Annual report pursuant to Section 13 and 15(d)

Notes and Loans Payable

Notes and Loans Payable
12 Months Ended
Oct. 31, 2010
Debt Disclosure [Abstract]  
Notes and Loans Payable



A summary of notes and loans payable at October 31, 2010 and 2009 is as follows:


    2010     2009  
The Company has a secured convertible debenture for $12M with a life of 7 years from February 26, 2008, maturing at 130% of face value, and with interest payable every six months, starting in February 2009, at a rate of 8.5%; During the term, the debentures are convertible into our common stock at the option of the Noteholders at a conversion price of $1.05. We may also force the conversion of these Notes into our common stock after two years in the event that we obtain a listing on a national exchange and our stock price closes on 40 consecutive trading days at or above $2.50 between the second and third anniversaries of this agreement; $2.90 between the third and fourth anniversaries of this agreement; and $3.50 after the fourth anniversary of this agreement or where the daily volume weighted average price of our stock as quoted on OTCBB or any other US National Exchange on which our securities are then listed has, for at least 40 consecutive trading days closed at the agreed price. The Company has failed to comply with certain covenants contained in the debenture agreement but the Noteholder has agreed to waive the consequences   $ 13,972,214     $ 13,067,929  
Pursuant to the terms of an invoice financing agreement with an Affiliate the Company received advances against certain invoices and contracts in exchange for the payment of 20% of the invoice or contract value.     451,302       -  
The Company, through its UK subsidiary Coda Octopus Products Ltd has a 7 year unsecured loan note for £100,000; interest rate of 12% annually; repayable at borrower’s instigation or convertible into common stock when the share price reaches $3.     160,350        165,594  
Total   $ 14,583,866     $ 13,233,523  
Less: current portion     (14,423,516)       -  
Total long-term portion   $ 160,350     $ 13,233,523  


In connection with the secured convertible debenture noted above and the Cash Control Framework Agreement (see below), we carried $1,271,170 deferred financing costs as an asset on the consolidated balance sheet at October 31, 2009, which represents $1,694,893 in financing closing costs we incurred, net of $423,723 in amortization expense at October 31, 2009. During the year ended October 31, 2010 and 2009, deferred financing cost of $1,271,170 and $242,128, respectively was written off to expense.


On March 16, 2009, the Company and the holder of the secured convertible debenture (“the Noteholder”) entered into a Cash Control Framework Agreement, pursuant to which it is assumed that, subject to the Company being fully compliant with the terms of this agreement and those set out in the Transaction Documents entered into between the Company and the Noteholder on February 21, 2008, no adverse actions will be taken by the Noteholder. The agreement provides, among other things, for the placement of approximately $2.15 million into a segregated cash account. Under the terms of the agreement, we may request the release of funds from the account from time to time for working capital purposes, subject to the Noteholder’s consent and agreed upon terms and conditions. Under the terms of the agreement, we must also adhere to a strict cost cutting program which involves reducing our SG&A, R&D and capital expenditure by an annualized $3.35 million.


On January 18, 2011, the noteholder notified us in writing that it had waived its right to demand repayment of the loan as a result of our failure to observe certain specified loan covenants. The agreement was extended for a further period of 12 months and now expires on March 16, 2012. During the extension period, parties closed the facility in March 2011. We believe that the terms of this agreement may provide us with sufficient liquidity to operate for fiscal 2011.


On or around July 2010 the Company entered into a Financing Agreement with an affiliate of CCM Holdings, Fort Advisors LLC under which Fort Advisors agreed to make advances of up to $500,000 against certain invoices and contracts for which the Company paid 20% against each invoice that was financed.


See Note 16 of the Consolidated Financial Statement for current information on the Cash Control Framework Agreement and the breaches of covenants disclosed in the paragraph immediately above.