SICHENZIA
ROSS FRIEDMAN FERENCE LLP
61
BROADWAY, NEW YORK NY 10006
TEL
212 930 9700 FAX 212 930 9725 WEB WWW. SRFF.COM
July
23,
2007
Securities
and Exchange Commission
100
F
Street, N.E.
Washington,
D.C. 20549
Attention:
H. Yuna Peng, Esq.
Kristin
Shifflett
Mail
Stop
3561
Re:
Coda
Octopus Group, Inc. (the “Company”)
Registration
Statement on Form SB-2
File
No. 333-143144
Dear
Ms.
Peng:
On
behalf
of the Company, we are hereby enclosing two copies of Amendment No. 1 to the
Company’s registration statement on Form SB-2 (the “Registration Statement”)
that was filed on May 22, 2007.
By
letter
dated June 18, 2007, the staff of the Securities and Exchange Commission (the
“Staff”) issued comments on the Registration Statement. Following are the
Company’s responses to the Staff’s comments. For ease of reference, each
response is preceded by the Staff’s comment.
Prospectus
Cover Page
1.
Please highlight the risk factors cross-reference by prominent type.
The
Company has made revisions in accordance with the Staff’s comment.
Outside
Back Cover Page of Prospectus
2. Please
include the dealer prospectus delivery obligation language required by Item
502(b) of Regulation S-B.
The
Company advises the Staff that this is not an underwritten offering and
therefore the requested language is inappropriate to be included.
Prospectus
Summary, page 1
3. Revise
the first sentence under General to make “are expected” active voice so
investors can judge who expects the development you discuss.
The
Company has made revisions in accordance with the Staff’s comment.
4. Revise
the first bullet on page 1 to disclose your $2.5 million loss on $2.7 revenues
for the first quarter of ‘07 so investors can have a context to understand the
rest of the bullet.
In
response to comment No 6, the Company has added a paragraph providing disclosure
respecting the Company’s revenues and losses for the most recent audited as well
as unaudited stub periods which it believes provides sufficient context to
understand the entire summary.
5. You
state that you believe that you have the ability to capitalize on the
opportunity as a result of “first mover advantage in 3-D sonar markets.” Please
provide the basis for the claim. In this regard, we note the first risk factor
on page 6 discusses that there are competitor with substantial longer operating
histories and greater name recognition.
The
Company has made revisions in accordance with the Staff’s comment. See pages 1
and 19 of the Registration Statement.
6. Please
expand this section to disclose the amount of your net loss for the most recent
audited and interim periods. Additionally, disclose the amount of your working
capital and the amount of your accumulated deficit. We believe this financial
snapshot will provide a useful context to help investors interpret the rest
of
the summary.
The
Company has made revisions in accordance with the Staff’s comment.
Acquisitions,
page 2
7. Revise
the first paragraph for clarity. Is the $286,000 in common stock part of the
purchase price you might be obligated to pay?
The
Company has made revisions in accordance with the Staff’s comment. See page 2 of
the Registration Statement.
Risk
Factors, page 3
8. Please
delete the fourth sentence of the opening paragraph. If you know of additional
material risks, please identify them.
The
Company has made revisions in accordance with the Staff’s comment.
9. We
note your discussion regarding increased reliance on sales to government
agencies. Please disclose whether any of your key customers account for 10%
or
more of your revenues for the last fiscal year and if so, please name them
and
give the percentage.
The
Company has made revisions in accordance with the Staff’s comment. See pages 4,
25 and 26 of the Registration Statement.
We have incurred
significant losses to date, page 3
10. Include
your stub period losses here.
The
Company has made revisions in accordance with the Staff’s comment.
Management’s
Discussion and Analysis or Plan
of Operation,
pag&9
General
11. Please
explain what you mean by “disruptive technology qualities.”
The
Company has made revisions in accordance with the Staff’s comment. See page 10
of the Registration Statement.
Results
of Operations.
Page 11
12. We
generally believe that your discussion of financial results between periods
can
be further enhanced with the presentation of a table showing summarized
financial results for the periods under consideration. We believe that this
type
of presentation provides the reader further clarification. As such,
consideration should be given to adding a table that would provide a comparison
of financial results between periods. Please refer to Section III.A.
(Presentation of MD&A) in FRR-72 (Release No-
33-8350).
The
Company has added a table in accordance with the Staff’s comment.
13. In
the Employment Agreements section, starting on page 31, we noted that several
of
your key employees were granted significant salary increases effective November
1, 2006. As these increases will represent a material change in your selling,
general and administrative expenses in future periods, please discuss these
changes as items that will have an effect on future operations.
The
Company has made revisions in accordance with the Staff’s comment. See page 14
of the Registration Statement.
Liquidity and Capital Resources.
Page 12
14. If
you have a plan to reduce your losses or become profitable, we encourage you
to
discuss it here.
The
Company has made revisions in accordance with the Staff’s comment. See page 16
of the Registration Statement.
Inflation
and Foreign
Currency, page 13
15. It
appears that a significant amount of your business is transacted in foreign
currency, mainly the pound sterling and the Norwegian kroner. Please revise
your
foreign currency disclosure to include the approximate amount of your business
that is impacted by changes in foreign currency as well as a sensitivity
analysis for changes (e.g. 10%) that may occur between the U.S. dollar and
the
foreign currencies.
The
Company has made revisions in accordance with the Staff’s comment. See page 16
of the Registration Statement.
Financing
Activities. page 14
16. Based
upon your statement of stockholders’ equity on page F4, it appears that some of
the Series A Preferred Stock was issued in exchange for debt, and not solely
for
cash consideration. Please revise your disclosure so that it is consistent
with
information presented in your financial statements and throughout the document.
The
Company has made revisions in accordance with the Staff’s comment. See page 17
of the Registration Statement.
Business,
page 15
17. Please
revise the disclosure to include a discussion of the information required by
Items 101(b)(5), (6), (8), and (9).
The
Company has made revisions in accordance with the Staff’s comment. See page 27
of the Registration Statement.
18. For
each of the products you discuss, please disclose the price or price range
you
charge.
The
Company has made revisions in accordance with the Staff’s comment. See pages
22-24 of the Registration Statement.
Outstanding
Equity Awards and Director Compensation Tables, page
31
19.
Please
revise to fully comply with Items 402(d) and (e) of Regulation S-B.
The
Company has made revisions in accordance with the Staff’s comment. See pages 34
and 35 of the Registration Statement.
Security
Ownership of Certain Beneficial Owners and Management, page
37
20. Please
disclose the percentage of ownership for Vision Opportunity. We note footnote
11
states that the percentage ownership for Vision Opportunity Master Fund reflects
a 9.9% ownership limitation provision.
The
Company has made revisions in accordance with the Staff’s comment. See page 41
of the Registration Statement.
21. Please
identify the beneficial owner(s) for Vision Opportunity Master Fund. We refer
you to Instruction 4 to Item 403 of Regulation S-B.
The
Company has made revisions in accordance with the Staff’s comment. See page 41
of the Registration Statement.
22. We
note that there is a 4.9% ownership limitation with each of the beneficial
owners, but the limitation may be changed to 9.9%. Please advise whether and
how
you will update the beneficial ownership table.
The
Company advises the Staff supplementally that if any of the investors exercise
their right to waive the 4.9% limitation prior to the effectiveness of the
Registration Statement, the Company will reflect such waiver and the resulting
increased ownership percentage in a pre-effective amendment to the extent
required to be filed in response to Staff comments or to update other material
disclosures.
Certain
Relationships and Related Transactions, page 43
23. On
May 10, 2007, the company repurchased 18,181 shares of Series B preferred Stock
from Vision at a purchase price of $110 per share for a total of $1,999,990.
Please disclose the approximate dollar value of the amount of the related
party’s interest in the transaction. See 404(a)(4) of Regulation S-B. Please
revise accordingly for all of the related party transactions disclosed in this
section.
The
Company has made revisions in accordance with the Staff’s comment. See page 47
of the Registration Statement.
Series
B Preferred Stock, page 45
24. Your
disclosure states that there is currently no Series B Preferred Stock issued.
However, based on the information provided on page 14 and in your statement
of
stockholders’ equity, there appears to be Series B Preferred Stock issued and
outstanding. Please revise for consistency throughout the filing.
The
Company advises the Staff that the disclosures in the statements of
stockholders’ equity speak as of the respective dates set forth in the financial
statements. Shares of Series B Preferred Stock were issued and outstanding
as of
those dates. The disclosures in the forepart of the Registration Statement
speak
as of more recent dates when those shares had been repurchased and
cancelled.
Consolidated
Statements of Operations and Comprehensive Loss For the Years Ended October
31,
2006 and 2005, page F-3
25. Please
tell us what types of expenses are classified as “Non-recurring expenses” within
your operating expenses section. If the expenses classified as such are expenses
that are incurred within the normal operations of the business, please modify
the caption to “Other operating expenses” with appropriate note disclosure of
its components or label the caption with the specific nature of these expenses.
We believe this will provide enhanced understanding and detail to readers of
your financial statements.
The
Company advises the Staff that the non-recurring expenses incurred during the
year ended October 31, 2006 were primarily related to the due diligence and
acquisition of Martech and were comprised primarily of consulting, legal,
financial advisory and accounting fees.
Accordingly,
the company has made the following additional financial footnote
disclosure:
Note
12 -
Other Operating Expenses
During
the years ended October 31, 2006 and 2005, the Company incurred other operating
expenses comprised of professional
and legal fees incurred in connection with the acquisition of Martech and
related financial advisory services.
Consolidated
Statements of Cash Flows. pages F-5 and F-17
26. Reference
is made to your fiscal 2006 and interim (January 2007) reconciliation of
operating activities cash flows that begins with the amount of “Net Loss
Applicable to Common Shares, “rather than the amount for “Net Loss” In
accordance with the guidance in paragraph 28 of SPAS 95, please begin with
the
amount of Net Loss as reported in your consolidated statement of operations
in
reconciling to net cash (used) / generated by operating activities. In this
regard, the financing activity section will include payments of cash dividends
on preferred stock and gross proceeds on sale of equity securities with a
beneficial conversion feature. Please revise the operating activities section
in
the annual and interim Consolidated Statements of Cash Flows, accordingly.
The
Company has revised the annual and interim consolidated statements of cash
flows
to begin with the amount of net loss as reported in the consolidated statements
of operations in accordance with the Staff’s comment. The Company has also
included payment of cash dividends on preferred stock and gross proceeds on
the
sale of equity securities with the beneficial conversion feature.
27. We
note that your first and third paragraph in the Supplemental Disclosures contain
statements that appear to be incomplete. Please revise.
The
Company has made revisions in accordance with the Staff's comment.
Note
1 — Significant Accounting Policies (Stock Based
Compensation) — page F-8
28. We
note your audit opinion states that you have adopted the provisions of SPAS
123(R) as of January 1, 2006. However, your stock-based compensation footnote
references the guidelines of SFAS 123, and your accounting under SFAS 123(R)
is
not evident. Please revise to discuss your implementation of SPAS 123(R), both
here and in the interim period footnotes. In addition, please revise to include
the current year effect of the change on your financial statements due to the
implementation of SFAS 123(R), as well as the disclosures required by paragraph
84 of SPAS 123(R). Please also revise the Critical Accounting Policies
discussion in MD&A (page 11), accordingly.
The
Company has made revisions in accordance with the Staff’s comment. See page F-8
of the financial statements included in the Registration Statement.
Note 2— Fixed Assets. page F-9
29. Please
revise to ensure that the information presented in the charts agrees with your
balance sheet as of October 31, 20(b. Additionally, we note that the
reconciliation of Property and Equipment presented shows a change in accumulated
depreciation of ($246,141) from 2005 to 2006, while you disclose that you
recorded depreciation expense of $52,396. As such, please provide a
reconciliation of your property and equipment, including accumulated
depreciation, from October 31, 2005 to October 31, 2006, showing all purchases,
disposals and other changes (such as those resulting from acquisitions).
The
Company advises the Staff that the property and equipment acquired as part
of
the acquisition of Martech Systems (Weymouth) Limited were incorrectly disclosed
in the notes to the financial statements at their gross value. This disclosure
has been corrected in the notes to the financial statements. The following
is a
reconciliation of the property and equipment and rental equipment:
|
Property
& Equipment reconciliation
|
|
|
|
Rental
Equipment reconciliation
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
Total
|
|
|
|
Total
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Beg
Balance - Nov
1, 2005
|
|
$
|
450,893
|
|
|
Beg
Balance - Nov
1 2005
|
|
$
|
240,876
|
|
|
Acquisition
|
|
|
37,126
|
|
|
Acquisition
|
|
|
-
|
|
|
Additions
|
|
|
138,171
|
|
|
Additions
|
|
|
-
|
|
|
Writeoffs
|
|
|
(6,758
|
)
|
|
Writeoffs
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
End
Balance - Oct 31, 2006
|
|
$
|
619,432
|
|
|
End
Balance - Oct 31, 2006
|
|
$
|
240,876
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Acc.
Dep Beg Bal - Nov
1, 2005
|
|
$
|
418,065
|
|
|
Acc.
Dep Beg Bal - Nov
1, 2005
|
|
$
|
40,146
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Acquisition
|
|
|
-
|
|
|
Acquisition
|
|
|
-
|
|
|
Expense
|
|
|
52,396
|
|
|
Expense
|
|
|
79,879
|
|
|
Writeoffs
|
|
|
(6,758
|
)
|
|
Writeoffs
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Acc.
End Balance - Oct
31, 2006
|
|
$
|
463,703
|
|
|
Acc.
End Balance - Oct
31, 2006
|
|
$
|
120,025
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Net
book value at Oct 31 2006
|
|
$
|
155,729
|
|
|
Net
book value at Oct 31 2006
|
|
$
|
120,851
|
|
Note 10—
Acquisition.
page F- 14
30. In
the acquisition of Martech Systems (Weymouth) Limited, we note you allocated
approximately $1 million of the purchase price to goodwill with no other
specific identifiable intangible assets allocated any significant amount of
purchase price. From the Business section that describes this acquisition,
we
note that Martech had an extensive network of personal contact base established
in the industry (page 17) as well an established and growing revenue stream
in
the defense sector (page 21). In addition, we note that your research and
development expenses have significantly increased by 200% to $3.13 million
in
fiscal 2006 and production was Martech’s most significant cost. Therefore, it is
unclear why a significant amount of the purchase price in the acquisition of
Martech has not been allocated to specific identifiable intangible assets,
such
as customer-related or supplier-related intangible assets, or research and
development expense in accordance with the guidance in Appendix A (paragraph
A14.b) and paragraph 42, respectively, of SPAS 141 as well as FASB
Interpretation No.4. Please advise on your evaluation of specific identifiable
intangible assets and in-process research and development expense for this
acquisition and revise the financial statements, as necessary.
The
Company advises the Staff supplementally that in connection with the acquisition
of Martech System (Weymouth) Limited, it reviewed the requirements of SFAS
No.
141, and concluded the material intangible assets acquired were comprised
of:
|
|
· |
The
assembled workforce and the related industry, institutional and
local
market knowledge
|
|
|
· |
Presence
in the United Kingdom (Britain)
marketplace
|
|
|
· |
Favorable
relationships with UK government departments and
agencies
|
Accordingly,
the material identifiable intangible assets did not meet the separability
criteria as defined by FAS no 141, paragraph 39 for recognition
apart from goodwill
The
Company considered and evaluated the value of existed customer-related and
supplier -related relationships at the time of purchase and concluded these
intangible assets were immaterial to the financial statements taken as a
whole.
Accordingly,
the Company allocated the excess of the consideration paid over the fair
value
of the assets acquired to goodwill in accordance with FAS No. 141, paragraph
43.
The
Company advises the Staff further that substantiality all of the Company’s
research and development costs were incurred by its Norwegian subsidiary
and
charged to operations in the period incurred.
The
Company advises the Staff further that it believes its accounting for intangible
assets is reasonable and in accordance with generally accepted accounting
principles.
We
have
also modified our disclosures to the Business Section describing the Martech
operations. See pages 21 and 25 of the Registration Statement.
31. Furthermore,
please revise the acquisition note to disclose the primary reasons for the
Martech acquisition, including a description of the factors that contributed
to
the recognition of any significant amount of goodwill in accordance with the
guidance in paragraph 51(b) of SPAS 141.
The
Company has made revisions in accordance with the Staff’s comment.
Notes
to Consolidated Financial Statements as of January 31. 2007, page
F-20
32. Per
Item 310(b) of Regulation S~B, interim financial statements are required to
include all adjustments which are necessary to make the financial statements
not
misleading, and must contain a statement affirming this. This statement is
generally included in the first note to the interim financial statements. Please
ensure that all such adjustments have been made and include the requisite
affirmative statement in the interim financial statements.
The
Company has made revisions in accordance with the Staff’s comment. See page F-20
of the financial statements included in the Registration Statement.
Independent Auditors’
Report—
Martech Systems
(Wevmouth~ Limited (“Martech’C).~
33. The
audit report of your independent auditor, Coyne, Butterworth & Chalmers,
should cover both audited fiscal years (October 31, 2004 and 2005) included
in
the audited financial statements and ~ solely Martech’s most recent audited
fiscal year of October 31, 2005 presented in the filing. As such, please revise
the audit report to include in the first paragraph and the Opinion paragraph
the
audit of the fiscal 2004 financial statements.
A
revised
audit report has been included in the Registration Statement.
34. Please
revise the auditors’ report to also include the Cash Flow Statement (see Martech
financial statements comment below) in the first paragraph as well as the
Opinion paragraph for each of the two years ended October 31, 2005 and 2004.
In
addition, please revise the Opinion paragraph to opine on the balance sheet
as
of October 31, 2005 and 2004.
A
revised
audit report has been included in the Registration Statement.
35. Please
revise the auditors’ report to include a statement that the audit was conducted
in accordance with U.S. GAAS. As Martech is a non-issuer entity whose financial
statements are filed to satisfy the requirements of a business acquired for
Item
310(c) of Regulation S-B, the audit report only requires reference to U.S.
GAAS
and not PCAOB standards. In this regard, please revise paragraphs 3 and 4
(Respective responsibilities of directors and auditors) and 8 (Basis of audit
opinion), as applicable. Refer to the guidance in Item 8.A.2 of Form 20-F or
Securities Act Release 33-7745. Please revise accordingly.
A
revised
audit report has been included in the Registration Statement.
36. In
the third paragraph of the audit report, we note certain language where the
auditors’ clarify the parties to whom they owe a duty of care and avoiding
unintended liability to third parties who may seek to rely on their audit
opinion. Although this language may be permitted by UK law, the audit reports
filed by foreign private companies as contained in Commission filings should
not
contain similar clarifying language in accordance with U.S. GAAS or PCAOB
standards, as applicable. Please revise the report so that it contains an
“unrestricted” audit opinion without any clarifying language for purposes of
U-S. reporting. Please refer to the guidance in the Office of Chief Accountant
Letter dated February 28, 2003 on “The Use of Clarifying Language in UK Audit
Opinions”. This letter can be located on the SEC website (www.sec.gov)
under Division! Offices (Office of Chief Accountant) and then Staff Letters
to
Industry.
A
revised
audit report has been included in the Registration Statement.
Martech
Systems (Weymouth) Limited Financial Statements, page F-34 and
F-38
37. Please
include an audited
Cash Flow Statement for each of the two years ended October 31, 2005 and 2004.
The audited Cash How Statement should be opined upon in the auditors’ report as
cited in the comment above. In addition, please include unaudited interim Cash
Flow Statements for the six months ended April 30, 2005 and the comparative
six
month period in fiscal 2004. Refer to the financial statement guidance in Item
8.A.l.d. of Form 20-F. Please revise accordingly.
Audited
cash flow statements have been included in accordance with the Staff’s comment.
38. We
note that Martech’s unaudited interim financial statements as of April 30, 2005
and 2004 do not contain any notes to the financial statements. In accordance
with the guidance in Item 8.A.5 of Form 20-F, please revise to include the
applicable note disclosures.
The
Company has included notes to the interim financial statements in accordance
with Item
310
of Regulation S-B.
Note
1 — Accounting Policies, page F-36
39. Please
consider expanding the accounting policies for Martech as the current disclosure
appears very limited in this area. Among other policies that may require
disclosure, we have noted some items below that appear applicable and material
for which the accounting treatment under 13K GAAP should specifically describe
its material accounting policies. In addition, we also refer you to some US
GAAP
policies (which may not be all inclusive) for your evaluation of any differences
between 13K and US GAAP in these areas; RSBM/coyne
1. Turnover
-- The factors and conditions on when turnover (i.e. revenue) is recognized,
including whether the “substance” principles of FRS 5 and 18 guide the selection
of the appropriate policy. Please refer to Staff Accounting Bulletin 104 and
SOP
81-1 (AICPA Audit Guide for Government Contractors) under US
GAAP.
2. Accruals
-- The factors and conditions that require the recognition of an accrual or
contingent liability and the disclosures required by the Companies Act 1985
or
FRS 12. Please refer to SFAS 5 under 135 GAAP.
3.
Taxes—
The recognition of corporation tax and deferred tax under the provisions of
ERS
16 and FRS 19, respectively. Please refer to SFAS 109 under US
GAAP.
4. Employee
Benefits -- The accounting for short-term employee benefits (e.g. holiday pay,
sick pay, etc.) and the defined contribution plan (FRS 17). Please refer to
SPAS
43, 87, 132(R) and 158 for US GAAP.
5. Related
Party -- Disclosure of transactions with directors under the Companies Act
1985,
The Listing Rules or FRS 8. Please refer to SFAS 57 and Staff Accounting
Bulletin 79 for US GAAP.
For
all significant accounting policies, please review for any differences under
U.S. GAAP and the reconciliation note (9) should describe the differences with
the quantified impact on net loss and shareholders’ equity, as
applicable.
The
Company has expanded the disclosures to the October 31, 2005 and 2004 Martech
financial statement in accordance with the Staff’s comment.
Miller and Hilton, Inc.
Financial
Statements, page F-42
40. We
note your acquisition of Miller and Hilton, Inc. (d!b/a Colmek Systems
Engineering) is significant under the rules of Item 3 10(c) of Regulation S-B
and, as such, you have provided audited year end financial statements as of
October 31, 2006 and 2005. However, as Colmek was acquired in April 2007, please
also include updated interim financial statements for the most recent period
(i.e. three months ended January 31, 2007) prior to the acquisition, along
with
the comparable period of the preceding year. Reference is made to the applicable
guidance in Item 31 0(c)(3)(i) of Regulation S-B. Please present the unaudited
financial statements in accordance with the guidance in Item 310(b) of
Regulation S-B. Please revise accordingly.
Revised
financial statements have been included in accordance with the Staff’s comment.
Note
5 — Stock Subscription Note Receivable—</
str
ong>Related Party. page F-50
41. Reference
is made to the fiscal 2006 (i.e. November 2005) sale of treasury shares to
officers for $94,500 in notes receivable where $119,835 was previously charged
to retained earnings for the difference between the value of the treasury stock
($214,335) and the notes received from the officers ($94,000). We also note
that
you now have forgiven the notes receivables from each of these officers. In
this
regard, as this transaction is with officers of the company, it appears
accounting as a compensatory arrangement applies. As such, it appears the
$119,835 difference between the value of the shares and the $94,000 initially
due from the officers should be reflected as compensation expense, rather than
a
charge to retained earnings in fiscal 2006, In a similar manner, it appears
the
forgiveness of the $94,000 in notes receivable from the officers should be
reflected as compensation expense in the fiscal 2007 quarterly period when
the
notes were forgiven. For any changes in financial statements, please also
provide the appropriate disclosure in the notes and recognition in the auditor’s
report in accordance with the guidance in SPAS 154 (paragraph 26) and Section
420.12 of the Codification of Statements of Auditing Standards. Please advise
and revise the financial statements, as applicable.
The
Company advises the Staff that it has accounted for the gains and losses from
the sale of its treasury stock as capital transactions as required by APB no.
6,
paragraph 12(b). The Company is unaware of an accounting pronouncement or
authoritative literature that supports the Staff’s comment.
The
Company advises the Staff further that it believes its accounting for treasury
stock transactions is reasonable and in accordance with generally accepted
accounting principles.
Unaudited
Pro Forma Condensed Financial Information, page F-56
42. With
respect to the preparation of pro forma financial information, the guidance
in
Note 2 of Item 310 of Regulation S-B provides that Article 11 in Regulation
S-X
offers enhanced guidance for the preparation, presentation and disclosure for
pro forma information. Therefore, please note that the comments below refer
you
to the appropriate guidance as cited in Article 11 of Regulation S-X.
The
Company has taken note of the Staff’s comment.
43. Please
also include an interim period pro forma statement of operations for the three
months ended January 31, 2007 with appropriate note disclosures. Please refer
to
the guidance in Item 1 1-02(c)(2)(i) of Regulation S-X.
The
Company has included an interim period pro forma statement of operations for
the
three months ended January 31, 2007.
44. Please
revise the pro forma statements to include a pro forma balance sheet as of
January 31, 2007. In this regard, a pro forms balance should be presented as
of
the most recent period for which a consolidated balance sheet is presented
in
the filing (i.e. currently January 31, 2007) and not the most recent fiscal
year
end. Refer to the guidance in Item 1 1-02(c)(1) of Regulation S-X. Please revise
accordingly.
The
Company has included an interim period pro forma statement of operations for
the
three months ended January 31, 2007.
Pro Forma
Statement of Operations—
Fiscal Year Ended
October 31.. 200& page
F-S 8
45. As
Martech was acquired during the fiscal year ended October 31,2006 and is not
reflected in your 2006 fiscal year historical results of operations for the
entire period, please revise the pro forma statement of operations for the
year
ended October 31, 2006 to include separate
columns for (i) Martech’s pre-acquisition historical results of operations from
the beginning of the 2006 fiscal year (November 1, 2005) through its date of
acquisition on June 25, 2006 and (ii) any related pm forma adjustments assuming
Martech was acquired as of the beginning of the 2006 fiscal year. Among other
items, in the pro forma adjustments, please consider the information disclosed
in Note 10 (Acquisitions) on page 14 for the elimination of any investment
income on the cash used to acquire Martech, the amount of any interest and
the
exchange rate movements on amounts due to Martech at the date of acquisition
and
the impact of common stock due to Martech based on its performance. Please
refer
to the guidance in Item 1 1-01(a)(1) of Regulation S-X and revise accordingly.
The
Company has revised the pro forma statements of operations to include Martech’s
pre-acquisition historical results of operations.
46. As
Martech is a UK company with its historical financial statements being presented
under UK GAAP and UK currency (“Pound Sterling”), the historical information for
Martech in the pro forrna statement of operations will require conversion and
translation of their UK GAAP and UK Pound Sterling to U.S (MAP and U.S dollar
amounts, respectively, to conform to the presentation used by the registrant
on
a U.S. reporting basis. To afford this presentation, please include a detailed
footnote that presents the reconciliation of Martech’s financial information
from a UK C}AAP and UK Pound Sterling basis with appropriate adjustments thereto
in deriving the US GAAP and US dollar basis financial information. Please
include appropriate note disclosures so that investors can clearly understand
the nature of conversion and translation adjustments from a UK GAAP and UK
Pound
Sterling basis to the US GA.AP and US dollar basis, respectively. In translating
from a U.K Pound Sterling to US dollar amounts, please use the weighted average
exchange rate between the UK Pound Sterling and US dollar for the approximate
8
month period (Nov 2005 — June 2006) that Martech’s pre-acquisition results of
operations is being presented in the pro fonna statement of operations. Also,
please ensure that the U.S GAAP and US dollar amounts as presented in the
footnote conforms to the amounts as reflected for Martech in the pm fonna
statement of operations. Please revise accordingly.
The
Company has included a footnote reconciling Martech’s financial information from
UK GAAP to and pound sterling to US GAAP and US dollar basis.
Other
Pro Forma Financial Information
47. Reference
is made to the 3rd,
5th
and 6th
paragraphs in Note 11 (Subsequent Events) on page F-29 where you sold 15 million
units of common stock, converted Series A and B preferred stock into 2.9 million
common shares and repurchased approximately
$20 million
of Series B preferred stock, respectively. As these three subsequent events
have
a material impact on your balance sheet and statement of operations (including
net loss applicable to common stock and per share amounts), please expand both
the pro forma balance sheet and statements of operations to include a
separate
additional column labeled “Other Security Transactions” for the impact of these
significant transactions. Please also include appropriate note disclosure
detailing the nature of each adjustment on the pro forma statements with clear
explanations of the assumptions involved. Refer to the guidance in Item
11-01(a)(8) of Regulation S-X. Please revise accordingly. Section in red is
incorrect.
The
Company has expanded the pro forma financial information to include the
securities transactions that occurred subsequent to January 31, 2007
Notes
and Adjustments to Condensed Pro Forma Financial Statements, page
F-59
48. Reference
is made to adjustment 3 where you issued $700,000 of Promissory Notes and paid
$800,000 in cash to acquire Colmek. Please include pro forma adjustments for
the
impact of interest expense on the $700,000 note and the elimination of any
historical investment income on the $800,000 of cash that was used as part
of
the purchase price for this acquisition. In addition, please provide clear
note
explanations of each adjustment including the terms of the promissory note
and
the interest rate thereof. Please refer to the guidance in Item 11-02 of
Regulation S-X and revise accordingly.
We
have included pro forma adjustment for the impact of the financing costs related
to the Colmek debt
49. Please
adjust the pro forms statement of operations for the tax effects of applicable
pm forma adjustments that is generally calculated at the statutory rate in
effect during the period in accordance with Instruction 7 of Item 11-02(b)
of
Regulation S-X.
The
Company has adjusted the pro forma financial information for the tax effects
applicable to the acquisition.
50. We
note that you preliminarily allocated all excess purchase price on the
acquisition of Colmek entirely to goodwill. Please evaluate whether any specific
identifiable intangible assets were acquired in this acquisition that should
be
allocated significant purchase price in accordance with the guidance in
paragraph 39 and Appendix A in SPAS 141. For example, from disclosures in the
Business — Colmek section on page 21, you state that Colmek has long standing
relationships with many of the major companies in the industry and a reason
for
acquiring Colmek was access to its customer base. It appears you should consider
allocating a significant amount of the purchase price to amortizable
Customer-related intangible assets under the specific guidance in paragraph
Al4(b) of Appendix A in SEAS 141. It also appears you should consider allocating
purchase price to Noncompetition Agreement and Employment contract intangible
assets under the guidance in paragraphs A14(a)(6) and A14(d)(9) of SEAS 141,
as
your Stock Purchase Agreement (Exhibit 2.2) with Colmek details the employment
(Section 11) and non-competition (Section 18) agreements you entered into with
Mr. Brent Miller and Mr. Scott Debo, the two significant shareholders of Colmek
who owned approximately 95% of that company. Your notes should clearly detail
your analysis made in this manner, including the nature of each specific
identifiable asset acquired and its estimated amortization period. The amount
of
any amortization expense recognized in the pro forma statement of operations
should be easily computable from disclosure in the notes. Furthermore, if any
adjustment is based on a preliminary allocation of the purchase that could
be
revised upon final allocation, please also include in the notes a sensitivity
analysis for the impact of a change in the asset amount (e.g. $100,000) and
its
estimated useful (e.g. 1 yr) in accordance with the guidance in Item 1
1-02(b)(8) of Regulation S-X. In addition, if any significant remaining purchase
price is allocated to goodwill, please expand the notes too clearly describe
the
factors that contributed to a purchase price that result in a significant
recognition of goodwill and provided in the guidance for paragraph 51(b) of
SEAS
141. Please advise and revise the pro forma financial information,
accordingly.
The
Company has provided an analysis of the purchase price and its allocation among
identifiable tangible and intangible assets and goodwill
Note
3 — Pro Forma Purchase Price Adjustments, page F-59
51. The
pro forms adjustments should be labeled and individually cross referenced to
notes that clearly explain the nature and assumptions of the adjustment. In
addition, please disclose computations of adjustment were applicable. For
example, there are adjustments in the pro forma financial statements that are
referenced to note 3, but not addressed in note 3, or the amount that is shown
in note 3 does not equal the adjustment shown on the financial
statements.
The
Company has labeled and cross referenced all notes to the pro forma financial
information.
General
52. Please
consider the financial statement updating requirements of Item 3 10(g) in
Regulation S-B on an ongoing basis. In this regard, please note that, when
additional financial statements are filed in an amendment, the staff may require
significant additional time to review the amendment.
Updated
financial statements have been included in the Registration Statement.
53. In
all amendments to the Form SB-2, please include a currently dated and manually
signed consent from all independent public accountants.
Currently
dated and manually signed consents from all independent public accountants
have
been included in the Registration Statement.
Item
27 Exhibits
54. Please
file the amended agreement with Vision Opportunity Master Fund and all contracts
or agreements that are material to your business operation. For instance,
contracts with major shareholders or suppliers should be filed.
The
Company has included the following additional agreements as exhibits to the
Registration Statement:
| · |
Collaboration
Agreement dated July 1, 2006 between Oxford Technical Solutions Ltd.
and
Codaoctopus
|
| · |
Amendment
to Securities Purchase Agreements dated March 21, 2007 between Vision
Opportunity Master Fund Ltd. and
Codaoctopus
|
| · |
Securities
Repurchase Agreement dated April 10, 2007 between Codaoctopus and
Vision
Opportunity Master Fund
|
| · |
Employment
Agreement dated as of July 16, 2007 between the Company and Jody
Frank
|
Signatures
55. Please
have the principal financial officer sign in that capacity.
The
Company has made revisions in accordance with the Staff’s comment.
Please
contact the undersigned at 212-981-6766 with any questions or comments you
may
have with respect to the foregoing.
| Very truly yours, |
| |
| /s/ Louis A.
Brilleman |