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.

 

Segments:

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:

Comments:

• 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.

 

Disclaimer

Traders News Source is a wholly owned subsidiary of Traders News Source LLC, herein referred to as TNS LLC.

Traders News Source has not been compensated for this report by anyone and the opinions if any are that of the author Vikas Agrawal, CFA. Author’s Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I, wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in the article.

This web site, published by TNS LLC, and is an investment newsletter that is built on the premise of assisting individual investors in learning about investing. Our goal as publishers of financial information is to provide research and analysis of investments to our subscribers. TNS LLC does not give buy or sell recommendations. We do purchase distribution rights from analyst, financial writers and bloggers for a fee that may be licensed to issue price targets and recommendations. Furthermore, we encourage you to speak to a licensed professional prior to making an investment in any type of publicly traded security.

We do sell advertising to other companies including brokerage firms, web sites, publicly traded issuers, investor relations firms, and investment publications, among others. TNS LLC makes no warranty as to the policies of these organizations, and in no way endorses their offers, services, or the content of their advertisements.

When an advertiser is a publicly traded company or a third party acting on behalf of a public company, we fully disclose all compensation in the email advertisement. Such disclosure is included in a disclosure statement in each of the advertisements sent via email.

17B Disclosure

Our reports/releases are a commercial advertisement and are for general information purposes ONLY. We are engaged in the business of marketing and advertising companies for monetary compensation. Never invest in any stock featured on our site or emails unless you can afford to lose your entire investment. The disclaimer is to be read and fully understood before using our services, joining our site or our email/blog list as well as any social networking platforms we may use.

PLEASE NOTE WELL: TNS LLC and its employees are not a Registered Investment Advisor, Broker Dealer or a member of any association for other research providers in any jurisdiction whatsoever.

Release of Liability: Through use of this website viewing or using you agree to hold TNS LLC, its operator’s owners and employees harmless and to completely release them from any and all liability due to any and all loss (monetary or otherwise), damage (monetary or otherwise), or injury (monetary or otherwise) that you may incur. The information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of the available data. TNS LLC encourages readers and investors to supplement the information in these reports with independent research and other professional advice. All information on featured companies is provided by the companies profiled or is available from public sources and TNS LLC makes no representations, warranties or guarantees as to the accuracy or completeness of the disclosure by the profiled companies. None of the materials or advertisements herein constitute offers or solicitations to purchase or sell securities of the companies profiled herein and any decision to invest in any such company or other financial decisions should not be made based upon the information provide herein. Instead TNS LLC strongly urges you conduct a complete and independent investigation of the respective companies and consideration of all pertinent risks. Readers are advised to review SEC periodic reports: Forms 10-Q, 10K, Form 8-K, insider reports, Forms 3, 4, 5 Schedule 13D.

TNS LLC is compliant with the Can Spam Act of 2003. TNS LLC does not offer such advice or analysis, and TNS LLC further urges you to consult your own independent tax, business, financial and investment advisors. Investing in micro-cap and growth securities is highly speculative and carries an extremely high degree of risk. It is possible that an investor’s investment may be lost or impaired due to the speculative nature of the companies profiled.

The Private Securities Litigation Reform Act of 1995 provides investors a ‘safe harbor’ in regard to forward-looking statements. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, goals, assumptions or future events or performance are not statements of historical fact may be “forward looking statements”. Forward looking statements are based on expectations, estimates, and projections at the time the statements are made that involve a number of risks and uncertainties which could cause actual results or events to differ materially from those presently anticipated. Forward looking statements in this action may be identified through use of words such as “projects”, “foresee”, “expects”, “will”, “anticipates”, “estimates”, “believes”, “understands”, or that by statements indicating certain actions & quote; “may”, “could”, or “might” occur.

Understand there is no guarantee past performance will be indicative of future results. In preparing this publication, TNS LLC has relied upon information supplied by its customers, publicly available information and press releases which it believes to be reliable; however, such reliability cannot be guaranteed. Investors should not rely on the information contained in this website. Rather, investors should use the information contained in this website as a starting point for doing additional independent research on the featured companies. The advertisements in this website are believed to be reliable, however, TNS LLC and its owners, affiliates, subsidiaries, officers, directors, representatives and agents disclaim any liability as to the completeness or accuracy of the information contained in any advertisement and for any omissions of materials facts from such advertisement. TNS LLC is not responsible for any claims made by the companies advertised herein, nor is TNS LLC responsible for any other promotional firm, its program or its structure.