a Octopus (CODA) - 2021 Q2 - Quarterly Report

Form 10-Q Filing Information This section details the Form 10-Q filing information, including registrant details and shares outstanding as of June 10, 2021 - Filing as a Quarterly Report (Form 10-Q) for the period ended April 30, 2021[1] - Registrant: CODA OCTOPUS GROUP, INC., Delaware incorporation, Nasdaq: CODA[1] - Designation: Smaller reporting company, not a shell company[1] Shares Outstanding | As of Date | Shares Outstanding | | :----------- | :------------------- | | June 10, 2021 | 10,832,195 | PART I - Financial Information Item 1: Financial Statements This section provides the unaudited consolidated financial statements for Coda Octopus Group, Inc. for the three and six months ended April 30, 2021 and 2020, prepared in accordance with SEC rules for interim periods, and includes balance sheets, income statements, statements of changes in stockholders' equity, cash flow statements, and detailed notes Consolidated Balance Sheets This section presents the unaudited consolidated balance sheets, detailing assets, liabilities, and stockholders' equity as of April 30, 2021, and October 31, 2020 Consolidated Balance Sheet Data | Metric | April 30, 2021 (Unaudited) ($) | October 31, 2020 ($) | | :--------------------------------- | :--------------------------- | :--------------- | | Cash | $16,591,308 | $15,134,289 | | Total Current Assets | $32,301,252 | $27,685,897 | | Total Assets | $42,720,966 | $38,039,151 | | Total Current Liabilities | $3,252,255 | $3,384,522 | | Total Liabilities | $3,453,992 | $3,642,883 | | Total Stockholders' Equity | $39,266,974 | $34,396,268 | - Total assets increased by $4,681,815 (12.3%) from October 31, 2020, to April 30, 2021[6] - Total stockholders' equity increased by $4,870,706 (14.2%) from October 31, 2020, to April 30, 2021[9] Consolidated Statements of Income and Comprehensive Income This section provides the unaudited consolidated statements of income and comprehensive income for the three and six months ended April 30, 2021 and 2020, highlighting revenue, profit, and EPS trends Consolidated Income and Comprehensive Income (Three Months) | Metric | 2021 (Unaudited) ($) | 2020 (Unaudited) ($) | Change (YoY) | | :--------------------------------- | :--------------- | :--------------- | :------------- | | Net Revenues | $5,373,076 | $3,289,218 | +63.4% | | Gross Profit | $3,749,604 | $1,925,414 | +94.7% | | Income (Loss) From Operations | $1,324,322 | $(321,437) | N/A (swing to profit) | | Net Income (Loss) | $2,207,933 | $(265,080) | N/A (swing to profit) | | Basic EPS | $0.20 | $(0.02) | N/A (swing to profit) | | Comprehensive Income (Loss) | $2,506,645 | $(819,065) | N/A (swing to profit) | Consolidated Income and Comprehensive Income (Six Months) | Metric | 2021 (Unaudited) ($) | 2020 (Unaudited) ($) | Change (YoY) | | :--------------------------------- | :--------------- | :--------------- | :------------- | | Net Revenues | $10,423,535 | $9,970,197 | +4.5% | | Gross Profit | $7,064,526 | $6,199,854 | +13.9% | | Income (Loss) From Operations | $2,242,739 | $1,133,060 | +97.9% | | Net Income (Loss) | $3,336,777 | $1,081,693 | +208.5% | | Basic EPS | $0.31 | $0.10 | +210.0% | | Comprehensive Income (Loss) | $4,561,101 | $612,459 | +644.7% | - Foreign currency translation adjustment contributed significantly to comprehensive income, with a gain of $298,712 for the three months and $1,224,325 for the six months ended April 30, 2021, compared to losses in the prior year[11] Consolidated Statements of Changes in Stockholders' Equity This section outlines the unaudited consolidated changes in stockholders' equity for the three and six months ended April 30, 2021 and 2020, including net income and other comprehensive income components Changes in Stockholders' Equity (Six Months) | Item | Amount ($) | | :-------------------------------- | :------------- | | Balance, October 31, 2020 | $34,396,268 | | Employee stock based compensation | $309,604 | | Foreign currency translation adjustment | $1,224,325 | | Net Income | $3,336,777 | | Balance, April 30, 2021 | $39,266,974 | - Employee stock-based compensation totaled $309,604 for the six months ended April 30, 2021[13] - Accumulated Other Comprehensive Loss improved from $(2,321,278) to $(1,096,953) due to positive foreign currency translation adjustments[9][13] Consolidated Statements of Cash Flows This section details the unaudited consolidated cash flows for the six months ended April 30, 2021 and 2020, categorizing cash movements from operating, investing, and financing activities Consolidated Cash Flow Summary (Six Months) | Activity | 2021 (Unaudited) ($) | 2020 (Unaudited) ($) | | :-------------------------------------- | :--------------- | :--------------- | | Net Cash Provided by Operating Activities | $434,861 | $1,760,478 | | Net Cash Used in Investing Activities | $(599,189) | $(490,398) | | Net Cash Provided by Financing Activities | $397,022 | $286,133 | | Effect of Currency Translation on Changes in Cash | $1,224,325 | $(469,234) | | Net Increase in Cash | $1,457,019 | $1,086,979 | | Cash at the End of the Period | $16,591,308 | $12,808,662 | - Operating cash flow decreased significantly from $1,760,478 in 2020 to $434,861 in 2021, partly due to increases in accounts receivable and inventory[16] - The positive effect of currency translation ($1,224,325) was a major contributor to the net increase in cash for the six months ended April 30, 2021[16] Notes to Unaudited Consolidated Financial Statements This section provides detailed notes to the unaudited consolidated financial statements, explaining accounting policies, estimates, and specific financial line items NOTE 1 – BASIS OF PRESENTATION This note describes the basis of presentation for the interim financial statements, including their unaudited nature, currency translation policies, and compliance with SEC rules - Interim financial statements are unaudited and prepared with reduced disclosure per SEC rules[19] - US dollar is the reporting currency; British Pound Sterling and Danish Kroner are functional currencies for UK and Danish operations, respectively[19] - Foreign currency translation gains/losses are recorded in other comprehensive income[19] NOTE 2 – REVENUE RECOGNITION This note details the company's revenue recognition policies, outlining the five-step process, distinct business operations, and methods for recognizing product sales, rentals, and service contracts - Revenue recognition follows FASB Topic 606, involving a five-step process[20] - Two distinct business operations: Marine Technology Business (product sales/rentals) and Engineering Business (services to defense contractors)[23] - Revenue from product sales is recognized upon delivery; rentals/subscriptions are recognized daily over the period; fixed-price service contracts use the percentage-of-completion method[24][25][29] - Deferred costs and sales commissions are amortized over the contract performance period[33][36] NOTE 3 – FAIR VALUE OF FINANCIAL INSTRUMENTS This note explains the fair value measurement of financial instruments, stating that carrying amounts for short-term assets and liabilities approximate their fair values - Carrying amounts of cash, accounts receivable, accounts payable, and accrued expenses approximate fair values due to their short-term nature[38] - Aggregate carrying amount of notes payable approximates fair value as they bear market interest rates[38][39] NOTE 4 – FOREIGN CURRENCY TRANSLATION This note describes the company's foreign currency translation policies, including exchange rate application for assets, liabilities, revenues, and expenses, and the recording of translation adjustments - Assets and liabilities translated at balance sheet date exchange rates; revenues and expenses at weighted average rates[42] - Translation adjustments are recorded in accumulated other comprehensive income (loss)[42] NOTE 5 – INVENTORY This note details the company's inventory valuation policy, stating inventory is recorded at the lower of cost or net realizable value, and provides a breakdown of inventory components - Inventory is stated at the lower of cost (weighted average method) or net realizable value[43] Inventory Composition | Component | April 30, 2021 ($) | October 31, 2020 ($) | | :-------------------- | :--------------- | :--------------- | | Raw materials and parts | $8,266,304 | $7,322,688 | | Work in progress | $922,880 | $698,756 | | Finished goods | $1,378,910 | $1,120,829 | | Total Inventory | $10,568,094 | $9,142,273 | - Total inventory increased by $1,425,821 (15.6%) from October 31, 2020, to April 30, 2021[43] NOTE 6 – FIXED ASSETS This note provides a breakdown of fixed assets, including buildings, land, machinery, rental assets, and furniture, along with accumulated depreciation Fixed Assets, Net | Category | April 30, 2021 ($) | October 31, 2020 ($) | | :-------------------------- | :--------------- | :--------------- | | Buildings | $5,336,681 | $5,103,324 | | Land | $200,000 | $200,000 | | Office machinery and equipment | $1,595,610 | $1,512,938 | | Rental assets | $2,249,550 | $2,062,818 | | Furniture, fixtures and improvements | $1,236,319 | $1,187,927 | | Totals (Gross) | $10,618,160 | $10,067,007 | | Less: accumulated depreciation | $(4,579,936) | $(4,007,107) | | Total Property and Equipment, net | $6,038,224 | $6,059,900 | - Accumulated depreciation increased by $572,829 from October 31, 2020, to April 30, 2021[43] NOTE 7 – OTHER CURRENT ASSETS This note details the components of other current assets, including deposits and tax receivables, and their changes over the reporting period Other Current Assets Breakdown | Component | April 30, 2021 ($) | October 31, 2020 ($) | | :-------------------- | :--------------- | :--------------- | | Deposits | $157,745 | $112,984 | | Tax receivables | $443,788 | $131,187 | | Total Other Current Assets | $601,533 | $244,171 | - Tax receivables increased by $312,601 (238.3%) from October 31, 2020, to April 30, 2021[46] NOTE 8 – ESTIMATES This note highlights the reliance on management estimates and assumptions in preparing financial statements, particularly for unbilled revenues, stock compensation, and tax positions - Financial statements rely on management estimates and assumptions for assets, liabilities, revenues, and expenses[47] - Significant estimates include unbilled/deferred revenues, stock compensation, deferred tax assets, uncertain tax positions, and goodwill/intangible valuations[47] NOTE 9 – CONTRACTS IN PROGRESS This note details the company's contracts in progress, including unbilled receivables and deferred revenue, and their changes between reporting periods Contracts in Progress Balances | Item | April 30, 2021 ($) | October 31, 2020 ($) | | :-------------------------------------- | :--------------- | :--------------- | | Unbilled Receivables | $1,080,436 | $861,300 | | Current Deferred Revenue | $1,178,678 | $1,006,454 | | Non-current Deferred Revenue | $201,737 | $195,022 | - Unbilled receivables increased by $219,136 (25.4%) from October 31, 2020, to April 30, 2021[48] - Deferred revenue includes warranty obligations and extended warranty/through-life support, amortized over the relevant warranty period[49][50] NOTE 10 – CONCENTRATIONS This note discloses significant customer concentrations, identifying customers that account for a material portion of net revenues and accounts receivable - Three customers accounted for 41% of net revenues ($2,178,677) and 33% of accounts receivable ($1,048,055) for the three months ended April 30, 2021[52] - One customer accounted for 10% of net revenues ($1,045,367) and 10% of accounts receivable ($321,392) for the six months ended April 30, 2021[54] - Customer concentration decreased for the six-month period compared to the prior year, where two customers accounted for 35% of net revenues[55] NOTE 11 – NOTES PAYABLE This note details the company's notes payable, including secured notes, Paycheck Protection Program (PPP) loans, and revolving lines of credit Notes Payable Summary | Item | April 30, 2021 ($) | October 31, 2020 ($) | | :-------------------------------- | :--------------- | :--------------- | | Secured note payable to HSBC NA | $321,258 | $573,108 | | Less: current portion | $(321,258) | $(509,769) | | Total Long Term Note Payable | $0 | $63,339 | - Secured note payable to HSBC NA decreased by $251,850 and is expected to be fully satisfied by its December 2021 maturity[56][197] - Received and recognized $648,872 from the Second Round Paycheck Protection Program (PPP) as Other Income, with forgiveness application submitted[57] - Maintained a $4,000,000 revolving line of credit with HSBC NA, with a $0 outstanding balance as of April 30, 2021[60] NOTE 12 – RECENT ACCOUNTING PRONOUNCEMENTS This note states that there are no new significant accounting pronouncements not yet effective that would materially impact the company's financial statements - No new significant accounting pronouncements not yet effective[61] NOTE 13 – EARNINGS PER COMMON SHARE This note provides a breakdown of basic and diluted earnings per common share, along with the corresponding net income and weighted average shares outstanding Earnings Per Share (Three Months) | Metric | 2021 (Unaudited) ($) | 2020 (Unaudited) ($) | | :--------------------------------- | :--------------- | :--------------- | | Net Income (Loss) | $2,207,933 | $(265,080) | | Basic EPS | $0.20 | $(0.02) | | Diluted EPS | $0.20 | $(0.02) | | Basic Weighted Average Shares | 10,772,315 | 10,721,881 | | Diluted Outstanding Shares | 11,191,315 | 11,276,881 | Earnings Per Share (Six Months) | Metric | 2021 (Unaudited) ($) | 2020 (Unaudited) ($) | | :--------------------------------- | :--------------- | :--------------- | | Net Income (Loss) | $3,336,777 | $1,081,693 | | Basic EPS | $0.31 | $0.10 | | Diluted EPS | $0.30 | $0.10 | | Basic Weighted Average Shares | 10,763,652 | 10,721,881 | | Diluted Outstanding Shares | 11,182,652 | 11,276,881 | - The increase in EPS is primarily due to a significant increase in net income for both the three and six-month periods[62] NOTE 14 -SEGMENT ANALYSIS This note provides a detailed segment analysis, breaking down revenues by the Marine Technology Business and Marine Engineering Business, and by geographical market and major goods/service lines - Two reportable segments: Marine Technology Business (Products Segment) and Marine Engineering Business (Services Segment)[64] - Products Segment: sales/rentals of underwater sonar solutions, hardware, software, and support services[64] - Services Segment: engineering services, primarily as sub-contractors to prime defense contractors[64] - Segments sell goods and services in Americas, Europe, Australia/Asia, and Middle East/Africa[67] Segment Revenues (Three Months) | Segment | 2021 (Unaudited) ($) | 2020 (Unaudited) ($) | Change (YoY) | | :-------------------- | :--------------- | :--------------- | :------------- | | Products Segment | $4,184,409 | $1,691,199 | +147.4% | | Services Segment | $1,188,667 | $1,598,019 | -25.6% | | Total Revenues | $5,373,076 | $3,289,218 | +63.4% | Segment Revenues (Six Months) | Segment | 2021 (Unaudited) ($) | 2020 (Unaudited) ($) | Change (YoY) | | :-------------------- | :--------------- | :--------------- | :------------- | | Products Segment | $7,932,688 | $5,324,011 | +49.0% | | Services Segment | $2,490,847 | $4,646,186 | -46.4% | | Total Revenues | $10,423,535 | $9,970,197 | +4.5% | Geographical Revenues (Three Months) | Geographical Market | Marine Technology Business ($) | Marine Engineering Business ($) | Total Grand ($) | | :-------------------- | :------------------------- | :-------------------------- | :---------- | | Americas | $914,529 | $597,463 | $1,511,992 | | Europe | $1,665,643 | $591,204 | $2,256,847 | | Australia/Asia | $1,487,023 | - | $1,487,023 | | Middle East/Africa | $117,214 | - | $117,214 | | Total Revenues | $4,184,409 | $1,188,667 | $5,373,076 | Revenues by Goods/Service Lines (Three Months) | Major Goods/Service Lines | Marine Technology Business ($) | Marine Engineering Business ($) | Total Grand ($) | | :-------------------------- | :------------------------- | :-------------------------- | :---------- | | Equipment Sales | $3,090,462 | $93,505 | $3,183,967 | | Equipment Rentals | $598,190 | - | $598,190 | | Software Sales | $221,053 | - | $221,053 | | Engineering Parts | - | $778,369 | $778,369 | | Services | $274,704 | $316,792 | $591,496 | | Total Revenues | $4,184,409 | $1,188,667 | $5,373,076 | Geographical Revenues (Six Months) | Geographical Market | Marine Technology Business ($) | Marine Engineering Business ($) | Total Grand ($) | | :-------------------- | :------------------------- | :-------------------------- | :---------- | | Americas | $1,463,807 | $1,113,904 | $2,577,711 | | Europe | $2,790,755 | $1,376,943 | $4,167,698 | | Australia/Asia | $3,495,233 | - | $3,495,233 | | Middle East/Africa | $182,893 | - | $182,893 | | Total Revenues | $7,932,688 | $2,490,847 | $10,423,535 | Revenues by Goods/Service Lines (Six Months) | Major Goods/Service Lines | Marine Technology Business ($) | Marine Engineering Business ($) | Total Grand ($) | | :-------------------------- | :------------------------- | :-------------------------- | :---------- | | Equipment Sales | $5,883,949 | $314,462 | $6,198,411 | | Equipment Rentals | $932,553 | - | $932,553 | | Software Sales | $446,275 | - | $446,275 | | Engineering Parts | $213,956 | $1,634,716 | $1,848,672 | | Services | $455,955 | $541,668 | $997,623 | | Total Revenues | $7,932,688 | $2,490,847 | $10,423,535 | NOTE 15 – PAYROLL PROTECTION PROGRAM This note details the company's participation in the Payroll Protection Program (PPP), including the receipt and recognition of funds and the status of forgiveness applications - Received $648,872 from Second Round PPP in H1 2021, fully utilized for payroll, and recognized as 'Other Income' with forgiveness application submitted[86] - First Round PPP loans received in FY2020 were forgiven in November 2020[87] NOTE 16 – COVID-19 This note discusses the ongoing impact of the COVID-19 pandemic on the company's operations, including workforce disruptions, supply chain challenges, and uncertainty regarding future performance - Pandemic impacts Engineering Services Business through workforce disruption, potential inability to perform contracts, and increased costs[90] - Marine Technology Business affected by social distancing, travel restrictions, and disruptions to suppliers, customers, and distributors[91] - Uncertainty regarding evolving virus strains and government responses affects the pace of financial performance improvement[91] - Supply chain disruption due to high demand in semi-conductor market leads to extreme lead times (up to 40 weeks) and price increases for components, potentially affecting customer requirements and competitiveness[116] NOTE 17 – INCOME TAXES This note provides information on income taxes, including effective tax rates, factors influencing tax rate changes, and federal net operating loss carryforwards Effective Tax Rates | Period | April 30, 2021 | April 30, 2020 | | :-------------------- | :--------------- | :--------------- | | Three Months Ended | (13.9%) | 28.3% | | Six Months Ended | (13.7%) | 2.4% | - Decrease in effective tax rate due to US companies' shift from taxable loss to taxable income and $311,966 in Employee Retention Credits[92][93] - US federal net operating loss (NOL) carryforwards of $1,536,899 as of April 30, 2021, expiring in 2029[94] NOTE 18 - RECLASSIFICATION OF PRIOR YEAR PRESENTATION This note explains the reclassification of prior year amounts for consistency, specifically regarding property and equipment composition, with no effect on previously reported financial statements - Prior year amounts reclassified for consistency, specifically property and equipment composition[95] - Reclassifications had no effect on previously reported consolidated financial statements[95] Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial performance and condition for the three and six months ended April 30, 2021, discussing key factors affecting the business, critical accounting policies, and detailed analysis of operating results, liquidity, and capital resources General Overview - Two distinct business operations: Marine Technology Business (Products Segment) and Marine Engineering Business (Services Segment)[99] - Products Business: designs, manufactures, sells/rents underwater solutions (hardware, software, services) for commercial and defense markets, featuring real-time 3D sonar technology[100] - Services Business: sub-contractor to prime defense contractors, designing and manufacturing sub-assemblies for larger defense programs (e.g., US Close-In-Weapons Support Program)[101] - Both businesses share synergies in customer base and specialized engineering skills for harsh environments[102] Factors Affecting our Business - Brexit impacts include new work permit requirements for engineers in EU, wide-scale disruption in UK-EU shipments, increased customs costs/delays, and acute shortage of engineering skills in the UK[105][107][108][109] - Company established a Danish subsidiary (Coda Octopus Products A/S) to mitigate Brexit impact and maintain EU presence for rental business[107] - COVID-19 pandemic causes operational limitations, reduced productivity, project overruns, increased staff quarantine/sick pay costs, and significant impact on equipment rentals[110][112][113][114] - Supply chain disruption due to high demand in semi-conductor market leads to extreme lead times (up to 40 weeks) and price increases for components, potentially affecting customer requirements and competitiveness[116] Critical Accounting Policies - Revenue recognition follows Topic 606, with products sold on a stand-alone basis and services recognized when provided[120][121] - Deferred costs (direct and incremental costs for system customization/installation) are recognized in accordance with revenue recognition policy and reviewed quarterly for recoverability[123][124] - Income taxes are accounted for under ASC 740, recording deferred tax assets/liabilities for temporary differences, and using percentage-of-completion for long-term contracts[126][128] - Intangible assets include goodwill (not amortized, tested annually for impairment) and other intangibles (customer relationships, non-compete agreements, licenses) amortized straight-line over 2-15 years[129] Summary of Consolidated Results of Operations - Current Quarter financial results significantly improved over Previous Quarter, which was severely impacted by global pandemic lockdown[131] - Business still affected by ongoing pandemic constraints and delays in Services Operations' backlog orders due to US Administration change and remote work[132][133] Revenue Contribution by Segment | Segment | Current Quarter | Previous Quarter | | :----------------- | :-------------- | :--------------- | | Products Business | 77.9% | 51.4% | | Services Segment | 22.1% | 48.6% | - Recognized $558,901 from Second Round PPP as 'Other Income' and $48,288 from UK CJRS as a reduction in SG&A[135][137] Segment Summary Products Business Performance (Current vs. Previous Quarter) | Metric | Current Quarter ($) | Previous Quarter ($) | Change | | :-------------------------- | :-------------- | :--------------- | :----- | | Revenues | $4,184,409 | $1,691,199 | +147.4% | | Gross Profit Margin | 75.6% | 75.9% | -0.3 pp | | Total Operating Expenses | Increased 18% | N/A | N/A | | Net Income Before Taxes | $2,009,600 | $146,751 | +1269.4% | Services Business Performance (Current vs. Previous Quarter) | Metric | Current Quarter ($) | Previous Quarter ($) | Change | | :-------------------------- | :-------------- | :--------------- | :----- | | Revenues | $1,188,667 | $1,598,019 | -25.6% | | Gross Profit Margin | 49.5% | 40.1% | +9.3 pp | | Total Operating Expenses | Declined 17.5% | N/A | N/A | | Net Income Before Taxes (incl. PPP) | $361,472 | $(160,859) | N/A | | Net Income Before Taxes (excl. PPP) | $(75,102) | N/A | N/A | - Services Business revenue decline attributed to delays in anticipated backlog government contracts due to US Administration change and pandemic[139] Results of Operations for the Current Quarter compared to the Previous Quarter Consolidated and Segment Revenues (Current vs. Previous Quarter) | Metric | Current Quarter ($) | Previous Quarter ($) | Change | | :-------------------- | :-------------- | :--------------- | :----- | | Total Consolidated Revenues | $5,373,076 | $3,289,218 | +63.4% | | Products Business Revenues | $4,184,409 | $1,691,199 | +147.4% | | Services Business Revenues | $1,188,667 | $1,598,019 | -25.6% | - Gross Profit Margin improved to 69.8% (from 58.5%), with Products Business at 75.6% and Services Business at 49.5%[143][146][147] Products Business Revenue Breakdown (Current vs. Previous Quarter) | Category | Current Quarter ($) | Previous Quarter ($) | Percentage Change | | :---------------- | :-------------- | :--------------- | :---------------- | | Equipment Sales | $3,090,462 | $513,638 | +501.7% | | Equipment Rentals | $598,190 | $519,990 | +15.0% | | Software Sales | $221,053 | $620,386 | -64.4% | | Engineering Parts | - | $37,185 | -100% | | Services | $274,704 | - | +100% | Research and Development Expenses (Current vs. Previous Quarter) | Segment | Current Quarter ($) | Previous Quarter ($) | Percentage Change | | :-------------------- | :-------------- | :--------------- | :---------------- | | Total Consolidated R&D | $645,281 | $713,641 | -9.6% | | Services Segment R&D | $106,403 | $270,945 | -60.7% | | Products Segment R&D | $538,868 | $442,696 | +21.7% | - SG&A expenses increased by 16% to $1,780,001, driven by higher wages, legal/professional fees, and stock-based compensation ($135,157, +53%), partially offset by UK CJRS contributions[154][155][156] - Operating income swung to a profit of $1,324,322 from a loss of $(321,437)[159] - Net income before taxes was $1,939,027 (from loss of $340,204), and net income was $2,207,933 (from loss of $265,080), significantly aided by $558,901 in PPP 'Other Income' and a $298,712 foreign currency translation gain[161][162][164][165] Results of Operations for the Current Six Month Period compared to the Previous Six Month Period Consolidated and Segment Revenues (Current vs. Previous Six Months) | Metric | Current Six Month Period ($) | Previous Six Month Period ($) | Change | | :-------------------- | :----------------------- | :------------------------ | :----- | | Total Consolidated Revenues | $10,423,535 | $9,970,197 | +4.5% | | Products Business Revenues | $7,932,688 | $5,324,011 | +49.0% | | Services Business Revenues | $2,490,847 | $4,646,186 | -46.4% | - Gross Profit Margin improved to 67.8% (from 62.2%), with Products Business at 75.8% and Services Business at 42.1%[168][171][172] Products Business Revenue Breakdown (Current vs. Previous Six Months) | Category | Current Six Month Period ($) | Previous Six Month Period ($) | Percentage Change | | :---------------- | :----------------------- | :------------------------ | :---------------- | | Equipment Sales | $5,883,949 | $3,205,777 | +83.5% | | Equipment Rentals | $932,553 | $828,564 | +12.6% | | Software Sales | $446,275 | $245,521 | +81.8% | | Engineering Parts | $213,955 | - | +100% | | Services | $455,955 | $1,044,149 | -56.3% | | Total Net Sales | $7,932,688 | $5,324,011 | +49.0% | Research and Development Expenses (Current vs. Previous Six Months) | Segment | Current Six Month Period ($) | Previous Six Month Period ($) | Percentage Change | | :-------------------------- | :----------------------- | :------------------------ | :---------------- | | Total Consolidated R&D | $1,228,420 | $1,641,906 | -25.2% | | Services Segment R&D | $247,798 | $477,383 | -48.1% | | Products Segment R&D | $980,622 | $999,425 | -1.9% | | Coda Octopus Group, Inc. R&D | - | $165,098 | -100% | - SG&A expenses increased by 4.9% to $3,593,367, with stock-based charges up 146.3% to $309,604[181][182] - Operating income increased by 97.9% to $2,242,739[187] - Net income before taxes increased by 165% to $2,934,955, and net income increased by 208.5% to $3,336,777, significantly boosted by $648,872 in PPP funding and a $1,224,325 foreign currency translation gain[189][190][193][194] Liquidity and Capital Resources Key Liquidity and Capital Metrics | Metric | Amount ($) | | :-------------------- | :------------- | | Accumulated Deficit | $(20,088,845) | | Working Capital | $29,048,997 | | Stockholders' Equity | $39,266,974 | | Cash from Operating Activities (Six Months) | $434,861 | - Secured promissory note to HSBC NA outstanding balance: $321,258, maturing December 2021[197] - Revolving line of credit with HSBC NA: $4,000,000 facility, $0 outstanding balance[198] Inflation and Foreign Currency - Company operates in multiple functional currencies (USD, GBP, DKK, AUD), exposing it to foreign currency fluctuation risk[199][200] - Currency fluctuations can affect sales, profitability, and financial position, with no current hedging strategy[200] Foreign Currency Impact on Financials (Three Months) | Metric | Actual Results ($) | Constant Rates ($) | Total Effect ($) | | :-------------------- | :------------- | :------------- | :----------- | | Revenues | $7,845,825 | $7,378,794 | $467,031 | | Net profit (losses) | $2,735,048 | $2,570,231 | $164,817 | | Net assets | $21,479,589 | $20,112,019 | $1,367,572 | Foreign Currency Impact on Financials (Six Months) | Metric | Actual Results ($) | Constant Rates ($) | Total Effect ($) | | :-------------------- | :------------- | :------------- | :----------- | | Revenues | $7,845,154 | $7,378,164 | $466,990 | | Net profit (losses) | $4,970,202 | $4,672,556 | $297,646 | | Net assets | $21,487,955 | $20,309,192 | $1,367,517 | - Strengthening British Pound against the US Dollar contributed to gains in foreign currency translation[165][194] Off-Balance Sheet Arrangements - No off-balance sheet arrangements[205] Item 3: Quantitative and Qualitative Disclosures about Market Risks This item is not required for smaller reporting companies - Not required for smaller reporting companies[206] Item 4: Controls and Procedures As of April 30, 2021, the Company's management, under the supervision of the CEO and CFO, evaluated the effectiveness of its disclosure controls and procedures and concluded they were effective. There were no material changes in internal controls over financial reporting during the quarter - Disclosure controls and procedures were effective as of April 30, 2021, based on evaluation by CEO and CFO[208] - No material changes in internal controls over financial reporting during the quarter[209] PART II - Other Information Item 1: Legal Proceedings The Company may be involved in various lawsuits in the ordinary course of business but is currently unaware of any legal proceedings that would have a material adverse effect on its business, financial condition, or operating results - No current legal proceedings are expected to have a material adverse effect on the business[211] Item 1A: Risk Factors This item is not required for smaller reporting companies - Not required for smaller reporting companies[212] Item 2: Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report - No unregistered sales of equity securities or use of proceeds to report[212] Item 3: Default Upon Senior Securities There were no defaults upon senior securities to report - No defaults upon senior securities[212] Item 4: Mine Safety Disclosures This item is not applicable to the Company - Not applicable[213] Item 5: Other Information No other information is reported under this item - No other information to report[214] Item 6: Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO and XBRL taxonomy documents - Includes certifications of CEO and CFO (Rule 13a-14(a) and Section 906 of Sarbanes-Oxley Act)[214] - XBRL Instance, Schema, Calculation, Definition, Label, and Presentation Linkbase Documents are filed as exhibits[214] Signatures The report was duly signed on June 14, 2021, by Annmarie Gayle, Chief Executive Officer, and Michael Midgley, Chief Financial Officer, on behalf of Coda Octopus Group, Inc - Report signed by Annmarie Gayle (CEO) and Michael Midgley (CFO) on June 14, 2021[216][218]