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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended January 31, 2022

 

OR

 

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

 

For the transition period from ______________ to ______________

 

Commission File Number 001-38154

 

CODA OCTOPUS GROUP, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   34-2008348

(State or other jurisdiction of

Incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

3300 S Hiawassee Rd, Suite 104-105,

Orlando, Florida

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

 

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

 

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

 

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

 

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

 

Large accelerated filer ☐   Accelerated filer ☐   Non-accelerated filer   Smaller reporting company

 

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

 

The number of shares outstanding of issuer’s common stock, $0.001 par value as of March 15, 2022 is 10,857,195.

 

 

 

 

 

 

INDEX

 

  Page
PART I - Financial Information  
   
Item 1: Financial Statements 3
   
Consolidated Balance Sheets as of January 31, 2022 (Unaudited) and October 31, 2021 3
   
Consolidated Statements of Income and Comprehensive Income for the Three Months Ended January 31, 2022 and 2021 (Unaudited) 5
   
Consolidated Statements of Stockholders’ Equity for the Three Months Ended January 31, 2022 and 2021 (Unaudited) 6
   
Consolidated Statements of Cash Flows for the Three Months Ended January 31, 2022 and 2021 (Unaudited) 7
   
Notes to Unaudited Consolidated Financial Statements 8
   
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations 20
   
Item 3: Quantitative and Qualitative Disclosures about Market Risks 28
   
Item 4: Controls and Procedures 28
   
PART II - Other Information 29
   
Item 1: Legal Proceedings 29
   
Item 1A: Risk Factors 29
   
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 29
   
Item 3: Default Upon Senior Securities 29
   
Item 4: Mine Safety Disclosures 29
   
Item 5: Other Information 29
   
Item 6: Exhibits 29
   
Signatures 30

 

2

 

 

PART I. FINANCIAL INFORMATION

 

CODA OCTOPUS GROUP, INC.

Consolidated Balance Sheets

January 31, 2022 and October 31, 2021

 

   2022   2021 
   Unaudited     
ASSETS          
           
CURRENT ASSETS          
Cash  $20,711,228   $17,747,656 
Accounts Receivable, net   1,535,682    4,207,996 
Inventory   11,159,798    10,691,177 
Unbilled Receivables   401,661    1,080,384 
Prepaid Expenses   313,945    1,202,327 
Other Current Assets   651,724    627,619 
           
Total Current Assets   34,774,038    35,557,159 
           
FIXED ASSETS          
Property and Equipment, net   6,743,670    6,037,101 
           
OTHER ASSETS          
Goodwill and Other Intangibles, net   3,794,880    3,794,383 
Deferred Tax Asset   86,643    76,776 
           
Total Other Assets   3,881,523    3,871,159 
           
Total Assets  $45,399,231   $45,465,419 

 

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

 

3

 

 

CODA OCTOPUS GROUP, INC.

Consolidated Balance Sheets (Continued)

January 31, 2022 and October 31, 2021

 

   2022   2021 
   Unaudited     
LIABILITIES AND STOCKHOLDERS’ EQUITY          
           
CURRENT LIABILITIES          
           
Accounts Payable  $319,605   $1,454,611 
Accrued Expenses and Other Current Liabilities   805,573    740,449 
Note Payable   -    63,559 
Deferred Revenue   1,288,231    1,999,841 
           
Total Current Liabilities   2,413,409    4,258,460 
           
LONG TERM LIABILITIES          
           
Deferred Revenue, less current portion   153,176    157,886 
           
Total Long Term Liabilities   153,176    157,886 
           
Total Liabilities   2,566,585    4,416,346 
           
STOCKHOLDERS’ EQUITY          
           
Common Stock, $.001 par value; 150,000,000 shares authorized, 10,857,195 shares issued and outstanding as of January 31, 2022 and October 31, 2021, respectively   10,858    10,858 
Additional Paid-in Capital   61,508,306    61,183,131 
Accumulated Other Comprehensive Loss   (1,425,909)   (1,667,059)
Accumulated Deficit   (17,260,609)   (18,477,857)
           
Total Stockholders’ Equity   42,832,646    41,049,073 
           
Total Liabilities and Stockholders’ Equity  $45,399,231   $45,465,419 

 

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

 

4

 

 

CODA OCTOPUS GROUP, INC.

Consolidated Statements of Income and Comprehensive Income

For the Periods Indicated

(Unaudited)

 

   2022   2021 
   Three Months Ended January 31, 
   2022   2021 
         
Net Revenues  $5,838,208   $5,050,459 
Cost of Revenues   1,678,274    1,735,537 
           
Gross Profit   4,159,934    3,314,922 
           
OPERATING EXPENSES          
Research & Development   672,890    583,139 
Selling, General & Administrative   2,111,112    1,813,366 
           
Total Operating Expenses   2,784,002    2,396,505 
           
INCOME FROM OPERATIONS   1,375,932    918,417 
           
OTHER INCOME (EXPENSE)          
Other Income   79,994    92,025 
Interest Expense   (11,278)   (14,514)
           
Total Other Income   68,716    77,511 
           
INCOME BEFORE INCOME TAX EXPENSE   1,444,648    995,928 
           
INCOME TAX (EXPENSE) BENEFIT           
Current Tax (Expense) Benefit   (285,609)   24,725 
Deferred Tax Benefit   58,209    108,191 
           
Total Income Tax (Expense) Benefit   (227,400)   132,916 
           
NET INCOME  $1,217,248   $1,128,844 
           
NET INCOME PER SHARE:          
Basic  $0.11   $0.10 
Diluted  $0.11   $0.10 
           
WEIGHTED AVERAGE SHARES:          
Basic   10,857,195    10,751,881 
Diluted   11,396,861    11,308,881 
           
NET INCOME  $1,217,248   $1,128,844 
           
Foreign Currency Translation Adjustment   241,150    925,613 
           
Total Other Comprehensive Income  $241,150   $925,613 
           
COMPREHENSIVE INCOME  $1,458,398   $2,054,457 

 

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

 

5

 

 

CODA OCTOPUS GROUP, INC.

Consolidated Statements of Changes in Stockholders’ Equity

For the Three Months Ended January 31, 2022 and 2021

(Unaudited)

 

   Shares   Amount   Capital   Income (Loss)   Deficit   Total 
               Accumulated         
           Additional   Other         
   Common Stock   Paid-in   Comprehensive   Accumulated     
   Shares   Amount   Capital   Income (Loss)   Deficit   Total 
                         
Balance, October 31, 2020   10,751,881   $10,753   $60,132,415   $(2,321,278)  $(23,425,622)  $34,396,268 
                               
Employee stock based compensation   -    -    174,447    -    -    174,447 
Foreign currency translation adjustment   -    -    -    925,613    -    925,613 
Net Income   -    -    -    -    1,128,844    1,128,844 
Balance, January 31, 2021   10,751,881   $10,753   $60,306,862   $(1,395,665)  $(22,296,778)  $36,625,172 
                               
Balance, October 31, 2021   10,857,195   $10,858   $61,183,131   $(1,667,059)  $(18,477,857)  $41,049,073 
Employee stock based compensation   -    -    325,175    -    -    325,175 
Foreign currency translation adjustment   -    -    -    241,150    -    241,150 
Net Income   -    -    -    -    1,217,248    1,217,248 
Balance, January 31, 2022   10,857,195   $10,858   $61,508,306   $(1,425,909)  $(17,260,609)  $42,832,646 

 

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

 

6

 

 

CODA OCTOPUS GROUP, INC.

Consolidated Statements of Cash Flows

(Unaudited)

 

   2022   2021 
   Three Months Ended January 31, 
   2022   2021 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net income  $1,217,248   $1,128,844 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   161,466    366,183 
Stock based compensation   325,175    174,447 
Deferred income taxes   (9,750)   (108,191)
Funding from Paycheck Protection Program recognized as income   -    (89,971)
(Increase) decrease in operating assets:          
Accounts receivable   2,608,920    144,023 
Inventory   (613,670)   (853,446)
Unbilled receivables   675,179    (450,180)
Prepaid expenses   863,618    (10,805)
Other current assets   (26,093)   (47,225)
Increase (decrease) in operating liabilities:          
Accounts payable and other current liabilities   (1,047,139)   (540,604)
Deferred revenue   (693,455)   316,639 
Net Cash Provided by Operating Activities   

3,461,499

    29,714 
CASH FLOWS FROM INVESTING ACTIVITIES          
Purchases of property and equipment   (987,093)   (406,083)
Purchases of other intangible assets   (14,871)   (3,061)
Net Cash Used in by Investing Activities   (1,001,964)   (409,144)
CASH FLOWS FROM FINANCING ACTIVITIES          
Repayment of note   (63,559)   (125,142)
Proceeds from Paycheck Protection Program   -    526,545 
Net Cash (Used in) Provided by Financing Activities   (63,559)   401,403 
           
EFFECT OF CURRENCY TRANSLATION ON CHANGES IN CASH   567,596     925,613 
           
NET INCREASE IN CASH   2,963,572    947,586 
           
CASH AT THE BEGINNING OF THE PERIOD   17,747,656    15,134,289 
           
CASH AT THE END OF THE PERIOD  $20,711,228   $16,081,875 
SUPPLEMENTAL CASH FLOW INFORMATION          
Cash paid for interest  $11,278   $14,514 
Cash paid for taxes  $51,264   $- 

 

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

 

7

 

 

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

January 31, 2022 and October 31, 2021

 

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

 

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

 

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

 

NOTE 2 – REVENUE RECOGNITION

 

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

 

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

 

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

 

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

 

8

 

 

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

January 31, 2022 and October 31, 2021

 

NOTE 2 – REVENUE RECOGNITION (Continued)

 

With regard to our Marine Technology Business (“Products Business”), all of our products are sold on a stand-alone basis and those market prices are evidence of the value of the products. To the extent that we also provide services (e.g., installation, training, post-sales technical support etc.), those services are either included as part of the product or are subject to written contracts based on the stand-alone value of those services. Revenue from the sale of services is recognized when those services have been provided to the customer and evidence of the provision of those services exist.

 

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

 

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

 

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

 

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

 

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

 

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

 

Recoverability of Deferred Costs

 

In accordance with Topic 606, we defer costs on projects for service revenue. Deferred costs consist primarily of incremental direct costs to customize and install systems, as defined in individual customer contracts, including costs to acquire hardware and software from third parties and payroll costs for our employees and other third parties. The pricing of these service contracts is intended to provide for the recovery of these types of deferred costs over the life of the contract.

 

9

 

 

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

January 31, 2022 and October 31, 2021

 

NOTE 2 – REVENUE RECOGNITION (Continued)

 

We recognize such costs in accordance with our revenue recognition policy by contract. For revenue recognized under the percentage of completion method, costs are recognized as products are delivered or services are provided in accordance with the percentage of completion calculation. For revenue recognized over time, costs are recognized ratably over the term of the contract, commencing on the date of revenue recognition. At each quarterly balance sheet date, we review deferred costs, to ensure they are ultimately recoverable.

 

Any anticipated losses on uncompleted contracts are recognized when evidence indicates the estimated total cost of a contract exceeds its estimated total revenue.

 

Deferred Commissions

 

Our incremental direct costs of obtaining a contract, which consists of sales commissions are deferred and amortized over the period of the contract performance. We classify deferred commissions as current or noncurrent based on the timing of when we expect to recognize the expense. The current and noncurrent portions of deferred commissions are included in prepaid expenses and other current assets, and other assets, net, respectively, in our consolidated balance sheets. As of January 31, 2022, and October 31, 2021, we had deferred commissions of $0 and $0, respectively. Amortization expense related to deferred commissions was $0 and $3,884 in the three months years ended January 31, 2022, and 2021, respectively.

 

Other Revenue Disclosures

 

See Note 15 – Disaggregation of Revenue for a breakdown of revenues from external customers and cost of those revenues between our Product Segment and Services Segment including information on the split of revenues by geography.

 

NOTE 3 – FAIR VALUE OF FINANCIAL INSTRUMENTS

 

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

 

The fair value of the Company’s long-term debt approximates its carrying amount based on the fact that the Company believes it could obtain similar terms and conditions for similar debt.

 

NOTE 4 – FOREIGN CURRENCY TRANSLATION

 

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

 

10

 

 

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

January 31, 2022 and October 31, 2021

 

NOTE 5 – INVENTORY

 

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

   January 31,   October 31, 
   2022   2021 
         
Raw materials and parts  $7,926,535   $7,525,419 
Work in progress   793,246    919,619 
Finished goods   2,440,017    2,246,139 
Total Inventory  $11,159,798   $10,691,177 

 

NOTE 6 – FIXED ASSETS

 

Property and equipment consisted of the following as of:

   January 31,   October 31, 
   2022   2021 
         
Buildings  $6,019,236   $5,298,028 
Land   200,000    200,000 
Office machinery and equipment   1,666,436    1,622,871 
Rental assets   2,427,189    2,326,486 
Furniture, fixtures and improvements   1,206,402    1,218,217 
Totals   11,519,263    10,665,602 
Less: accumulated depreciation   (4,775,593)   (4,628,501)
           
Total Property and Equipment, net  $6,743,670   $6,037,101 

 

NOTE 7 – OTHER CURRENT ASSETS

 

Other current assets consisted of the following as of:

   January 31,   October 31, 
   2022   2021 
         
Deposits  $32,280   $63,992 
Other Tax Receivables   43,156    - 
Employee Retention Credit Receivables   

576,288

    563,627 
Total Other Current Assets  $651,724   $627,619 

 

11

 

 

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

January 31, 2022 and October 31, 2021

 

NOTE 8 – ESTIMATES

 

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues including unbilled and deferred revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include estimates related to the percentage of completion method used to account for contracts including costs and earnings in excess of billings, billings in excess of costs and estimated earnings and the valuation of goodwill.

 

NOTE 9 – CONTRACTS IN PROGESS

 

Costs and estimated earnings in excess of billings on uncompleted contracts represent accumulated project expenses and fees which have not been invoiced to customers as of the date of the balance sheet. These amounts are stated on the consolidated balance sheets as Unbilled Receivables of $401,661 and $1,080,384 as of January 31, 2022, and October 31, 2021, respectively.

 

Our Deferred Revenue of $1,151,451 and $1,879,790 as of January 31, 2022, and October 31, 2021, respectively, consists of billings in excess of costs and revenues received as part of our warranty obligations upon completing a sale, as elaborated further in the last paragraph of this note.

 

Sales of equipment include a separate performance obligation for warranty, which is treated as deferred revenue, along with extended warranty sales, which may be purchased by customers. These amounts are amortized over the relevant warranty period (12 months is our standard warranty or 24, 36 or 60 months for extended warranty, sold as Through Life Support (TLS) Package) from the date of sale. These amounts are stated on the consolidated balance sheets as a component of Deferred Revenue and were $289,956 and $277,937 as of January 31, 2022 and October 31, 2021, respectively.

 

NOTE 10 – CONCENTRATIONS

 

Significant Customers

 

During the three months ended January 31, 31, 2022, the Company had two customers from whom it generated sales greater than 10% of net revenues. Revenue from these customers was $1,855,731, or 32% of net revenues during the period. Receivables from these customers was less than 10% of net receivables as of January 31, 2022.

 

During the three months ended January 31, 2021, the Company had two customers from whom it generated sales greater than 10% of net revenues. Revenues from these customers was $1,303,807, or 26% of net revenues during the year. Total accounts receivable from these customers as of January 31, 2021 was $862,850 or 46% of accounts receivable.

 

12

 

 

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

January 31, 2022 and October 31, 2021

 

NOTE 11 – NOTE PAYABLE

 

   January 31,   October 31, 
   2022   2021 
         
Secured note payable to HSBC NA with interest payable on the 28th day of each month at 4.56% per annum. Our monthly repayment obligation under this loan is $43,777 (comprising both principal and interest repayment). The maturity of this Loan was December 28, 2021  $-   $63,559 
         
Total   -    63,559 
Less: current portion   -    (63,559)
Total Long Term Note Payable  $-   $- 

 

The HSBC loan was satisfied in full in the Current Quarter.

 

The Company entered into a $4,000,000 revolving line of credit facility with HSBC NA on November 27, 2019, with the interest rate established as the applicable prime rate. This revolving line of credit facility is subject to annual renewal and has been extended to November 2022. The outstanding balance on the line of credit was $0 as of January 31, 2022 and October 31, 2021.

 

NOTE 12 – RECENT ACCOUNTING PRONOUNCEMENTS

 

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

 

NOTE 13 – EARNINGS PER SHARE

 

   Three Months   Three Months 
   Ended   Ended 
   January 31,   January 31, 
Fiscal Period  2022   2021 
Numerator:          
Net Income  $1,217,248   $1,128,844 
           
Denominator:          
Basic weighted average common shares outstanding   10,857,195    10,751,881 
Unvested portion of options and restricted stock awards   539,666    557,000 
Diluted outstanding shares   11,396,861    11,308,881 
           
Net Income per share          
           
Basic  $0.11   $0.10 
Diluted  $0.11   $0.10 

 

13

 

 

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

January 31, 2022 and October 31, 2021

 

NOTE 14 -SEGMENT ANALYSIS

 

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

 

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

 

The Company evaluates performance and allocates resources based upon segment operating income.

 

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

 

The following table summarizes segment asset and operating balances by reportable segment as of and for the three months ended January 31, 2022, and 2021, respectively.

 

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

 

  Americas
     
  Europe
     
  Australia/Asia
     
  Middle East/Africa

 

14

 

 

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

January 31, 2022 and October 31, 2021

 

NOTE 14 -SEGMENT ANALYSIS (Continued)

 

   Marine
Technology
Business
(Products)
   Marine
Engineering
Business
(Services)
   Overhead   Total 
                 
Three Months Ended January 31, 2022                    
                     
Net Revenues  $3,823,748   $2,014,460   $-   $5,838,208 
                     
Cost of Revenues   572,292    1,105,982    -    1,678,274 
                     
Gross Profit   3,251,456    908,478    -    4,159,934 
                     
Research & Development   529,375    143,515    -    672,890 
Selling, General & Administrative   753,614    651,149    706,349    2,111,112 
                     
Total Operating Expenses   1,282,989    794,664    706,349    2,784,002 
                     
Income (Loss) from Operations   1,968,467    113,814    (706,349)   1,375,932 
                     
Other Income (Expense)                    
Other Income   9,049    70,945    -    79,994 
Interest Expense   (4,882)   (5,026)   (1,370)   (11,278)
                     
Total Other Income (Expense)   4,167    65,919    (1,370)   68,716 
                     
Income (Loss) before Income Taxes   1,972,634    179,733    (707,719)   1,444,648 
                     
Income Tax (Expense) Benefit                    
Current Tax (Expense) Benefit    (266,520)   24,036    (43,125)   (285,609)
Deferred Tax Benefit   6,708    204    51,297    58,209 
                     
Total Income Tax (Expense) Benefit   (259,812)   24,240    8,172    (227,400)
                     
Net Income (Loss)  $1,712,822   $203,973   $(699,547)  $1,217,248 
                     
Supplemental Disclosures                    
                     
Total Assets  $30,847,114   $13,893,382   $658,735   $45,399,231 
                     
Total Liabilities  $1,635,666   $501,339   $429,580   $2,566,585 
                     
Revenues from Intercompany Sales - eliminated from sales above  $389,395   $115,823   $600,000   $1,105,218 
                     
Depreciation and Amortization  $135,658   $16,657   $9,151   $161,466 
                     
Purchases of Long-lived Assets  $986,093   $1,000   $14,871   $1,001,964 

 

15

 

 

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

January 31, 2022 and October 31, 2021

 

NOTE 14 -SEGMENT ANALYSIS (Continued)

 

   Marine
Technology
Business
(Products)
   Marine
Engineering
Business
(Services)
   Overhead   Total 
                 
Three Months Ended January 31, 2021                    
                     
Net Revenues  $3,748,279   $1,302,180   $-   $5,050,459 
                     
Cost of Revenues   894,275    841,262    -    1,735,537 
                     
Gross Profit   2,854,004    460,918    -    3,314,922 
                     
Research & Development   441,744    141,395    -    583,139 
Selling, General & Administrative   733,825    567,559    511,982    1,813,366 
                     
Total Operating Expenses   1,175,569    708,954    511,982    2,396,505 
                     
Income (Loss) from Operations   1,678,435    (248,036)   (511,982)   918,417 
                     
Other Income (Expense)                    
Other Income   2,036    18    -    92,025 
Interest Expense   (2,253)   (5,151)   (7,110)   (14,514)
                     
Total Other Income (Expense)   (217)   (5,133)   (7,110)   77,511 
                     
Income (Loss) before Income Taxes   1,678,218    (253,169)   (519,092)   995,928 
                     
Income Tax (Expense) Benefit                    
Current Tax (Expense) Benefit   12,653    -    12,072    24,725 
Deferred Tax (Expense) Benefit   (11,155)   152,086    (32,740)   108,191 
                     
Total Income Tax (Expense) Benefit   1,498    152,086    (20,668)   132,916 
                     
Net Income (Loss)  $1,679,716   $(101,083)  $(539,760)  $1,128,844 
                     
Supplemental Disclosures                    
                     
Total Assets  $24,767,757   $14,362,811   $1,224,954   $40,355,522 
                     
Total Liabilities  $1,573,260   $1,436,624   $720,466   $3,730,350 
                     
Revenues from Intercompany Sales - eliminated from sales above  $370,629   $49,201   $675,000   $1,094,830 
                     
Depreciation and Amortization  $312,122   $47,645   $6,416   $366,183 
                     
Purchases of Long-lived Assets  $399,975   $4,177   $4,992   $409,144 

 

16

 

 

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

January 31, 2022 and October 31, 2021

 

NOTE 15 –DISAGGREGATION OF REVENUE

 

   For the Three Months Ended January 31, 2022 
   Marine   Marine     
   Technology   Engineering   Grand 
   Business   Business   Total 
Disaggregation of Total Net Sales               
Revenues               
Primary Geographical Markets               
Americas  $2,057,668   $1,204,282   $3,261,950 
Europe   491,016    810,178    1,301,194 
Australia/Asia   815,084    -    815,084 
Middle East/Africa   459,980    -    459,980 
                
Total Revenues  $3,823,748   $2,014,460   $5,838,208 
                
                
Major Goods/Service Lines               
Equipment Sales  $1,958,845   $436,864   $2,395,709 
Equipment Rentals   630,468    -    630,468 
Software Sales   304,796    -    304,796 
Engineering Parts   -    1,300,618    1,300,618 
Services   929,639    276,978    1,206,617 
                
Total Revenues  $3,823,748   $2,014,460   $5,838,208 
                
                
Goods transferred at a point in time  $2,263,641   $436,866   $2,724,343 
Services transferred over time   1,560,107    1,577,594    3,113,865 
                
Total Revenues  $3,823,748   $2,014,460   $5,838,208 

 

17

 

 

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

January 31, 2022 and October 31, 2021

 

NOTE 15 –DISAGGREGATION OF REVENUE (Continued)

 

   For the Three Months Ended January 31, 2021 
   Marine   Marine     
   Technology   Engineering   Grand 
   Business   Business   Total 
Disaggregation of Total Net Sales               
Revenues               
Primary Geographical Markets               
Americas  $549,278   $516,441   $1,065,719 
Europe   1,125,112    785,739    1,910,851 
Australia/Asia   2,008,210    -    2,008,210 
Middle East/Africa   65,679    -    65,679 
                
Total Revenues  $3,748,279   $1,302,180   $5,050,459 
                
                
Major Goods/Service Lines               
Equipment Sales  $2,793,487   $220,957   $3,014,444 
Equipment Rentals   334,363    -    334,363 
Software Sales   225,222    -    225,222 
Engineering Parts   -    856,347    856,347 
Services   395,207