Coda Octopus Group (CODA)

My average cost is $7.41. I added more above $8 and will buy more on any dip.

CODAs "flagship" product is Echoscope PIPE, a Real-Time Imaging Sonar. This is an impressive technology, because the Sonar can process 40 Million data points per ping - the former Echoscope Sonar only processed 16,384 points per ping. It's great for subsea fleets, but also for civilian usage. For example for Offshore wind turbine parks. The growth potential for this product is really big, as they have basically zero competition. They recently said that they were able to cut spending in R&D and put more money into sales and marketing efforts.

www.codaoctopus.com/products/3d/PIPE

The other main product is the DAVD diver system. Developed with the NSWC (Naval Surface Warfare Center), the NAVSEA is already using it for their divers. And a potential BIG news could be a contract with NASA for the technology to bring it to the Moon!

www.navsea.navy.mil/Media/News/SavedNewsModule/Article/2519952/from-the-ocean-floor-to-the-dark-side-of-the-moon-navsea-and-nasa-test-next-gen/


There are two risks for CODA. First, the difficult relationship with China. In FY 2020, orders for the Echoscope of appr. $1 Million have been seized at borders. It's not for military purposes in china, but they have problems shipping it nevertheless. It's in my opinion a problem, but should be fully reflected in the valuation of CODA. Additionally, this risk is no longer included in the last 10Q. I'm not sure, if the problems has been solved or why it's no longer included.
The other risk is the Brexit, but CODA has established a subsidiary in Denmark.
From the 10Q:

United Kingdom’s Withdrawal from the European Union (“Brexit”)
The United Kingdom withdrew from the European Union on December 31, 2020. As a result, previous existing rights of freedom of movement of goods, persons, capital and
services between the UK and the EU member states have now been removed. The removal of these rights may reduce the demand for our goods and services in the European
Union (a major market for our products and services).
Although in the areas of our operation we believe, at this stage, that under the new trade agreement between the UK and EU, there are no trade tariffs or quotas applicable to our
products or services, our business is adversely affected by the withdrawal by the UK from the European Union. The full impact of the withdrawal is still unknown, however,
some of the immediate areas that we have been impacted since withdrawal include:
● New restrictions which prevent our engineers from working freely in EU member countries. Our business relies on our field engineers going to our customers’ sites and
assisting with training and mobilizing our solutions. Under the new arrangement, our engineers will now need a work permit for EU member countries. However, we are
unable to assess the true impact of these new requirements for our engineers since there is uncertainty as to the new procedures further compounded by the border
restrictions in EU member countries currently due to the Pandemic.
● Since the withdrawal in December 2020, there has been wide-scale disruption in shipments between the UK and EU member countries with the introduction of
significant customs checks or declarations. This has resulted in significant customs procedures to comply with causing increased costs and delays. Increasingly our
European customers are requesting for our products to come from within the European Union as a condition of hiring the equipment. If we are unable to address this once
the Pandemic is resolved, this will affect the demand for our products in European Union member states.
● We are unable to recruit staff from European Union member states in certain specialized areas such as engineering and software development.
We have taken steps to mitigate some of its impact of the United Kingdom leaving the European Union by establishing a Danish based subsidiary, Coda Octopus Products A/S,
to maintain a presence in the European Union. We intend to run a large part of our rental business from this office. However, due to the Pandemic, these activities have slowed. We can give no assurance that this in itself would be sufficient to soften the impact of the United Kingdom leaving the EU without a trade deal allowing for access to the EU
markets

Edit from the 10K regarding China:

Political Landscape/Exporting to China
We sell our products globally and increasingly to Asia. The recent change in both the US and UK Governments attitude towards trade with China, directly affects the sale
of our products to customers based in China. Our real time 3D sonars which are rated above 300 meters along with our inertial navigation and attitude measurement
sensors (F280® series) are subject to export control for certain countries, including China.
Recently the US Government Department of Commerce (Bureau of Industry and Security) amended the Export administration Regulations (EAR) to add seventy seven
(77) Chinese entities “determined ….to be acting contrary to the national security or foreign policy interests of the united States”. The amended EAR in general states
that there is a “presumption of denial” of grant of export licenses to these entities and their affiliates.
The UK Government is generally in step lock with the US Government’s position andrecently, refused to grant export licenses for several applications for end users in
China for the first time in 25 years of our dealing with the UK Export Control Organization. The curtailment of access to this market due to refusal to issue export
licenses is likely to significantly impact our revenues from Asia.
Furthermore, even though our sonars which are rated at 250m or less do not require export licenses for China, the UK Customs are now seizing these items which are
destined for China.
In 2020 FY we were unable to meet demand for $1,300,000 of sales order for China, due to refusal by the UK Government to issue export licenses.
The removal of China as a trading partner is likely to have significant negative impact on our revenues and growth strategy. China has one of the largest planned
investment programs for offshore renewables, the market which most of our technology is used for in China. After significant business development in China, we had
started to see persistent and credible growth for our products in this market. Unless there is a change in this policy, we are likely to see a decline in growth and sales into
the Chinese Market. It is estimated that around 50-75 multibeam sonars are sold to China Commercial Market each year (approximately $10 million). It is this market we
had started to make significant inroads in to increase our global market share. Unless the Government’s current policy/stance changes and becomes favorable to
resumption of trade with China, we are unlikely to realize this potential, imminently.