UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

~~[X]~~ ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 31, ~~2021~~2022

~~[ ]~~ ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission File Number 001-38154

CODA OCTOPUS GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware

~~34-200-8348~~34-2008348

(State or other jurisdiction of

Incorporation or organization)

(I.R.S. Employer

Identification Number)

3300 S Hiawassee Rd, Suite 104-105 , Orlando, Florida		32835
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code:		~~(863)~~ (863) 937 8985

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock		CODA		Nasdaq

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ~~[X]~~☒ No ~~[ ]~~☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one): ~~[ ]~~☐

Large accelerated filer ~~[ ]~~☐

Accelerated filer ~~[ ]~~☐

Non-accelerated filer ~~[ ]~~☐

Smaller reporting company ~~[X]~~☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ~~[ ]~~ ☐ No ~~[X]~~☒

The number of shares outstanding of issuer’s common stock, $0.001 par value as of March ~~16, 2021~~15, 2022 is ~~10,751,881, 2021~~10,857,195.

INDEX

~~INDEX~~

	Page
PART I - Financial Information

Item 1: Financial Statements	3

Consolidated Balance Sheets as of January 31, ~~2021~~2022 (Unaudited) and October 31, ~~2020~~2021	3

Consolidated Statements of Income and Comprehensive Income for the Three Months Ended January 31, 2022 and 2021 ~~and 2020~~ (Unaudited)	5

Consolidated Statements of Stockholders’ Equity for the Three Months Ended January 31, 2022 and 2021 ~~and 2020~~ (Unaudited)	6

Consolidated Statements of Cash Flows for the Three Months Ended January 31, 2022 and 2021 ~~and 2020~~ (Unaudited)	7

Notes to Unaudited Consolidated Financial Statements	8

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations	2220

Item 3: Quantitative and Qualitative Disclosures about Market Risks	3028

Item 4: Controls and Procedures	3028

PART II - Other Information	3129

Item 1: Legal Proceedings	3129

Item 1A: Risk Factors	3129

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds	3129

Item 3: Default Upon Senior Securities	3129

Item 4: Mine Safety Disclosures	3129

Item 5: Other Information	3129

Item 6: Exhibits	3129

Signatures	3230

PART I. FINANCIAL INFORMATION

CODA OCTOPUS GROUP, INC.

~~Item 1. Financial Statements~~Consolidated Balance Sheets

~~CODA OCTOPUS GROUP, INC.~~

~~Consolidated Balance Sheets~~

~~January 31, 2021 and October 31, 2020~~

January 31, 2022 and October 31, 2021

	2021		2020
		Unaudited			2022		2021
					Unaudited
ASSETS

CURRENT ASSETS
Cash	$	16,081,875	$	15,134,289	$	20,711,228	$	17,747,656
Accounts Receivable, net		1,870,637		2,014,660		1,535,682		4,207,996
Inventory		9,995,719		9,142,273		11,159,798		10,691,177
Unbilled Receivables		1,311,480		861,300		401,661		1,080,384
Prepaid Expenses		300,009		289,204		313,945		1,202,327
Other Current Assets		291,396		244,171		651,724		627,619

Total Current Assets		29,851,116		27,685,897		34,774,038		35,557,159

FIXED ASSETS
Property and Equipment, net		6,114,540		6,059,900		6,743,670		6,037,101

OTHER ASSETS
Goodwill and Other Intangibles, net		3,719,773		3,731,452		3,794,880		3,794,383
Deferred Tax Asset		670,093		561,902		86,643		76,776

Total Other Assets		4,389,866		4,293,354		3,881,523		3,871,159

Total Assets	$	40,355,522	$	38,039,151	$	45,399,231	$	45,465,419

The accompanying notes are an integral part of these unaudited consolidated financial statements

~~CODA OCTOPUS GROUP, INC.~~

~~Consolidated Balance Sheets (Continued)~~

~~January 31, 2021 and October 31, 2020~~

2021 2020
Unaudited

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts Payable $ 970,063 $ 1,284,097
Accrued Expenses and Other Current Liabilities 357,632 584,202
Notes Payable 447,966 509,769
Deferred Revenue 1,314,467 1,006,454

Total Current Liabilities 3,090,128 3,384,522

LONG TERM LIABILITIES

Deferred Revenue, less current portion 203,648 195,022
Notes Payable, less current portion
436,574
63,339

Total Long Term Liabilities 640,222 258,361

Total Liabilities 3,730,350 3,642,883

STOCKHOLDERS’ EQUITY

Common Stock, $.001 par value; 150,000,000 shares authorized, 10,751,881 shares issued and outstanding as of January 31, 2021 and October 31, 2020, respectively 10,753 10,753
Additional Paid-in Capital 60,306,862 60,132,415
Accumulated Other Comprehensive Loss (1,395,665 ) (2,321,278 )
Accumulated Deficit (22,296,778 ) (23,425,622 )

Total Stockholders’ Equity 36,625,172 34,396,268

Total Liabilities and Stockholders’ Equity $ 40,355,522 $ 38,039,151

CODA OCTOPUS GROUP, INC.

Consolidated Balance Sheets (Continued)

January 31, 2022 and October 31, 2021

	2022			2021
	Unaudited
LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES

Accounts Payable	$	319,605		$	1,454,611
Accrued Expenses and Other Current Liabilities		805,573			740,449
Note Payable		-			63,559
Deferred Revenue		1,288,231			1,999,841

Total Current Liabilities		2,413,409			4,258,460

LONG TERM LIABILITIES

Deferred Revenue, less current portion		153,176			157,886

Total Long Term Liabilities		153,176			157,886

Total Liabilities		2,566,585			4,416,346

STOCKHOLDERS’ EQUITY

Common Stock, $.001 par value; 150,000,000 shares authorized, 10,857,195 shares issued and outstanding as of January 31, 2022 and October 31, 2021, respectively		10,858			10,858
Additional Paid-in Capital		61,508,306			61,183,131
Accumulated Other Comprehensive Loss		(1,425,909	)		(1,667,059	)
Accumulated Deficit		(17,260,609	)		(18,477,857	)

Total Stockholders’ Equity		42,832,646			41,049,073

Total Liabilities and Stockholders’ Equity	$	45,399,231		$	45,465,419

The accompanying notes are an integral part of these unaudited consolidated financial statements

~~CODA OCTOPUS GROUP, INC.~~

~~Consolidated Statements of Income and Comprehensive Income~~

~~(Unaudited)~~

Three Months Ended January 31,
2021 2020

Net Revenues $ 5,050,459 $ 6,680,979
Cost of Revenues 1,735,537 2,406,539

Gross Profit 3,314,922 4,274,440

OPERATING EXPENSES
Research & Development 583,139 928,265
Selling, General & Administrative 1,813,366 1,891,678

Total Operating Expenses 2,396,505 2,819,943

INCOME FROM OPERATIONS 918,417 1,454,497

OTHER INCOME (EXPENSE)
Other Income 2,054 12,824
Funding from Paycheck Protection Program 89,971 -
Interest Expense (14,514 ) (19,614 )

Total Other Income (Expense) 77,511 (6,790 )

NET INCOME BEFORE INCOME TAXES 995,928 1,447,707

INCOME TAX BENEFIT (EXPENSE)
Current Tax Benefit (Expense) 24,725 (23,347 )
Deferred Tax Benefit (Expense) 108,191 (77,587 )

Total Income Tax Benefit (Expense) 132,916 (100,934 )

NET INCOME $ 1,128,844 $ 1,346,773

NET INCOME PER SHARE:
Basic $ 0.10 $ 0.13
Diluted $ 0.10 $ 0.13

WEIGHTED AVERAGE SHARES:
Basic 10,751,881 10,721,881
Diluted 11,308,881 10,721,881

NET INCOME $ 1,128,844 $ 1,346,773
Other Comprehensive Income
Foreign Currency Translation Adjustment 925,613 84,751

COMPREHENSIVE INCOME $ 2,054,456 $ 1,431,524

CODA OCTOPUS GROUP, INC.

Consolidated Statements of Income and Comprehensive Income

For the Periods Indicated

(Unaudited)

	2022			2021
	Three Months Ended January 31,
	2022			2021

Net Revenues	$	5,838,208		$	5,050,459
Cost of Revenues		1,678,274			1,735,537

Gross Profit		4,159,934			3,314,922

OPERATING EXPENSES
Research & Development		672,890			583,139
Selling, General & Administrative		2,111,112			1,813,366

Total Operating Expenses		2,784,002			2,396,505

INCOME FROM OPERATIONS		1,375,932			918,417

OTHER INCOME (EXPENSE)
Other Income		79,994			92,025
Interest Expense		(11,278	)		(14,514	)

Total Other Income		68,716			77,511

INCOME BEFORE INCOME TAX EXPENSE		1,444,648			995,928

INCOME TAX (EXPENSE) BENEFIT
Current Tax (Expense) Benefit		(285,609	)		24,725
Deferred Tax Benefit		58,209			108,191

Total Income Tax (Expense) Benefit		(227,400	)		132,916

NET INCOME	$	1,217,248		$	1,128,844

NET INCOME PER SHARE:
Basic	$	0.11		$	0.10
Diluted	$	0.11		$	0.10

WEIGHTED AVERAGE SHARES:
Basic		10,857,195			10,751,881
Diluted		11,396,861			11,308,881

NET INCOME	$	1,217,248		$	1,128,844

Foreign Currency Translation Adjustment		241,150			925,613

Total Other Comprehensive Income	$	241,150		$	925,613

COMPREHENSIVE INCOME	$	1,458,398		$	2,054,457

The accompanying notes are an integral part of these unaudited consolidated financial statements

~~CODA OCTOPUS GROUP, INC.~~

~~Consolidated Statements of Changes in Stockholders’ Equity~~

~~For the Three Months Ended January 31, 2021 and 2020~~

~~(Unaudited)~~

Additional Accumulated Other
Common Stock Paid-in Comprehensive Accumulated
Shares Amount Capital Income (Loss) Deficit Total

Balance, October 31, 2019 (Audited) 10,721,881 $ 10,723 $ 59,521,665 $ (2,135,408 ) $ (26,769,207 ) $ 30,627,773

Foreign currency translation adjustment - - - 84,751 - 84,751
Net Income - - - - 1,346,773 1,346,773
Balance, January 31, 2020 10,721,881 $ 10,723 $ 59,521,665 $ (2,050,657 ) $ (25,422,434 ) $ 32,059,297

Additional Accumulated Other
Common Stock Paid-in Comprehensive Accumulated
Shares Amount Capital Income (Loss) Deficit Total

Balance, October 31, 2020 10,751,881 $ 10,753 $ 60,132,415 $ (2,321,278 ) $ (23,425,622 ) $ 34,396,268

Employee stock based compensation - - 174,447 - - 174,447
Foreign currency translation adjustment - - - 925,613 - 925,613
Net Income - - - - 1,128,844 1,128,844
Balance, January 31, 2021 10,751,881 $ 10,753 $ 60,306,862 $ (1,395,665 ) $ (22,296,778 ) $ 36,625,172

CODA OCTOPUS GROUP, INC.

Consolidated Statements of Changes in Stockholders’ Equity

For the Three Months Ended January 31, 2022 and 2021

(Unaudited)

	Shares		Amount		Capital		Income (Loss)			Deficit			Total
							Accumulated
					Additional		Other
	Common Stock				Paid-in		Comprehensive			Accumulated
	Shares		Amount		Capital		Income (Loss)			Deficit			Total

Balance, October 31, 2020		10,751,881	$	10,753	$	60,132,415	$	(2,321,278	)	$	(23,425,622	)	$	34,396,268

Employee stock based compensation		-		-		174,447		-			-			174,447
Foreign currency translation adjustment		-		-		-		925,613			-			925,613
Net Income		-		-		-		-			1,128,844			1,128,844
Balance, January 31, 2021		10,751,881	$	10,753	$	60,306,862	$	(1,395,665	)	$	(22,296,778	)	$	36,625,172

Balance, October 31, 2021		10,857,195	$	10,858	$	61,183,131	$	(1,667,059	)	$	(18,477,857	)	$	41,049,073
Employee stock based compensation		-		-		325,175		-			-			325,175
Foreign currency translation adjustment		-		-		-		241,150			-			241,150
Net Income		-		-		-		-			1,217,248			1,217,248
Balance, January 31, 2022		10,857,195	$	10,858	$	61,508,306	$	(1,425,909	)	$	(17,260,609	)	$	42,832,646

The accompanying notes are an integral part of these unaudited consolidated financial statements

~~CODA OCTOPUS GROUP, INC.~~

~~Consolidated Statements of Cash Flows~~

~~(Unaudited)~~

Three Months Ended January 31,
2021 2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,128,844 $ 1,346,773
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 366,183 231,964
Stock based compensation 174,447 -
Deferred tax asset (108,191 ) 77,587
Funding from Paycheck Protection Program recognized as income (89,971 ) -
(Increase) decrease in operating assets:
Accounts receivable 144,023 304,483
Inventory (853,446 ) (911,098 )
Unbilled receivables (450,180 ) (211,543 )
Prepaid expenses (10,805 ) (71,580 )
Other current assets (47,225 ) 57,396
Increase (decrease) in operating liabilities:
Accounts payable and other current liabilities (540,604 ) 455,356
Deferred revenue 316,639 204,802
Net Cash Provided by Operating Activities 29,714 1,484,140
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (406,083 ) (606,345 )
Purchases of other intangible assets (3,061 ) (36,814 )
Net Cash Used in Investing Activities (409,144 ) (643,159 )
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of notes (125,142 ) (119,456 )
Proceeds from Paycheck Protection Program 526,545 -
Net Cash Provided by (Used in) Financing Activities 401,403 (119,456 )
EFFECT OF CURRENCY EXCHANGE RATE ON CHANGES IN CASH 925,613 84,751

NET INCREASE IN CASH 947,586 806,276

CASH AT THE BEGINNING OF THE PERIOD 15,134,289 11,721,683

CASH AT THE END OF THE PERIOD $ 16,081,875 $ 12,527,959
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 14,514 $ 19,614
Cash paid for taxes $ - $ -

CODA OCTOPUS GROUP, INC.

Consolidated Statements of Cash Flows

(Unaudited)

	2022			2021
	Three Months Ended January 31,
	2022			2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	1,217,248		$	1,128,844
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		161,466			366,183
Stock based compensation		325,175			174,447
Deferred income taxes		(9,750	)		(108,191	)
Funding from Paycheck Protection Program recognized as income		-			(89,971	)
(Increase) decrease in operating assets:
Accounts receivable		2,608,920			144,023
Inventory		(613,670	)		(853,446	)
Unbilled receivables		675,179			(450,180	)
Prepaid expenses		863,618			(10,805	)
Other current assets		(26,093	)		(47,225	)
Increase (decrease) in operating liabilities:
Accounts payable and other current liabilities		(1,047,139	)		(540,604	)
Deferred revenue		(693,455	)		316,639
Net Cash Provided by Operating Activities		3,461,499			29,714
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(987,093	)		(406,083	)
Purchases of other intangible assets		(14,871	)		(3,061	)
Net Cash Used in by Investing Activities		(1,001,964	)		(409,144	)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of note		(63,559	)		(125,142	)
Proceeds from Paycheck Protection Program		-			526,545
Net Cash (Used in) Provided by Financing Activities		(63,559	)		401,403

EFFECT OF CURRENCY TRANSLATION ON CHANGES IN CASH		567,596			925,613

NET INCREASE IN CASH		2,963,572			947,586

CASH AT THE BEGINNING OF THE PERIOD		17,747,656			15,134,289

CASH AT THE END OF THE PERIOD	$	20,711,228		$	16,081,875
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest	$	11,278		$	14,514
Cash paid for taxes	$	51,264		$	-

The accompanying notes are an integral part of these unaudited consolidated financial statements

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

January 31, ~~2021~~2022 and ~~2020~~October 31, 2021

NOTE 1 – ~~BASIS~~ORGANIZATION AND DESCRIPTION OF ~~PRESENTATION~~BUSINESS

The accompanying unaudited interim consolidated financial statements have been prepared based upon U.S. Securities and Exchange Commission rules that permit reduced disclosure for interim periods. Therefore, they do not include all information and footnote disclosures necessary for a complete presentation of Coda Octopus Group, Inc.’s financial position, results of operations and cash flows, in conformity with generally accepted accounting principles.

Coda Octopus Group, Inc. ~~(the “Company”~~(“Coda,” “the Company,” or “we”) operates two distinct operating business units. These are the Marine Technology Business (“Products Business”, ~~“Coda Octopus”~~“Products Operations” or “Products Segment”) and the Marine Engineering Business (“Services Business”, ~~“we”~~“Engineering Business” or ~~“us”~~“Engineering Operations”). The Marine Technology Business sells technology solutions to the subsea and underwater markets. These are designed, developed, manufactured and supported by the Business. Among the solutions it designs and develops, and which currently is its main revenue generating product, is its real time 3D volumetric imaging sonar which is a patented unique and leading product in the subsea/underwater market and marketed under the name Echoscope^® and Echoscope PIPE® - PIPE is an acronym for Parallel Intelligent Processing Engine. It also recently launched a new diver management system (Diver Augmented Vision Display (DAVD)) ~~filed audited consolidated financial statements as of~~system addressing the global defense and ~~for the fiscal years ended October 31, 2020~~commercial diving market and ~~2019~~ which ~~included all information and notes necessary for such complete presentation as~~it believes is a significant part of its ~~annual report on Form 10-K filed on January 28, 2021, (“the Form 10-K”).~~growth pillars. The ~~results of operations~~requirements for the ~~interim period ended January 31, 2021 are not necessarily indicative~~DAVD system emanated from Office of Naval Research and the concept of using a pair of transparent glasses in the Head up Display (HUD) is patented and licensed to the Company by United States Department of the ~~results~~Navy at Naval Surface Warfare Center Panama City Division. The Marine Engineering Business are sub-contractors to ~~be expected~~Prime Defense Contractor and generally supplies proprietary sub-assemblies to these Primes for ~~any future period or the entire fiscal year.~~incorporation into broader mission critical defense systems. These ~~interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements~~parts typically are supplied for the year ended October 31, 2020, which are contained in the Form 10-K. The accompanying unaudited interim consolidated financial statements contain all adjustments (consisting of normal recurring items) which are, in the opinion of management, necessary for a fair statementlife of the ~~Company’s financial position as of January 31, 2021 and the results of operations, comprehensive income and cash flows for the interim periods ended January 31, 2021 and 2020.~~ program to which they pertain.

The ~~unaudited interim~~ consolidated financial statements include the accounts of ~~the Company~~Coda Octopus Group, Inc. and ~~its wholly-owned~~our domestic and foreign subsidiaries. All significant intercompany transactions and balances have been eliminated in ~~consolidation. The Company uses~~ the ~~US dollar as the reporting currency for~~consolidated financial reporting. The financial position and results of operations of the Company’s UK-based operations are measured using the British Pound Sterling, Australian based operations are measured using Australian Dollars and Danish based operations are measured using Danish Kroner as the functional currencies. Foreign currency translation gains and losses are recorded as a change in other comprehensive income. Transaction gains and losses generated from the remeasurement of assets and liabilities denominated in currencies other than the functional currency of our foreign operations are also included in other comprehensive income.statements.

NOTE 2 – REVENUE RECOGNITION

The Company recognizes revenue ~~in accordance with~~under the Financial Accounting Standards Board’s Topic 606, Revenue from Contracts with Customers (“(“Topic 606”).

Topic 606 has established a five-step process to determine the amount of revenue to record from contracts with customers. The five steps are:

	●	Determine if we have a contract with a customer;
	●
	●	Determine the performance obligations in that contract;
	●
	●	Determine the transaction price;
	●
	●	Allocate the transaction price to the performance obligations; and
	●
	●	Determine when to recognize revenue.

~~CODA OCTOPUS GROUP, INC.~~

~~Notes to the Consolidated Financial Statements~~

~~January 31, 2021 and 2020~~

~~NOTE 2 – REVENUE RECOGNITION (Continued)~~

Our revenues are earned under formal contracts with our customers and are derived from both sales and rental of underwater technologies and equipment for real time 3D imaging, mapping, defense and survey applications and from the engineering services which we provide primarily to prime defense contractors. Our contracts do not include the possibility for additional contingent consideration so that our determination of the contract price does not involve having to consider potential additional variable consideration. Our sales do not include a right of return by the customer.

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

January 31, 2022 and October 31, 2021

NOTE 2 – REVENUE RECOGNITION (Continued)

With regard to our Marine Technology Business (“Products Business”), all of our products are sold on a stand-alone basis and those market prices are evidence of the value of the products. To the extent that we also provide services (e.g., installation, training, post-sales technical support etc.), those services are either included as part of the product or are subject to written contracts based on the stand-alone value of those services. Revenue from the sale of services is recognized when those services have been provided to the customer and evidence of the provision of those services exist.

Revenue derived from either our subscription package offerings or rental of our equipment is recognized when performance obligations are met, in particular, on a daily basis during the subscription or rental period.

For arrangements with multiple performance obligations, we recognize product revenue by allocating the transaction revenue to each performance obligation based on the relative fair value of each deliverable and recognize revenue when performance obligations are met including when equipment is delivered, and for rental of equipment, when installation and other services are performed.

Our contracts sometimes require customer payments in advance of revenue ~~recognition. In such instances these~~recognition and are recognized as revenue when the Company has fulfilled its obligations under the respective contracts. Until such time, we recognize this prepayment as deferred revenue.

For software license sales for which any services rendered are not considered distinct to the functionality of the software, we recognize revenue upon delivery of the software. ~~Delivery is deemed when we issue the software activation code.~~

With respect to revenues related to our Services Business, there are contracts in place that specify the fixed hourly rate and other reimbursable costs to be billed based on material and direct labor hours ~~incurred. Revenue~~incurred and, revenue is recognized on these contracts based on material and the direct labor hours incurred. Revenues from fixed-price contracts are recognized on the percentage-of-completion method, measured by the percentage of costs incurred (materials and direct labor hours) to date to estimated total services (materials and direct labor hours) for each contract. This method is used as we consider expenditures for direct materials and labor hours to be the best available measure of progress on these contracts.

On a quarterly basis, we examine all of our fixed-price contracts to determine if there are any losses to be recognized during the period. Any such loss is recorded in the quarter in which the loss first becomes apparent based upon costs incurred to date and the estimated costs to complete as determined by experience from similar contracts. Variations from estimated contract performance could result in adjustments to operating results.

~~CODA OCTOPUS GROUP, INC.~~

~~Notes to the Consolidated Financial Statements~~

~~January 31, 2021 and 2020~~

~~NOTE 2 – REVENUE RECOGNITION (Continued)~~

Recoverability of Deferred Costs

In accordance with Topic 606, we defer costs on projects for service revenue. Deferred costs consist primarily of incremental direct costs to customize and install systems, as defined in individual customer contracts, including costs to acquire hardware and software from third parties and payroll costs for our employees and other third parties. The pricing of these service contracts is intended to provide for the recovery of these types of deferred costs over the life of the contract.

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

January 31, 2022 and October 31, 2021

NOTE 2 – REVENUE RECOGNITION (Continued)

We recognize such costs in accordance with our revenue recognition policy by contract. For revenue recognized under the percentage of completion method, costs are recognized as products are delivered or services are provided in accordance with the percentage of completion calculation. For revenue recognized over time, costs are recognized ratably over the term of the contract, commencing on the date of revenue recognition. At each quarterly balance sheet date, we review deferred costs, to ensure they are ultimately recoverable.

Any anticipated losses on uncompleted contracts are recognized when evidence indicates the estimated total cost of a contract exceeds its estimated total revenue.

Deferred Commissions

Our incremental direct costs of obtaining a contract, which consists of sales commissions are deferred and amortized over the period of the contract performance. We classify deferred commissions as current or noncurrent based on the timing of when we expect to recognize the expense. The current and noncurrent portions of deferred commissions are included in prepaid expenses and other current assets, and other assets, net, respectively, in our consolidated balance sheets. As of January 31, ~~2021~~2022, and October 31, ~~2020,~~2021, we had deferred commissions of $0 $0and ~~$3,884,~~$0, respectively. Amortization expense related to deferred commissions was ~~$3,884~~ $0 and ~~$42,816~~ $3,884 in the three months years ended January 31, 2022, and 2021, ~~and 2020,~~ respectively.

Other Revenue Disclosures

See Note ~~14 (“Segment Analysis”)~~15 – Disaggregation of Revenue for a breakdown of revenues from external customers and cost of those revenues between our ~~two reporting segments:~~ Product Segment and Services Segment including information on the split of revenues by ~~geography and type.~~geography.

NOTE 3 – FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments include cash, accounts receivable, accounts payable, accrued expenses and notes payable. The carrying amounts of cash, accounts receivable, accounts payable and accrued expenses approximate fair values because of the short-term nature of these instruments. The aggregate carrying amount of the notes payable approximates fair value as they bear interest at a market interest rate based on their term and maturity.

The fair value of the Company’s long-term debt approximates its carrying amount based on the fact that the Company believes it could obtain similar terms and conditions for similar debt.

~~CODA OCTOPUS GROUP, INC.~~

~~Notes to the Consolidated Financial Statements~~

~~January 31, 2021 and 2020~~

NOTE 4 – FOREIGN CURRENCY TRANSLATION

Assets and liabilities are translated at the prevailing exchange rates at the balance sheet dates. Related revenues and expenses are translated at weighted average exchange rates in effect during the reporting period. Stockholders’ equity, fixed assets and long-term investments are recorded at historical exchange rates. Resulting translation adjustments are recorded as a separate component in stockholders’ equity as part of accumulated other comprehensive income or (loss) as may be appropriate. Foreign currency transaction gains and losses are included in the consolidated statements of income and comprehensive income.

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

January 31, 2022 and October 31, 2021

NOTE 5 – INVENTORY

Inventory is stated at the lower of cost ~~(weighted average~~(First in, First Out method) or net realizable value. Inventory consisted of the following components:

SCHEDULE OF COMPONENTS OF INVENTORY

	January 31,		October 31,		January 31,		October 31,
Inventory	2021		2020
					2022		2021

Raw materials and parts	$	7,793,487	$	7,322,688	$	7,926,535	$	7,525,419
Work in progress		1,034,423		698,756		793,246		919,619
Finished goods		1,167,809		1,120,829		2,440,017		2,246,139
Total Inventory	$	9,995,719	$	9,142,273	$	11,159,798	$	10,691,177

NOTE 6 – FIXED ASSETS

Property and equipment ~~net~~ consisted of the following as of:

SCHEDULE OF PROPERTY AND EQUIPMENT

January 31, October 31,
2021 2020

Buildings $ 5,302,085 $ 5,103,324
Land 200,000 200,000
Office machinery and equipment 1,578,860 1,512,938
Rental assets 2,165,198 2,062,818
Furniture, fixtures and improvements 1,226,947 1,187,927
Totals 10,473,090 10,067,007
Less: accumulated depreciation (4,358,550 ) (4,007,107 )

Total Property and Equipment, net $ 6,114,540 $ 6,059,900

~~CODA OCTOPUS GROUP, INC.~~

~~Notes to the Consolidated Financial Statements~~

~~January 31, 2021 and 2020~~

	January 31,			October 31,
	2022			2021

Buildings	$	6,019,236		$	5,298,028
Land		200,000			200,000
Office machinery and equipment		1,666,436			1,622,871
Rental assets		2,427,189			2,326,486
Furniture, fixtures and improvements		1,206,402			1,218,217
Totals		11,519,263			10,665,602
Less: accumulated depreciation		(4,775,593	)		(4,628,501	)

Total Property and Equipment, net	$	6,743,670		$	6,037,101

NOTE 7 – OTHER CURRENT ASSETS

Other current assets consisted of the following ~~at:~~as of:

SUMMARY OF OTHER CURRENT ASSETS

	January 31,		October 31,
	2022		2021

Deposits	$	32,280	$	63,992
Other Tax Receivables		43,156		-
Employee Retention Credit Receivables		576,288		563,627
Total Other Current Assets	$	651,724	$	627,619

January 31, October 31,
2021 2020

Deposits $ 216,147 $ 112,984
Tax receivables 75,249 131,187
Total Other Current Assets $ 291,396 $ 244,171

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

January 31, 2022 and October 31, 2021

NOTE 8 – ESTIMATES

The preparation of consolidated financial statements in conformity with ~~US Generally Accepted Accounting Principles (“US GAAP”)~~U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues including unbilled and deferred revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include estimates related to the percentage of completion method used to account for contracts including costs and ~~estimated~~ earnings in excess of billings, billings in excess of costs and estimated earnings ~~valuation of stock compensation, valuation of deferred tax assets, evaluation of uncertain tax positions,~~ and the valuation of ~~goodwill and other intangibles.~~goodwill.

NOTE 9 – CONTRACTS IN ~~PROGRESS~~PROGESS

Costs and estimated earnings in excess of billings on uncompleted contracts represent accumulated project expenses and fees which have not been invoiced to customers as of the date of the balance sheet. These amounts are stated on the consolidated balance sheets as Unbilled Receivables of ~~$1,311,480~~ $401,661and ~~$861,300~~ $1,080,384 as of January 31, ~~2021~~2022, and October 31, ~~2020,~~2021, respectively.

Our ~~current~~ Deferred Revenue of ~~$1,314,467~~ $1,151,451and ~~$1,006,454~~ $1,879,790 as of January 31, ~~2021~~2022, and October 31, ~~2020,~~2021, respectively, consists of billings in excess of costs and revenues received as part of our warranty obligations upon completing a sale, as elaborated further in the last paragraph of this note.

~~Revenue received as part of sales~~Sales of equipment ~~includes~~include a ~~provision~~separate performance obligation for warranty, ~~and~~which is treated as deferred revenue, along with extended warranty sales, ~~and through life support (TLS),~~ which may be purchased by customers. These amounts are amortized over the relevant warranty period (12 months is our standard warranty or 24, 36 or 60 months for extended ~~warranty)~~warranty, sold as Through Life Support (TLS) Package) from the date of sale. These amounts are stated on the consolidated balance sheets as a component of ~~non-current~~ Deferred Revenue and were ~~$203,648~~ $289,956 and ~~$195,022~~ $277,937 as of January 31, ~~2021~~2022 and October 31, ~~2020,~~2021, respectively.

~~CODA OCTOPUS GROUP, INC.~~

~~Notes to the Consolidated Financial Statements~~

~~January 31, 2021 and 2020~~

NOTE 10 – CONCENTRATIONS

Significant Customers

During the three months ended January 31, 31, 2022, the Company had two customers from whom it generated sales greater than 10% of net revenues. Revenue from these customers was $1,855,731, or 32% of net revenues during the period. Receivables from these customers was less than 10% of net receivables as of January 31, 2022.

During the three months ended January 31, 2021, the Company had two customers from whom it generated sales greater than 10% of net revenues. Revenues from these customers was ~~$1,303,807,~~ $1,303,807, or ~~26%~~ 26% of net revenues during the year. Total accounts receivable from these customers ~~at January 31, 2021 was $862,850 or 46% of accounts receivable.~~

During the three months ended January 31, 2020, the Company had two customers from whom it generated sales greater than 10% of net revenues. Revenues from these customers was $2,710,008, or 41% of net revenues during the year. Total accounts receivable from these customers at January 31, 2020 was $1,817,725 or 44% of accounts receivable.

~~NOTE 11 – NOTES PAYABLE~~

January 31, October 31,
2021 2020

Secured note payable to HSBC NA with interest payable on the 28^th day of each month at 4.56% per annum. Our monthly repayment obligation under this loan is $43,777 (comprising both principal and interest repayment). The maturity of this Loan is December 28, 2021 $ 447,966 $ 573,108
Unsecured Payroll Protection Program loan from the SBA that carries an interest rate of 1%. Principal payments begin on November 29, 2021 in the amount of $29,252. 436,574 -

Total 884,540 573,108
Less: current portion (447,966 ) (509,769 )
Total Long Term Note Payable $ 436,574 $ 63,339

~~The HSBC loan is secured by a blanket lien on all of the Company’s US subsidiaries. The foreign subsidiaries are each guarantors of the obligations undertaken in the loan agreement.~~

During the three months ended January 31, 2021, the Company received $526,545 under the Payroll Protection Program, which was initially recorded as long-term debt. As the Company makes qualifying expenditures (as defined), the Company reduces long-term debt and records Other Income. During the three months ended January 31, 2021, the Company recorded $89,971 as Other Income related to the Payroll Protection Program. The remaining amount of Payroll Protection Program funds that had not yet been spent as of January 31, 2021 ~~is $436,574. The Company anticipates using the full $526,545 for qualifying expenditures.~~was $862,850 or 46% of accounts receivable.

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

January 31, 2022 and October 31, 2021

NOTE 11 – NOTE PAYABLE

SCHEDULE OF NOTE PAYABLE

	January 31,		October 31,
	2022		2021

Secured note payable to HSBC NA with interest payable on the 28^th day of each month at 4.56% per annum. Our monthly repayment obligation under this loan is $43,777 (comprising both principal and interest repayment). The maturity of this Loan was December 28, 2021	$	-	$	63,559

Total		-		63,559
Less: current portion		-		(63,559	)
Total Long Term Note Payable	$	-	$	-

The HSBC loan was satisfied in full in the Current Quarter.

The Company entered into a ~~$4,000,000~~ $4,000,000 revolving line of credit facility with HSBC NA on November 27, 2019, with the interest rate established as the applicable prime rate. This revolving line of credit facility is subject to annual renewal and has been extended to November 2022. The outstanding balance on the line of credit was $0 $0as of January 31, 2022 and October 31, ~~2020. This revolving credit line will expire on November 26, 2021 unless renewed by the bank.~~2021.

NOTE 12 – RECENT ACCOUNTING PRONOUNCEMENTS

There have been no new accounting pronouncements not yet effective that have ~~significance,~~significant or potential significance, to our Consolidated Financial Statements.

NOTE 13 – EARNINGS PER SHARE

SCHEDULE OF EARNINGS PER SHARE BASIC AND DILUTED

	Three Months		Three Months
	Ended		Ended
	January 31,		January 31,
Fiscal Period	2022		2021
Numerator:
Net Income	$	1,217,248	$	1,128,844

Denominator:
Basic weighted average common shares outstanding		10,857,195		10,751,881
Unvested portion of options and restricted stock awards		539,666		557,000
Diluted outstanding shares		11,396,861		11,308,881

Net Income per share

Basic	$	0.11	$	0.10
Diluted	$	0.11	$	0.10

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

January 31, ~~2021~~2022 and ~~2020~~

~~NOTE 13 – EARNINGS PER COMMON SHARE~~

Three Months

Three Months

Ended Ended
January 31, January 31,
Fiscal Period 2021 2020
Numerator:
Net Income $ 1,128,844 $ 1,346,773

Denominator:
Basic weighted average common shares outstanding 10,751,881 10,721,881
Options issued 557,000 -
Diluted outstanding shares 11,308,881 10,721,881

Net income per share

Basic $ 0.10 $ 0.13
Diluted $ 0.10 $ 0.13

~~CODA OCTOPUS GROUP, INC.~~

~~Notes to the Consolidated Financial Statements~~

~~January~~October 31, ~~2021 and 2020~~2021

NOTE 14 ~~-SEGMENT~~-SEGMENT ANALYSIS

Based on the fundamental difference ~~between~~in the types of ~~our~~ offering products versus services, we operate ~~two~~ 2distinct reportable segments which are managed separately. Coda Octopus Products (“Marine Technology Business” or “Products Segment”) operations are comprised primarily of sale of underwater technology sonar solutions, products for underwater operations including hardware and software; diver management system; and rental of solutions and products to the underwater market. Coda Octopus Martech and Coda Octopus Colmek (“Marine Engineering Business” or “Services Segment”) provides engineering services primarily as sub-contractors to prime defense contractors.

Segment operating income is total segment revenue reduced by operating expenses identifiable with the business segment. Corporate includes general corporate administrative costs (“Overhead”).

The Company evaluates performance and allocates resources based upon segment operating income. ~~The accounting policies of the reportable segments are the same as those described in the summary of accounting policies.~~

There are inter-segment sales ~~disclosed in the tables below for informational purposes, but~~ which have been eliminated in our financial ~~statements.~~statements but are disclosed in the tables below for information purposes.

The following table summarizes segment asset and operating balances by reportable segment as of and for the three months ended January 31, 2022, and 2021, ~~and 2020,~~ respectively.

The Company’s reportable business segments sell their goods and services in four geographic locations:

●	●	Americas

●	●	Europe

●	●	Australia/Asia

●	●	Middle East/Africa

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

January 31, ~~2021~~2022 and ~~2020~~October 31, 2021

NOTE 14 -SEGMENT ANALYSIS (Continued)

SCHEDULE OF SEGMENT REPORTING INFORMATION

	Marine Technology Business (Products)			Marine Engineering Business (Services)			Overhead			Total			Marine Technology Business (Products)			Marine Engineering Business (Services)			Overhead			Total

Three Months Ended January 31, 2021
Three Months Ended January 31, 2022

Revenues from External Customers	$	3,748,279		$	1,302,180		$	-		$	5,050,459
Net Revenues													$	3,823,748		$	2,014,460		$	-		$	5,838,208

Cost of Revenues		894,275			841,262			-			1,735,537			572,292			1,105,982			-			1,678,274

Gross Profit		2,854,004			460,918			-			3,314,922			3,251,456			908,478			-			4,159,934

Research & Development		441,744			141,395			-			583,139			529,375			143,515			-			672,890
Selling, General & Administrative		733,825			567,559			511,982			1,813,366			753,614			651,149			706,349			2,111,112

Total Operating Expenses		1,175,569			708,954			511,982			2,396,505			1,282,989			794,664			706,349			2,784,002

Income (Loss) from Operations		1,678,435			(248,036	)		(511,982	)		918,417			1,968,467			113,814			(706,349	)		1,375,932

Other Income (Expense)
Other Income		2,036			18			-			2,054			9,049			70,945			-			79,994
Funding from Paycheck Protection Program		-			89,971			-			89,971
Interest Expense		(2,253	)		(5,151	)		(7,110	)		(14,514	)		(4,882	)		(5,026	)		(1,370	)		(11,278	)

Total Other Income (Expense)		(217	)		84,838			(7,110	)		77,511			4,167			65,919			(1,370	)		68,716

Net Income (Loss) before Income Taxes		1,678,218			(163,198	)		(519,092	)		995,928
Income (Loss) before Income Taxes														1,972,634			179,733			(707,719	)		1,444,648

Income Tax Benefit (Expense)
Current Tax Benefit		12,653			-			12,072			24,725
Income Tax (Expense) Benefit
Current Tax (Expense) Benefit														(266,520	)		24,036			(43,125	)		(285,609	)
Deferred Tax Benefit		(11,155	)		152,086			(32,740	)		108,191			6,708			204			51,297			58,209

Total Income Tax Benefit (Expense)		1,498			152,086			(20,668	)		132,916
Total Income Tax (Expense) Benefit														(259,812	)		24,240			8,172			(227,400	)

Net Income (Loss)	$	1,679,716		$	(11,112	)	$	(539,760	)	$	1,128,844		$	1,712,822		$	203,973		$	(699,547	)	$	1,217,248

Supplemental Disclosures

Total Assets	$	24,767,757		$	14,362,811		$	1,224,954		$	40,355,522		$	30,847,114		$	13,893,382		$	658,735		$	45,399,231

Total Liabilities	$	1,573,260		$	1,436,624		$	720,466		$	3,730,350		$	1,635,666		$	501,339		$	429,580		$	2,566,585

Revenues from Intercompany Sales - eliminated from sales above	$	370,629		$	49,201		$	675,000		$	1,094,830		$	389,395		$	115,823		$	600,000		$	1,105,218

Depreciation and Amortization	$	312,122		$	47,645		$	6,416		$	366,183		$	135,658		$	16,657		$	9,151		$	161,466

Purchases of Long-lived Assets	$	399,975		$	4,177		$	4,992		$	409,144		$	986,093		$	1,000		$	14,871		$	1,001,964

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

January 31, ~~2021~~2022 and ~~2020~~October 31, 2021

NOTE 14 -SEGMENT ANALYSIS (Continued)

	Marine Technology Business (Products)			Marine Engineering Business (Services)			Overhead			Total			Marine Technology Business (Products)			Marine Engineering Business (Services)			Overhead			Total

Three Months ended January 31, 2020
Three Months Ended January 31, 2021

Revenues from External Customers	$	3,632,812		$	3,048,167		$	-		$	6,680,979
Net Revenues													$	3,748,279		$	1,302,180		$	-		$	5,050,459

Cost of Revenues		655,677			1,750,862			-			2,406,539			894,275			841,262			-			1,735,537

Gross Profit		2,977,135			1,297,305			-			4,274,440			2,854,004			460,918			-			3,314,922

Research & Development		556,729			206,438			165,098			928,265			441,744			141,395			-			583,139
Selling, General & Administrative		867,998			636,296			387,384			1,891,678			733,825			567,559			511,982			1,813,366

Total Operating Expenses		1,424,727			842,734			552,482			2,819,943			1,175,569			708,954			511,982			2,396,505

Income (Loss) from Operations		1,552,408			454,571			(552,482	)		1,454,497			1,678,435			(248,036	)		(511,982	)		918,417

Other Income (Expense)
Other Income		12,824			-			-			12,824			2,036			18			-			92,025
Interest Expense		(3,232	)		(3,682	)		(12,700	)		(19,614	)		(2,253	)		(5,151	)		(7,110	)		(14,514	)

Total Other Income (Expense)		9,592			(3,682	)		(12,700	)		(6,790	)		(217	)		(5,133	)		(7,110	)		77,511

Net Income (Loss) before Income Taxes		1,562,000			450,889			(565,182	)		1,447,707
Income (Loss) before Income Taxes														1,678,218			(253,169	)		(519,092	)		995,928

Current Tax Benefit (Expense)		25,833			4,045			(53,225	)		(23,347	)
Deferred Tax Benefit (Expense)		(78,139	)		(12,235	)		12,787			(77,587	)
Income Tax (Expense) Benefit
Current Tax (Expense) Benefit														12,653			-			12,072			24,725
Deferred Tax (Expense) Benefit														(11,155	)		152,086			(32,740	)		108,191

Total Income Tax Expense		(52,306	)		(8,190	)		(40,438	)		(100,934	)
Total Income Tax (Expense) Benefit														1,498			152,086			(20,668	)		132,916

Net Income (Loss)	$	1,509,694		$	442,699		$	(605,620	)	$	1,346,773		$	1,679,716		$	(101,083	)	$	(539,760	)	$	1,128,844

Supplemental Disclosures

Total Assets	$	20,821,310		$	14,520,371		$	1,141,789		$	36,483,470		$	24,767,757		$	14,362,811		$	1,224,954		$	40,355,522

Total Liabilities	$	1,835,184		$	1,315,378		$	1,273,611		$	4,424,173		$	1,573,260		$	1,436,624		$	720,466		$	3,730,350

Revenues from Intercompany Sales - eliminated from sales above	$	302,822		$	100,529		$	675,000		$	1,078,351		$	370,629		$	49,201		$	675,000		$	1,094,830

Depreciation and Amortization	$	182,993		$	43,680		$	5,291		$	231,964		$	312,122		$	47,645		$	6,416		$	366,183

Purchases of Long-lived Assets	$	599,601		$	9,593		$	33,965		$	643,159		$	399,975		$	4,177		$	4,992		$	409,144

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

January 31, ~~2021~~2022 and ~~2020~~October 31, 2021

NOTE ~~14 -SEGMENT ANALYSIS (Continued)~~15 –DISAGGREGATION OF REVENUE

SCHEDULE OF DISAGGREGATE OF REVENUE FROM CONTRACTS FOR SALE WITH CUSTOMERS BY GEOGRAPHIC LOCATION

		For the Three Months Ended January 31, 2021						For the Three Months Ended January 31, 2022
		Marine		Marine				Marine		Marine
		Technology		Engineering		Grand		Technology		Engineering		Grand
		Business		Business		Total		Business		Business		Total
Disaggregation of Total Net Sales	Disaggregation of Total Net Sales
Revenues
Primary Geographical Markets
Americas								$	2,057,668	$	1,204,282	$	3,261,950
Europe									491,016		810,178		1,301,194
Australia/Asia									815,084		-		815,084
Middle East/Africa									459,980		-		459,980

Americas
Total Revenues								$	3,823,748	$	2,014,460	$	5,838,208
	Equipment Sales	$	252,625	$	-	$	252,625
	Equipment Rentals		48,925		-		48,925
Major Goods/Service Lines
Equipment Sales								$	1,958,845	$	436,864	$	2,395,709
Equipment Rentals									630,468		-		630,468
Software Sales									304,796		-		304,796
Engineering Parts									-		1,300,618		1,300,618
Services									929,639		276,978		1,206,617

Total Revenues								$	3,823,748	$	2,014,460	$	5,838,208
	Software Sales		-		-		-
	Engineering Parts		213,956		291,565		505,521
Goods transferred at a point in time								$	2,263,641	$	436,866	$	2,724,343
Services transferred over time									1,560,107		1,577,594		3,113,865
	Services		33,772		224,876		258,648
Europe
	Equipment Sales		894,104		220,957		1,115,061
	Equipment Rentals		153,109		-		153,109
	Software Sales		38,086		-		38,086
	Engineering Parts		-		564,782		564,782
	Services		39,813		-		39,813
Australia/Asia
	Equipment Sales		1,646,758		-		1,646,758
	Equipment Rentals		132,329		-		132,329
	Software Sales		187,136		-		187,136
	Services		41,987		-		41,987
Middle East & Africa
	Equipment Sales		-		-		-
	Equipment Rentals		-		-		-
	Software Sales		-		-		-
	Services		65,679		-		65,679

	Total Net Sales	$	3,748,279	$	1,302,180	$	5,050,459
Total Revenues								$	3,823,748	$	2,014,460	$	5,838,208

For the Three Months Ended January 31, 2021
Marine Marine
Technology Engineering Grand
Business Business Total
Total Net Sales by Geographic Area
Americas $ 549,278 $ 516,441 $ 1,065,719
Europe 1,125,112 785,739 1,910,851
Australia/Asia 2,008,210 - 2,008,210
Middle East & Africa 65,679 - 65,679

Total Net Sales $ 3,748,279 $ 1,302,180 $ 5,050,459

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

January 31, ~~2021~~2022 and ~~2020~~October 31, 2021

NOTE ~~14 -SEGMENT ANALYSIS~~15 –DISAGGREGATION OF REVENUE (Continued)

	For the Three Months Ended January 31, 2021
	Marine		Marine
	Technology		Engineering		Grand
	Business		Business		Total
Disaggregation of Total Net Sales
Revenues
Primary Geographical Markets
Americas	$	549,278	$	516,441	$	1,065,719
Europe		1,125,112		785,739		1,910,851
Australia/Asia		2,008,210		-		2,008,210
Middle East/Africa		65,679		-		65,679

Total Revenues	$	3,748,279	$	1,302,180	$	5,050,459


Major Goods/Service Lines
Equipment Sales	$	2,793,487	$	220,957	$	3,014,444
Equipment Rentals		334,363		-		334,363
Software Sales		225,222		-		225,222
Engineering Parts		-		856,347		856,347
Services		395,207		224,876		620,083

Total Revenues	$	3,748,279	$	1,302,180	$	5,050,459
					��

Goods transferred at a point in time	$	3,056,037	$	220,957	$	3,276,994
Services transferred over time		692,242		1,081,223		1,773,465

Total Revenues	$	3,748,279	$	1,302,180	$	5,050,459

For the Three Months Ended January 31, 2021
Marine Marine
Technology Engineering Grand
Business Business Total
Total Net Sales by Product Line
Equipment Sales $ 2,793,487 $ 220,957 $ 3,014,444
Equipment Rentals 334,363 - 334,363
Software Sales 225,222 - 225,222
Engineering Parts 213,956 856,347 1,070,303
Services 181,251 224,876 406,127

Total Net Sales $ 3,748,279 $ 1,302,180 $ 5,050,459

For the Three Months Ended January 31, 2020
Marine Marine
Technology Engineering Grand
Business Business Total
Disaggregation of Total Net Sales

Americas
Equipment Sales $ 334,388 $ - $ 334,388
Equipment Rentals 45,069 - 45,069
Software Sales 7,250 - 7,250
Engineering Parts - 1,646,374 1,646,374
Services 154,625 489,531 644,156
Europe
Equipment Sales 338,147 - 338,147
Equipment Rentals 52,644 - 52,644
Software Sales 102,526 - 102,526
Engineering Parts - 906,855 906,855
Services 125,700 5,407 131,107
Australia/Asia
Equipment Sales 2,028,310 - 2,028,310
Equipment Rentals 225,932 - 225,932
Software Sales 119,999 - 119,999
Services 47,119 - 47,119
Middle East & Africa
Equipment Sales 22,074 - 22,074
Equipment Rentals - - -
Software Sales - - -
Services 29,029 - 29,029

Total Net Sales $ 3,632,812 $ 3,048,167 $ 6,680,979

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

January 31, ~~2021~~2022 and ~~2020~~October 31, 2021

~~NOTE 14 -SEGMENT ANALYSIS (Continued)~~

For the Three Months Ended January 31, 2020
Marine Marine
Technology Engineering Grand
Business Business Total
Total Net Sales by Geographic Area
Americas $ 541,332 $ 2,135,905 $ 2,677,237
Europe 619,017 912,262 1,531,279
Australia/Asia 2,421,360 - 2,421,360
Middle East & Africa 51,103 - 51,103

Total Net Sales $ 3,632,812 $ 3,048,167 $ 6,680,979

For the Three Months Ended January 31, 2020
Marine Marine
Technology Engineering Grand
Business Business Total
Total Net Sales by Product Line
Equipment Sales $ 2,722,919 $ - $ 2,722,919
Equipment Rentals 323,645 - 323,645
Software Sales 229,775 - 229,775
Engineering Parts - 2,553,229 2,553,229
Services 356,473 494,938 851,411

Total Net Sales $ 3,632,812 $ 3,048,167 $ 6,680,979

~~NOTE 15 – PAYROLL PROTECTION PROGRAM~~

In January 2021, one of our US companies, received $526,545 under the second round of the US Government Payroll Protection Program (“Second Round PPP”) for payroll assistance during the Pandemic. The proceeds from the Second Round PPP will be used to offset US employees’ salaries during the Pandemic. In the Current Quarter the Company utilized $89,971 of the Second Round PPP to defray payroll expense. This amount is recorded in our accounts as “Other Income” and the remaining $436,574 (“PPP Balance”) is recorded as “Long Term Debt”. As we utilize PPP Balance for qualifying expenditures defined under the Program, we will recognize these as “Other Income” thus reducing the amount recorded in Long Term Debt since we expect when utilized for qualifying expenditures defined under the Program, the Second Round PPP will be forgiven.

In the 2020 FY certain of our US companies, received $648,871 under the US Government Payroll Protection Program (“First Round PPP”). The proceeds from the First Round PPP were used to offset US employees’ salaries during the Pandemic. The amount received under the First Round PPP has now been forgiven under the Program. This amount is recorded in our accounts as “Other Income”.

~~The companies received their First Round PPP loans in April and May of 2020. The companies applied for forgiveness of the loans in September 2020 and the loans were forgiven in November 2020.~~

~~CODA OCTOPUS GROUP, INC.~~

~~Notes to the Consolidated Financial Statements~~

~~January 31, 2021 and 2020~~

NOTE 16 – COVID-19

The Company faces various risks related to the global outbreak of coronavirus disease (“COVID-19”).

The Engineering Services Business is dependent on its workforce to deliver its products and services primarily to the U.S. and U.K. Governments. If significant portions of the Engineering Services Business’s workforce are unable to work effectively, or if the U.S. or ~~U.K.~~UK. Government and/or other customers’ operations are curtailed due to illness, quarantines, government actions, facility closures, or other restrictions in connection with the COVID-19 Pandemic, the Engineering Services Business’s operations is likely to be severely impacted. The Engineering Services Business may be unable to perform fully on its contracts and costs may increase as a result of the COVID-19 outbreak. These cost increases may not be fully recoverable either from our customers or under existing insurance policies. At this time, the Company’s management cannot predict with any precision the full extent of the impact which COVID-19 Pandemic will have on the Company, but management continues to mitigate where it can and monitor the situation, to assess further possible implications to operations, the supply chain, and ~~customers.~~ customers, and to take actions in an effort to mitigate adverse consequences.

Additionally, the Company is subject to flow downs from prime defense contractors under Defense Federal Acquisition Regulation Supplement (“DFARS”). Recent flow-down entailed Executive Order 14042 which mandates the vaccination of all staff. We may not be able to enforce mandatory vaccination resulting in losing key staff members, thus impacting on our ability to provide contractual engineering services.

Further, the Pandemic may ~~have a material adverse effect on~~continue to affect the Company’s results of ~~operations,~~operation, financial position, and ~~liquidity in fiscal year 2021.~~liquidity.

The Marine Technology Business is dependent on its workforce and/or distributors/resellers to sell and deliver its products and services. Developments such as social distancing, shelter -in- place directives and travel restrictions introduced by governments have impacted the Marine Products Business’s ability to deploy its workforce effectively. These same developments may affect the operations of the Company’s suppliers, ~~customers~~Customers and distributors/resellers, as their own workforces and operations are disrupted by efforts to curtail the spread of this virus. The Company, being a manufacturing company, in large part is unable to work remotely. The Company’s activities are performed in certain international locations that are also impacted by the COVID-19 outbreak. ~~While expected to be temporary, these disruptions will negatively impact~~Furthermore, it is critical for the Marine Technology ~~Business’s sales,~~Business to have in-person engagement with customers for the demonstration of its ~~ongoing~~products from a vessel at sea. The restriction on global travel has resulted in significantly less customer engagement which affects the demand for its goods and services. These disruptions continue to impact the business. Particularly, its ability to perform sustained and meaningful business development ~~projects, its results of operations, financial condition,~~ and ~~liquidity in 2021.~~marketing activities, which require demonstrations at sea at customer locations. Asia which is a significant region for our solutions and products, still has strict restrictions as they relate to foreigners entering these countries. These restrictions cumulatively affect demand for our goods and services.

NOTE 17 – INCOME TAXES

The Company’s effective tax rate for the three months ended January 31, 2022, and 2021, was 16.0% and ~~2020 was (11.8%~~(11.8%) ~~and 6.9%,~~ respectively. The ~~decrease~~increase in the effective tax rate for the three months ended January 31, ~~2021,~~2022, as compared to January 31, ~~2020~~2021, resulted from the US companies becoming tax paying entities having ~~a taxable~~used up their net operating loss ~~for the three months ended January 31, 2021 compared to a tax gain for the three months ended January 31, 2020.~~

carry-forwards.

~~As of January 31, 2021, we had U.S. federal net operating losses (“NOL”) carryforwards of $1,600,016, which expire in 2029.~~

~~NOTE 18 – SUBSEQUENT EVENT~~

In February 2021, one of our US companies received $122,327 under the Second Round PPP for payroll expenses assistance during the Pandemic. The proceeds of the Second Round PPP received will be used to defray payroll expenses.

~~NOTE 19 - RECLASSIFICATION OF PRIOR YEAR PRESENTATION~~

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the previously reported consolidated financial statements. An adjustment has been made to the disclosures of the composition of property and equipment.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

The information herein contains forward-looking statements. All statements other than statements of historical fact made herein are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. These forward-looking statements can be identified by the use of words such as “believes,” “estimates,” “could,” “possibly,” “probably,” anticipates,” “projects,” “expects,” “may,” “will,” or “should” or other variations or similar words. No assurances can be given that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from management’s expectations.

The following discussion and analysis should be read in conjunction with our financial statements, included herewith and the audited financial statements included in our annual report on Form 10-K filed with the Securities and Exchange Commission on ~~January 28, 2021.~~February 14, 2022. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.

General Overview

Throughout these discussions, the following terminologies listed immediately below are used and have the meanings ascribed to them in the said table.

“Current Quarter”: Three-month period ended January 31, ~~2021~~2022

“Previous Quarter”: Three-month period ended January 31, ~~2020~~2021

We operate two distinct business operations. These are:

	●	the Marine Technology Business (also referred to in this Form 10-Q as “Products Business”, “Products Operations” or “Products Segment”); and

	●	the Marine Engineering Business (also referred to in this Form 10-Q as “Engineering Business”, “Engineering Operations”, or “Services Segment”).

Our ~~Products~~Marine Technology Business ~~designs, manufactures and sells and/or rents underwater solutions, products and services~~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 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, underwater hazard detection, port security, mining, fisheries, commercial and defense ~~markets.~~diving, and marine sciences sectors. Our ~~product offerings comprise both hardware~~diving technology marketed under the name “CodaOctopus^®DAVD” (Diver Augmented Vision Display) addresses the global defense and ~~software. The Products Business~~commercial diving markets and has the potential to radically change how diving operations ~~in the USA, UK, Denmark, and Australia. The most significant technology in the Products Business portfolio is its~~are performed globally because it delivers a real time ~~volumetric sonar technology which has unique capabilities~~information platform for ~~both~~diving and allows diving operations to be performed in zero visibility water conditions and provides real time map of the ~~commercial and defense underwater imaging sonar markets. To our knowledge this is the only sonar in the world with these capabilities.~~ dive area.

We generate most of our revenues from our real time 3D sonar which includes both hardware and proprietary software. Our products are used primarily in the underwater construction market, offshore oil and gas, offshore wind energy industry, complex dredging, port security, search and rescue, salvaging, defense, shallow water and deep-water mining and marine sciences sectors. Our customers include service providers to major oil and gas companies, renewable energy companies, law enforcement agencies, ports, mining companies, defense bodies, research institutes and universities.

Our Services Business acts primarily as a sub-contractor to prime defense contractors and engineer sub-assemblies which are utilized in broader defense programs. The Services Business has operations in the USA and UK. Its central business model is the design and manufacture of sub-assemblies for utilization into larger defense mission critical integrated systems (“MCIS”). An example of such MCIS is the US Close-In-Weapons Support (CIWS) Program for the Phalanx radar-guided cannon used on combat ships. These proprietary sub-assemblies, once approved within the MCIS program, afford the Services Business the status of preferred supplier for these items. Such status permits it to supply these sub-assemblies and upgrades in the event of obsolescence or advancement of technology for the life of the MCIS program. Clients include prime defense contractors such as Raytheon, Northrop Grumman, Thales Underwater and BAE systems.

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 capable of providing not only complex seabed mapping but inspecting and monitoring in real time 3D/4D/5D /6D moving underwater objects irrespective of water conditions including in zero visibility water conditions (a perennial 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 believe our Echoscope PIPE^® is the only technology that can generate multiple real time 3D/4D/5D and 6D acoustic images using different acoustic parameters such as frequency, field of view, pulse length and acoustic filters.

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 diving operations are performed globally by 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.

Both the Marine Technology Business and Marine Engineering Business have established synergies in terms of customers and specialized engineering skill sets (hardware, firmware and software) encompassing capturing, computing, processing and displaying data in harsh environments. Both businesses jointly bid for projects for which their common joint skills provide competitive advantage and make them eligible for such projects.

Factors Affecting our Business

Following is a short description of some of the most critical and pressing factors that affect our business. For a more detailed discussion of these and additional factors, refer to our Form 10-K for the fiscal year ended October 31, ~~2020~~2021, that is hereby incorporated by reference.

~~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.

~~Impact of the Coronavirus outbreak (“Pandemic”)~~

General Impact

Our operations continue to be impacted by the ~~Pandemic.~~ Coronavirus outbreak (“Pandemic”). We rely on the ability to sell our solutions offered by the Marine Technology Business, globally. Asia is a very significant market for our technology solutions including Japan, China, South Korea. All these countries without exception have severe restrictions which continue to affect our ability to have in-person visits with customers to demonstrate our new offerings which underpin our growth strategy including Echoscope PIPE® and CodaOctopus® DAVD (Diver Augmented Vision Display System) and our new enterprise software solution 4G USE®. Our products and solutions, including the top end software which controls the sonar and DAVD are complex and do require in-person demonstration and training for customers to benefit optimally from their adoption.

In ~~particular,~~addition, we are significantly impacted by the increasing unavailability of critical components for our ~~operations~~products and also parts for bespoke engineering by our Engineering Segment. This is further compounded by significant price increases which, on the Marine Technology Business side, we are ~~limited due~~unlikely to ~~various levels of restrictions~~be able to pass on to our customers. This is therefore likely to impact our realizable margins.

We are also experiencing skills shortage in areas that are ~~imposed~~critical to our growth strategy including in experienced sales and marketing personnel. In addition, the competition is very fierce for skills and we are seeing significant increase in costs associated with wages and salaries and demands from potential candidates to work from home as a precondition to joining our team. This is further exacerbated by ~~the governments in the countries in which we operate including United States, United Kingdom and Denmark. For example, since the beginning of January 2021 in~~ the United Kingdom leaving the ~~government has in place the highest level of restriction~~European Union, which ~~has limited business operations to essential business and restricts staff movement. Since January we have been operating with limited staff and have been pursuing essential projects.~~

~~Government Policies on the Pandemic~~

Our operations are based in a number of countries, with each country establishing different rules related to the Pandemic including rules on restricting business operations, limiting staff travel work and quarantining rules. This has generally resulted in a much less predictable working environment for planning and delivering customer projects and project cost management. In January 2021, the UK Government introduced the highest level of restrictions with much of the country being in lockdown, thus severely operating as a fetter on business activities. As a result, since January 2021, we have been operating with limited staff and have been pursuing essential projects only.

A large part of our business operations are in the United Kingdom and to this extent we have been severely affected by the current lockdown policy (being a manufacturing Company). A number of other implications are:

	●	~~Decrease in the business’ productivity.~~
	●	~~Project over runs.~~
	●	~~Increase project costs due to the delay.~~
	●	~~Higher staff costs due to increased sick pay allowance which varies according to the country where the business operations are located combined with lower productivity.~~
	●	~~We have been unable to utilize our field engineers for support of customer’s projects due to the restrictions in place.~~
	●	~~The business activities which we can pursue are limited.~~

complicates hiring qualified candidates from EU member states.

~~Our US operations are also impacted by ongoing uncertainty caused by the Pandemic~~

The Services Business continues to experience difficulties in closing orders due to a combination of factors including ~~disruption to business caused by requirements to close for testing or quarantining.~~delays in Defense Prime Contractors securing their orders. This means that sub-contracting is slow.

Impact on Revenues and Earnings

Until the business environment normalizes, we are uncertain as to the extent of the impact the Pandemic will have on our future financial results. In the Current Quarter both the Marine Technology Business and our Engineering Business have been ~~severely~~ impacted by the constraints caused by the Pandemic which in turn ~~has caused~~is impeding our ability to do meaningful business development and opportunities pipeline building all of which affect our financial performance as a ~~significant reduction in the demand for our goods and services.~~business.

Impact on Liquidity, Balance Sheet and Assets

Failure to curb the coronavirus Pandemic in the near future, coupled with the projected downturn in the global economic outlook, may adversely impact on our availability of free cash flow, working capital and business prospects. As of January 31, ~~2021,~~2022, we had cash and cash equivalents of approximately ~~$16 million~~$20,711,288 and ~~for~~in the Current Quarter ~~ended~~ we generated approximately ~~$30,000~~$3,461,499 of cash from operations. Based on our outstanding obligations ~~including loans and notes payable, their terms~~ and our cash balances, we believe we have sufficient working capital to effectively continue our business operations for the foreseeable future.

Critical Accounting Policies

This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements that have been prepared under accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported values of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported levels of revenue and expenses during the reporting period. Actual results could materially differ from those estimates.

Below is a discussion of accounting policies that we consider critical to an understanding of our financial condition and operating results and that may require complex judgment in their application or require estimates about matters which are inherently uncertain. A discussion of our significant accounting policies, including further discussion of the accounting policies described below, can be found in Note 2, “Summary of Accounting Policies” of our Consolidated Financial Statements for the year ended October 31, ~~2020.~~2021.

Revenue Recognition

Our revenues are earned under formal contracts with our customers and are derived from both sales and rental of underwater solutions for imaging, mapping, defense and survey applications and from the engineering services that we provide. Our contracts do not include the possibility for additional contingent consideration so that our determination of the contract price does not involve having to consider potential variable additional consideration. Our product sales do not include a right of return by the customer.

With regard to our Products Segment, all of our products are sold on a stand-alone basis and those market prices are evidence of the value of the products. To the extent that we also provide services (e.g., installation, training, etc.), those services are either included as part of the product or are subject to written contracts based on the stand-alone value of those services. Revenue from the sale of services is recognized when those services have been provided to the customer and evidence of the provision of those services exist.

For further discussion of our revenue recognition accounting policies, refer to Note 2 – “Revenue Recognition” in these consolidated financial statements and in our Annual Report on Form 10-K for the fiscal year ended October 31, ~~2020.~~2021.

Recoverability of Deferred Costs

We defer costs on projects for service revenue. Deferred costs consist primarily of direct and incremental costs to customize and install systems, as defined in individual customer contracts, including costs to acquire hardware and software from third parties and payroll costs for our employees and other third parties.

We recognize such costs on a contract by contract basis in accordance with our revenue recognition policy. For revenue recognized under the completed contract method, costs are deferred until the products are delivered, or upon completion of services or, where applicable, customer acceptance. For revenue recognized under the percentage of completion method, costs are recognized as products are delivered or services are provided in accordance with the percentage of completion calculation. For revenue recognized ratably over the term of the contract, costs are also recognized ratably over the term of the contract, commencing on the date of revenue recognition. At each balance sheet date, we review deferred costs, to ensure they are ultimately recoverable. Any anticipated losses on uncompleted contracts are recognized when evidence indicates the estimated total cost of a contract exceeds its estimated total revenue.

Income Taxes

The Company accounts for income taxes in accordance with Accounting Standards Codification 740, Income Taxes (ASC 740). Under ASC 740, deferred income tax assets and liabilities are recorded for the income tax effects of differences between the bases of assets and liabilities for financial reporting purposes and their bases for income tax reporting. The Company’s differences arise principally from the use of various accelerated and modified accelerated cost recovery system for income tax purposes versus straight line depreciation used for book purposes and from the utilization of net operating loss carry-forwards.

Deferred tax assets and liabilities are the amounts by which the Company’s future income taxes are expected to be impacted by these differences as they reverse. Deferred tax assets are based on differences that are expected to decrease future income taxes as they reverse. Correspondingly, deferred tax liabilities are based on differences that are expected to increase future income taxes as they reverse.

For income tax purposes, the Company uses the percentage of completion method of recognizing revenues on long-term contracts which is consistent with the Company’s financial reporting under U.S. generally accepted accounting principles.

Intangible Assets

Intangible assets consist principally of the excess of cost over the fair value of net assets acquired (or goodwill), customer relationships, non-compete agreements and licenses. Goodwill was allocated to our reporting units based on the original purchase price allocation. Goodwill is not amortized and is evaluated for impairment annually or more often if circumstances indicate impairment may exist. Customer relationships, non-compete agreements, patents and licenses are being amortized on a straight-line basis over periods of 2 to 15 years. The Company amortizes its limited lived intangible assets using the straight-line method over their estimated period of benefit. Annually, or sooner if there is indication of a loss in value, we evaluate the recoverability of intangible assets and take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists.

The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value, which is based on future cash flows, exceeds the carrying amount, goodwill is not considered impaired. If the carrying amount exceeds the fair value, goodwill is reduced by the excess of the carrying amount of the reporting unit over that reporting unit’s fair value. Goodwill can never be reduced below zero, if any. At the end of each year, we evaluate goodwill on a separate reporting unit basis to assess recoverability, and impairments, if any, are recognized in earnings. An impairment loss would be recognized in an amount equal to the excess of the carrying amount of the goodwill over the implied fair value of the goodwill. There were no impairment charges during the periods presented.

Consolidated Results of Operations

Summary

~~Summary~~

In the Current Quarter our financial results have been adversely impacted by a number of factors. These are:

	●	The ongoing ~~Pandemic;~~Pandemic continues to affect our business development activities as in-person meeting and demonstrations with our customers are required due to the nature of our offerings.
	●	~~Delays~~Weaker than expected backlog of orders in the Services Operations securing backlog orders due to change in the Administration compounded by slow progress in procurement of contracts due to personnel working remotely. Delays in contracts caused by change in the Administration is not unusual and we do not believe these backlog contracts have gone away but have just been delayed.Segment.
	●	~~Even though there is a slowdown~~Sustained increases in component prices.
	●	Significant lead times for routine components for our ~~revenue generating activities due to the factors above, our overheads remain relatively fixed.~~products.

Segment Summary

In the Current Quarter the Products Business generated ~~74% of our consolidated revenues and our Services Segment generated 26% of our consolidated revenues.~~

Due to the impact of the Pandemic on our operations and the delay experienced by the Services Business in receiving anticipated backlog orders caused by the change in Administration, the Company’s consolidated financial results in the Current Quarter declined over the Previous Quarters. Consolidated Revenues fell by 24.4%, Gross Profit Margins were marginally stronger in the Current Quarter by 1.6 percentage points, R&D fell by 37.2% and SG&A decreased by 4.1%. Total Operating Expenses fell by 15.0%. Net Income from Operations fell 36.9%.

In the Current Quarter we had a significant financial event. One of our US subsidiaries received $526,545 under the Government Payroll Protection Program (“Second Round PPP”), as contribution towards offsetting US employees’ salaries during the Pandemic. In the Current Quarter we have applied $89,971 of the Second Round PPP funding to defray payroll expenses and this portion is recognized as “Other Income” in our Current Quarter financial statement. The remaining amount of $436,574 is recorded as “Long Term Debt in our financial statement.

In the United Kingdom, our subsidiaries also received under the UK Government Coronavirus Job Retention Scheme Program (CJRS) payroll assistance of $83,500 for UK employees who were furloughed (imposed by the restriction on movement of people) due to the ongoing Pandemic and the new strain of the coronavirus discovered in the United Kingdom where we have a significant part of our business operations. This amount is recorded in our financial statement for the Current Quarter as a reduction of SG&A expenditures.

~~Segment Summary~~

~~In the Current Quarter the Products Business generated 74%~~65.5% of our consolidated revenues compared to ~~54%~~74% in the Previous Quarter. ~~The~~In the Current Quarter the Products Business realized an increase in net income before taxes of ~~7.4%~~17.5%. This was ~~$1,678,218~~$1,972,634 in the Current Quarter compared to ~~$1,562,000.~~$1,678,218 in the Previous Quarter. Revenues generated in the Current Quarter increased by ~~3.2%~~2% and was ~~$3,748,279~~$3,823,748 compared to ~~$3,632,812.~~$3,748,279. Gross Profit Margin ~~fell by 6 percentage points~~increased and was ~~76.1%~~85% in the Current Quarter compared to ~~82%~~76.1% in the Previous Quarter. Total Operating Expenses ~~fell~~increased by ~~17.5%~~9.1%. ~~A significant financial event for this Segment in~~In the Current Quarter ~~is that it received payroll assistance of $83,500 under~~ the ~~CJRS~~Products Business completed significant milestone deliverables for ~~UK employees furloughed due~~our DAVD GEN 3.0 funded Program including expanding the capability to the ~~Pandemic. This is recorded as~~Full Face Mask (FFM). Previously the DAVD was compatible with the Kirby Morgan Helmets. We also completed the introduction of the capability to support multiple divers and automating a ~~reduction~~number of ~~our SG&A expenditures.~~key functions for the DAVD system.

In the Current Quarter the Services Business generated ~~26%~~34.5% of our consolidated revenues compared to ~~46%~~26% in the Previous Quarter. ~~The~~In the Current Quarter the Services Business’s recorded anet income before taxes of $179,733 compared to loss before income taxes of ~~$163,198 compared to a profit of $450,899~~$253,169 in the Previous Quarter. A significant financial event for this Segment in the Current Quarter is that it obtained $526,545 under the Government Payroll Protection Program (“Second Round PPP”), as contribution towards offsetting US employees’ salaries during the Pandemic. In the Current Quarter we applied $89,971 of this Second Round PPP to payroll expenses and this amount was recognized in our Current Quarter financial statement as “Other Income” and the balance of $436,574 was recorded as “Long Term Debt”. Revenues generated in the Current Quarter ~~declined~~increased by ~~57.3%~~54.7% and was ~~$1,302,180~~$2,014,460 compared to ~~$3,048,167~~$1,302,180 in the Previous Quarter. Gross Profit Margin ~~fell by 7 percentage points. Gross Profit Margin fell~~was 45.1% in ~~the Services Business largely due to the mix of engineering projects. In the Previous Quarter the mix of sales related to manufacturing contracts, while~~ the Current Quarter ~~the mix of sales are based on non-recurring engineering (NRE) projects.~~compared to 35.4% in Previous Quarter. Total Operating Expenses ~~fell~~increased by ~~15.9%.~~ 12.1% in the Current Quarter.

Results of Operations for the Current Quarter compared to the Previous Quarter

Revenue: Total consolidated revenues for the Current Quarter and the Previous Quarter were ~~$5,050,459~~$5,838,208 and ~~$6,680,979~~$5,050,459 respectively, representing ~~a fall~~an increase of ~~24.4%~~15.6%. ~~This decrease is largely due to the decrease~~Revenue in ~~revenues in the Services Segment. Revenues in the Services Segment fell significantly due to~~ both the ~~impact of~~Products and Services Businesses increased over the Pandemic and delays in receiving back log orders caused by the change in Administration and the slow pace at which government contract procurement cycle is moving due to staff working remotely. Although revenuesPrevious Quarter. Revenue in the Products Business increased ~~modestly (3.2%), it did not increase at the rate expected largely due to the continued impact that the Pandemic is having on our operations which in turn is reducing the demand for our goods~~by 2% and ~~services.~~Services Business by 54.7%.

Gross Profit Margins: Margin percentage was ~~slightly~~ stronger in the Current Quarter at 71.3% (gross profit of $4,159,934) compared to 65.6% (gross profit of $3,314,922) ~~compared to 64.0% (gross profit of $4,274,440)~~ in the Previous Quarter.

Gross Profit Margins reported in our financial results may vary according to several factors. These include:

●	The percentage of consolidated sales attributed to the Marine Technology Business. The Gross Profit Margin yielded by the Marine Technology Business is generally higher than that of the Services Business;
●	The percentage of consolidated sales attributed to the Services Business. The Services Business yields a lower gross profit margin on generated sales which are largely based on time and materials contracts ~~(except for its Thermite® products);~~
●	The mix of sales within the Marine Technology Business during the reporting period:
		●	Outright Sale versus Rentals;
		●	Hardware Sale versus Software;
		●	Mix of Services rendered in the period – Offshore Engineering Services versus Paid Customer Research and Development Projects;
●	The mix of engineering projects performed (Design prototyping versus manufacturing), may also affect Gross Profit Margins;
●	Level of commissions ~~we may give~~ on products ~~due~~which may vary according to ~~volume purchase by customer and commissions on sales (both~~volume. Both the Services and Marine Technology Businesses work with ~~sales agents)~~sales/distribution agents.
●	Level of Rental Assets in the Marine Technology Business’ Rental Pool and therefore subject to depreciation.

In the Current Quarter Gross Profit Margins for the Products operations were ~~76.1%~~85.0% compared to ~~82.0%~~76.1% in the Previous Quarter. For the Services operation these were ~~35.4%~~45.1% in the Current Quarter compared to ~~42.6%~~35.4% % in the Previous Quarter. The main reason for the fall in Gross Profit Margins in the Services Business is because in the Current Quarter the revenues generated involve a concentration of non-recurring engineering (NRE) projects. In the Previous Quarter the revenues concentrated around manufacturing contracts.

Since there are more variable factors affecting Gross Profit Margins in the Products Business, a table showing a summary of break-out of sales generated by the Products Business in the Current Quarter compared to the Previous Quarter is set out below:

	Current Quarter Products		Previous Quarter Products		Percentage Change			Current Quarter Products		Previous Quarter Products		Percentage Change
Equipment Sales	$	2,793,487	$	2,722,919		2.6	%	$	1,958,845	$	2,793,487		(29.88	)%
Equipment Rentals		334,363		323,645		3.3	%		630,468		334,363		88.56	%
Software Sales		225,222		229,775		(2.0	)%		304,796		225,222		35.33	%
Engineering Parts		213,956		-		-
Services		181,251		356,473		(49.2	)%		929,639		395,207		135.23	%

Total Net Sales	$	3,748,279	$	3,632,812		3.2	%	$	3,823,748	$	3,748,279		2.01	%

In ~~addition, in~~ the Current Quarter ~~Commission paid on Equipment Sales increased to $281,105 compared to $257,307 in the Previous Quarter, representing an increase of 9.2%. We also recognized in cost of sales for~~ the Products Business incurred Commission costs of $138,372 compared to $281,105, representing a 50.8% fall, resulting in ~~the Current Quarter $73,000 which we attribute to cost of sales associated with the rental assets within our Rental Pool.~~Gross Profit Margins being higher.

Further information on the performance in the Current Quarter compared to the Previous Quarter of each Segment including revenues by product and geography can be found in Note 14 and Note 15 to the Unaudited Consolidated Financial Statements.

We believe that the decrease in the Equipment Sales category in the Current Quarter is due to the impending industry trade show, Oceanology 2022, which is scheduled to take place on March 15 -17, 2022. We typically see postponement of capital investment decisions until after the event.

Research and Development (R&D): R&D expenditures in the Current Quarter were ~~$583,139~~$672,890 compared to ~~the $928,265~~$583,139 in the Previous Quarter, representing ~~a fall~~an increase of ~~37.2%~~15.4%. The reduction in this category of expenditures is in line with our budgetary plans as some activities have been reduced to pace company funded research and development while factors such as the Pandemic and delays in receiving anticipated contracts are considerations for our operations.

Segment	January 31, 2021		January 31, 2020		Percentage Change	January 31, 2022		January 31, 2021		Percentage Change
Services Segment R&D Expenditures	$	141,395	$	206,438	Decrease of 31.5%	$	143,515	$	141,395	Increase of 1.50%
Products Segment R&D Expenditures	$	441,744	$	556,729	Decrease of 20.7%	$	529,375	$	441,744	Increase of 19.84%
Coda Octopus Group, Inc. R&D Expenditures	$	-	$	165,098	Decrease of 100%

Selling, General and Administrative Expenses (SG&A): SG&A expenses for the Current Quarter ~~fell~~increased by ~~4.1%~~16.4% to ~~$1,813,366~~$2,111,112 from ~~$1,891,678~~$1,813,366 in the Previous Quarter. In ~~real terms~~the Previous Quarter SG&A ~~increased modestly as in the Current Quarter our SG&A is~~was reduced by $83,500 representing payroll assistance received under the UK ~~CJRS~~Coronavirus Job Retention Scheme (CJRS) for UK staff who were furloughed during the Current Quarter. ~~Without this assistance~~ SG&A also includes non-cash item relating to charges for stock-based compensation which in the Current Quarter ~~would have been $1,896,866, reflecting a modest increase of 0.3% over the Previous Quarter.~~was $325,175 compared to $174,447, representing an 86.4% increase. The main variances in SG&A therefore relates to these two items discussed here.

Key Areas of SG&A Expenditure across the Group for the Current Quarter compared to the Previous Quarter are:

Expenditure	January 31, 2021		January 31, 2020		Percentage Change	January 31, 2022		January 31, 2021		Percentage Change
Wages and Salaries	$	838,306	$	805,730	Increase of 4.4%	$	903,162	$	838,306	Increase of 7.74%
Legal and Professional Fees (including accounting and audit)	$	336,109	$	377,208	Decrease of 10.9%	$	359,018	$	336,109	Increase of 6.82%
Rent for our various locations	$	9,765	$	7,089	Increase of 37.8%	$	15,745	$	9,765	Increase of 61.24%
Marketing	$	11,330	$	46,765	Decrease of 75.8%	$	13,766	$	11,330	Increase of 21.5%

The increase in the “Wages and Salaries” category of expenditure reflects $83,500 in contributions under the CJRS which resulted in the reduction in SGA during the Previous Quarter . Nevertheless, we expect this area of expenditure to increase as we are investing in business development and sales resources and we also expect an increase in labor costs due to general skills shortage and also inflationary pressures in both the ~~costs of labor~~US and UK.

The increase in ~~the UK where we have the highest head count of staff particularly in the area of software development, which is a core resource for our Products Business.~~

~~The decrease in the~~ “Legal and ~~Professional Fees” category of expenditures is due a decrease in audit and professional fees.~~Professional” reflects additional costs associated with increasing our accounting functions.

The increase in ~~rent~~Marketing is anticipated within our plans and reflects ~~new premises~~an increase in marketing activities. This is an area of expenditures which we ~~have taken on for~~anticipate will increase materially in this fiscal year and subsequent years. As we shift our ~~Danish operations, as~~focus from R&D to business development and marketing, including undertaking efforts to build our brands, we anticipate a ~~mitigation strategy for the United Kingdom’s withdrawal from the European Union member states. We anticipate that rent will remain at~~significant increase in this ~~level.~~area of expenditure.

The decrease in Marketing expenditure is a reflection that we are limited by the marketing activities we can do for our business due to the Pandemic. Conventionally our Marketing expenditures reflect participation in industry trade shows. These events have largely been put on hold.

Operating Income: In the Current Quarter Operating Income ~~fell~~increased by ~~36.9%~~49.8% and was ~~$918,417~~$1,375,932 as compared to ~~$1,454,497~~$918,417 in the Previous Quarter. The ~~fall~~increase in Operating Income is due to the ~~significant fall~~increase in consolidated revenues realized in the Current Quarter by the Services Business. This was caused by the impact of the Pandemic on our operations compounded by delays in receiving certain backlog defense contracts due to change in Administration. This resulted in the Services Business realizing a loss on operations in the Current Quarter of $248,036 compared to a profit of $454,571 in the Previous Quarter. ~~As a result, Operating Income fell.~~

Interest Expense: Interest expense in the Current Quarter was ~~$14,514~~$11,278 compared to ~~$19,614~~$14,514 in the Previous Quarter, representing a fall of ~~26.0%~~22.3%. ~~This is due to reduction in~~In the ~~principal amount outstanding~~Current Quarter we paid the last interest payable on the HSBC NA debentures. All indebtedness under the debentures ~~held by HSBC~~have been satisfied in full and ~~which is~~therefore there will be no further interest payments in ~~accordance with~~ the ~~agreed repayment schedule. This loan matures in December 2021.~~foreseeable future. Please refer to Note 11 – ~~Notes~~Note Payable to the Unaudited Consolidated Financial Statements for further details pertaining to this HSBC Loan for more information on this.

Other Income: In the Current Quarter, we had Other Income of ~~$92,025~~$79,994 compared to ~~$12,824,~~$92,025, representing ~~an increase~~a fall of ~~617.6%~~13.1% from the Previous Quarter. In the Previous Quarter we had contributions under the Paycheck Protection Program of $89,971 compared to $0 in the Current Quarter. Similarly in the Previous ~~Quarter.~~

InQuarter we had $0 for Employee Retention Credit, compared to $68,917 in the Current Quarter we recognized as “Other Income” $89,971 which represents a portion of the funding received under the US Government Payroll Protection Program (“Second Round PPP”) and which was applied during the Current Quarter to defray payroll expenses.Quarter.

~~Net~~ Income before income taxes: In the Current Quarter, we had ~~a net~~ income before income taxes of ~~$995,928~~$1,444,648 as compared to ~~$1,447,707~~$995,928 in the Previous Quarter, representing ~~a fall~~an increase of ~~31.2%~~45.1%. ~~Net~~ Income ~~includes $89,971 received by one~~before income tax increased largely due to the increase in the Current Quarter of our subsidiaries under the US Government Payroll Protection Program (“Second Round PPP”). Without this amount Net Income before tax would have been $905,956 representing a fall of 37.4%. The Company’s financial results have been affected by a significant fall in revenues generated by the Services Business due to both the Pandemic and delay in receiving certain backlog orders caused by the change in Administration.consolidated revenues.

Net Income: In the Current Quarter we had Net Income of ~~$1,128,844~~$1,217,248 compared to ~~$1,346,773,~~$1,128,844 in the Previous Quarter, representing an ~~decrease~~increase of ~~16.2%~~7.8%. ~~Net Income includes $89,971 received by one~~In the Previous Quarter we recorded Current Tax Benefit of ~~our subsidiaries under~~$24,725 and in the Current Quarter we recorded Current Tax Expense of $285,609 and similarly we recorded Deferred Tax Benefit in the Current Quarter of $58,209 compared to $108,191 in the Previous Quarter. The Company has now utilized its net operating loss carry forwards and therefore it is expected that the US Government Payroll Protection Program (“PPP”). Without this amount Net Income would have been $1,038,872 representing a fall of 22.9%. The Company’s financial results have been affected by a significant fall in revenues generated by the Services Business due to both the Pandemic and delay in receiving certain backlog orders caused by the change in Administration.companies will become tax paying entities.

Comprehensive Income. In the Current Quarter Comprehensive Income was ~~$2,054,456~~$1,458,398 compared to ~~$1,431,524~~$2,054,456 for the Previous Quarter. This category is affected by fluctuations in foreign currency exchange transactions. In the Current Quarter we had a foreign currency translation adjustment of $241,150 compared to $925,613 in the Previous Quarter. With the removal of the uncertainty of the future relationship between the United Kingdom and the European Union (“EU”) following ~~the former~~its withdrawal from the EU and the entering into a trade agreement, we anticipate that the British Pound ~~has stabilized and has strengthened~~will be less volatile against the ~~US Dollar,~~US$ and ~~in the Current Quarter we had $925,613, foreign currency translation adjustment compared to $84,751 in the Previous Quarter.~~other major currencies.

Liquidity and Capital Resources

At January 31, ~~2021,~~2022, the Company had an accumulated deficit of ~~$22,296,778,~~$17,260,609, working capital of ~~$26,760,987~~$32,360,629, cash of $20,711,228 and stockholders’ equity of ~~$36,625,171.~~$42,832,646. For the Current Quarter, the Company’s operating activities provided cash of ~~$29,714.~~$3,461,499.

The Company entered into a $4,000,000 revolving line of credit with HSBC NA on November 27, 2019, at prime. The outstanding balance on the line of credit was $0 as of January 31, ~~2021.~~2022. This revolving credit line will expire on November 26, ~~2021~~2022, unless renewed by the bank.

Financing Activities

Secured Promissory Note

~~Financing Activities~~

~~Secured Promissory Note~~

On April 28, 2017, the Company and its US based subsidiaries entered into a loan agreement with HSBC Bank NA (the “Lender”) for a loan in the principal amount of $8,000,000 (the “Loan”). The annual interest rate iswas fixed at 4.56%. The obligations in connection with the repayment of the Loan ~~are~~were secured by all assets of Coda Octopus Group, Inc., and its US subsidiaries. Our foreign subsidiaries ~~are~~were joint and several guarantors of the obligations. ~~We pay a monthly amount of $43,777 comprising principal and interest repayment.~~ ~~The amount outstanding under this~~This loan ~~as of January 31, 2021 is $447,966. The Note matures~~was paid in full in December ~~2021.~~2021 and all obligations under the HSBC Loan have now been satisfied.

Inflation and Foreign Currency

The Company maintains its books in functional currency. In this connection, these are:

	●	US Dollars for US Operations;
	●	British Pound for United Kingdom Operations;
	●	Danish Kroner for our Danish Operations; and
	●	Australian Dollars for our Australian Operations.

Note 4 (Foreign Currency Translation) of our Unaudited Consolidated Financial Statements discusses fully the applicable rates used for our Balance Sheet and Income Statement.

Fluctuations in currency exchange rates can affect the Company’s sales, profitability and financial position when the foreign currencies of its international operations are translated into U.S. dollars for financial reporting. In addition, we are also subject to currency fluctuation risk with respect to certain foreign currency denominated receivables and payables. The Company cannot predict the extent to which currency fluctuations may affect the Company’s business and financial position, and there is a risk that such fluctuations will have an adverse impact on the Company’s sales, profits and financial position. Also, because differing portions of our revenues and costs are denominated in foreign currency, movements can impact our margins by, for example, decreasing our foreign revenues when the dollar strengthens without correspondingly decreasing our expenses. The Company does not currently hedge its currency exposure.

Since the United Kingdom’s decision to withdraw from the European Union in 2016, the British Pound has been extremely volatile and because a significant part of our operations is based in the United Kingdom we suffered, since then, significant adverse exchange rate movements. However, since the final withdrawal from the EU by the United Kingdom in December 2020, the British Pound ishas been regaining its strength and we anticipate that the ~~exchange rate fluctuations~~volatility that we experienced during the lead up to UK leaving the European Union will ~~not be as steep going forward.~~abate.

The impact of currency fluctuations on the three months ended January 31, ~~2021~~2022, is shown below. In this context “Constant Rates” is defined as the weighted average exchange rate prevailing in the Previous Quarter.

	British Pounds						Australian Dollar						Danish Kroner						US Dollar
	Actual			Constant			Actual			Constant			Actual			Constant			Actual			Constant			Total
	Results			Rates			Results			Rates			Results			Rates			Results			Rates			Effect
Revenues		2,535,282			2,601,843			-			-			388,743			410,428			2,924,025			3,012,271			(88,246	)
Costs		2,262,261			2,321,654			24,254			25,575			70,145			74,058			2,356,660			2,421,286			(64,626	)
Net profit (losses)		273,021			280,189			(24,254	)		(25,575	)		318,598			336,370			567,365			590,984			(23,619	)
Assets		22,672,721			23,102,691			32,500			34,633			2,142,098			2,209,870			24,847,319			25,347,194			(499,875	)
Liabilities		(1,119,560	)		(1,140,792	)		(2,610	)		(2,781	)		(19,688	)		(20,311	)		(1,141,858	)		(1,163,884	)		22,026
Net assets		21,553,161			21,961,900			29,890			31,852			2,122,410			2,189,559			23,705,461			24,183,311			(477,850	)

British Pounds Australian Dollar Danish Kroner US Dollar
Actual Constant Actual Constant Actual Constant Actual Constant Total
Results Rates Results Rates Results Rates Results Rates Effect
Revenues 3,643,859 3,463,106 - - 340,881 317,942 3,984,740 3,781,048 203,692
Costs 2,345,145 2,228,815 (47,113 ) (42,525 ) 85,166 79,435 2,383,198 2,265,724 117,474
Net profit (losses) 1,298,714 1,234,292 47,113 42,525 255,715 238,507 1,601,542 1,515,324 86,218
Assets 20,355,568 19,234,442 1,051,387 967,202 305,772 293,092 21,712,727 20,494,735 1,217,992
Liabilities (1,598,861 ) (1,510,800 ) (174 ) (160 ) (19,644 ) (19,644 ) (1,618,679 ) (1,529,790 ) (88,889 )
Net assets 18,756,707 17,723,642 1,051,213 967,042 286,128 274,262 20,094,048 18,964,945 1,129,103

This table shows that the effect of constant exchange rates, versus the actual exchange rate fluctuations, ~~increased~~decreased our net income on activities in the Current Quarter by ~~$86,218~~$23,619 and ~~increased~~decreased net assets by ~~$1,217,992.~~$477,850. In addition, the Company booked transactional exchange rate ~~losses~~gain of ~~$8,272~~$241,150 during the Current Quarter.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Item 3. ~~Qualitative~~Quantitative and ~~Quantitative~~Qualitative Disclosures About Market Risk

Not required for smaller reporting companies.

Item 4. Controls and Procedures

a) Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.

The Company’s management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial (and principal accounting) Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of January 31, ~~2021.~~2022. Based upon that evaluation the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

(b) Changes in Internal Controls.

There was no change in our internal controls over financial reporting that has materially affected, or is reasonable likely to materially affect, our internal control over financial reporting during the quarter covered by this Report.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.

Item 1A. Risks Factors

Not required for smaller reporting companies

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

Item 6. Exhibits

31	Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a)

32	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS	Inline XBRL Instance Document.

101.SCH	Inline XBRL Taxonomy Extension Schema Document

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document

104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Coda Octopus Group, Inc. (Registrant)

Date: March ~~17, 2021~~16, 2022	/s/ Annmarie Gayle
	Annmarie Gayle
	Chief Executive Officer

Date: March ~~17, 2021~~16, 2022	/s/ Michael Midgley
	Michael Midgley
	Chief Financial Officer

					Additional		Accumulated Other
	Common Stock				Paid-in		Comprehensive			Accumulated
	Shares		Amount		Capital		Income (Loss)			Deficit			Total

Balance, October 31, 2019 (Audited)		10,721,881	$	10,723	$	59,521,665	$	(2,135,408	)	$	(26,769,207	)	$	30,627,773

Foreign currency translation adjustment		-		-		-		84,751			-			84,751
Net Income		-		-		-		-			1,346,773			1,346,773
Balance, January 31, 2020		10,721,881	$	10,723	$	59,521,665	$	(2,050,657	)	$	(25,422,434	)	$	32,059,297