Payments
to) proceeds from line of credit
|
|
|
(11,036
|
)
|
|
29,821
|
|
|
Payments
on note payable - related party
|
|
|
(44,130
|
)
|
|
(44,129
|
)
|
|
Payments
for repurchase of treasury stock
|
|
|
(108,000
|
)
|
|
(108,000
|
)
|
|
Note
payable - autos
|
|
|
(26,308
|
)
|
|
(11,448
|
)
|
|
Net
cash (used in) provided by financing activities
|
|
|
(189,474
|
)
|
|
(133,756
|
)
|
| |
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(187,150
|
)
|
|
104,483
|
|
| |
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of year
|
|
|
210,311
|
|
|
105,828
|
|
| |
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of year
|
|
$
|
23,161
|
|
$
|
210,311
|
|
| |
|
|
|
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
$
|
100
|
|
$
|
2,900
|
|
|
Interest
|
|
$
|
9,566
|
|
$
|
6,190
|
|
The
accompanying notes are an integral part of these financial
statements.
MILLER
AND HILTON, INC.
NOTES
TO THE FINANCIAL STATEMENTS
OCTOBER
31, 2006 AND 2005
NOTE
1 - SUMMARY OF ACCOUNTING POLICIES
The
preparation of financial statements in conformity with US generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the
reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Business
and Basis of Presentation
Miller
& Hilton, Inc, DBA Colmek Systems Engineering (“The Company” or “Colmek”)
was formed under the laws of the State of Utah in 1977. The Company provides
services to address critical design and manufacturing problems for defense,
research and exploration companies. The Company’s designs and systems are used
in military and commercials applications where rigged-reliability under
extreme
operational conditions is paramount and lives depend on accurate and precise
information. We are based out of Salt Lake City, Utah where our research
and
development, sales and manufacturing facilities are also located.
Cash
and Cash Equivalents
Cash
equivalents are comprised of highly liquid investments with maturity of
three
months or less when purchased. We maintain our cash in an operating and
payroll
accounts.
Trade
Receivables, Net
Customer
account balances are monitored through a review of account balances, an
assessment of customer financial condition and interactions with the customers.
Allowances for doubtful accounts are established through a specific
identification of problem accounts. There was no allowance for doubtful
accounts
at October 31, 2006 and 2005.
Inventories
Inventories
are stated at the lower of cost or market and are valued primarily on a
first-in, first-out (“FIFO”) basis.
Property,
Plant and Equipment, Net
Colmek
uses a straight-line method for its remaining assets over the estimated
useful
lives of such assets as follows: land improvements, 20 years; buildings
and
improvements, 20 to 40 years; and machinery and equipment, 2 to 12 years.
Repairs and maintenance are charged to operations as incurred, and expenditures
for additions and improvements are capitalized at cost.
Revenue
Recognition
Sales
are
recorded on a percentage of completion of signed contract. Contracts are
completed when persuasive evidence of delivery and acceptance exists. In
the
contracts the selling price is fixed or determinable,
collectibility is reasonably assured and the services have been rendered
or the
products have been shipped and risk of loss has transferred to the customer.
MILLER
AND HILTON, INC.
NOTES
TO THE FINANCIAL STATEMENTS
OCTOBER
31, 2006 AND 2005
NOTE
1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
For
contracts that include multiple deliverables, such as installation, repair,
training, aftermarket supplies or service, Colmek applies the guidance in
Emerging Issues Task Force (“EITF”) 00-21 “Revenue
Arrangements with Multiple Deliverables”
to
determine whether the contract or arrangement contains more than one unit
of
accounting. An arrangement is separated if: (1) the delivered
element(s) has value to the customer on a stand-alone basis; (2) there is
objective and reliable evidence of the fair value of the undelivered element(s);
and (3) the arrangement includes a general right of return relative to the
delivered element(s), delivery or performance of the undelivered element(s)
is
considered probable and is substantially in the control of Colmek. If all
three criteria are met, the appropriate revenue recognition convention is
then
applied to each separate unit of accounting. The total arrangement
consideration is allocated to the separate units of accounting based on each
component’s objectively determined fair value, such as sales prices for the
component when it is regularly sold on a stand-alone basis or third-party
prices
for similar components. If all three criteria are not met, revenue is
deferred until such criteria are met or until the period in which the last
undelivered element is delivered. The amount allocable to the delivered elements
is limited to the amount that is not contingent upon delivery of additional
elements or meeting other specified performance conditions.
Warranty
services are provided on an as requested basis. There is no provision for
the
cost of warranty services.
Advertising
Cost
Advertising
costs are expensed as incurred. The Company did not incur any material
advertising costs during the years ended October 31, 2006 and 2005.
Income
Taxes
Income
taxes are recognized during the year in which transactions enter into the
determination of financial statement income, with deferred taxes provided
for
temporary differences between amounts of assets and liabilities recorded
for tax
and financial reporting purposes. Deferred tax assets include the tax benefits
for losses and credit carry-forwards that will result in the reduction of
taxes
payable in future years.
Stock
Based Compensation — SFAS No. 123, “Accounting for Stock-Based Compensation”,
establishes and encourages the use of the fair value based method of accounting
for stock-based compensation arrangements under which compensation cost is
determined using the fair value of stock-based compensation determined as
of the
date of the grant or the date at which the performance of the services is
completed and is recognized over the periods in which the related services
are
rendered. The statement also permits companies to elect to continue using
the
current intrinsic value accounting method specified in Accounting Principles
Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees”, to
account for stock-based compensation to employees. We use the fair value
method
for equity instruments granted to employees and non-employees and use the
Black
Scholes model for measuring the fair value. The stock based fair value
compensation is determined as of the date of the grant or the date at which
the
performance of the services is completed (measurement date) and is recognized
over the periods in which the related services are rendered.
NOTE
2 ACCOUNTS RECEIVALBE
Trade
receivables at October 31, 2006 and 2005 were $448,356 and $301,045,
respectively.
MILLER
AND HILTON, INC.
NOTES
TO THE FINANCIAL STATEMENTS
OCTOBER
31, 2006 AND 2005
NOTE
3 CONTRACTS IN PROGRESS
Costs
and
estimated earnings in excess of billings on uncompleted contracts represent
accumulated project expenses and fees which have not been invoiced to customers
as of the date of the balance sheet. These amounts are stated on the balance
sheet as Unbilled Receivables of $ 26,372 and $ 211,163 as of October 31,
2006
and 2005 respectively.
Billings
in excess of cost and estimated earnings on uncompleted contracts represent
project invoices billed to customers that have not been earned as of the
date of
the balance sheet. These amounts are stated on the balance sheet as Deferred
Revenue of $ 110,145 and $ 535,135 as of October 31, 2006 and 2005
respectively.
NOTE
4 PROPERTY, PLANT, AND EQUIPMENT, NET
Colmek
uses a straight-line method for its remaining assets over the estimated useful
lives of such assets as follows: land improvements, 20 years; buildings and
improvements, 20 to 40 years; and machinery and equipment, 2 to 12 years.
Repairs and maintenance are charged to operations as incurred, and expenditures
for additions and improvements are capitalized at cost.
Property,
plant and equipment, net consist of the following:
| |
|
At
October 31,
|
|
| |
|
2006
|
|
2005
|
|
| |
|
|
|
|
|
|
Buildings
and improvements
|
|
$
|
44,966
|
|
$
|
44,966
|
|
|
Trucks
and Autos
|
|
|
80,718
|
|
|
76,647
|
|
|
Machinery
and equipment
|
|
|
210,760
|
|
|
247,440
|
|
|
|
|
|
336,444
|
|
|
369,053
|
|
|
Less:
Accumulated depreciation
|
|
|
249,809
|
|
|
310,748
|
|
| |
|
$
|
86,635
|
|
$
|
58,305
|
|
Depreciation
expense for the years ended October 31, 2006 and 2005, was $15,295 and $15,885
respectively.
On
November 16, 2005 the Company sold 42 shares of treasury stock to officers
in
the Company in exchange for notes receivable of $ 94,500 due on November
15,
2010. Interest on the unpaid balance of the notes is at one percent higher
then
the prime rate. Subsequent to the year end these notes receivable were forgiven
by the Company.
The
shareholders, the number of shares conveyed to each, and their related
receivables are as follows:
| |
|
Shares
|
|
Note
Receivable
|
|
| Scott
DeBo |
|
|
32 |
|
$ |
72,000 |
|
| Craig
Adamson |
|
|
5 |
|
$ |
11,250 |
|
| James
Adamson |
|
|
5 |
|
$ |
11,250 |
|
| |
|
|
|
|
$ |
94,500 |
|
MILLER
AND HILTON, INC.
NOTES
TO THE FINANCIAL STATEMENTS
OCTOBER
31, 2006 AND 2005
NOTE
6 INCOME TAXES
The
Company has adopted Financial Accounting Standard No. 109 which requires
the
recog0nistion of deferred tax liabilities and assets for the expected future
tax
consequences of events that have been included in the financial statement
or tax
returns. Under this method, deferred tax liabilities and assets are determined
based on the difference between financial statements and tax bases of assets
and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Temporary differences between taxable
income reported for financial reporting purposes and income tax purposes
are
insignificant.
For
income tax reporting purposes, the Company’s aggregate U.S. unused net operating
losses approximate $445,863 which expire through 2026, subject to limitations
of
Section 384 of the Internal Revenue Code, as amended. The deferred tax asset
related to the carry forward is approximately $156,052. The Company has provided
a valuation reserve against the full amount of the net operating loss benefit,
because in the opinion of management based upon the earning history of the
Company, it is more likely than not that the benefits will not be
realized.
Components
of deferred tax assets as of October, 31 are as follows:
| Non-current: |
|
2006
|
|
2005
|
|
| |
|
|
|
|
|
| Net
operating loss carry forward |
|
$ |
445,863 |
|
$ |
-
|
|
| Valuation
allowance |
|
|
(445,863 |
) |
|
- |
|
| |
|
|
|
|
|
|
|
| Net
deferred tax asset |
|
$ |
- |
|
$ |
- |
|
NOTE
7 ACCRUED EXPENSES
Accrued
expenses as of October 31, are as follows:
|
|
|
At
October 31,
|
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Accrued
wages and payroll taxes
|
|
$
|
66,445
|
|
$
|
83,532
|
|
|
Accrued
vacation
|
|
|
50,644
|
|
|
47,022
|
|
|
State
income tax payable
|
|
|
100
|
|
|
2,678
|
|
|
Retirement
plan contributions
|
|
|
33,513
|
|
|
59,606
|
|
| |
|
$
|
150,702
|
|
$
|
192,838
|
|
MILLER
AND HILTON, INC.
NOTES
TO THE FINANCIAL STATEMENTS
OCTOBER
31, 2006 AND 2005
The
Company has an unsecured line of credit with Wells Fargo Bank in March 2005
which provided for a credit ceiling of $50,000 and an interest rate of 13
percent annually. The line is personally guaranteed by an officer of the
Company. As of the years ended October 31, 2006 and 2005 the balance outstanding
are $34,375 and $45,411 respectively.
NOTE
9 NOTE PAYABLE - RELATED PARTY
The
Company entered into a stock buy-back agreement with the Estate of Thomas
Hilton, a former officer of the Company in 2002 to buy back the stock of
the
Company owned by the Estate. The Company paid the Estate a $675,000 initial
payment in 2002, a second payment of $125,000 in 2003 and was scheduled to
make
additional payments of $44,129 over the next five years. Balance owed to
the
Estate as of the year ended October 31, is as follows:
|
|
|
At
October 31,
|
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Note
payable- related party
|
|
$
|
88,259
|
|
$
|
132,389
|
|
|
Less:
short term portion
|
|
|
44,129
|
|
|
44,130
|
|
|
Long
term note payable - related party
|
|
$
|
44,130
|
|
$
|
88,259
|
|
NOTE
10 DEFERRED COMPENSATION
In
January of 2001 the Company began retirement payments, as previously agreed
upon, to Dale Kendall, a retired employee. Payments began at $1,820.83 per
month
over a ten year period. The final payment is due in December 2010. The balance
outstanding as of the year ended October 31, is as follows:
|
|
|
At
October 31,
|
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Deferred
compensation
|
|
$
|
91,041
|
|
$
|
112,891
|
|
|
Less:
short term portion
|
|
|
21,850
|
|
|
21,850
|
|
|
Long
term deferred compensation
|
|
$
|
69,191
|
|
$
|
91,041
|
|
MILLER
AND HILTON, INC.
NOTES
TO THE FINANCIAL STATEMENTS
OCTOBER
31, 2006 AND 2005
NOTE
11 NOTE PAYABLE - AUTOS
As
of the
years ended October 31, the Company had the following outstanding notes payable
related to car financing:
| |
|
At
October
31,
|
|
| |
|
2006
|
|
2005
|
|
|
Note
payable of $ 31,520 for the financing of a truck for
60
monthly payments of $525.33. As of October 31, 2006
the
truck was sold to an officer of the Company and the
related
debt settled
|
|
$ |
-
|
|
$ |
18,379 |
|
| |
|
|
|
|
|
|
|
| Note
payable of $ 30,127 for the financing of a truck for 66
monthly
payments of $4,782.69 and annual interest of 5.34%
|
|
|
14,814 |
|
|
19,710 |
|
| |
|
|
|
|
|
|
|
| Note
payable of $ 41,091.09 for the financing of a truck
for
60 monthly payments of $897.18 and annual interest
of
10.99%
|
|
$ |
40,058 |
|
$ |
-
|
|
|
|
|
|
|
|
|
|
|
|
Note
payable - autos
|
|
|
54,872 |
|
|
38,089 |
|
|
Less:
short term portion
|
|
|
12,797 |
|
|
11,190 |
|
|
Long
term note payable-autos
|
|
$ |
42,075 |
|
$ |
26,899 |
|
The
Company is authorized to issue 1000 shares of common stock with a par value
of
$1 per share. As of October 31, 2006 and 2005 the Company had issued 402
shares
of common stock.
Treasury
Stock
During
the fiscal year 2004 the Company began to buy back shares of stock from
its
primary shareholder Brent Miller. During the years ended October 31, 2006
and
2005 the Company bought back 20 and 24 respectively for a total cost of
$
108,000 each.
MILLER
AND HILTON, INC.
NOTES
TO THE FINANCIAL STATEMENTS
OCTOBER
31, 2006 AND 2005
NOTE
13 STOCK OPTIONS
During
the year ended October 31, 2006 we issued 30 common share purchase options
to
employees and officers of the Company. The options were issued with an exercise
price of $500. All options vested over a one year period. The initial fair
value
of the options was $67,500 using the Black Scholes method at the date of grant
of the options based on the following assumptions (1) risk free rate of 6%
(2)
dividend yield of 0%. (3) volatily factor of expected market price of our common
stock of 200% (4) an expected life of the options of ten years. The fair value
of options is being expensed over the vesting period. During the years ended
October 31, 2006 and 2005 $67,500 and $0 was charged to expense.
Transactions
involving stock options and warrants issued are summarized as
follows:
| |
|
2006
|
|
2005
|
|
| |
|
|
|
|
|
|
|
Weighted
|
|
| |
|
|
|
Average
|
|
|
|
Average
|
|
| |
|
Number
|
|
Exercise
|
|
Number
|
|
Exercise
|
|
| |
|
|
|
Price
|
|
|
|
Price
|
|
| |
|
|
|
|
|
|
|
|
|
|
Outstanding
at beginning of year
|
|
|
-
|
|
$
|
-
|
|
|
-
|
|
$
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
during the period
|
|
|
30
|
|
|
500
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
during the period
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terminated
during the period
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at end of the year
|
|
|
30
|
|
|
500
|
|
|
-
|
|
$
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at end of the year
|
|
|
30
|
|
|
50
|
|
|
-
|
|
$
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
The
number and weighted average exercise prices of stock purchase options and
warrants outstanding as of October 31, 2006 are as follows:
|
Range
of
Exercise
Prices
|
Number
Outstanding
|
Weighted
Average
Contractual
Life (Yrs)
|
Weighted
Average
Exercise
Price
|
| |
|
|
|
| |
|
|
|
|
500
|
30
|
9.00
|
500
|
MILLER
AND HILTON, INC.
NOTES
TO THE FINANCIAL STATEMENTS
OCTOBER
31, 2006 AND 2005
NOTE
14 CONTINGENCIES AND COMMITMENTS
Litigation
The
ultimate legal and financial liability of Colmek in respect to all claims,
lawsuits and proceedings referred to above cannot be estimated with any
certainty. However, in the opinion of management, based on its examination
of
these matters, its experience to date and discussions with counsel, the
ultimate
outcome of these legal proceedings, net of liabilities already accrued
in
Colmek's Balance Sheet, is not expected to have a material adverse effect
on
Colmek's financial position, although an unexpected resolution in any reporting
period of one or more of these matters could have a significant impact
on
Colmek's results of operations for that period.
Operating
Leases
The
Company has a current 5 year operating lease for their office and warehouse
space expiring on March 31, 2010. Future minimum lease obligations are
approximately $136,800.
Concentrations
During
the year ended October 31, 2006 we had no significant concentration of
business
dependant on any one supplier.
NOTE
15 SUBSEQUENT EVENTS
Subsequent
to the year end on April 9, 2007 the Company was acquired by Coda Octopus
Group,
Inc. (“Coda”) a Delaware corporation. The total purchase price was approximately
$2.075 million, consisting of cash paid at the closing of the transaction
of $
800,000 and the issuance of 532,090 shares of Coda common stock. Approximately
$700,000 is also due and payable on the first anniversary of the closing
date
evidenced by secured promissory notes to the Company’s shareholders. Under the
terms of the agreement the Company’s shares have been pledged as collateral
security for the performance of the deferred payment obligations under
the
notes.
Pro
Forma Financial Information.
|
Condensed
Consolidated Pro Forma Unaudited Balance Sheet as of October 31,
2006
|
|
|
Condensed
Consolidated Pro Forma Unaudited Statement of Losses for the Year
Ended
October 31, 2006
|
|
|
Notes
to Condensed Consolidated Pro Forma Unaudited Financial Statements
|
|
Unaudited
Pro Forma Condensed Financial Information
On
April
6, 2007, Coda Octopus Group, Inc. ( the “ Company”, “Coda” or “COGI”) entered
into a Stock Purchase Agreement (“Agreement”) with the stockholders of Miller
and Hilton, Inc. d/b/a Colmek Systems Engineering (“Colemk”) , a company formed
under the laws of the state of Utah. The transaction is accounted for using
the
purchase method of accounting.
The
Proforma Unaudited Financial Statements have been prepared by management
of the
Company in order to present consolidated financial position and results of
operations of the COGI and Colmek if the acquisition had occurred as of October
31, 2006 for the pro forma condensed balance sheet and to give effect to
the
acquisition of the Company, as if the transaction had taken place at November
1,
2005 for the pro forma condensed consolidated statement of losses for the
year
ended October 31, 2006.
The
pro
forma information is based on historical financial statements giving effect
to
the proposed transactions using the purchase method of accounting and the
assumptions and adjustments in the accompanying notes to the pro forma financial
statements. The unaudited pro forma financial information is not necessarily
indicative of the actual results of operations or the financial position
which
would have been attained had the acquisitions been consummated at either
of the
foregoing dates or which may be attained in the future. The pro forma financial
information should be read in conjunction with the historical financial
statements of the Company and Colmek (including notes thereto) included in
this
Registration Statement.
CODA
OCTOPUS GROUP, INC.
Colmek
Acquisition
Pro
Forma
Balance
Sheet
(Unaudited)
| |
|
COGI
|
|
Colmek
|
|
|
|
|
|
Pro
Forma
|
|
|
|
|
October
31,
|
|
October
31,
|
|
Pro
Forma
|
|
|
|
Balances
|
|
|
ASSETS
|
|
2006
|
|
2006
|
|
Adjustments
|
|
Reference
|
|
(Unaudited)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,377,972
|
|
$
|
23,161
|
|
$
|
(800,000
|
)
|
|
Note
3
|
|
$
|
601,133
|
|
|
Accounts
receivable, net of allowance for doubtful accounts
|
|
|
1,096,191
|
|
|
448,356
|
|
|
(24,777
|
)
|
|
Note
2
|
|
|
1,519,770
|
|
|
Unbilled
Receivables
|
|
|
|
|
|
26,372
|
|
|
|
|
|
|
|
|
26,372
|
|
|
Inventory
|
|
|
1,951,392
|
|
|
|
|
|
|
|
|
|
|
|
1,951,392
|
|
|
Tax
credit receivable
|
|
|
234,593
|
|
|
|
|
|
|
|
|
|
|
|
234,593
|
|
|
Due
from MSGI Security Solutions, Inc.
|
|
|
533,147
|
|
|
|
|
|
|
|
|
|
|
|
533,147
|
|
|
Due
from related parties
|
|
|
104,720
|
|
|
|
|
|
|
|
|
|
|
|
104,720
|
|
|
Other
current assets
|
|
|
103,296
|
|
|
|
|
|
|
|
|
|
|
|
103,296
|
|
|
Prepaid
expenses
|
|
|
159,969
|
|
|
|
|
|
|
|
|
|
|
|
159,969
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
5,561,280
|
|
|
497,889
|
|
|
(824,777
|
)
|
|
|
|
|
5,234,392
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
155,730
|
|
|
86,635
|
|
|
|
|
|
|
|
|
242,365
|
|
|
Rental
equipment, net
|
|
|
120,851
|
|
|
|
|
|
|
|
|
|
|
|
120,851
|
|
|
Notes
Receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
Goodwill
and other intangible assets, net
|
|
|
1,071,700
|
|
|
|
|
|
2,573,926
|
|
|
Note
3
|
|
|
3,645,626
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
6,909,561
|
|
$
|
584,524
|
|
$
|
1,749,149
|
|
|
|
|
$
|
9,243,234
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable, trade
|
|
$
|
1,997,817
|
|
$
|
336,242
|
|
$
|
(24,777
|
)
|
|
Note
2
|
|
$
|
2,309,282
|
|
|
Deferred
Revenue
|
|
|
|
|
|
110,145
|
|
|
|
|
|
|
|
|
110,145
|
|
|
Accrued
expenses and other current liabilities
|
|
|
2,542,918
|
|
|
150,702
|
|
|
|
|
|
|
|
|
2,693,620
|
|
|
Deferred
payment related to acquisition of Martech Systems Ltd
|
|
|
381,680
|
|
|
|
|
|
|
|
|
|
|
|
381,680
|
|
|
Accrued
dividends on Series A & B Preferred Stock
|
|
|
304,394
|
|
|
|
|
|
|
|
|
|
|
|
304,394
|
|
|
Notes
payable - short-term
|
|
|
|
|
|
12,797
|
|
|
700,000
|
|
|
Note
3
|
|
|
712,797
|
|
|
Due
to related parties
|
|
|
302,877
|
|
|
65,979
|
|
|
|
|
|
|
|
|
368,856
|
|
|
Loans
payable/Line of Credit
|
|
|
1,119,496
|
|
|
34,375
|
|
|
|
|
|
|
|
|
1,153,871
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
6,649,182
|
|
|
710,240
|
|
|
675,223
|
|
|
|
|
|
8,034,645
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
and notes payable, long term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
Payable - Related Party - Short Term
|
|
|
|
|
|
44,130
|
|
|
|
|
|
|
|
|
44,130
|
|
|
Notes
Payable - Autos - Short Term
|
|
|
|
|
|
42,075
|
|
|
|
|
|
|
|
|
42,075
|
|
|
Deferred
Compensation - Short Term
|
|
|
|
|
|
69,191
|
|
|
|
|
|
|
|
|
69,191
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
6,649,182
|
|
|
865,636
|
|
|
675,223
|
|
|
|
|
|
8,190,041
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, $.001 par value; 5,000,000 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
authorized,
23,641
issued and outstanding, as of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October
31st, 2006
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
41,000
shares Series B issued and outstanding as of October 31,
2006
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
41
|
|
|
Common
stock, $.001 par value; 70,000,000 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
authorized,
24,834,167 shares issued and outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
as
of October 31, 2006
|
|
|
24,302
|
|
|
|
|
|
532
|
|
|
Note
3
|
|
|
24,834
|
|
|
Common
Stock - 402 Shares
|
|
|
|
|
|
402
|
|
|
(402
|
)
|
|
Note
3
|
|
|
-
|
|
|
Common
Stock subscribed
|
|
|
153,750
|
|
|
|
|
|
|
|
|
|
|
|
153,750
|
|
|
Additional
paid-in capital
|
|
|
25,858,307
|
|
|
67,500
|
|
|
724,782
|
|
|
Note
3
|
|
|
26,650,589
|
|
|
Foreign
currency translation adjustment
|
|
|
(292,821
|
)
|
|
|
|
|
|
|
|
|
|
|
(292,821
|
)
|
|
Retained
Earnings
|
|
|
|
|
|
138,091
|
|
|
(162,868
|
)
|
|
Note
3
|
|
|
(24,777
|
)
|
|
Accumulated
deficit
|
|
|
(25,483,224
|
)
|
|
|
|
|
24,777
|
|
|
Note
3
|
|
|
(25,458,447
|
)
|
|
Less:
Cost of Treasury Stock
|
|
|
|
|
|
(244,611
|
)
|
|
244,611
|
|
|
Note
3
|
|
|
-
|
|
|
Less:
Cost of Stock Subscribed
|
|
|
|
|
|
(147,994
|
)
|
|
147,994
|
|
|
Note
3
|
|
|
-
|
|
|
Less:
Stock subscription receivable
|
|
|
|
|
|
(94,500
|
)
|
|
94,500
|
|
|
Note
3
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
260,379
|
|
|
(281,112
|
)
|
|
1,073,926
|
|
|
|
|
|
1,053,193
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
6,909,561
|
|
$
|
584,524
|
|
$
|
1,749,149
|
|
|
|
|
$
|
9,243,234
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Coda
Octopus Group Inc.
Colmek
Acquisition Pro Forma
Statement
of Operations
(Unaudited)
| |
|
COGI
|
|
Colmek
|
|
|
|
|
|
Pro
Forma
|
|
| |
|
October
31,
|
|
October
31,
|
|
Pro
Forma
|
|
|
|
Consolidated
|
|
| |
|
2006
|
|
2006
|
|
Adjustments
|
|
Reference
|
|
(Unaudited)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
$
|
7,291,291
|
|
$
|
2,969,164
|
|
$
|
(24,777
|
)
|
|
Note
2
|
|
$
|
10,235,678
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenue
|
|
|
2,611,590
|
|
|
1,515,785
|
|
|
(24,777
|
)
|
|
Note
2
|
|
|
4,102,598
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
4,679,701
|
|
|
1,453,379
|
|
|
-
|
|
|
|
|
|
6,133,080
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
3,130,821
|
|
|
-
|
|
|
-
|
|
|
|
|
|
3,130,821
|
|
|
Selling,
general and administrative expenses
|
|
|
7,453,946
|
|
|
1,345,408
|
|
|
|
|
|
|
|
|
8,799,354
|
|
|
Non-recurring
expenses
|
|
|
447,750
|
|
|
-
|
|
|
-
|
|
|
|
|
|
447,750
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
(6,352,816
|
)
|
|
107,971
|
|
|
-
|
|
|
|
|
|
(6,244,845
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
3,012
|
|
|
16,790
|
|
|
|
|
|
|
|
|
19,802
|
|
|
Interest
expense
|
|
|
(1,203,690
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,203,690
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other income (expense)
|
|
|
(1,200,678
|
)
|
|
16,790
|
|
|
-
|
|
|
|
|
|
(7,428,733
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
$
|
(7,553,494
|
)
|
$
|
124,761
|
|
|
-
|
|
|
|
|
$
|
(7,428,733
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
5,676
|
|
|
|
|
|
|
|
|
|
|
|
5,676
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(7,559,170
|
)
|
|
124,761
|
|
|
-
|
|
|
|
|
|
(7,434,409
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock Dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
A
|
|
|
(309,914
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
(309,914
|
)
|
|
Series
B
|
|
|
(74,130
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
(74,130
|
)
|
|
Beneficial
Conversion Feature
|
|
|
(4,152,800
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
(4,152,800
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss) Applicable to Common Shares
|
|
$
|
(12,096,014
|
)
|
$
|
124,761
|
|
$
|
-
|
|
|
|
|
$
|
(11,971,253
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share, basic and diluted
|
|
|
(0.50
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.49
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
24,030,423
|
|
|
532,187
|
|
|
|
|
|
|
|
|
24,562,610
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (loss)
|
|
$
|
(7,559,170
|
)
|
$
|
124,761
|
|
$
|
-
|
|
|
|
|
$
|
(7,434,409
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
(282,704
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
(282,704
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
$
|
(7,841,874
|
)
|
$
|
124,761
|
|
$
|
-
|
|
|
|
|
$
|
(7,717,113
|
)
|
The
accompanying notes are an integral part of these condensed pro forma unaudited
consolidated financial statements.
CODA
OCTOPUS GROUP , INC.
NOTES
TO CONDENSED PRO FORMA UNAUDITED FINANCIAL STATEMENTS
Unaudited
Pro Forma Condensed Financial Information
Note
1 - Basis of Presentation
The
purchase method of accounting has been used in the preparation of the
accompanying unaudited pro forma combined financial statements. Under this
method of accounting, the purchase consideration is allocated to the tangible
and identifiable intangible assets acquired and liabilities assumed according
to
their respective fair values, with the excess purchase consideration being
recorded as goodwill. For the purposes of pro forma adjustments, Coda Octopus
has followed Statement of Financial Accounting Standards (“SFAS”) No. 141,
“Business Combinations,” and SFAS No. 142, “Goodwill and Intangible
Assets.”
The
unaudited pro forma condensed combined statements of operations are presented
combining Coda Octopus’s consolidated statement of operations for the year ended
October 3 1, 2006 and Colmek’s audited statement of operations for the year
ended October 31, 2006. These pro forma statements are based on such financial
statements after giving effect to the transaction under the purchase method
of
accounting and the assumptions and adjustments described below. The pro forma
information does not purport to be indicative of the results, which would
have
been reported if the purchase had been in effect for the periods presented
or
which may result in the future.
Note
2 - Intercompany Trading
For
the
year ended October 31, 2006, there was intercompany trading between the two
companies totaling $24,777.
Note
3 - Pro forma purchase price adjustments
Pursuant
to the Share Purchase Agreement the selling shareholders of Colmek, in total
received 532,090 shares of Coda Octopus common stock as part of the purchase
price under acquisition agreement. For purposes of the unaudited pro forma
combined financial statements, the fair value of the Company’s common stock
issued as a part of the acquisition was determined based on the price of
the
Company’s common stock on the day of the acquisition of Colmek on April
6th,
2007.
The
components of the purchase price were as follows:
|
Cash
|
|
$
|
800,000
|
|
|
Deferred
Promissory Note
|
|
|
700,000
|
|
|
Common
Stock Issued
|
|
|
532
|
|
|
Additional
Paid In Capital
|
|
|
792,282
|
|
|
Goodwill
|
|
$
|
2,292,814
|
|
INFORMATION
NOT REQUIRED IN THE PROSPECTUS
Our
Certificate of Incorporation, as amended, provide to the fullest extent
permitted by Delaware law, our directors or officers shall not be personally
liable to us or our stockholders for damages for breach of such director's
or
officer's fiduciary duty. The effect of this provision of our Certificate of
Incorporation, as amended, is to eliminate our rights and our stockholders
(through stockholders' derivative suits on behalf of our company) to recover
damages against a director or officer for breach of the fiduciary duty of care
as a director or officer (including breaches resulting from negligent or grossly
negligent behavior), except under certain situations defined by statute. We
believe that the indemnification provisions in our Certificate of Incorporation,
as amended, are necessary to attract and retain qualified persons as directors
and officers.
Section
145 of the Delaware General Corporation Law provides that a corporation may
indemnify a director, officer, employee or agent made a party to an action
by
reason of that fact that he or she was a director, officer employee or agent
of
the corporation or was serving at the request of the corporation against
expenses actually and reasonably incurred by him or her in connection with
such
action if he or she acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the corporation
and
with respect to any criminal action, had no reasonable cause to believe his
or
her conduct was unlawful.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The
following table sets forth an estimate of the costs and expenses payable by
Registrant in connection with the offering described in this registration
statement. All of the amounts shown are estimates except the Securities and
Exchange Commission registration fee:
|
|
|
$
|
5,270
|
|
|
Accounting
Fees and Expenses
|
|
$
|
|
*
|
|
Legal
Fees and Expenses
|
|
$
|
75,000
|
* |
|
Total
|
|
$
|
105,270
|
|
*Estimated
ITEM
26. RECENT SALES OF UNREGISTERED SECURITIES
On
August
13, 2004, pursuant to the terms of the Share Exchange between Panda Project
and
Fairwater Technologies Limited the Company issued 20,050,000 shares of common
stock to the former shareholders of Coda Octopus Limited.
Between
February and March 2005 the Company sold to an individual investor 1,000,000
shares of common stock for a total purchase price of $800,534.
On
October 31, 2005, we issued 15,000 shares of our Series A Preferred Stock to
one
investor for total cash consideration of $2,655,000.
On
April
30, 2006, we issued a total of 7,320.88 shares of our Series A Preferred Stock
to a group of investors for total cash consideration of $1,211,755.
In
April
2006, we issued to a public relations consultant for services rendered, a 5
year
warrant to purchase 400,000 shares of our common stock at a price of $0.58
per
share of common stock.
In
May
2006, we issued to two consultants for services rendered, 5 year warrants
to
purchase 750,000 shares of our common stock at a purchase price of
$0.50.
In
June
2006, we issued to one institutional investor, Units consisting of 23,000
shares
of our Series B Preferred Stock plus five-year warrants to purchase 4,600,000
shares of our common stock at a price ranging from $1.30 to $1.70 per share
for
total cash consideration of $2,300,000
In
June
2006, as part of an equity raise fee arrangement, we issued to a financial
institution a 5 year warrant to purchase 160,000 shares of our common stock
at a
purchase price ranging from $1.30 to $1.70.
In
July
2006, we issued to two individuals for legal services rendered, options to
purchase 68,000 shares of our common stock at a price of $1.50 per share.
In
July
2006, we issued to two investors 820 shares of our Series A Preferred Stock
for
a total cash consideration of $82,000.
From
September 2006 through January 2007, we issued to one institutional investor
Units consisting 23,000 shares of our Series B Preferred Stock and 650,000
shares of our common stock plus five-year warrants to purchase 4,600,000 shares
of our common stock at a price ranging from $1.30 to $1.70 per share for total
cash consideration of $2,300,000.
In
February 2007 we issued to one investor 3000 shares of our Series B Preferred
Stock for a total cash consideration of $300,000 plus five-year warrants to
purchase 600,000 shares of our common stock at a price ranging from $1.30 to
$1.70 per share for total cash consideration of $300,000.
In
October 2006, as part of equity raise fee arrangement, we issued to a financial
institution a 5 year warrant to purchase 160,000 shares of our common stock
at a
purchase price ranging from $1.30 to $1.70.
On
October 31, 2006, we issued to an investor 500 shares of our Series A Preferred
Stock for a total cash consideration of $50,000.
In
April
2007, we issued to one investor 25,000 shares of our common stock plus five-year
warrants to purchase 50,000 shares of our common stock at a purchase price
ranging from $1.30 - $1.70 per share for a total cash consideration of
$25,000.
In
April
2007, as consideration for the investor’s early conversion of 15,914.18 Series A
Preferred Stock, we issued to one investor 5 year warrants to purchase 2,746,418
shares of our common stock at a purchase price ranging from $1.30 to $1.70.
In
April
2007, as consideration for three investors’ early conversion of 1320 Series
A Preferred Stock, we issued to these investors 5 year warrants to purchase
264,000 shares of our common stock at a purchase price ranging from $1.30
to
$1.70.
In
April
2007 pursuant to the terms of the acquisition agreement between the Company
and
the sellers of Miller and Hilton d/b/a Colmek Systems Engineering we issued
to
four of the sellers who are accredited investors 532,090 of our common stock
for
a value of $532, 090.
Shares
for services
In
March
2005, we issued to one individual 275,000 shares of common stock in exchange
for
legal services rendered valued at $27,500 ($0.10 per share).
On
July
28, 2005, we issued to an officer of the Company 220,000 shares of common stock
in exchange for services rendered, valued at $22,000 ($0.10 per
share).
During
the year ended October 31, 2006 we issued
634,324 shares of common stock, in exchange for services rendered, valued
at $317,160.
During
January 2007 we issued to five persons 625,000 shares of common stock in
exchange for services valued at $693,750 in the aggregate. ($1.11 per
share)
During
January 2007 we issued to one financial institution 500,000 shares of common
stock in exchange for fees for equity raise valued at $435,00 ($0.87 per
share)
On
February 2, 2007 we issued 25,000 shares of common stock in exchange for
services valued at $30,250 ($1.21 per share).
On
March
20, 2007 we issued 40,000 shares of common stock to one service provider
for services valued at $48,400 ($1.21 per share).
During
the Fiscal Year ending 2006 we issued to Fairwater Technology Group Limited
100,000 shares in exchange for services rendered valued at $87,500 ($0.875
per
share).
Recent
Sale of Securities
In
April
and May 2007 we issued to a group of investors a total of 15,000,000 shares
of
our common stock plus five-year warrants to purchase the same amount of shares
of common stock (of which 7,500,000 may be purchased at $1.30 and the balance
at
$1.70 per share). In connection with this offering, we paid placement agent
fees
in the amount of $1,200,000 plus warrants to purchase 2,400,000 at a purchase
price ranging between $1.30 and $1.70.
All
securities were issued pursuant to an exemption from the registration
requirements of the Securities Act of 1933, as amended, under Section 4(2)
thereunder.
ITEM
27. EXHIBITS
|
Exhibit
Number
|
|
Description
|
|
|
|
|
|
2.1
|
|
Plan and Agreement
of
Merger dated July 12, 2004 by and between Panda and Coda
Octopus. |
| |
|
|
|
2.2
|
|
Stock
Purchase Agreement dated April 6, 2007, between Miller & Hilton d/b/a
Colmek Systems Engineering, its shareholders and Coda Octopus (US)
Holdings Inc.
|
| |
|
|
|
3.1
|
|
Certificate
of Incorporation
|
|
|
|
|
|
3.1(a)
|
|
Certificate
of Designation Series A Preferred Stock
|
| |
|
|
|
3.1(b)
|
|
Certificate
of Amendment to Certificate of Designation Series A Preferred
Stock
|
| |
|
|
|
3.1(c)
|
|
Certificate
of Designation Series B Preferred Stock
|
| |
|
|
|
3.2
|
|
By-Laws
|
|
|
|
|
|
4.1
|
|
Form
of Warrant
|
|
|
|
|
|
5.1
|
|
Legal
Opinion of Sichenzia Ross Friedman Ference LLP
|
|
|
|
|
|
10.1
|
|
Employment
Agreement dated April 1, 2005 between the Company and Jason
Reid
|
|
|
|
|
|
10.2
|
|
Employment
Agreement dated July 1, 2005 between the Company and Anthony Davis
|
|
|
|
|
|
10.3
|
|
Employment
Agreement dated July 1, 2005 between the Company and Blair Cunningham
|
|
|
|
|
|
10.4
|
|
Employment
Agreement dated May 1, 2006, between the Company and Frank Moore
|
|
|
|
|
|
10.5
|
|
Employment
Agreement dated April 6, 2007, between Miller and Hilton d/b/a Colmek
Systems Engineering and Scott Debo
|
|
|
|
|
|
10.6
|
|
Director’s
Agreement dated January 26, 2005 between the Company and Paul
Nussbaum
|
|
10.7
|
|
Director’s
Agreement dated January 26, 2005 between the Company and Rodney Peacock
|
| |
|
|
|
10.8
|
|
Form
of Securities Purchase Agreement dated April 4, 2007
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10.9
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Sale
of Accounts and Security Agreement dated August 17, 2005 between
the
Company and Faunus Group International, Inc.
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10.10
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Standard
Form of Office Lease dated June 1, 2007 between the Company and Nelco
Inc. |
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23.1
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Consent
of Sichenzia Ross Friedman Ference LLP (included in exhibit
5.1)
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23.2
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Consent
of Russell Bedford Stefanou Mirchandani LLP
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| 23.3 |
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Consent
of Russell Bedford Stefanou Mirchandani LLP (Miller & Hilton,
Inc.) |
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| 23.4 |
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Consent
of Coyne, Butterworth & Chalmers |
(a)
The
undersigned Registrant hereby undertakes to:
(1)
file,
during any period in which it offers or sells securities, a post-effective
amendment to this registration statement to:
(i)
Include any prospectus required by section 10(a)(3) of the Securities
Act;
(ii)
reflect in the prospectus any facts or events which, individually or together,
represent a fundamental change in the information in the registration statement;
and Notwithstanding the forgoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation From the low or high end
of
the estimated maximum offering range may be reflected in the form of prospects
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in the volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii)
Include any additional or changed material information on the plan of
distribution.
(g)
for
the purpose of determining liability under the Securities Act to any
purchaser:
Each
prospectus filed pursuant to Rule 424(b) as part of a registration statement
relating to an offering, other than registration statements relying on Rule
430B
or other than prospectuses filed in reliance on Rule 430A, shall be deemed
to be
part of and included in the registration statement as of the date it is first
used after effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the registration statement
or made in a document incorporated or deemed incorporated by reference into
the
registration statement or prospectus that is part of the registration statement
will, as to a purchaser with a time of contract of sale prior to such first
use,
supersede or modify any statement that was made in the registration statement
or
prospectus that was part of the registration statement or made in any such
document immediately prior to such date of first use.
(2)
For
determining liability under the Securities Act, treat each post-effective
amendment as a new registration statement of the securities offered, and the
offering of the securities at that time to be the initial bona fide
offering.
(3)
File
a post-effective amendment to remove from registration any of the securities
that remain unsold at the end of the offering.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant certifies
that
it has reasonable grounds to believe that it meets all the requirements for
filing on Form SB-2 and has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in New York, on
this May 18, 2007.
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CODA
OCTOPUS GROUP, INC.
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By: |
/s/
Jason
Lee Reid
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Jason
Lee Reid
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KNOW
ALL
MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Jason Lee Reid his true and lawful attorney-in-fact
and
agent, with full power of substitution and resubstitution for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and any
subsequent registration statements pursuant to Rule 462 of the Securities Act
of
1933 and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto
said attorney-in-fact and agent full power and authority to do and perform
each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that attorney-in-fact or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the dates
indicated.
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Signature
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Title
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Date
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/s/
Jason Lee Reid
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Director
and Chief Executive Officer
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May
18, 2007
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(Principal
Executive and Accounting Officer)
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/s/
Paul Nussbaum
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Chairman
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May
18, 2007
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/s/
Rodney Peacock
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Director
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May
18, 2007
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