ITEM 1A. RISK FACTORS 17
ITEM 1B. UNRESOLVED STAFF COMMENTS 17
ITEM 2. PROPERTIES 18
ITEM 3. LEGAL PROCEEDINGS 18
ITEM 4. MINE SAFETY DISCLOSURES 18
PART II
ITEM 6. SELECTED FINANCIAL DATA 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 37
ITEM 9A CONTROLS AND PROCEDURES 37
ITEM 9B OTHER INFORMATION 37
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 38
ITEM 11. EXECUTIVE COMPENSATION 43
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 46
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 47
SIGNATURES 48
FORWARD-LOOKING
STATEMENTS
This
Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, which we refer
to in this annual report as the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to
in this annual report as the Exchange Act. Forward-looking statements are not statements of historical fact but rather reflect our current
expectations, estimates and predictions about future results and events. These statements may use words such as “anticipate,”
“believe,” “estimate,” “expect,” “intend,” “predict,” “project”
and similar expressions as they relate to us or our management. When we make forward-looking statements, we are basing them on our management’s
beliefs and assumptions, using information currently available to us. These forward-looking statements are subject to risks, uncertainties
and assumptions, including but not limited to, risks, uncertainties and assumptions discussed in this annual report. Factors that can
cause or contribute to these differences include those described under the heading “Management’s Discussion and Analysis
of Financial Condition and Results of Operations.”
If
one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results
may vary materially from what we projected. Any forward-looking statement you read in this annual report reflects our current views with
respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of
operations, growth strategy and liquidity. All subsequent written and oral forward-looking statements attributable to us, or individuals
acting on our behalf are expressly qualified in their entirety by this paragraph. You should specifically consider the factors identified
in this annual report, which would cause actual results to differ before making an investment decision. We are under no duty to update
any of the forward-looking statements after the date of this annual report or to conform these statements to actual results.
PART
I
ITEM
1. BUSINESS
Overview
Coda
Octopus Group, Inc. (“Coda” “the Company” or “we”), through its wholly owned subsidiaries, operates
two distinct businesses:
Our
Marine Technology Business is a technology solution provider to the subsea and underwater market. It owns key proprietary technology
including real time volumetric imaging sonar technology and diving technology, both of which are applicable to the underwater defense
and commercial markets. All innovation, design, development and manufacturing of our technology and solutions are performed within the
Company.
Our
imaging sonar technology products and solutions marketed under the name of Echoscope® and Echoscope PIPE® are
used primarily in the underwater construction market, offshore wind energy industry (offshore renewables), and offshore oil and gas,
complex underwater mapping, salvage operations, dredging, bridge inspection, navigation of underwater hazard, port security, mining,
fisheries, commercial and defense diving, and marine sciences sectors. Our diving technology marketed under the name
“CodaOctopus® DAVD” (Diver Augmented Vision Display) addresses the global defense and commercial diving
markets. It has the potential to radically change how diving operations are performed globally because it delivers real time
information simultaneously to the divers underwater and their surface-based dive supervisors. It also allows diving operations to be
performed in zero visibility water conditions which is a safety challenge for diving operations.
The Marine Technology Business operates thorough our wholly owned subsidiaries Coda Octopus Products Ltd (UK), Coda Octopus Products A/S
(Denmark, Coda Octopus Products, Inc (Orlando) and Coda Octopus Products (India) Private Limited (India).
Our
Marine Engineering Businesses are suppliers of embedded solutions and sub-assemblies which they design and manufacture and sell into
mission critical integrated defense systems such as the Close-In-Weapons System (CIWS). The Services Segment established its
business in 1977 and has been supporting a number of significant defense programs for over 40 years, including Raytheon’s CIWS
and Northrop Grumman’s Mine Hunting Systems Program. The Services Segment’s business model entails designing
sub-assembly prototypes which are utilized in broader defense programs. These prototypes contracts typically lead to contracts for
the manufacture, repair and upgrade of these sub-assemblies. We are the sole source for the parts that we design and supply into
these programs. This business model ensures recurring and long tail revenues since we continue to supply these parts, typically for
the life of the program, which can span decades. Coda Octopus Colmek, Inc. and Coda Octopus Martech Ltd, qualify as a small
business. This opens opportunity under state requirements to collaborate with Prime Defense Contractors on these programs.
A significant part of the revenues generated by the Marine Engineering Business is usually highly concentrated and are derived
from a small number of prime defense contractors such as Raytheon or Northrop. In any one year, between 20% to 30% of our
consolidated revenues may be derived from these customers either alone or collectively.
The
Services Segment operates through our wholly owned subsidiaries, Coda Octopus Colmek, Inc (“Colmek”) based in Salt Lake City,
Utah, and Coda Octopus Martech Limited (“Martech”) based in Dorset, United Kingdom.
Cross-Group
Synergies
Our
Marine Technology Business and Marine Engineering Services Business have established synergies in terms of customers and specialized
engineering skills for robust, rugged and repeated engineering solutions relating to data acquisition, data computation and display
of the data. Increasingly drawing on each part of the business strengths, the Marine Technology Business and Marine Engineering
Business work jointly on projects including responding jointly for tenders. We believe the Services Business is important to our
overall growth strategy as it brings significant engineering depth for the onward development of our technology solutions offered by
our Marine Technology Business. This also ensures more tight control over our intellectual property rights which are important for
our market position in the space in which we operate.
Key
Pillars for our Growth Plans
Our
volumetric real time imaging sonar technology and our Diver Augmented Vision Display (“DAVD”) are our most promising products
for the Group’s near-term growth.
Our
real time 3D/4D/5D/6D Imaging sonars are the only underwater imaging sonars which are capable of providing complex seabed mapping
and real time inspection and monitoring and providing 3D/4D/5D/6D data of moving underwater objects irrespective of water
conditions including in zero visibility water conditions (which is a common and costly problem in underwater operations). Competing
technology can perform mapping (but not complex mapping) without the ability to perform real time inspection and monitoring of
moving objects underwater. We also believe our Echoscope PIPE® is the only technology that can generate multiple real
time 3D/4D/5D/6D acoustic images using different acoustic parameters such as frequency, field of view, pulse length,
and filters.
Our
customers include service providers to major oil and gas (“O&G”) companies, renewable companies, underwater construction
companies, law enforcement agencies, navies, ports, mining companies, defense bodies, diving companies, research institutes and universities.
We are widely considered the leading solution providers for real time 3D visualization underwater.
We
also believe that the DAVD system is poised to radically change the way commercial and defense diving operations are performed
globally by providing real time data to both diver and surface supervisor simultaneously, advancing the methods of communication,
ability to consume and use digital information and real time imaging sonar data, thereby improving safety and reducing the costs of
these operations. The DAVD HUD (Head Up Display) concept is protected by patent and is manufactured and distributed under License
from United States Department of the Navy at Naval Surface Warfare Center Panama City Division to the Company.
The DAVD can be used in combination with any of our imaging sonars and
can also be used without our imaging sonars. Increasingly, opportunities which we identify are for combined use.
Our
corporate structure is as follows:
Corporate
History
The
Company began as Coda Technologies Limited. This company now operates under the name Coda Octopus Products Limited, a United Kingdom
corporation formed in 1994 as a start-up company with its origins as a research group at Herriot-Watt University, Edinburgh, Scotland.
Initially, its operations consisted primarily of developing software for subsea mapping and visualization using sidescan sonar (a technology
widely used in commercial offshore geophysical survey and naval mine-hunting to detect objects on, and textures of, the surface of the
seabed).
In
June 2002, we acquired Octopus Marine Systems Ltd, a UK corporation, and changed our name to Coda Octopus Limited. At the time of its
acquisition, Octopus Marine Systems was producing geophysical products broadly similar to those of Coda, but targeted at the less sophisticated,
easy-to-use, “work-horse” market. The Octopus Marine Systems acquisition led to the introduction of the Motion product (F180®
series) into the Products Segment.
In
December 2002, Coda Octopus Ltd acquired OmniTech AS, a Norwegian company, which became a wholly owned subsidiary of the Company, and
which subsequently changed its name to Coda Octopus R&D AS. OmniTech owned the patents to a “method for producing a 3-D Image”
(which has now expired). At the time of acquisition, this company had been engaged for over ten years in developing a revolutionary imaging
sonar technology capable of producing real time three-dimensional (“3D”) underwater images for use in subsea activities.
Coda Octopus Products Limited (Edinburgh based) then developed the visualization software to control and display the images from the
real time 3D sonar device. This patented technology is now marketed by us under the brand name “Echoscope®”
and Echoscope PIPE®. All activities of this now-defunct Norwegian subsidiary, Coda Octopus R&D AS, have been transferred
to Coda Octopus Products Limited (Edinburgh).
On
July 13, 2004, the Company effected a reverse merger pursuant to the terms of a share exchange agreement between The Panda Project, Inc.
(“Panda”), a Florida corporation, and a now defunct entity affiliated with Coda Octopus Ltd. (“Coda Parent”).
Panda acquired the shares of Coda Octopus Limited, a UK corporation and a wholly-owned subsidiary of Coda Parent, in consideration for
the issuance of a total of 1,432,143 shares of common stock to Coda Parent and other shareholders of Coda Octopus Limited. The shares
issued represented approximately 90.9% of the issued and outstanding shares of Panda. The share exchange was accounted for as a reverse
acquisition of Panda by Coda. Subsequently, Panda was reincorporated in Delaware and changed its name to Coda Octopus Group, Inc.
In
June 2006, we acquired Coda Octopus Martech Limited which is part of our Services Segment or Marine Engineering Business. This is an
English corporation.
In
April 2007, we acquired Coda Octopus Colmek, Inc. which is part of our Services Segment or Marine Engineering Business. This is a Utah
corporation.
Both
Martech and Colmek largely have the same business model, provide similar engineering services and sell to a similar customer base (one
is UK focused and the other is US focused).
In
December 2013 Coda Octopus Products Limited established Coda Octopus Products
Pty Ltd (Australia) to grow our presence in Australia and New Zealand. However, since 2020 we have not been able to do meaningful business
development due to the closure of Australian borders because of the Coronavirus Pandemic and, more recently, challenges in restoring our
activities effectively on the ground.
In
2017 Coda Octopus Products Limited established a subsidiary Coda Octopus Products A/S in Denmark as part of the mitigation strategy relating
to the UK withdrawal from the European Union (See Item 7 “Management’s Discussion and Analysis...”).
In
November 2021 Coda Octopus Products Limited established a subsidiary Coda Octopus Products (India) Private Limited intended to gain access
to this market and to recruit critical resources for software development for our Company.
Coda
Octopus Group, Inc., is organized under the laws of the State of Delaware as a holding company that conducts its business through subsidiaries,
several of which are organized under the laws of foreign jurisdictions, including England, Scotland, Denmark, Australia and recently
India. This may have an adverse impact on the ability of U.S. investors to enforce a judgment obtained in U.S. courts against these entities,
or to effect service of process on the officers and directors managing the foreign subsidiaries. These companies’ operations must
comply with the laws of the countries under which they are incorporated and are likely to be different from the equivalent laws of the
United States.
Marine
Technology Business (“Products Segment”)
Our
Marine Technology Business develops proprietary solutions for both the commercial and defense subsea market. The range of our solutions
are complementary and include:
Type of Systems Description
Geophysical Systems Comprising Hardware and Software;
Real Time Volumetric Imaging Sonar Comprising Hardware and Software
Diver Augmented Vision Display System Comprising Hardware and Software
These
products are sold, leased or rented into various marine sectors and include:
● Marine geophysical survey
● Offshore Renewables (“Wind Energy”)
● Underwater construction, inspection and monitoring
● Diving Companies
● Commercial and Defense Diving
● Salvage and decommissioning
● Oil and Gas (“O&G”)
● Commercial fisheries
● Environmental, mammal and habitat monitoring
● Underwater Defense Applications
● Marine vehicles and robotics
● Port and Harbor Security, law enforcement and first responders
● Research and education
1.
Geophysical Range of Products
Our
geophysical systems (“GEO”) range of products include geophysical data acquisition systems, processing and analysis software
that are used primarily by survey companies, offshore renewable companies, research institutions, salvage companies. The Company’s
GEO range of products are used in conjunction with sidescan sonars to survey large areas and create images of the seabed, identify seabed
boulders and objects, mark seabed type boundaries and identify existing subsurface structural features, geological layers, and/or buried
debris. The Company started its first innovation with this range of products and in fact was the first company to digitalize sidescan
sonar data. The Company’s GEO range is a strong brand in the geophysical market space.
2.
GPS aided Inertial Positioning Systems
These
are referred to as our MOTION range of products and offer high accuracy GPS aided inertial positioning and attitude data, essential for
all marine survey applications. The products are commonly bundled with our GEO and real time sonar solutions offering our customers a
seamless integration and support experience.
3.
Real Time Volumetric Imaging Sonars (ranging from 3D/4D, 5D and 6D)
We
design, develop and supply what we believe is the world’s most advanced series of real time volumetric imaging sonar. This is the
culmination of over 25 years of research and development. This technology is protected by multiple patents. Furthermore, we continue
to file patents relating to our new and revolutionary sonars, our 5-Dimensional (5D) and 6-Dimensional (6D) real time volumetric imaging
sonars (marketed under the name Echoscope PIPE® (Parallel Intelligent Processing Engine). Our sonar innovations are multi-tiered
and extend to hardware, firmware and software, all of which co-exist and are co-dependent on each other. In other words, hardware, firmware
and software operate as sub-systems to each other. We believe that the highly complex nature of this new technology will make it extremely
difficult to reverse engineer our products. Pioneering this unique technology gives us a significant advantage over our competitors in
the subsea real time 3D imaging sonar market sectors. We also believe that our three-tier product development capability of hardware,
software and solution delivery adds to our competitive lead.
We
believe that this technology is superior to the other imaging sonars in the market as it generates real time 3D, 4D, 5D and 6D images
of the underwater environment irrespective of low or zero visibility conditions and, unlike conventional sonars, can image a volume (as
opposed to a slice of data) and provide real time 3D inspection and monitoring capability underwater. The capability of our volumetric
imaging sonars covers a broad breadth of activities underwater particularly for any form of underwater construction, salvaging, placements,
decommissioning, obstacle avoidance and complex underwater mapping and real time 3D navigation in zero visibility conditions.
About
the Company’s 5D and 6D Sonars Innovations
5D
and 6D sonars are new to the subsea market and constitute an innovation by the Company. We have several
patent applications pending for these innovations.
5D
Sonars (Echoscope PIPE®)
The
advancement that the Company has made with its 5D Sonars is the ability to process and utilize much more of the data that is acquired
by our volumetric imaging sonars. In the previous generation of our sonars, due to the state of the art of processing generally, there
was an upper limit to the quantity of the acquired data that could be processed and displayed by the sonar system. This meant that in
the previous generation of sonars when a signal was emitted, it returned a single range and intensity value per beam. In the 5D Sonars
we return multiple range and intensity values (Full Time Series (“FTS”)) per beam. This new capability provides more information
about the underwater environment. For example, it will give the user the ability to see multiple layers of soft target areas underwater
such as gas leaks and suspended sediment above the seabed all concurrently (not one or the other) or concurrent imagery of marine life,
sea growth on installations and the installations themselves. FTS will deliver all range values per beam as opposed to either the First
(First Above Threshold (“FAT”) or the strongest return (MAX) provided by the previous generation of Echoscope technology.
Our 5D capability is protected by a recently granted patent (US 10,718,865 – which concerns a method of compressing beamforming
sonar data and US 10,816,652 which concerns a method of compressing sonar data) and 10,718,865 which concerns a method of compressing beamformed sonar data.
6D
Sonars (Echoscope PIPE®)
The
Company’s 6D Sonars process and utilize much more of the data acquired by the sonar. 6D Sonars generate multiple real time 3D
Full Time Series Images. In the previous generation of sonars, we could image and display one 3D Image in real time. Our PIPE technology
generates multiple 3D Images simultaneously in real time using different sonar/acoustic parameters (such as frequency, range, field of
view, pulse length and other acoustic filters or shading). Our new technology enables one sensor to provide different 3D/4D/5D/6D data
sets (through multiple parallel processing capability) to different parts of the survey team operations in real time per their different
operational requirements (thus consolidating the sensors and the associated costs and effectiveness of the solution). 6D Sonars can also
record raw data that can be subject to PIPE Offline processing to generate unlimited data outputs. We are not aware of any sonars that
can offer either 5D or 6D Capability.
In
summary, our previous generation of real time 3D sonar was capable of providing only single acoustic images of underwater objects in
real time 3D whereas the PIPE family of sonars is capable of providing multiple acoustic images of underwater objects in real time 3D/4D.
Sonar
Hardware
During
fiscal 2019, we completed critical innovation and advancement milestones around our core volumetric real time sonar technology. We have
now introduced the world’s first 5D and 6D series of volumetric imaging sonar technology. This new series of sonars are marketed
under the brand name Echoscope PIPE® (an acronym for Parallel Intelligent Processing Engine). We believe our 5D and 6D
series of sonars herald a significant leap forward in real time subsea imaging as this inventive capability allows a single sonar to
provide different parts of the survey operations with multiple real time data sets (as opposed to one 3D dataset) for each part of the
survey teams’ requirements.
A summary of some of the differences between our standard Echoscope® sonar series and our newly launched Echoscope PIPE® series
of sonars are set out below:
Description Current Echoscope® PIPE® Sonars
Real Time Capability Yes, 4D Images Yes, 4D, 5D and 6D
Adaptive Frequency Capability No Yes
Ping Rate Up to 20Hz Up to 40Hz
Number of Data Points per Single Ping Up to 16,386 Up to 40 million
Full Time Series Raw Data Capture No Capability Capture of Raw Data
We
believe that our Echoscope® technology will shepherd in the new generation of underwater real time 3D imaging sonar
which will evolve into a real time information platform and gain market share through the increased adoption of real time 3D
volumetric imaging sonar technology. Current competing imaging technologies such as the single beam, multibeam and scanning sonars
are either 2D real time imaging sonars or 3D imaging sonars which are not capable of real time 3D imaging, that is to generate a 3D
image underwater of moving objects. The competing 3D technology, the multibeam, which is the current standard bearer in the market
is a sonar for mapping of the seabed. The Echoscope® technology can not only map the seabed (and is superior to the
multibeam for complex mapping and inspection of complex underwater structures) but can image in real time 3D moving objects
underwater and therefore is the primary tool of choice for inspecting and monitoring in real time 3D all types of underwater
operations and is the only choice in poor visibility conditions. In addition, the Echoscope® can also in many
instances enable the user to monitor underwater operations from a surface vessel and in this way replace Remotely Operated Vehicles
(ROVs) thus bringing considerable cost savings to our customers.
Prior
to January 2018, we were selling our third generation (3G) sonar series. In January 2018 we launched the first product within our
fourth generation series of sonars (“4G sonar series”). The 4G sonar series was an important development milestone for
the Company since it removed a number of barriers to market adoption. Since its introduction we have seen increased number of units
being sold or rented. Due to the form factor of our previous generation of 3G sonar series this limited the types of underwater
vehicles this generation of sonar could be integrated on (and therefore be used for) due to (i) size; (ii) weight and (iii) power
requirements (“form factor barriers”). With the launch of the 4G sonar series we have removed these form factor barriers
and can now integrate on the majority of underwater vehicles in the market including the new and fast emerging smaller underwater
vehicles such as autonomous surface vehicles (ASVs) and unmanned underwater vehicles (UUVs) which are propelling growth in the
underwater market, thus opening potentially new market opportunities for the Company’s technology.
The
4G sonar series developments were largely form factor driven as opposed to being based on performance and capability advancements.
In fiscal years 2019 and 2020 we continued to build on our 4G innovations with a focus on performance and capability advancements,
particularly on the beamforming and the data processing capability of our sonar series. In the previous generation of our sonars,
due to limitations in processing technology there were restrictions on how much of the captured Echoscope® sonar data
could be processed by us. Our previous generations of sonars processed 16,384 pieces of data per sonar ping (compared to around 256
pieces of data per sonar ping for competing technology such as the multibeam). Under our new Echoscope PIPE® sonar
series for each signal that is generated by the sonar we receive back up to 40 million pieces of information which we can now
process. In this context, we have two recent patents concerning a method of compressing beamforming sonar data and a method of
compressing sonar data. We believe that this allows us to deliver to the market the first 5-Dimensional (5D) sonar and 6-Dimensional
(6D) sonar capabilities and significantly builds on our 4G sonar series which radically changed the form factor and power
requirements which were previously barriers to increased adoption. The advantages offered by our 5D and 6D Sonar Series have been
discussed above under the heading (About the Company’s 5D and 6D Sonars Innovations). We started selling Echoscope
PIPE® in the market in March 2020. We are also seeing increased interest in Echoscope PIPE® technology in the
market especially with OEM underwater vehicle manufacturers from the defense space.
The
release of the Echoscope PIPE® hardware, is a significant milestone. We are now focused on the value add to the
technology via firmware and software capability. The finalization of this development now gives the Company a real opportunity to
pursue its strategy to standardize this technology in the underwater imaging sonar market. We believe that in order to make the
subsea and underwater market more efficient, it is mandatory that the standard moves to a real time 3D information platform. Many
underwater operations are stalled due to poor visibility water conditions, preventing the remotely operated vehicles (ROVs) from
flying and also the lack of ability to utilize the sonar data immediately because it requires post processing, which represents a
significant challenge and costs. The subsea market is experiencing high structural and technology transitional changes including the
introduction of the new generation of smaller and lighter vessels (both surface and underwater). This creates a demand for new
sensors and solutions for real time 3D imaging. We believe that our lead in this area gives us a real opportunity to increase our
market share.
Diver
Augmented Vision Display (DAVD) System
Funded
by the Office of Naval Research (“ONR”) through its Future Naval Capabilities (FNC) program, and in close collaboration with
NAVSEA 00C3 and Naval Surface Warfare Center, Panama City Division (“NSWC PCD”) we have developed a diver see-through integrated
information display system (DAVD).
DAVD
is a complete end-to-end diver management solution incorporating as a key element a high-resolution, fully transparent glass head-up
display (HUD) integrated directly inside the diving helmet (for hard hat surface air supply diving) or full-facemask (for tethered
and untethered defense, commercial and recreational diving applications). The DAVD HUD is currently deployed in the world leading
and most widely used Kirby Morgan® range of dive helmets and is currently being released in the industry standard
Interspiro “AGA”, OTS Guardian and the Divator and Dräger Panorama Nova Dive full-face masks. The DAVD HUD and system technology is not however limited to these products and
applications.
Problem
In Context
Navy
and Commercial diving share common issues and challenges with location, visibility, communication, safety, accessing data and
information sharing. Divers work mainly in murky or disorientating water conditions and rely heavily on their sense of touch to
navigate and function. They work in the water column, around complex structure and on the cluttered sea bottoms which is neither
safe nor efficient. They, and the diver support team, require dark spatial awareness memory as they work, arms outstretched in deep,
dark, frigid waters to remember hazardous underwater debris, targets and terrain. Complexity of the task and this challenging
environment directly increases risk, stress, and inefficiency for the entire team.
How
does DAVD Change this?
The
DAVD system addresses all the challenges described above. The DAVD technology benefits not only the diver and direct supervisor on
the surface, but also engineers, end-clients, rescue workers and support personnel whom all have vested interest in a successful and
safe mission. DAVD provides the location of the diver, the dive support vessel, work site assets and any hazards that are known or
discovered in real-time. Real-time compass and depth are also displayed to the diver to reduce disorientation. Visibility for diver
and team is dramatically enhanced with both real-time camera and 3D sonar data (providing underwater night-vision) and also
high-resolution maps and models of the entire work site and surroundings. Communication is transformed from low quality audio speech
to high quality digital audio and video, text messaging, visual alerts and automated navigation guidance. The safety of the diver
and team is paramount. DAVD ensures the Diver and Supervisor are visually synchronized and can safely coordinate movement, tasks and
instructions with full health monitoring and logging of the entire mission. Data and information sharing traditionally ends when the
diver leaves the surface. DAVD provides a seamless and effective way to share any type of data, image, video, process or procedure
instantly in real-time through the DAVD fully transparent HUD display (equivalent of >100” HD TV in-front of the diver).
Data and information also flow up from the diver to the dive supervisor where the diver can look at an asset, make measurements or
recordings and the entire task is captured and documented on the DAVD system.
The
concept of using a pair of transparent glasses in the HUD to render real time information for underwater applications is protected
by patent and Coda Octopus has an exclusive license from United States Department of the Navy at NSWC PCD to exploit this patent for
all underwater diving activities. The DAVD is a significant technology for both defense and commercial underwater diving
applications, and we believe that Coda Octopus has the opportunity to standardize this technology globally. The DAVD comprises both
hardware comprising the HUD, Diver Processing Pack (DPP) (which is a Thermite® variant), Cables and Topside Control
Unit along with 4G USE® DAVD Edition real time visualization software. All these development and products have been
designed and developed by the Company.
The
DAVD is currently in early-stage adoption with the US Navy and enjoys the benefit of an Approved Navy Use (ANU) product. We have also
started marketing (through live demonstrations) this technology to friendly Navies globally and also to the commercial diving market.
We have significant interest from a number of reputable global commercial offshore service providers and are working with them for early
adoption of the technology and also a number of European friendly Navies including the UK Ministry of Defense (MOD).
GEN
3 of the DAVD which opens the market further by extending support to Full Face Masks (FFM), has now been finalized. The DAVD solution is now compatible with most helmets and
face masks in the market.
Sonar
Software
Our
software development capability is an important part of our strategy to maintain our lead in designing, manufacturing, and selling state-of-the-art
real time volumetric imaging sonars and our DAVD System.
Our
existing third generation (3G) Underwater Survey Explorer software used in conjunction with our real time volumetric sonars, is a product
which we have been developing for over 15 years. Because of technological advancements, including access to off the shelf components
for more advanced processing of data (speed and size being factors), in 2016, the Company started the process of re-conceiving and developing
its new generation of top-end software for our now much more advanced sonars. We have now launched our fourth-generation multi-sensor
software platform which is marketed under the name “4G USE®”. We have also filed several provisional patents
around our 4G USE® which is a multi-sensor platform allowing users to bring in and utilize a variety of sensor data including
sonar, positioning, camera, lidar, video processing and other sources of point cloud data and seamlessly merging above and below the
water data captured from the sonar and camera. It is also the platform for our DAVD software, and this is marketed under the brand 4G
USE® DAVD Edition.
Geophysical
Products and Solutions
The
Geophysical range of products are important for both Offshore Renewables and O&G. We therefore believe that with the expansion of
the markets into Offshore Renewables, we will see an increase in the take up of this product suite, particularly in the global rental
market. Our GeoSurvey® and DA4G ranges are strong brands in these markets.
We
started our business in 1994 designing and developing the GeoSurvey® software and hardware package for acquisition and
processing of sidescan sonar and sub-bottom profiler data. For over two decades, our GeoSurvey has been an industry leading software
package in the market for data acquisition and interpretation and provides feature rich solutions and productivity enhancing tools for
the most exacting survey requirements. Designed specifically for sidescan and sub-bottom data acquisition, GeoSurvey has been purchased
by numerous leading survey companies throughout the world.
The
Products Business generates around 2% of its revenues from this range of products. With the launch of the new products based on Artificial
Intelligence technology for which we believe there is increased demand we would anticipate our revenues from this product line to increase
over time.
Geophysical
Hardware
These
consist of a range of hardware solutions for field acquisition of sidescan sonar and sub-bottom profiler, which includes analog and digital
interfaces compatible with all geophysical survey systems.
In
2018, we introduced our DA4G-USB product. This allows customers to integrate the DA4G hardware into their own PC configuration. Based
on the CodaOctopus® DA4G system, it offers the same functionality, robustness and ease of use. CodaOctopus® DA4G
is the fourth generation of our successful DA series and is built on twenty years of knowledge, experience and innovation in supplying
unparalleled products and service to the worldwide geophysical survey sector. These purpose-built, turn-key, systems incorporate the
very latest hardware specifications and are designed and delivered to meet the demanding nature of offshore survey work.
The
CodaOctopus® DA4G range consists of a number of options and is backed (like all our products) with global service and
support.
This
consists of an integrated suite of software that automates the tasks of analyzing, annotating and mosaicking complex data sets, thus
ensuring faster and more precise results.
Geophysical
Software
Our
GeoSurvey® software is supplied to complement our DA4G hardware, offering field acquisition of sidescan sonar and sub-bottom
profiler data.
Our
Survey Engine® software product offers a more advanced post-processing solution for sidescan sonar and sub-bottom profiler
data. Designed to streamline processing of very large data sets – many 100GBs – it offers comprehensive processing, interpretation,
visualization, reporting and exporting functionality.
We
continue to advance this range of products and in 2018 we launched our first product based on Artificial Intelligence techniques which
allows us to automatically identify boulders on the seabed – SEADP – “Survey Engine Automatic Object Detection”.
This new product presents a real opportunity to radically change workflow process for post-processing and analyzing side scan sonar data
to assess, among other things, the suitability of an area for exploration and construction activities (O&G installations, pipeline
and cable laying activities). This is in its early stage of roll out and has sparked significant interest. This is an area where we are
investing our research and development efforts. We are also seeing good results from SEADP and some good quality early adopters of this
new technology in the market.
Inertial
Positioning and Attitude Measurement Systems (“Motion Products”)
Our
Motion Products are Global Navigational Satellite System (referred to in the industry as “GNSS” Aided Inertial Measurement
Units) provide measurement data on the position and attitude of a vessel. This device provides real-time data on these measurements which
are applied to compensate for vessel movement in order to align sonar data and remove motion blur.
We
have had our F180® series in the market for over 15 years and due to advancement of technology and the increasing demand
for more precise GNSS Aided instruments, we have now developed our new generation of Motion Products, our F280 Series®.
New
Generation of Motion Products
We
have now completed the ground up development of our new generation of Motion Products F280 Series® for accurate position,
heading, pitch, roll and yaw at sea. The new F280 Series® is based on more advanced technology and is more accurate than
our F180® series. The new technology is much more scalable towards future development of new product variants. The F280
Series® is highly complementary to our real time volumetric sonar series and they are packaged together to provide a more
comprehensive solution to our customers. The F280® is sold with and without our sonar series.
Sales
and Marketing
We
market our products primarily through our internal sales team, website, industry events such as trade shows, webinars, industry
relationships and agents in foreign countries such as Japan, China and Korea. In addition, we have a network of non-exclusive
independent global sales agents. In 2023, a significant part of our business plan budget is allocated to business development, sales
and marketing which will include recruiting new staff for more direct sales and business development.
Coda
Octopus Products Limited has the requisite accreditations for its business including being Lloyds Register accredited to ISO 9001:2015
and Cyber Essentials certification.
Marine
Engineering Businesses (“Services Segment”)
Our
Marine Engineering Businesses comprise Coda Octopus Colmek, Inc. based in Salt Lake City and Coda Octopus Martech Limited based in the
United Kingdom.
These
two operating entities supply engineered sub-assembly solutions which form part of mission critical integrated defense systems, test
equipment, instrumentation, and the like. They operate as sub-contractors to prime defense contractors, and their engineering
solutions are typically designed for integration into broader defense programs where high levels of reliability and quality are
essential pre-requisites for securing and maintaining these agreements with their customers. Typically, we prototype subassemblies for
these customers and after going through various acceptance tests, including first article inspection approvals, we are given the
manufacturing contracts. Many of these manufacturing contracts have a repeat orders profile which typically follows the life cycle of
the defense program that is using the production part.
These
arrangements often give us long term preferred/sole supplier status for the parts we supply, technology refresh and obsolescence management
business opportunities with these customers and we generally use these long-standing relationships to win more contracts with these customers.
In order to grow, the Marine Engineering Business relies on increasing the number of new programs it attracts annually.
In
addition, we are increasingly combining our engineering capabilities with our product offerings. This enables us to offer systems which
are complete with installation and support to maximize the utilization of our collective expertise to advance our real time volumetric
sonar technology.
Coda
Octopus Martech Limited (“Martech”)
Martech, which is UK-based,
operates in the specialized niche of bespoke design and manufacturing services mainly to the United Kingdom defense and subsea industries.
Its services are provided on a custom sub-contract basis where high quality and high integrity devices are required in small quantities.
The
Company enjoys pre-approvals to allow it to be short-listed for certain types of government contracts. Much of the more significant business
secured by Martech is through the formal government or government contractor tendering process.
Coda
Octopus Colmek, Inc. (“Colmek”)
Colmek,
which is USA-based, are suppliers of embedded solutions and sub-assemblies which they design and manufacture and sell into mission
critical integrated defense systems such as the Close-In-Weapons System (CIWS). This business was established 1977 and has been
supporting several significant US defense programs for over 40 years, including Raytheon’s CIWS and Northrop Grumman’s
Mine Hunting Systems Program (AQS-24). Colmek’s business model entails designing sub-assembly prototypes for defense programs
which typically lead to contracts for the manufacture, repair and upgrade of these sub-assemblies. We are the sole source for the
parts that we supply into these programs. This business model ensures recurring and long tail revenues since we continue to supply
parts, typically for the life of the program, which can span decades.
Competition
In
our Marine Technology Business (Products Business), we are exposed to the following competitive challenges:
Data
Acquisition Products (GEO Products)
The
industry for data acquisition and processing systems for sidescan and sub-bottom profiler data is fragmented with several companies occupying
niche areas, and we face competition from different companies with respect to our different products.
In
the field of geophysical products, Triton Imaging Inc., a US-based company, now part of the ECA Group (Toulon, France), Chesapeake, a
US-based company, and Oceanic Imaging Consultants, Hawaii, USA, dominate the market with an estimated 25% each of world sales, while
we believe that we control approximately 5% of world-wide sales.
GNSS
Aided Inertial Positioning and Attitude Measurement Systems (“Motion Products”)
In
the field of GNSS-aided inertial positioning and attitude sensing equipment, where our product addresses a small segment of the overall
market, we believe that we have four principal competitors: Teledyne Marine (part of US based Teledyne Technologies Inc.) which is focused
on the mid-performance segments with an estimated 25% of the market; iXblue, a French company which covers all segments, with an estimated
20% of the market; Kongsberg Seatex AS, a Norwegian company (part of Kongsberg Gruppen) which has products across all segments, with
an estimated 15% of the market; and Applanix, a Canadian company (part of Trimble) which has one major product focused on the high end
of the market, with an estimated 20% of the market. We believe that our market share in this market segment of motion sensing equipment
is about 5%. This market is fiercely competitive and with the advancement of technology coupled with the development of autonomous land
and marine platforms there are additional vendors in the market such as SBG Systems S.A.S (a French based manufacturer of motion sensors).
We sell our MOTION range as part of our equipment suite to complement our 3D sonar range as well as supplying it individually. The development
and introduction of our F280 Series® of GNSS Aided Inertial Positioning and Attitude Measurement System®
constitutes our new generation of Motion Products and gives us the opportunity to increase our market share.
Real
Time 3D/4D/5D and 6D Volumetric Sonar
In
the field of Real Time 3D/4D/5D imaging, we are unaware of other companies offering a similar product. In this context it is important
to understand some of the capabilities we bring to this field include:
- Acoustic Projector/Transmitter design, manufacturing, and testing
- Acoustic Receiver Array design, manufacturing, and testing
- Acoustic encapsulation and sensitivity measurement
- Acoustic Projector/Transmitter beam pattern and sensitivity measurement
- Pressure housing Design and Manufacture (sonar systems)
- 3D/5D/6D Real-Time digital beamforming (on-device)
- 1D and 2D Digital Beamforming
- Broadband Beamforming
- Signal Processing
- Active High Frequency Sonar Systems
- Passive Mid Frequency Sonar Systems
- Data acquisition and recording hardware and software
- Real-time 2D and 3D sonar visualization rendering and processing software
The
entry into this market is dependent upon specialized marine electronics, acoustic and software development skills. The learning curve,
which has resulted in the advancement of our real time 3D sonar device, is the culmination of two decades of research and development
into this field. Companies such as Kongsberg Gruppen, R2Sonic, LLC, Tritech International Ltd., United Kingdom, BlueView Technologies
Inc., USA (now a part of Teledyne Technologies Incorporated), and Norbit Group AS Norway are examples, but none of these sonar offerings
are directly comparable or competitors to our real time volumetric 3D/4D/5D and 6D sonar solutions as their scanning sonar, single beam
or multibeam sonars are not real time 3D imaging sonars and therefore cannot image moving targets underwater. Specifically, we believe
that they do not have the same capabilities as our Echoscope® technology in terms of real time inspection and monitoring
by generating 3D, 4D, 5D and 6D images of moving objects underwater including in environments in low or zero visibility conditions. Nor
do they have the ability to use a single sonar for multiple real time 3D/4D images simultaneously. Notwithstanding it should be noted
that Teledyne has acquired a significant number of substantial subsea companies (examples are Reson and BlueView). Teledyne has much
greater resources, liquidity and market reach than our Company and has many operating verticals. We therefore can give no assurance that
companies such as these will not enter this market. Furthermore, companies such as Kongsberg Gruppen and Teledyne can expend significantly
more in any one fiscal year on R&D and Business Development, key pillars for increasing market share of underwater imaging sonars,
than Coda Octopus. Notwithstanding, we believe that our recent development and introduction of 5D/6D - Echoscope PIPE®)
sonar capability in conjunction with our software (4G USE® a multi-sensor platform) further distinguishes our volumetric
sonars and significantly extends our lead over competitors in the subsea imaging market. We are not aware of any other imaging sonars
in the market capable of generating real time 5D and 6D imagery underwater, which are Coda Octopus inventions. The innovations around
Echoscope PIPE® are the subject of numerous patent applications.
We
seek to compete on the basis of producing high quality products employing cutting edge technology that is easy to use by operators without
specialized skills in sonar technology. We intend to continue our research and development activities to continually improve our products,
seek new applications for our existing products, develop new innovative products and grow the market for our products and expertise.
In
our Services Segment, we are exposed to the following competitive challenges:
Marine
Engineering Businesses
Through
our marine engineering operations, Coda Octopus Colmek, Inc. and Coda Octopus Martech Limited, we are involved in custom engineering
for the defense industry in the United States and in the United Kingdom. Martech and Colmek compete with larger contractors in the defense
industry. Typical among these are Ultra Electronics, BAE Systems, and Thales, all of whom are also partners on various projects. In addition,
the strongest competitors are often the clients themselves. Because of their size, they often have the option to proceed with a project
under their Prime Defense Contract in-house instead of outsourcing to a sub-contractor like Martech or Colmek.
Intellectual
Property
Our
product portfolio and technologies are protected by intellectual property rights including trademarks, copyrights and patents. In the
last 3 years we have advanced our existing sonar technology and have filed a number of significant patents applications pertaining to
these inventions including covering our newly innovated 5D and 6D sonars. Furthermore, we have recently been awarded a patent which concerns
a method of predicting and adjusting the laying of cable using sonar imaging. This is a significant patent for Offshore Renewables Market
(Wind Energy), which is a rapidly increasing market sector and an important one for our growth. Our Echoscope® and Echoscope
PIPE® technology is used for real time monitoring of cable installations for offshore wind projects. This Method which
we have patented is used in conjunction with our Echoscope and automates the tracking of the cable (thus removing the need for an Echoscope®
operator who previously would be manually clicking on the cable touchdown point). This method covered by our recently awarded patent
also projects the cable touchdown point.
Patents