SEC Company Response from Coda Octopus Group, Inc. (CODA) (CIK 0001334325) (CODA) — Jun 8, 2010
Coda Octopus Group, Inc. (CODA) (CIK 0001334325)
Date: June 8, 2010 · CIK: 0001334325 · Accession: 0001144204-10-032355
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 000-52815
Referenced dates: May 13, 2010
Letter
VIA EDGAR United States Securities and Exchange Commission Coda Octopus Group, Inc. (the “Company”) Form 10-K for the year ended October 31, 2008 (the “Form 10-K”) File No. 000-52815
Dear Mr. Humphrey:
This letter is in response to the letter dated May 13, 2010 by the accounting staff of the Securities and Exchange Commission (the “Staff”) with comments on the Company’s responses to previous Staff comments.
Form 10-K for the Year Ended October 31, 2009
Note 7 – Intangible Assets and Goodwill, page F-17
1.
The Company does not believe that it needs to revise the results of the goodwill impairment testing as the test was performed at the reporting unit level in accordance with FASB ASC 350-20-20 which defines the reporting unit as an operating segment or one level below an operating segment (component). In this case, the reporting unit was determined to be one level below the operating segment. The Company determined the component to be appropriate in accordance with FASB ASC 280-10-50 as follows:
A component of an operating segment is considered a separate reporting unit if the component meets all of the following criteria:
·
It engages in business activities from which it may earn revenues and incure expenses
·
Its operating results are regularly reviewed by the pubic entity’s chief operating decision makers to assess performance and allocate resources
·
Its discrete financial information is available
Mr. David R. Humphrey
Securities and Exchange Commission
June 8, 2010
FASB's intent, as included in FASB ASC 350, was not to create new internal reporting structures but rather to view the entity from management's perspective. The Company’s accounting system, SAGE produces financial results at the component level. These results are reviewed by the Company’s Chief Executive Officer on a monthly basis. As such, Colmek which has consolidated results with Tactical Intelligence and Martech and which has consolidated results with Dragon Design are considered to be reporting units in accordance with FASB ASC 350 and 280.
Additionally, and in compliance with external reporting requirements, the Company has identified two reportable segments, i.e. Products and Contracting. Both Colmek and Martech are included in the Contracting operating segment for external reporting purposes. Both components are included in this operating segment as they have similar economic characteristics. All goodwill currently recorded in the books is associated with the Contracting operating segment.
Note 15 – Segments, page F-24
2.
The Company’s Products segment represents business derived from the sale, service and support of repeatable products built by its business and suppliers and that are sold mostly, but not exclusively, to the non-Defense sector. The Company’s Contracting segment represents business derived from services supplied in large part (but not by any means exclusively) to the Government, quasi-Government and Defense sector.
3.
The Company has two reportable operating segments: Products and Contracting (see the response in paragraph 2 above). Components are aggregated to the operating segments in accordance with FASB ASC 280-10-50. The Products operating segment includes Coda Octopus Products Limited and Coda Octopus Products Inc. Components aggregated in the Contracting segment include Coda Octopus Martech Limited which is consolidated with Dragon Design Limited, Coda Octopus Colmek Limited and Coda Octopus Tactical Intelligence.
Regarding the identification of the reporting unit for purposes of assessing goodwill impairment, please refer to the response to Comment 1 hereof.
Form 10-Q for the Quarter ended January 31, 2010
Note 10- Derivative Liability, page 18
4.
The Company advises the Staff that this disclosure refers to the 32.6 million warrants.
5.
The Schedule of issuance along with main terms is set forth on Attachment A. Except as otherwise noted in the table, the warrants were issued to unrelated parties.
Mr. David R. Humphrey
Securities and Exchange Commission
June 8, 2010
The Company advises the Staff that warrants issued as compensation for services rendered were accounted for under ASC Topic 718 Compensation – Stock Compensation. They were fair valued using the Black-Scholes method and a compensation charge was recorded in the relevant periods.
On November 1, 2009, the Company evaluated the warrants above in accordance with ASC Topic 815-40 (formerly known as EITF 07-05) and concluded that 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 the Company’s derivative liability related to the fair value of the conversion feature of $2,353,893. Fair value at November 1, 2009 was determined using the Black-Scholes method based on the following assumptions: (1) risk free interest rate of 1.06%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 302.22%; (4) an average expected life of the warrants of 2.22 years and (5) estimated fair value of common stock of $0.08 per share.
At January 31, 2010, the Company recalculated the fair value of the conversion feature subject to derivative accounting and determined that the fair value at January 31, 2010 is $798,897. 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 0.74%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 304%; (4) an average expected life of the conversion feature of 1.97 years and (5) estimated fair value of common stock of $0.03 per share.
Note 13 – Notes and Loans Payable, page 20
6.
The Company has adopted ASC 470-20-15 and based on its evaluation, there is no impact on the consolidated financial position and results of operations or cash flows on the Company.
As noted previously, Jody Frank is no longer with the Company. Therefore, kindly address future correspondence to Judith Wallace, Chief Financial Officer.
Please contact the undersigned at 212-709-8210 if you need any addition al information.
Very
truly yours,
/s/ Louis
A. Brilleman
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1
filename1.htm
Unassociated Document
Louis
A. Brilleman, P.C.
110 Wall
Street, 11th
Floor
New York,
NY 10005-3817
Phone:
212-709-8210
Fax:
212-943-2300
June 8,
2010
VIA
EDGAR
Mr. David
R. Humphrey
Branch
Chief
United
States Securities and Exchange Commission
Washington,
D.C. 20549
Re:
Coda
Octopus Group, Inc. (the “Company”)
Form
10-K for the year ended October 31, 2008
(the
“Form 10-K”)
File No.
000-52815
Dear Mr.
Humphrey:
This letter is in response to the
letter dated May 13, 2010 by the accounting staff of the Securities and Exchange
Commission (the “Staff”) with comments on the Company’s responses to previous
Staff comments.
Form 10-K for the Year Ended
October 31, 2009
Note 7 – Intangible Assets
and Goodwill, page F-17
1.
The
Company does not believe that it needs to revise the results of the
goodwill impairment testing as the test was performed at the reporting
unit level in accordance with FASB ASC 350-20-20 which defines the
reporting unit as an operating segment or one level below an operating
segment (component). In this case, the reporting unit was determined to be
one level below the operating segment. The Company determined
the component to be appropriate in accordance with FASB ASC 280-10-50 as
follows:
A
component of an operating segment is considered a separate reporting unit if the
component meets all of the following criteria:
·
It
engages in business activities from which it may earn revenues and incure
expenses
·
Its
operating results are regularly reviewed by the pubic entity’s chief
operating decision makers to assess performance and allocate
resources
·
Its
discrete financial information is
available
Mr. David
R. Humphrey
Securities and Exchange
Commission
June 8, 2010
FASB's
intent, as included in FASB ASC 350, was not to create new internal reporting
structures but rather to view the entity from management's
perspective. The Company’s accounting system, SAGE produces financial
results at the component level. These results are reviewed by the Company’s
Chief Executive Officer on a monthly basis. As such,
Colmek which has consolidated results with Tactical Intelligence and Martech and
which has consolidated results with Dragon Design are considered to be reporting
units in accordance with FASB ASC 350 and 280.
Additionally,
and in compliance with external reporting requirements, the Company has
identified two reportable segments, i.e. Products and
Contracting. Both Colmek and Martech are included in the Contracting
operating segment for external reporting purposes. Both components
are included in this operating segment as they have similar economic
characteristics. All goodwill currently recorded in the books is associated with
the Contracting operating segment.
Note 15 – Segments, page
F-24
2.
The
Company’s Products segment represents business derived from the sale,
service and support of repeatable products built by its business and
suppliers and that are sold mostly, but not exclusively, to the
non-Defense sector. The Company’s Contracting segment
represents business derived from services supplied in large part (but not
by any means exclusively) to the Government, quasi-Government and Defense
sector.
3.
The
Company has two reportable operating segments: Products and Contracting
(see the response in paragraph 2 above). Components are aggregated to the
operating segments in accordance with FASB ASC 280-10-50. The
Products operating segment includes Coda Octopus Products Limited and Coda
Octopus Products Inc. Components aggregated in the Contracting
segment include Coda Octopus Martech Limited which is consolidated with
Dragon Design Limited, Coda Octopus Colmek Limited and Coda Octopus
Tactical Intelligence.
Regarding
the identification of the reporting unit for purposes of assessing goodwill
impairment, please refer to the response to Comment 1
hereof.
Form 10-Q for the Quarter
ended January 31, 2010
Note 10- Derivative
Liability, page 18
4.
The
Company advises the Staff that this disclosure refers to the 32.6 million
warrants.
5.
The
Schedule of issuance along with main terms is set forth on Attachment A.
Except as otherwise noted in the table, the warrants
were issued to unrelated parties.
2
Mr. David
R. Humphrey
Securities and Exchange
Commission
June 8, 2010
The
Company advises the Staff that warrants issued as compensation for services
rendered were accounted for under ASC Topic 718 Compensation – Stock
Compensation. They were fair valued using the Black-Scholes method and a
compensation charge was recorded in the relevant periods.
On
November 1, 2009, the Company evaluated the warrants above in accordance with
ASC Topic 815-40 (formerly known as EITF 07-05) and concluded that 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 the Company’s derivative liability
related to the fair value of the conversion feature of $2,353,893. Fair value at
November 1, 2009 was determined using the Black-Scholes method based on the
following assumptions: (1) risk free interest rate of 1.06%; (2) dividend yield
of 0%; (3) volatility factor of the expected market price of our common stock of
302.22%; (4) an average expected life of the warrants of 2.22 years and (5)
estimated fair value of common stock of $0.08 per share.
At January 31, 2010, the Company
recalculated the fair value of the conversion feature subject to derivative
accounting and determined that the fair value at January 31, 2010 is $798,897.
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 0.74%;
(2) dividend yield of 0%; (3) volatility factor of the expected market price of
our common stock of 304%; (4) an average expected life of the conversion feature
of 1.97 years and (5) estimated fair value of common stock of $0.03 per
share.
Note 13 – Notes and Loans
Payable, page 20
6.
The
Company has adopted ASC 470-20-15 and based on its evaluation, there is no
impact on the consolidated financial position and results of operations or
cash flows on the Company.
As noted
previously, Jody Frank is no longer with the Company. Therefore,
kindly address future correspondence to Judith Wallace, Chief Financial
Officer.
Please
contact the undersigned at 212-709-8210 if you need any addition al
information.
Very
truly yours,
/s/ Louis
A. Brilleman
cc:
Geoffrey
Turner,
Chief
Executive Officer
(Coda
Octopus Group, Inc.)
3
Mr. David
R. Humphrey
Securities and Exchange
Commission
June 8, 2010
Attachment
A
Schedule
of Warrants
Item
No.
Date
of Issuance and
Expiry Date
Number
of Warrants and Exercise Price
Exercise
Price
$
Denominated
Consideration
and Reason for Issuance
1
April
1, 2006 – April 1, 2011
400,000
0.58
Compensation
for services rendered
2
May
1, 2006 – May 1, 2011
500,000
0.50
Compensation
for services rendered
3
May
1, 2006 – May
1, 2011
250,000
0.50
Compensation
for services rendered by a former executive officer of the
Company
4
June
21, 2006 – June 21, 2011
1,000,000
1.30
Pursuant
to a series of Securities Purchase Agreements entered into between June
2006 and January 2007 a subscription for 46,000 units of the
Company’s Series A Convertible Preferred Stock (subsequently converted
into Common Stock) was made. In exchange for the issuance of
the Preferred Stock (now converted into Common Stock) and warrants shown
herein the Company received an aggregate amount of $4,600,000 for the
preferred stock and all of the issuances shown herein and
numbered items 4, 5, 7, 8, 11,12,13,14, 20 and 21
inclusive
5.
June
21, 2006 – June 21, 2011
1,000,000
1.70
As
per item 4.
6.
June
15, 2006 – June 15, 2011
200,000
1.00
Compensation
for services rendered. At the time of this issue the counterparty was a
related party insofar as he (now deceased) was a director and officer at
the time the issue was made.
7.
June
21, 2006 – June 21, 2011
1,300,000
1.30
As
per item 4.
8.
June
21, 2006 – June 21, 2011
1,300,000
1.70
As
per item 4
9
June
21, 2006 – June 21, 2011
80,000
1.30
Compensation
for services rendered
4
Mr. David
R. Humphrey
Securities and Exchange
Commission
June 8, 2010
10
June
21, 2006 – June 21, 2011
80,000
1.70
Compensation
for services rendered
11
September
19, 2006 – September
19, 2011
500,000
1.30
As
per item 4.
12
September
19, 2006 – September
19, 2011
500,000
1.70
As
per item 4.
13.
October
31, 2006 – October
31, 2011
1,300,000
1.30
As
per item 4
14
October
31, 2006 – October
31, 2011
1,300,000
1.70
As
per item 4.
15
October
31, 2006 – October
31, 2011
80,000
1.30
Compensation
for services rendered
16
October
31, 2006 – October
31, 2011
80,000
1.70
As
Above
17
December
7, 2006 – December
7, 2011
150,000
1.00
Compensation
for services rendered by a former executive officer of the
Company
18
January
31, 2007 – January
31, 2012
300,000
1.30
Pursuant
to the terms of a Securities Purchase Agreement entered into on or around
February 5, 2007, 300 units of the Company’s Series B
Convertible Preferred Stock (subsequently converted into Common Stock)
were subscribed for. In exchange for the issuance of the
Preferred Stock and warrants shown herein the Company received an
aggregate amount of $300,000
19
January
31, 2007 – January
31, 2012
300,000
1.70
As
Above
20
January
31, 2007 – January
31, 2012
500,000
1.30
As
per item 4
21
January
31, 2007 – January
31, 2012
500,000
1.70
As
per item 4.
22
March
23, 2007 – March
23, 2012
1,373,209
1.30
At
the time of these issuances the counter party was a related party insofar
as it is an affiliate of Jason Reid, the then Chief Executive Officer and
President of the Company. In exchange for the early conversion
by the holder of 15,000 units of Preferred Stock into the Company’s Common
Stock (in order that the Company could enter into the series of
Securities Purchase Agreement in April and May 2007 for the subscription
of 15,000,000 Common Stock by various investors), the Company issued
Series A Warrants to purchase 1,323,209 shares of Common Stock
at an exercise price of $1.30 were issued by the Company and
1,323,209 at an exercise price of $1.70 and on the same terms
and conditions of those issued to third parties in the sale of the
15,000,000 shares of Common Stock
5
Mr. David
R. Humphrey
Securities and Exchange
Commission
June 8, 2010
23
March
23, 2007 – March
23, 2012
1,373,209
1.70
As
above
24
March
23, 2007 – March
23, 2012
25,000
1.30
At
the time of these issuances the counter party was a related
party insofar as it is an affiliate of Jason Reid, the then Chief
Executive Officer and President of the Company and Blair Cunningham (Chief
Technology Officer of the company). In exchange for the early
conversion by the holder of 500 units of Preferred Stock into Common
Stock (in order that the Company could enter into
the series of Securities Purchase Agreement in April and May 2007 for the
subscription of 15,000,000 Common Stock by various investors), the Company
issued Series B Warrants to purchase 25,000 shares of Common Stock at an
exercise price of $1.30 were issued by the Company and Series B Warrants
to purchase 25,000 at an exercise price of $1.70 and on the
same terms and conditions of those issued to third parties in the sale of
the 15,000,000 shares of Common Stock.
25
March
23, 2007 – March
23, 2012
25,000
1.70
As
above.
26
April
3, 2007 – April 3, 2012
500,000
1.30
Pursuant
to Securities Purchase Agreements entered into between April 3, 2007
and May 3 2007, the Company received an aggregate of
$15,000,000 in exchange for the issuance of 15,000,000 shares
of Coda Octopus Common Stock (“Common Stock”) and Series A
Warrants to purchase 7,500,000 shares at $1.30 and 7,500,000 at
$1,70 - and cover the Warrants shown in items 26 through to 124
inclusive.
6
Mr. David
R. Humphrey
Securities and Exchange
Commission
June 8, 2010
27
April
3, 2007 – April 3, 2012
500,000
1.70
As per
item 26 above.