Coda Octopus Group, Technology Overview and Near to Medium Term Growth Catalyst

Coda Octopus Group, Inc. (NASDAQ: CODA) develops underwater technologies and equipment for imaging, mapping defense, and survey applications. It operates through two segments: Marine Technology Business and Marine Engineering Business.


On June 14th, the company reported its unaudited financial results for its fiscal 2018 second quarter ended April 30, 2018. CODA reported overall total revenue of $3.526 million for the three months ended April 30, 2018, compared to $5.279 million for the comparable quarter ended April 30, 2017, a reduction of 33.2%. The loss in revenue was primarily due to delays in the approval of the U.S. Defense Budget.


Notwithstanding, muted year-to-date financial results, the company is on track against its business plan to meet the medium and long-term growth goals of both its business segments. Furthermore, although the company has experienced a delay in closing the 2017 and 2018 orders from its established defense customers, it does not believe that it has lost any of this business,


Near to medium term growth catalysts for the Company:

So far liquidity and financial flexibility are concerned, CODA remain strong on cash, generating cash flow from its operations, and in this fiscal year it has accomplished a significant reduction in its long-term debt which stands at $1.302 million at the end of the second quarter. This gives the Company added strength. During the last quarter, CODA also reduced its long-term debt to $1.302 million, from $6.066 million at the end of October 2017, while retaining cash and equivalents of $6.937 million within the Business.


Recent announcements:

Agreement with Naval Surface Warfare Center, Panama City Division for Naval Real-Time 3D Imaging Head-Up Display Diver Solution: On July 16th, 2018, the company’s shares more than doubled with unusual volume activity, after it announced that it has entered into a Navy Cooperative Research Development Agreement (CRADA) to transition the prototype of the Divers Augmented Vision Display-Head Up Display system (DAVD-HUD) into a complete system that is ready for operational use, with Naval Surface Warfare Center Panama City Division (NSWC PCD). The plan indicates that the DAVD-HUD diver equipment will advance naval activities “significantly,” and is considered a critical deliverable to Naval Sea Systems Command.


The deal is a significant opportunity for the company to take forward its initial vision of the DAVD-HUD into a real-time, real-world application that will greatly advance defense and military applications. This is a significant development for Coda Octopus as it positions the Company to roll out its unique real-time 3D capabilities, both hardware, and software, across the Navy – a very important group of users.


This is a seismic shift as it paves the way for standardization of its real-time 3D sonar products into this very important market. Although the company is on a 12-month contractual commitment to developing the first generation of the DAVD-HUD, it intends to deliver this much sooner and get this critical product into operation across the Navy Community.


Sale of Premier Underwater Inspection System to the Los Angeles County Sheriff’s Department: Prior to this on June 18th, the company announced that it had completed the sale and delivery of its flagship system, CodaOctopus® Underwater Inspection System (“UIS”) to the prestigious Los Angeles County Sheriff’s Department for a contract value of $665,000.The management believes that this Underwater Inspection System is far superior to other sonar technology in the market today as their industry-leading Echoscope® technology generates real-time images of the underwater environment in three/four dimensions even in zero visibility conditions.


Analysts tracking the stock see promise in the company and believe it will provide a robust fundamental appeal to the investors as well as momentum players trading the stock. Also, in spite of the muted financial performance in the recent past, the company continues to be an attractive micro-cap with ample free cash flow. Moreover, company’ business plan is on track to grow the number of proprietary parts it supplies into funded defense programs and, as indicated, CODA is negotiating its backlog of defense orders for calendar years 2017 and 2018. The market, therefore expects the order book to grow significantly in the next few quarters.


About the company: Originally founded in 1994 as Coda Technologies, the Coda Octopus Group’s patented real-time 3D subsea sonar technology, Echoscope®, enables real-time 3D imaging and mapping in zero visibility conditions underwater, and is used globally in numerous applications including defense, marine construction, oil and gas subsea infrastructure installation and surveys, and port and harbor security.



Products Business

  • Market leader in real-time 3D imaging sonar technology for multiple subsea applications. World’s only real-time 3D sonar technology – “seeing both static and moving objects and measuring in real time in zero visibility conditions underwater.”
  • Other leading products include a geophysical range of hardware and software and motion sensors for navigation (F180® series)

Engineering Businesses

  • Long-established relationships with the U.S. and UK Defense Primes, such as Raytheon, Northrop, and BAE, with a number of proprietary parts for significant programs such as Phalanx® CIWS, yielding long-tail recurring and growing revenues
  • Strong culture of IP ownership in products


Key Market for Marine Product and engineering Business:

Key customer base:

Latest Quarter Financial position: 

  • Revenues: CODA reported overall total revenue of $3.526 million for the three months ended April 30, 2018, compared to $5.279 million for the comparable quarter ended April 30, 2017, a reduction of 33.2%. Revenues in the engineering business declined 32% compared to the second quarter of 2017 and revenues in the products business declined by 34%. The loss in revenue was primarily due to delays in the approval of the U.S. Defense Budget.
  • Profitability: The Company reported a net loss of approximately $77,325 or $0.01 per share for its fiscal second quarter 2018, compared to net income of $1.275 million or $0.14 per share for the comparable quarter ended April 30, 2017. This loss was due to the decrease in revenues combined with the investment program costs.
  • Liquidity: During the last quarter, the company also reduced its long-term debt to $1.302 million, from $6.066 million at the end of October 2017, while retaining cash and equivalents of $6.937 million within the Business.


Key risk factors and potential stock drivers:

  • The company’ business risk profile is significantly dependent on new products. Therefore, the company must continue to make significant investments in research and development in order to continue to develop new products, enhance existing products and achieve market acceptance of such products.
  • Increased Reliance on Sales to Government Agencies carries the risk of the company becoming overly dependent on one source of revenues.  If for any reason government spending on these types of security devices is subsequently reduced and or delayed/deferred, this may have a negative impact on the sales and results of operations.
  • The Company is investing heavily in research and development to finalize its fourth-generation (4G) line of real-time 3D sonar products, which is on an 18-month rollout cycle. Therefore, any crunch in its liquidity and financial flexibility will impact its business & financial profile.
  • Also, a next round funding could entail significant dilution for the existing shareholders
  • The company’s operational and market risk profile is exposed to risk related to competitive forces., and CODA competes with other players. Some of these companies have substantially greater operational and financial resources than CODA.


Stock Chart:


  • On Friday, July 20th, 2018, CODA closed at $5.05 on an average volume of 217,779 shares exchanging hands. Market capitalization is $52.598 million. The current RSI is 59.50
  • In the past 52 weeks, shares of CODA have traded as low as $3.28 and as high as $8.44
  • At $5.05, shares of CODA are trading above its 50-day moving average (MA) at $4.00 and above its 200-day moving average (MA) at $4.44
  • The present support and resistance levels for the stock are at $4.82 & $5.64 respectively.


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