NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
January
31, 2011
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies
applied in the preparation of the accompanying unaudited condensed consolidated financial statements follows.
General
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial information and in accordance with instructions to SEC
form 10Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles
for complete financial statements.
In
the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation
have been included. Accordingly, the results from operations for the three month period ended January 31, 2011, are not necessarily
indicative of the results that may be expected for the year ended October 31, 2011. The unaudited condensed financial statements
should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s
10K for the year ended October 31, 2010.
Business
and Basis of Presentation
Coda
Octopus Group, Inc. (“Coda,” “the Company,” or “we”) designs and manufactures patented real
time 3D sonar solutions and other leading products for sale to the subsea, defense, mining and marine sciences markets, among
others. In addition, we supply marine engineering business services to prime defense contractors. We operate through two operating
business segments: Marine Technology Business (“Products” segment) and Marine Engineering Business (“Services”
segment). Our products are used primarily in the underwater construction market, offshore oil and gas and wind energy industry,
and in the complex dredging, port security, mining and marine sciences sectors. Our customers include service providers to major
oil and gas companies, law enforcement agencies, ports, mining companies, defense companies and universities. We supply our marine
engineering business services mainly to prime defense contractors. We have been supporting some significant defense programs for
over 20 years, including the Close In Weapon Support program that enables us to supply, upgrade and maintain proprietary parts
to these programs on an ongoing basis.
The
unaudited condensed 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 statements.
Use
of Estimates
The
preparation of unaudited condensed consolidated 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. Included in these estimates are assumptions
about collection of accounts receivable, impairment of intangible assets, useful life of property and equipment, assumptions used
to calculate fair value of stocks and warrants granted, stock based compensation, deferred income tax asset valuation allowances,
and valuation of derivative liabilities.
Revenue
Recognition
We
record revenue in accordance with FASB ASC Topic 605 - Revenue Recognition. Our revenue is derived from sales of underwater technologies
and equipment for imaging, mapping, defense and survey applications, as well as from the performance of various engineering and
manufacturing contracts. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services
have been rendered, the contract price is fixed or determinable, and collectability 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 ASC 605
,
and recognize revenue for equipment upon delivery and for installation
and other services as performed.
Our
contracts sometimes 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 FASB ASC Topic 985 - Software. 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.
Some
of the subsidiaries report earnings from job contracts on the percentage of completion measured by the proportion of job costs
incurred to date to estimate total job costs for each contract. Costs and estimated earnings in excess of billings and vice versa
on uncompleted contracts have been recorded as current assets and current liabilities, respectively. At the time a loss becomes
known, the entire amount of the estimated ultimate loss is recognized. The earnings or losses the Company ultimately will realize
on uncompleted contracts could differ materially in the next year from the amounts estimated.
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Foreign
Currency Translation
Coda
translates the foreign currency financial statements of its foreign subsidiaries in accordance with the requirements of ASC 830
- Foreign Currency Matters. Assets and liabilities are translated at exchange rates existing at the balance sheet dates, related
revenue and expenses are translated at average exchange rates in effect during the period and stockholders’ equity is recorded
at historical exchange rates. Resulting translation adjustments are recorded as a separate component in stockholders’ equity
as part of accumulated other comprehensive income (loss). 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 ASC 740 - 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.
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.
Accounts
Receivable
Accounts
receivable are generally unsecured. The Company establishes an allowance for doubtful accounts receivable based on the age of
outstanding invoices and management’s evaluation of collectability. Accounts are written off after all reasonable collection
efforts have been exhausted and management concludes that likelihood of collection is remote. Any future recoveries are applied
against the allowance for doubtful accounts. We periodically review our trade receivables in determining our allowance for doubtful
accounts. Allowance for doubtful accounts was $10,000 for the period ended January 31, 2011 and $9,325 for the year
ended October 31, 2010.
Reclassification
of Prior Year Presentation
Certain
reclassifications have been made to conform the prior period data to the current presentations. These reclassifications had no
effect on the reported results.
Fair
Value of Financial Instruments
FASB
ASC 825-10-50 - Financial Investments, 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.
FASB
ASC 820 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities
required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it
would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent
risk, transfer restrictions, and risk of non-performance. FASB ASC 820 establishes a fair value hierarchy that requires an entity
to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. FASN ASC 820 establishes
three levels of inputs that may be used to measure fair value:
Level
1 - Quoted prices in active markets for identical assets or liabilities.
Level
2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets
with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant
inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full
term of the assets or liabilities.
Level
3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
To
the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination
of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of
the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair
value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement.
Items
recorded or measured at fair value on a recurring basis in the accompanying unaudited condensed consolidated financial statements
consisted of the following items as of January 31, 2011:
|
|
|
|
|
Quoted Prices
in Active
Markets for
Identical
Instruments
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
$
|
928,909
|
|
|
$
|
928,909
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Short term investment
|
|
$
|
13,175
|
|
|
$
|
13,175
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total
|
|
$
|
942,084
|
|
|
$
|
942,084
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
199,480
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
199,480
|
|
Notes payable
|
|
$
|
14,818,302
|
|
|
$
|
-
|
|
|
$
|
14,818,302
|
|
|
$
|
-
|
|
Total
|
|
$
|
15,017,782
|
|
|
$
|
-
|
|
|
$
|
14,818,302
|
|
|
$
|
199,480
|
|
The
fair value of restricted cash and short term investments at January 31, 2011 was grouped as Level 1 valuation as the
market price was readily available.
Loans
and notes payables are recorded at their face amounts which approximates fair value.
Debt
and Equity Securities
The
Company follows the provisions of FASB ASC Topic 320, Accounting for Certain Investments in Debt and Equity Securities (ASC 320).
The Company classifies debt and equity securities into one of three categories: held-to-maturity, available-for-sale or trading.
These security classifications may be modified after acquisition only under certain specified conditions. Securities may be classified
as held-to-maturity only if the Company has the positive intent and ability to hold them to maturity. Trading securities are defined
as those bought and held principally for the purpose of selling them in the near term. All other securities must be classified
as available-for-sale.
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Held-to-maturity
securities are measured at amortized cost in the consolidated balance sheets. Unrealized holding gains and losses are not included
in earnings or in a separate component of capital. They are merely disclosed in the notes to the consolidated financial statements.
Available-for-sale
securities are carried at fair value on the consolidated balance sheets. Unrealized holding gains and losses are not included
in earnings but are reported as a net amount (less expected tax) in a separate component of capital until realized.
Trading
securities are carried at fair value on the consolidated balance sheets. Unrealized holding gains and losses for trading securities
are included in earnings.
Declines
in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary
are reflected in earnings as realized losses.
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, 2011 and October 31, 2010:
|
|
2011
|
|
|
2010
|
|
Raw materials
|
|
$
|
733,424
|
|
|
$
|
887,061
|
|
Work in process
|
|
|
193,616
|
|
|
|
98,630
|
|
Demo-goods
|
|
|
-
|
|
|
|
307,792
|
|
Finished goods
|
|
|
790,660
|
|
|
|
486,631
|
|
|
|
|
|
|
|
|
|
|
Total inventory
|
|
$
|
1,717,700
|
|
|
$
|
1,780,114
|
|
We
regularly review our inventory quantities on hand and record a provision for excess and obsolete inventory based primarily on
our estimated forecast of product demand, production availability and/or our ability to sell the product(s) concerned. Demand
for our products can fluctuate significantly. Factors that could affect demand for our products include unanticipated changes
in consumer preferences, general market and economic conditions or other factors that may result in cancellations of advance orders
or reductions in the rate of reorders placed by customers and/or continued weakening of economic conditions. Additionally, management’s
estimates of future product demand may be inaccurate, which could result in an understated or overstated provision required for
excess and obsolete inventory. As of January 31, 2011 and October 31, 2010, the allowance for inventory was Nil.
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. When assets are retired or disposed
of, the cost and accumulated depreciation are removed, and any resulting gains or losses are included in the unaudited condensed
consolidated statement of operations
Long-Lived
Assets
FASB
ASC Topic 360 Property, Plant and Equipment (ASC 360), 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 period ended January 31, 2011 and 2010.
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Research
and Development
Research
and development costs consist of expenditures for the present and future patents and technology, which cannot be capitalized.
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 tax credits of nil during the period ended January
31, 2011 and 2010.
Marketing
We
charge the costs of marketing to expense as incurred. For the period ended January 31, 2011 and 2010 marketing costs were $13,878
and $33,084 respectively.
Goodwill
and other Intangible Assets
The
Company accounts for goodwill and other intangibles assets in accordance with FASB ASC 350. ASC 350 requires that goodwill and
identifiable intangible assets to be tested for impairment at least annually or more often if events and circumstances warrant.
Intangible
assets consist principally of the excess of cost over the fair value of net assets acquired (or goodwill), customer relationships,
non-compete agreements and licenses. Goodwill was allocated to our reporting units based on the original purchase price allocation.
Goodwill is not amortized and is evaluated for impairment annually or more often if circumstances indicate impairment may exist.
Customer relationships, non-compete agreements, patents and licenses are being amortized on a straight-line basis over periods
of 2 to 10 years. The Company amortizes its amortizable intangible assets using the straight-line method over their estimated
period of benefit.
We
test for impairment at the reporting unit level as defined in FASB ASC Topic 350 - Intangibles - Goodwill and Other (ASC 350).
This test is a two-step process. The first step of the goodwill impairment test, used to identify potential impairment, compares
the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value, which is based on future
cash flows, exceeds the carrying amount, goodwill is not considered impaired. If the carrying amount exceeds the fair value, the
second step must be performed to measure the amount of the impairment loss, if any. The second step compares the implied fair
value of the reporting unit’s goodwill with the carrying amount of that goodwill. In the fourth quarter of each year, we
evaluate goodwill on a separate reporting unit basis to assess recoverability, and impairments, if any, are recognized in earnings.
An impairment loss would be recognized in an amount equal to the excess of the carrying amount of the goodwill over the implied
fair value of the goodwill. ASC 350 also requires that intangible assets with determinable useful lives be amortized
over their respective estimated useful lives.
Stock
Based Compensation
Effective
January 1, 2006, the Company adopted FASB ASC Topic 718 - Compensation - Stock Compensation, (ASC 718) which requires the recognition
of the expense related to the fair value of stock-based compensation awards within the statement of income. The Company elected
the modified prospective transition method as permitted by (ASC 718). Under this transition method, stock-based compensation expense
for the years ended October 31, 2009 and 2008 includes compensation expense for unvested stock-based compensation awards that
were outstanding as of January 1, 2006, respectively, for which the requisite service was rendered during the year. The stock-based
compensation costs for these awards granted prior to January 1, 2006 were based on the grant date fair value estimated in accordance
with the original provisions of ASC 718. Compensation expense for all stock-based compensation awards granted subsequent to January
1, 2006 is based on the grant date fair value estimated in accordance with the provisions of ASC 718 recorded over the requisite
service period.
We
use the fair value method for equity instruments granted to 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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Comprehensive
Income
FASB
ASC Topic 220 - Comprehensive Income, (ASC 220) 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, ASC 220 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.
Deferred
Financing Costs
Deferred financing costs primarily include
debt issuance costs incurred by the Company in connection with the issuance of secured convertible debentures in February 2008
(see Note 13). Amortization is provided on a straight-line basis over the terms of the respective debt instruments to which the
costs relate and is included in interest expense. Deferred financing cost expense was $nil and $60,532 in the period ended January
31, 2011 and 2010, respectively.
Loss
Per Share
Net
income (loss) per share
Dilutive
common stock equivalents consist of shares issuable upon conversion of warrants and the exercise of the Company’s stock
options and warrants. In accordance with ASC 260-45-20, common stock equivalents derived from shares issuable in conversion
of the warrants are not considered in the calculation of the weighted average number of common shares outstanding because the
adjustments in computing income available to common stockholders would result in a loss. Accordingly, the diluted EPS would be
computed in the same manner as basic earnings per share.
The following reconciliation of net income
and share amounts used in the computation of loss per share for the three months ended January 31, 2011 and 2010:
|
|
Three Months Ended
January 31, 2011
|
|
|
Three Months Ended
January 31, 2010
|
|
Net (loss) income used in computing basic net income per share
|
|
$
|
(468,670
|
)
|
|
$
|
773,101
|
|
Impact of assumed assumptions:
|
|
|
|
|
|
|
|
|
Gain on warrant liability marked to fair value
|
|
|
273,904
|
|
|
|
1,554,908
|
|
Net loss in computing
diluted net loss per share:
|
|
$
|
(742,574
|
)
|
|
$
|
(781,807
|
)
|
Per share basic and diluted net income (loss)
amounted to $(0.01) for the period ended January 31, 2011. Per share basic and diluted net income (loss) amounted to $0.02 and
$0.02 for the period ended January 31, 2010, respectively. For the periods ended January 31, 2011 and 2010, there were 30,922,747
and 50,999,796 potential shares, respectively, which were excluded from the shares used to calculate diluted earnings (loss) per
share as their inclusion would reduce net loss per share.
Warrant
Derivative Liabilities
ASC
815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments
and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a)
the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic
characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument
and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with
changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative
instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception
to this rule when the host instrument is deemed to be conventional, as described.
A
Black-Scholes-Merton option-pricing model, with dilution effects, was utilized to estimate the fair value of the warrant derivative
liabilities.
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Related
Parties
Parties are considered to be related to the
Company if the parties that, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under
common control with the Company. Related parties also include principal owners of the Company, its management, members of the
immediate families of principal owners of the Company and its management and other parties with which the Company may deal if
one party controls or can significantly influence the management or operating policies of the other to an extent that one of the
transacting parties might be prevented from fully pursuing its own separate interests. All transactions with related parties shall
be recorded at fair value of the goods or services exchanged. Property purchased from a related party is recorded at the cost
to the related party and any payment to or on behalf of the related party in excess of the cost is reflected as a distribution
to the related party.
Contingencies
Certain conditions may exist as of the date
the financial statements are issued which may result in a loss to the Company but which will only be resolved when one or more
future events occur or fail to occur. The Company’s management assesses such contingent liabilities, and such assessment
inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against
and by the Company or un-asserted claims that may result in such proceedings, the Company’s management evaluates the perceived
merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected
to be sought.
If
the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability
can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment
indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be
estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable
and material would be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they
involve guarantees, in which case the guarantee would be disclosed.
New
Accounting Pronouncements
In
June 2009, the Financial Accounting Standards Board (“FASB”) issued guidance now codified under Accounting Standards
Codification (“ASC”) Topic 105-10, which establishes the FASB Accounting Standards Codification (the “Codification”)
as the source of authoritative accounting principles recognized by the FASB to be applied in the preparation of financial statements
in conformity with GAAP. ASC Topic 105-10 explicitly recognizes rules and interpretive releases of the Securities and Exchange
Commission (“SEC”) under federal securities laws as authoritative GAAP for SEC registrants. Upon adoption of this
guidance under ASC Topic 105-10, the Codification superseded all then-existing non-SEC accounting and reporting standards. All
other non-grandfathered non-SEC accounting literature not included in the Codification became non-authoritative. The guidance
under ASC Topic 105-10 became effective for the Company as of September 30, 2009. References made to authoritative FASB guidance
throughout this document have been updated to the applicable Codification section.
In
February 2007, the FASB issued FASB ASC Topic 825, “The Fair Value Option for Financial Assets and Financial Liabilities
– Including an Amendment of ASC 320” (ASC 825) which permits entities to choose to measure many financial instruments
and certain other items at fair value. Most of the provisions of (ASC 825) apply only to entities that elect the fair value option.
However, the amendment to ASC 320 “Accounting for Certain Investments in Debt and Equity Securities” applies
to all entities with available-for-sale and trading securities. ASC 825 is effective as of the beginning of an entity’s
first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins
on or before November 15, 2007, provided the entity also elects to apply the provision of ASC 820, “Fair Value Measurements”.
The adoption of ASC 825 is not expected to have a material impact on the Company’s consolidated financial position,
results of operations or cash flows.
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In
December 2007, the FASB issued FASB ASC Topic 805, “Business Combinations” (ASC 805), which establishes principles
and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any non-controlling interest in an acquiree, including the recognition and measurement of goodwill acquired
in a business combination. ASC 805 is effective as of the beginning of the first fiscal year beginning on or after December 15,
2008. Earlier adoption is prohibited. The adoption of ASC 805 did not have a material impact on the Company’s consolidated
financial position, results of operations or cash flow.
In
December 2007, the FASB issued FASB ASC Topic 810, “Non-controlling Interest in Consolidated Financial Statements,
an amendment of ASC 810-12-15” (ASC 810), which will change the accounting and reporting for minority interests, which
will be re-characterized as non-controlling interests and classified as a component of equity within the consolidated balance
sheets. ASC 810 is effective as of the beginning of the first fiscal year beginning on or after December 15, 2008.
Earlier adoption is prohibited and the Company is currently evaluating the effect, if any that the adoption will have on its consolidated
financial position, results of operations or cash flows.
In
June 2007, the FASB issued FASB ASC Topic 730-20, “Accounting for Non-refundable Advance Payments for Goods or Services
to be Used in Future Research and Development Activities” ASC 730-20, which requires that non-refundable advance payments
for goods or services that will be used or rendered for future research and development (R&D) activities be deferred and amortized
over the period that the goods are delivered or the related services are performed, subject to an assessment of recoverability.
ASC 730-20 will be effective for fiscal years beginning after December 15, 2007. The Company does not expect that the adoption
of ASC 730-20 will have a material impact on its consolidated financial position, results of operations or cash flows.
In
December 2007, the FASB issued FASB ASC Topic 808-10-15, “Accounting for Collaborative Arrangements” (ASC 808-10-15)
which defines collaborative arrangements and requires collaborators to present the result of activities for which they act
as the principal on a gross basis and report any payments received from (made to) the other collaborators based on other applicable
authoritative accounting literature, and in the absence of other applicable authoritative literature, on a reasonable, rational
and consistent accounting policy is to be elected. ASC 808-10-15 also provides for disclosures regarding the nature
and purpose of the arrangement, the entity’s rights and obligations, the accounting policy for the arrangement and the income
statement classification and amounts arising from the agreement. ASC 808-10-15 will be effective for fiscal years beginning after
December 15, 2008, which will be the Company’s fiscal year 2009, and will be applied as a change in accounting principle
retrospectively for all collaborative arrangements existing as of the effective date. The Company has not yet evaluated the potential
impact of adopting ASC 808-10-15 on its consolidated financial position, results of operations or cash flows.
In
March 2008, the FASB” issued FASB ASC Topic 815-10-65, “Disclosures about Derivative Instruments and Hedging Activities
– an amendment to 815-10-05 (ASC 815-10-65) which is intended to improve financial standards for derivative instruments
and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s
financial position, financial performance, and cash flows. Entities are required to provide enhanced disclosures about: (a) how
and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under 815-10-05
and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years beginning after
November 15, 2008, with early adoption encouraged.
In
2008, the FASB issued FASB ASC 815-40 (Previously known as: EITF 07-05, Determining whether an Instrument (or Embedded Feature)
Is Indexed to an Entity’s Own Stock). FASB ASC 815-40 provides guidance on determining what types of instruments or embedded
features in an instrument held by a reporting entity can be considered indexed to its own stock for the purpose of evaluating
the first criteria of the scope exception in FASB ASC 810-10-15 (Prior authoritative literature: paragraph 11(a) of SFAS 133).
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In
May 2008, the FASB ASC Topic 470-20-15, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement)” (ASC 470-20-15) which requires the issuer of certain convertible debt instruments that
may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option)
components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. ASC 470-20-15 is
effective for fiscal years beginning after December 15, 2008 on a retroactive basis. The Company is currently evaluating the potential
impact, if any, of the adoption of ASC 470-20-15 on its consolidated financial position, results of operations or cash flows.
In
June 2008, the FASB issued FASB ASC Topic 260-10-45, “Determining Whether Instruments Granted in Share-Based Payment Transactions
Are Participating Securities.” FASB ASC Topic 260-10-45, unvested share-based payment awards that contain rights to receive
non-forfeitable dividends (whether paid or unpaid) are participating securities, and should be included in the two-class method
of computing EPS. The FSP is effective for fiscal years beginning after December 15, 2008, and interim periods within those years.
The Company does not expect the adoption of ASC 260-10-45 to have a material effect on its consolidated financial position, results
of operations or cash flows.
In
May 2009, the FASB issued FASB ASC 855-10 (Previously known as: SFAS No. 165, “Subsequent Events”) FASB ASC 855-10
establishes general standards for accounting for and disclosure of events that occur after the balance sheet date but before financial
statements are available to be issued (“subsequent events”). More specifically, FASB ASC 855-10 sets forth the period
after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur
for potential recognition in the financial statements, identifies the circumstances under which an entity should recognize events
or transactions occurring after the balance sheet date in its financial statements and the disclosures that should be made about
events or transactions that occur after the balance sheet date. FASB ASC 855-10 provides largely the same guidance on subsequent
events which previously existed only in auditing literature. The guidance under ASC Topic 855-10 became effective for the Company
as of June 30, 2009.
Liquidity
As
of January 31, 2011, we have cash and cash equivalents of $1,273,502, a working capital deficit of $16,538,618 and stockholders’
deficit of $12,604,250. For the period ended January 31, 2011, we had net loss of $468,670 and negative cash flow from operations
of $107,715. We also have an accumulated deficit of $59,754,503 at January 31, 2011.
NOTE
2 – RESTRICTED CASH
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.
This
agreement was extended for a further period of one year, expiring on March 16, 2009. On January 18, 2010, 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, 2011. We believe that
the terms of this agreement may provide us with sufficient liquidity to operate for fiscal 2011.
At
January 31, 2011 and October 31, 2010, we have received net advances from this facility of $928,909 and $827,266, respectively.
On or around August 23, 2010, the Company
failed to make a scheduled interest payment under the senior convertible debentures. This constituted an event of default under
the Loan Note Instrument and the Cash Control Framework Agreement resulting in the Noteholder making a demand for the special
purpose amount of $6,000,000 which was advanced to the Company for an approved acquisition under the original Loan Note Instrument
and for which it had failed to make.
On
or around March 28, 2011 the Noteholder terminated the Cash Control Framework Agreement.
See
Note 15 of the Unaudited Condensed Consolidated Financial Statement for current information on the Cash Control Framework Agreement.
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 $690,686 and $587,015 as of January 31, 2011 and October 31, 2010 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 $745,824
and $443,853 as of January 31, 2011 and October 31, 2010 respectively.
Revenue received as part of sales of equipment
includes a provision for warranty and is treated as deferred revenue, along with extended warranty sales, with these amounts amortized
over either 12 months, 36 months or 60 months from the date of sale depending on the product purchased. These products are sold
as Through Life Support for said periods. These amounts are stated on the balance sheet as Warranty Liability of $1,514,319 and
$770,330 as of January 31, 2011 and October 31, 2010 respectively.
NOTE
4 – FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB
ASC Topic 820 - Fair Value Measurements and Disclosures (“ASC 820”) defines fair value as the price that would be
received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value,
the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market
participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of non-performance.
ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use
of unobservable inputs when measuring fair value. ASC 820 establishes three levels of inputs that may be used to measure fair
value:
Level
1 - Quoted prices in active markets for identical assets or liabilities.
Level
2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets
with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant
inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full
term of the assets or liabilities.
Level
3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
To
the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination
of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of
the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair
value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement.
Items
recorded or measured at fair value on a recurring basis in the accompanying unaudited condensed consolidated financial statements
consisted of the following items as of January 31, 2011:
|
|
|
|
|
Quoted Prices
in Active
Markets for
Identical
Instruments
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
$
|
928,909
|
|
|
$
|
928,909
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Short term investment
|
|
$
|
13,175
|
|
|
$
|
13,175
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total
|
|
$
|
942,084
|
|
|
$
|
942,084
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
199,480
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
199,480
|
|
Loans and notes payable
|
|
$
|
14,818,302
|
|
|
$
|
-
|
|
|
$
|
14,818,302
|
|
|
$
|
-
|
|
Totals
|
|
$
|
15,017,782
|
|
|
$
|
-
|
|
|
$
|
14,818,302
|
|
|
$
|
199,480
|
|
The fair value of the short term investments,
at January 31, 2011 was grouped as Level 1 valuation as the market price was readily available, compared to a fair value of $14,875
for short term investments at October 31, 2010.
Loans
and notes payable are recorded at their face amount which approximates fair value.
The
remaining fair value of this investment is $13,175 as of January 31, 2011.
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
5 - OTHER CURRENT ASSETS
Other
current assets on the balance sheet total $254,675 and $180,597 at January 31, 2011 and October 31, 2010 respectively. These totals
comprise the following:
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
Value added tax (VAT)
|
|
$
|
-
|
|
|
$
|
1,993
|
|
Other receivable
|
|
|
177,194
|
|
|
|
178,604
|
|
Factoring account reserves
|
|
|
77,481
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
254,675
|
|
|
$
|
180,597
|
|
NOTE
6 - FIXED ASSETS
Property
and equipment at January 31, 2011 and October 31, 2010 is summarized as follows:
|
|
2011
|
|
|
2010
|
|
Machinery and equipment
|
|
$
|
879,554
|
|
|
$
|
674,751
|
|
Accumulated depreciation
|
|
|
(703,311
|
)
|
|
|
(560,282
|
)
|
|
|
|
|
|
|
|
|
|
Net property and equipment assets
|
|
$
|
176,243
|
|
|
$
|
114,469
|
|
Depreciation
expense recorded in the statement of operations for the period ended January 31, 2011 and 2010 is $22,436 and $30,076, respectively.
NOTE
7 - INTANGIBLE ASSETS AND GOODWILL
The
Company accounts for intangible assets and goodwill in accordance with ASC 350. Goodwill and Other Intangible Assets, are evaluated
on an annual basis, and when there is reason to believe that their values have been diminished or impaired write-downs will be
included in results from operations.
The
identifiable intangible assets acquired and their carrying value at January 31, 2011 and October 31, 2010 is:
|
|
2011
|
|
|
2010
|
|
Customer relationships (weighted average life of 10 years)
|
|
$
|
724,243
|
|
|
$
|
723,127
|
|
Non-compete agreements (weighted average life of 3 years)
|
|
|
233,754
|
|
|
|
230,981
|
|
Patents (weighted average life of 10 years)
|
|
|
95,191
|
|
|
|
86,539
|
|
Licenses (weighted average life of 2 years)
|
|
|
100,000
|
|
|
|
100,000
|
|
Total amortized identifiable intangible assets - gross carrying value
|
|
|
1,153,188
|
|
|
|
1,140,647
|
|
Less accumulated amortization and impairment
|
|
|
(584,834
|
)
|
|
|
(600,908
|
)
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
568,354
|
|
|
|
539,739
|
|
|
|
|
|
|
|
|
|
|
Residual value
|
|
$
|
568,354
|
|
|
$
|
539,739
|
|
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Our
acquisition of Dragon Design Ltd (“Dragon”) in December 2008 resulted in the valuation of Dragon’s customer
relationships and covenants not to compete as intangible assets, which have an estimated useful life of 3 years each, and as such
are being amortized on a straight-line basis over that period. In addition, we recognized goodwill of $282,533 that represents
the excess of the purchase price we paid over the fair value of Dragon’s net tangible and intangible assets we acquired.
See Note 15 for current information on the status of Dragon Design Ltd.
Our
acquisition of the assets of Tactical Intelligence, LLC (“Tactical”) In November 2008 resulted in the valuation of
Tactical’s customer relationships and covenants not to compete as intangible assets, which have an estimated useful life
of 3 years each, and as such are being amortized monthly over that period. In addition, we recognized goodwill of $142,430 that
represents the excess of the purchase price we paid over the fair value of Tactical’s net tangible and intangible assets
acquired. See Note 15 for current information on the status of Tactical Intelligence, LLC.
Estimated
annual amortization expense as of January 31, 2011 is as follows:
2011 – remaining period
|
|
$
|
57,523
|
|
2012
|
|
|
76,696
|
|
2013
|
|
|
76,696
|
|
2014 and thereafter
|
|
|
357,439
|
|
|
|
|
|
|
Total
|
|
$
|
568,354
|
|
Amortization
of patents, customer relationships, non-compete agreements and licenses included as a charge to operations amounted to $19,533
and $38,477 for the period ended January 31, 2011 and 2010, respectively. Goodwill is not being amortized.
As
a result of the acquisitions of Martech, Colmek, Dragon and Tactical, the Company has goodwill in the amount of $3,350,168 as
of January 31, 2011.The carrying amount of goodwill as of January 31, 2011 and October 31, 2010 is recorded below.
|
|
2011
|
|
|
2010
|
|
Beginning goodwill balance at November 1:
|
|
|
|
|
|
|
|
|
Coda Octopus Colmek, Inc.
|
|
$
|
2,038,669
|
|
|
$
|
2,038,669
|
|
Coda Octopus Martech Ltd
|
|
|
998,591
|
|
|
|
998,591
|
|
Coda Octopus Products Ltd
|
|
|
62,315
|
|
|
|
62,315
|
|
Goodwill recorded upon acquisition:
|
|
|
|
|
|
|
|
|
Dragon Design Ltd
|
|
|
282,533
|
|
|
|
282,533
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,382,108
|
|
|
|
3,382,108
|
|
|
|
|
|
|
|
|
|
|
Less impairment
|
|
|
(31,940
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2011 and October 31, 2010
|
|
$
|
3,350,168
|
|
|
$
|
3,382,108
|
|
Considerable
management judgment is necessary to estimate fair value. We enlist the assistance of an independent valuation consultant to determine
the values of our intangible assets and goodwill, both at the dates of acquisition and at specific dates annually. Based on various
market factors and projections used by management, actual results could vary significantly from managements’ estimates.
See
Note 15 of the Unaudited Condensed Consolidated Financial Statement for current information on the status of Dragon and Tactical.
NOTE
8 - CAPITAL STOCK
The Company is authorized to issue 150,000,000
shares of common stock with a par value of $0.001 per share. As of January 31, 2011 and October 31, 2010, the Company has issued
and outstanding 74,039,867 and 60,614,958 shares of common stock respectively. 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 6,287 Series A preferred shares outstanding at January 31, 2011 and October 31, 2010 respectively,
and nil Series B preferred shares outstanding at the same dates.
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Series
A Preferred Stock
We
designated 50,000 shares of our preferred stock, par value $0.001, as Series A Preferred Stock. The Series A Preferred Stock ranks
senior to all classes of common and preferred stock and has no liquidation preference above par. The Series A Preferred Stock
is sold as units of $100 (or £100 where stock has been sold to investors in British Pounds) and has a dividend rate of 12%
per year, i.e. $12 per $100 unit, paid every six months, in May and November each 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,
and at the option of the Company when the stock price reaches or exceeds $3.00.
The
total of Series A preferred stock outstanding is 6,287 shares at January 31, 2011, convertible into 1,013,670 shares of common
stock.
The
Company has not paid any dividends on the Series A preferred stock as the Board of Directors have concluded that Delaware law
states that dividends can only de declared when there is funds available in the Company to do pay such dividends. The Company’s
financial state does not allow such payments to take place.
See Note 15 of the Unaudited Condensed Consolidated
Financial Statement for current information on the status of the Series A Preferred Stock.
Series
B Preferred Stock
We
designated 50,000 shares of our preferred stock, par value $0.001, 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 are convertible at the option of
the holder into shares of our common stock at a conversion price of $1.00 per share. As of January 31, 2011 and October 31, 2010
respectively, we have no shares of Series B Preferred Stock outstanding.
See Note 15 of the Unaudited Condensed Consolidated
Financial Statement for current information on the status of the Series B Preferred Stock.
Common
Stock
During the period ending January 31, 2011,
we issued 16,826,715 shares of common stock valued at $279,963 (“Issuance”). Of this issuance, 750,000 shares of common
stock were issued to a consultant for services rendered and the remainder was issued to a number of investors who had purchased
certain securities pursuant to the terms of a series of Securities Purchase Agreement entered into between April and May 2007
in exchange for (i) surrender of their existing warrants and (ii) termination of the rights and obligations under the Securities
Purchase Agreement.
During the period ending January 31, 2011,
we cancelled 3,428,571 shares of the Company’s common stock which were issued erroneously in the period ending October 31,
2010.
On January 25, 2011, the Company issued a
total of 26,765 shares of common stock to three members of staff.
The 750,000 shares referred to above were
issued to an affiliate of CCM Holdings, LLC a significant shareholder of our Company.
See Note 15 of the Unaudited Condensed Consolidated
Financial Statement for current information on the number of issued and outstanding shares of common stock.
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
9 - WARRANTS AND STOCK OPTIONS
Transactions
involving stock options and warrants issued are summarized as follows:
Warrants
|
|
Three months ended
January 31, 2011
|
|
|
Year ended
October 31, 2010
|
|
|
|
Number
|
|
|
Weighted
Average Exercise
Price
|
|
|
Number
|
|
|
Weighted
Average Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of the period
|
|
|
24,119,418
|
|
|
$
|
1.47
|
|
|
|
32,583,418
|
|
|
$
|
1.42
|
|
Granted during the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Terminated during the period
|
|
|
(9,382,418
|
)
|
|
|
1.50
|
|
|
|
(8,464,000
|
)
|
|
|
1.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the end of the period
|
|
|
14,737,000
|
|
|
$
|
1.45
|
|
|
|
24,119,418
|
|
|
$
|
1.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at the end of the period
|
|
|
14,737,000
|
|
|
$
|
1.45
|
|
|
|
24,119,418
|
|
|
$
|
1.47
|
|
The
number and weighted average exercise prices of warrants outstanding as of January 31, 2011 are as follows:
Range of
Exercise Prices
|
|
Number
Outstanding
|
|
|
Weighted
Average
Contractual Life
(Yrs)
|
|
|
Total Exercisable
|
|
$0.50
|
|
|
250,000
|
|
|
|
0.24
|
|
|
|
250,000
|
|
0.58
|
|
|
400,000
|
|
|
|
0.16
|
|
|
|
400,000
|
|
1.00
|
|
|
350,000
|
|
|
|
0.57
|
|
|
|
350,000
|
|
1.30
|
|
|
6,868,500
|
|
|
|
0.70
|
|
|
|
6,868,500
|
|
$1.70
|
|
|
6,868,500
|
|
|
|
0.70
|
|
|
|
6,868,500
|
|
Totals
|
|
|
14,737,000
|
|
|
|
0.76
|
|
|
|
14,737,000
|
|
Stock Options
|
|
Three months ended
January 31, 2011
|
|
|
Year ended
October 31, 2010
|
|
|
|
Number
|
|
|
Weighted
Average Exercise
Price
|
|
|
Number
|
|
|
Weighted
Average Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of the period
|
|
|
1,539,900
|
|
|
$
|
1.19
|
|
|
|
5,595,900
|
|
|
$
|
1.18
|
|
Granted during the period
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
1.05
|
|
Terminated during the period
|
|
|
(40,000
|
)
|
|
|
0.82
|
|
|
|
(4,106,000
|
)
|
|
|
1.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the end of the period
|
|
|
1,499,900
|
|
|
$
|
1.20
|
|
|
|
1,539,900
|
|
|
$
|
1.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at the end of the period
|
|
|
1,499,900
|
|
|
$
|
1.20
|
|
|
|
1,539,900
|
|
|
$
|
1.19
|
|
The
number and weighted average exercise prices of stock purchase options outstanding as of January 31, 2011 are as follows:
Range of
Exercise Prices
|
|
Number
Outstanding
|
|
|
Weighted
Average
Contractual Life
(Yrs)
|
|
|
Total Exercisable
|
|
$1.00
|
|
|
799,900
|
|
|
|
0.09
|
|
|
|
799,900
|
|
1.05
|
|
|
50,000
|
|
|
|
4.35
|
|
|
|
50,000
|
|
1.30
|
|
|
375,000
|
|
|
|
2.51
|
|
|
|
375,000
|
|
1.50
|
|
|
65,000
|
|
|
|
1.17
|
|
|
|
65,000
|
|
$1.70
|
|
|
210,000
|
|
|
|
1.41
|
|
|
|
210,000
|
|
Totals
|
|
|
1,499,900
|
|
|
|
1.07
|
|
|
|
1,499,900
|
|
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
See Note 15 of the Unaudited Condensed Consolidated
Financial Statement for current information on the status of the Warrants.
NOTE
10 – DERIVATIVE LIABILITY
In
June 2008, the FASB issued new accounting guidance which requires entities to evaluate whether an equity-linked financial instrument
(or embedded feature) is indexed to its own stock by assessing the instrument’s contingent exercise provisions and settlement
provisions. Instruments not indexed to their own stock fail to meet the scope exception of ASC 815 and should be classified as
a liability and marked-to-market. The statement is effective for fiscal years beginning after December 15, 2008 and is to be applied
to outstanding instruments upon adoption with the cumulative effect of the change in accounting principle recognized as an adjustment
to the opening balance of retained earnings. The Company has assessed its outstanding equity-linked financial instruments and
has concluded that, effective November 1, 2009, the value our warrants will need to be recorded as a derivative liability due
to the fact that the conversion price is subject to adjustment based on subsequent sales of securities. The cumulative effect
of the change in accounting principle on November 1, 2009 includes an increase in our derivative liability related to the fair
value of the conversion feature of $3,306,807. Fair value at November 1, 2009 was determined using the Black-Scholes method based
on the following assumptions: (1) risk free interest rate of 0.36-1.44%; (2) dividend yield of 0%; (3) volatility factor of the
expected market price of our common stock of 302.22%; (4) an expected life of the warrants of 1.41-3.32 years and (5) estimated
fair value of common stock of $0.08 per share.
At
January 31, 2011 we recalculated the fair value of the conversion feature subject to derivative accounting and have determined
that the fair value at January 31, 2011 is $199,480. The fair value of the conversion features was determined using the Black-Scholes
method based on the following assumptions: (1) risk free interest rate of 0.15-0.58%; (2) dividend yield of 0%; (3) volatility
factor of the expected market price of our common stock of 314%; (4) an expected life of the conversion feature of 0.16-2.07 years
and (5) estimated fair value of common stock of $0.02 per share.
We
have recorded a gain of $273,904 during the three months ended January 31, 2011 related to the change in fair value during the
quarter.
|
|
January 31, 2011
|
|
Balance, beginning of period
|
|
$
|
473,384
|
|
Additions
|
|
|
-
|
|
Extinguished derivative liability
|
|
|
-
|
|
Change in fair value of derivative liabilities
|
|
|
(273,904
|
)
|
Balance, end of period
|
|
$
|
199,480
|
|
See
Note 15 of the Unaudited Condensed Consolidated Financial Statement on current status of Warrants and Derivative Liability.
NOTE
11 - INCOME TAXES
The
Company has adopted FASB ASC Topic 740 Income Taxes 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 are $28,725,074 which expire through 2029, subject to limitations of Section 382 of
the Internal Revenue Code, as amended. The deferred tax asset related to the carry forward is $9,766,525. 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 $4,364,843 with no expiration.
The deferred tax asset related to the carry-forward is approximately $1,823,000. The Company has provided a valuation reserve
against the full amount of the benefits, 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.
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Components
of deferred tax assets as of January 31, 2011 and October 31, 2010 are as follows:
Non-Current
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
Net Operating Loss Carry Forward
|
|
$
|
9,766,525
|
|
|
$
|
9,607,177
|
|
Valuation Allowance
|
|
|
(9,766,525
|
)
|
|
|
(9,607,177
|
)
|
|
|
|
|
|
|
|
|
|
Net Deferred Tax Asset
|
|
$
|
-
|
|
|
$
|
-
|
|
NOTE
12 - CONTINGENCIES AND COMMITMENTS
Litigation
During
the reporting period to which this report applies the Company was involved in two lawsuits. The first action involved Federal
Engineering and Marketing Associates Inc. (FEMA) a Colorado corporation (Plaintiff) who acted as sales representative of our wholly
owned subsidiary, Coda Octopus Colmek Inc (“Colmek”) and the said Colmek as Defendant. The Plaintiff claimed breach
of contract. This litigation was fully settled by the parties on or around January 14, 2011 and all actions filed in court were
dismissed by consent.
On
April 28, 2010 we instituted legal action in the Supreme Court of the State of New York against 4 former employees. These actions
were settled in full between November 2010 and January 2011 and all actions filed in court were dismissed by consent.
See Note 15 of the Unaudited Condensed Consolidated
Financial Statement for current information on the status of these litigation.
Company
Voluntary Arrangement (CVA)
On or around October 18, 2010 our contracting
entity, Coda Octopus Martech, entered into an arrangement under which it was agreed to re-schedule £503,335 an equivalent
of $807,000 (using an exchange rate of 1.6035) amounts to trade creditors. Under the CVA this amount was scheduled to be repaid
over 4 years.
See Note 15 of the Unaudited Condensed Consolidated
Financial Statement for current information on the current status of the CVA.
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 2015. Future minimum lease obligations are $1,252,831, with the minimum future rentals due under
these leases as of January 31, 2011 as follows:
2011 – remaining period
|
|
$
|
235,190
|
|
2012
|
|
|
306,360
|
|
2013
|
|
|
296,527
|
|
2014
|
|
|
250,084
|
|
2015 and thereafter
|
|
|
164,670
|
|
|
|
|
|
|
Total
|
|
$
|
1,252,831
|
|
Concentrations
We had no concentrations of purchases of over
5% during the period ended January 31, 2011.
During
the three months ended January 31, 2011, the company had one customer generate sales greater than 10% of total revenue. Sales
to this customer were $662,758, or 18% of total revenues during the year.
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
13 - NOTES AND LOANS PAYABLE
A
summary of notes payable at January 31, 2011, and October 31, 2010 is as follows:
|
|
January
31, 2011
|
|
|
October
31, 2010
|
|
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.
See Subsequent Events Item for current update
|
|
$
|
14,355,786
|
|
|
$
|
13,972,214
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
302,119
|
|
|
|
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.
|
|
|
160,397
|
|
|
|
160,350
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,818,302
|
|
|
$
|
14,583,866
|
|
|
|
|
|
|
|
|
|
|
Less: current portion
|
|
|
14,657,905
|
|
|
|
14,423,516
|
|
|
|
|
|
|
|
|
|
|
Total long-term portion
|
|
$
|
160,397
|
|
|
$
|
160,350
|
|
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 or around August 23, 2010, the Company
failed to make a scheduled interest payment under the senior convertible debentures. This constituted an event of default under
the Loan Note Instrument and the Cash Control Framework Agreement resulting in the Noteholder making a demand for the special
purpose amount of $6,000,000 which was advanced to the Company for an approved acquisition under the original Loan Note Instrument
and for which it had failed to make.
See Note 15 of the Unaudited Condensed Consolidated
Financial Statement for current information on the status of the Cash Control Framework Agreement, the secured convertible debenture
and the other loans.
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
14 - SEGMENT INFORMATION
Due
to the nature of our businesses, we are operating in two reportable segments, which are managed separately based upon fundamental
differences in their operations. Martech, Dragon, Colmek, Tactical and Innalogic operate as contractors, and the balance of our
operations is comprised of product sales.
Segment
operating income is total segment revenue reduced by operating expenses identifiable with the business segment. Corporate includes
general corporate administrative costs.
The
Company evaluates performance and allocates resources based upon operating income. The accounting policies of the reportable segments
are the same as those described in the summary of accounting policies.
There
are inter-segment sales between our engineering contracting businesses and our products businesses, which have been removed from
the information shown below.
The
following table summarizes asset and operating balances by reportable segment.
|
|
Three months ended
|
|
|
|
January 31, 2011
|
|
|
January 31, 2010
|
|
Net Sales to External Customers:
|
|
|
|
|
|
|
|
|
Contracting
|
|
$
|
1,472,649
|
|
|
$
|
1,449,165
|
|
Products
|
|
|
2,115,909
|
|
|
|
1,619,045
|
|
|
|
|
|
|
|
|
|
|
Total Sales to External Customers
|
|
$
|
3,588,558
|
|
|
$
|
3,068,210
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization:
|
|
|
|
|
|
|
|
|
Contracting
|
|
$
|
21,520
|
|
|
$
|
40,383
|
|
Products
|
|
|
14,754
|
|
|
|
9,580
|
|
Corporate
|
|
|
5,695
|
|
|
|
73,413
|
|
Total Depreciation and Amortization
|
|
$
|
41,969
|
|
|
$
|
123,376
|
|
|
|
|
|
|
|
|
|
|
General and Administrative Expense:
|
|
|
|
|
|
|
|
|
Contracting
|
|
$
|
445,431
|
|
|
$
|
735,055
|
|
Products
|
|
|
495,540
|
|
|
|
445,431
|
|
Corporate
|
|
|
839,179
|
|
|
|
394,408
|
|
Total General and Administrative Expense
|
|
$
|
1,780,150
|
|
|
$
|
1,574,894
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures:
|
|
|
|
|
|
|
|
|
Contracting
|
|
$
|
5,731
|
|
|
$
|
-
|
|
Products
|
|
|
126,627
|
|
|
|
7,690
|
|
Corporate
|
|
|
-
|
|
|
|
-
|
|
Total Capital Expenditures
|
|
$
|
132,358
|
|
|
$
|
7,690
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Losses):
|
|
|
|
|
|
|
|
|
Contracting
|
|
$
|
301,551
|
|
|
$
|
(773,464
|
)
|
Products
|
|
|
167,772
|
|
|
|
846,306
|
|
Corporate
|
|
|
(829,179
|
)
|
|
|
(362,517
|
)
|
Total Segment Operating Losses
|
|
$
|
(359,856
|
)
|
|
$
|
(289,676
|
)
|
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
As of
|
|
|
|
January 31, 2011
|
|
|
October 31, 2010
|
|
Segment Assets:
|
|
|
|
|
|
|
|
|
Contracting
|
|
$
|
5,689,171
|
|
|
$
|
5,866,581
|
|
Products
|
|
|
3,448,688
|
|
|
|
2,428,610
|
|
Corporate
|
|
|
1,480,562
|
|
|
|
1,428,097
|
|
Total Segment Assets
|
|
$
|
10,618,421
|
|
|
$
|
9,723,288
|
|
The
Company’s reportable business segments operate in two geographic locations.
Those
geographic locations are:
*
United States
*
Europe
The
Company evaluates performance and allocates resources based upon operating income. The accounting policies of the reportable segments
are the same as those described in the summary of accounting policies. There are inter-segment sales which have been removed upon
consolidation and for the purposes of the information shown below.
Information
concerning principal geographic areas is presented below according to the area where the activity is taking place for the period
ended January 31, 2011 and 2010:
|
|
Three months ended
|
|
|
|
January 31, 2011
|
|
|
January
31, 2010
|
|
NET SALES TO EXTERNAL CUSTOMERS:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,378,510
|
|
|
$
|
980,934
|
|
Europe
|
|
|
2,210,048
|
|
|
|
2,087,276
|
|
TOTAL SALES TO EXTERNAL CUSTOMERS
|
|
$
|
3,588,558
|
|
|
$
|
3,068,210
|
|
|
|
As of
|
|
|
|
January 31, 2011
|
|
|
October 31, 2010
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
4,891,277
|
|
|
$
|
4,716,984
|
|
Europe
|
|
|
5,727,144
|
|
|
|
5,006,304
|
|
TOTAL ASSETS
|
|
$
|
10,618,421
|
|
|
$
|
9,723,288
|
|
CODA
OCTOPUS GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
15 – SUBSEQUENT EVENTS
Set
out below are the significant subsequent events which have occurred since February 1, 2011 through to and including the date of
this report;
The Cash Control Framework Agreement referred
to in Note 2 and 13 of the Unaudited Condensed Consolidated Financial Statement and elsewhere in this quarterly report was terminated
on or around March 28, 2011 as a consequence we no longer hold any Restricted cash and to this extent Note 4 and elsewhere in
this quarterly report is to be read as nil as of the date of this report for Restricted Cash.
Short Term Investment referred to in Note
4 of the Unaudited Consolidated Financial Statement and elsewhere in this quarterly report is written down to nil in fiscal year
2014.
The
business operations of Dragon Design Limited referred to in Note 7 of the Unaudited Condensed Consolidated Financial Statement
and elsewhere in this quarterly report were transferred to Coda Octopus Martech Limited in the fiscal year 2011 and this trading
entity was dissolved in the said fiscal year.
The
business operations of Tactical Intelligence LLC referred to in Note 7 of the Unaudited Condensed Consolidated Financial Statement
ceased in the fiscal year 2011 and the trading name Tactical Intelligence LLC was transferred to the original seller on or around
the said fiscal year.
The business operations of Innalogic ceased
in the fiscal year of 2011.
The Series A Preferred Stock referred to in
Note 8 of the Unaudited Condensed Consolidated Financial Statement was on June 30, 2015 exchanged for Series C pursuant to the
terms of an Exchange Agreement entered into between the Company and the Holder of the Series A. Under the terms of the Exchange
Agreement it was agreed to exchange 6,087 units of Series A Preferred Stock issued and outstanding (and which under the Certificate
of Designation provided for dividends and voting rights) for 1,100 units of Series C Preferred Stock. These shares of Series C
Preferred Stock each have a nominal value of $0.001 and a stated value of $1,000. The Certificate of Designation for the newly
created class of Series C Preferred Stock does not provide for dividends or voting rights. The 6,087 units of Series A Preferred
Stock were surrendered and cancelled by the Company. The Series A Preferred Stock was eliminated as a class on or around January
5, 2016.
On December 15, 2015 the Company repurchased
the remaining issued and outstanding 200 shares of Series A Preferred Stock and these have been surrendered and retired. The Series
A Preferred Stock was subsequently eliminated.
The Series B Preferred Stock referred to in
Note 8 of the Unaudited Condensed Consolidated Financial Statement was also eliminated as a class on or around August 2016.
All Warrants and Stock Options referred to
in Notes 9 and 10 of the Unaudited Condensed Consolidated Financial Statement have either been exchanged for Common Stock or expired
by their terms. At the date of this quarterly report there are no warrants or options outstanding and as a consequence Warrant
Liability in Note 4 of Consolidated Financial Statement and elsewhere in the annual report this should be read as nil at the date
of this report.
The
CVA mentioned in Note 12 of the Unaudited Consolidated Financial Statement and elsewhere in this quarterly report was discharged
in full on March 26, 2014.
All
litigation referred to in Note 12 of the Unaudited Condensed Consolidated Financial Statement were settled in full and at the
date of this quarterly report there are no litigations against the Company.
This
information is current as of the date of this quarterly report and supersedes the information set out in Note 13 of the Unaudited
Condensed Consolidated Financial Statement (and elsewhere in this quarterly report).
The term of the secured convertible debentures
referred to in Note 13 of the Unaudited Condensed Consolidated Financial Statement (Notes and Loans Payable) has been extended
to November 1, 2017.
Pursuant
to an agreement between the Company and Noteholder, the Debentures were restructured as follows:
|
●
|
The
maturity date of the Notes was extended to November 1, 2017;
|
|
|
|
|
●
|
The Company
has agreed to reduce the principal amount outstanding under the Notes by $2,000,000 payable
in 10 equal monthly payments commencing March 31, 2016. The Company is current in fulfilling
this obligation;
|
|
|
|
|
●
|
On March 1, 2016, the Company issued 32,346,682
shares of its common stock in extinguishment of $3,558,136 (the redemption premium accrued under the terms of the debentures)
due under the Notes at an effective price per share of $0.11; and
|
|
|
|
|
●
|
The
Company has agreed to return to filing reports under the Securities Exchange Act of 1934 before March 1, 2017.
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As a result of the restructuring, as of April
30, 2016, the total balance outstanding under the Notes had been reduced to $11,180,706. This amount includes principal and interest.
No event of default subsists in respect of
the secured convertible debentures as of the date of this quarterly report.
All
loans excepting the senior convertible debentures shown in Note 13 of the Unaudited Condensed Consolidated Financial Statement
have been settled in full.
In October 2013 we took out a 10 year mortgage
in the amount of $530,701 for our business premises located in Portland, United Kingdom. The borrower and owner of these premises
is our wholly owned Subsidiary Coda Octopus Products Limited. Our Repayment for this is $4,422 per month which includes repayment
of capital and interest payment. As of the April 30, 2016 the outstanding amount on the mortgage is $361,627.
Share Issuances
In the fiscal year 2011 we retired 207 shares
of common stock. These were repurchased by the Company.
On May 4, 2011, the Company issued 300,000
shares of common stock to an advisor for services rendered.
On February 21, 2012, the Company issued 100,000
shares of common stock to one of its directors as compensation for director services performed.
On July 26, 2012, the Company issued 15,315,316
shares of common stock to Solidor Investments Limited (the, then debenture holder (now transferred to CCM Holdings LLC) in consideration
for the restructuring of the obligations under the Senior Debentures (postponing coupon and forgiving default interest obligations)
and in exchange for the settlement of outstanding interest on the Debentures of $1,020,000.
On March 5, 2013, the Company
issued 4,021,380 shares to CCM LLC in full and final satisfaction of an amount of $571,036 (which formed part of a series of small
loans which CCM had made available as working capital to the business in March 2011) and in consideration for postponing a portion
of the interest payments due. CCM are an affiliate of the Company.
On July 24, 2014 the Company
issued 142,857 shares of common stock to Core Fund LLP in return for the surrender of warrants to purchase shares of common stock
of the Company. These warrants were issued to Core Fund in a financing transaction completed in May 2007. The warrants should
have been exchanged for shares in October 2010 as part of the Company’s restructuring efforts. As a result of administrative
oversight, these shares were not issued until July 2014.
On October 26, 2015 the Company
issued 100,000 shares of common stock to one of its directors, Robert Ethrington, in accordance with the terms of his election
which provided for these shares of common stock to be issued subject to serving at least one year on the Company’s board.
On March 1, 2016, the Company
issued 32,346,682 shares of its common stock to CCM Holdings, LLC in extinguishment of $3,558,136 (the redemption premium which
accrued under the senior secured debentures).
During May through to August
2016, the Company issued 100,000 to each of six members of the Board of Directors for their services performed as directors.
In June 2016, the Company
issued an aggregate of 112,500 shares valued at $0.093 per share to two individuals for services rendered.
As of the date of this quarterly
report, the Company has 127,078,395 shares of common stock in issue.