UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~April 30,~~July 31, 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

34-2008348

(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:		(407)735 2406

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 ☒ 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 ☒

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

The number of shares outstanding of issuer’s common stock, $0.001 par value as of ~~June~~September 14, 2022 is 10,858,302.

INDEX

	Page
PART I - Financial Information	3

Item 1: Financial Statements	3

Consolidated Balance Sheets as of ~~April 30,~~July 31, 2022 (Unaudited) and October 31, 2021	4

Consolidated Statements of Income and Comprehensive Income for the Three and ~~Six~~Nine Months Ended ~~April 30,~~July 31, 2022 and 2021 (Unaudited)	6

Consolidated Statements of Changes in Stockholders’ Equity for the Three and ~~Six~~Nine Months Ended ~~April 30,~~July 31, 2022 and 2021 (Unaudited)	7

Consolidated Statements of Cash Flows for the ~~Six~~Nine Months Ended ~~April 30,~~July 31, 2022 and 2021 (Unaudited)	8

Notes to Unaudited Consolidated Financial Statements	9

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations	2725

Item 3: Quantitative and Qualitative Disclosures about Market Risks	3836

Item 4: Controls and Procedures	3836

PART II - Other Information	3937

Item 1: Legal Proceedings	3937

Item 1A: Risk Factors	3937

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds	3937

Item 3: Default Upon Senior Securities	3937

Item 4: Mine Safety Disclosures	3937

Item 5: Other Information	3937

Item 6: Exhibits	3937

Signatures	4038

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Unaudited Consolidated Financial Statements

For the Three Months Ended ~~April 30,~~July 31 2022 and 2021

Contents

Consolidated Balance Sheets as of ~~April 30,~~July 31, 2022 (Unaudited) and October 31, 2021	4

Consolidated Statements of Income and Comprehensive Income for the Three and ~~Six~~Nine Months ended ~~April 30,~~July 31, 2022 (Unaudited) and 2021 (Unaudited)	6

Consolidated Statements of Changes in Stockholders’ Equity for the Three and ~~Six~~Nine Months ended ~~April 30,~~July 31, 2022 (Unaudited) and 2021 (Unaudited)	7

Consolidated Statements of Cash Flows for the ~~Six~~Nine Months ended ~~April 30,~~July 31, 2022 (Unaudited) and 2021 (Unaudited)	8

Notes to Unaudited Consolidated Financial Statements	9

CODA OCTOPUS GROUP, INC.

Consolidated Balance Sheets

~~April 30,~~July 31, 2022 and October 31, 2021

2022 2021
2022 2021
Unaudited
ASSETS
CURRENT ASSETS

Cash $ 20,658,119 $ 17,747,656
Accounts Receivable, net 1,981,074 4,207,996
Inventory 10,598,371 10,691,177
Unbilled Receivables 353,302 1,080,384
Prepaid Expenses 348,927 1,202,327
Other Current Assets 578,456 627,619

Total Current Assets 34,518,249 35,557,159

FIXED ASSETS
Property and Equipment, net 6,388,822 6,037,101

OTHER ASSETS
Goodwill and Other Intangibles, net 3,823,506 3,794,383
Deferred Tax Asset 132,067 76,776

Total Other Assets 3,955,573 3,871,159

Total Assets $ 44,862,644 $ 45,465,419

	2022		2021
	Unaudited
ASSETS
CURRENT ASSETS

Cash	$	21,370,920	$	17,747,656
Accounts Receivable, net		4,254,168		4,207,996
Inventory		10,183,213		10,691,177
Unbilled Receivables		416,394		1,080,384
Prepaid Expenses		397,127		1,202,327
Other Current Assets		469,175		627,619

Total Current Assets		37,090,997		35,557,159

FIXED ASSETS
Property and Equipment, net		6,123,548		6,037,101

OTHER ASSETS
Goodwill and Other Intangibles, net		3,825,878		3,794,383
Deferred Tax Asset		163,553		76,776

Total Other Assets		3,989,431		3,871,159

Total Assets	$	47,203,976	$	45,465,419

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

CODA OCTOPUS GROUP, INC.

Consolidated Balance Sheets (Continued)

~~April 30,~~July 31, 2022 and October 31, 2021

2022 2021
Unaudited
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES

Accounts Payable $ 1,225,126 $ 1,454,611
Accrued Expenses and Other Current Liabilities 916,523 740,449
Note Payable - 63,559
Deferred Revenue 1,040,332 1,999,841

Total Current Liabilities 3,181,981 4,258,460

LONG TERM LIABILITIES

Deferred Revenue, less current portion 137,897 157,886

Total Long Term Liabilities 137,897 157,886

Total Liabilities 3,319,878 4,416,346

STOCKHOLDERS’ EQUITY

Common Stock, $.001 par value; 150,000,000 shares authorized, 10,858,302 issued and outstanding as of April 30, 2022 and 10,857,195 shares issued and outstanding as of October 31, 2021 10,859 10,858
Additional Paid-in Capital 61,873,873 61,183,131
Accumulated Other Comprehensive Loss (3,692,660 ) (1,667,059 )
Accumulated Deficit (16,649,306 ) (18,477,857 )

Total Stockholders’ Equity 41,542,766 41,049,073

Total Liabilities and Stockholders’ Equity $ 44,862,644 $ 45,465,419

	2022			2021
		Unaudited
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES

Accounts Payable	$	836,978		$	1,454,611
Accrued Expenses and Other Current Liabilities		1,416,326			740,449
Note Payable		-			63,559
Deferred Revenue		2,056,487			1,999,841

Total Current Liabilities		4,309,791			4,258,460

LONG TERM LIABILITIES

Deferred Revenue, less current portion		102,815			157,886

Total Long Term Liabilities		102,815			157,886

Total Liabilities		4,412,606			4,416,346

STOCKHOLDERS’ EQUITY

Common Stock, $.001 par value; 150,000,000 shares authorized, 10,858,302 issued and outstanding as of July 31, 2022 and 10,857,195 shares issued and outstanding as of October 31, 2021		10,859			10,858
Additional Paid-in Capital		62,158,977			61,183,131
Accumulated Other Comprehensive Loss		(4,497,817	)		(1,667,059	)
Accumulated Deficit		(14,880,649	)		(18,477,857	)

Total Stockholders�� Equity		42,791,370			41,049,073

Total Liabilities and Stockholders’ Equity	$	47,203,976		$	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)

		2022			2021			2022			2021
	Three Months Ended April 30,						Six Months Ended April 30,						Three Months Ended July 31,						Nine Months Ended July 31,
	2022			2021			2022			2021			2022			2021			2022			2021

Net Revenues	$	4,984,838		$	5,373,076		$	10,823,046		$	10,423,535		$	6,267,409		$	5,827,375		$	17,090,455		$	16,250,910
Cost of Revenues		1,953,132			1,623,472			3,631,406			3,359,009			1,704,765			1,614,966			5,336,171			4,973,975

Gross Profit		3,031,706			3,749,604			7,191,640			7,064,526			4,562,644			4,212,409			11,754,284			11,276,935

OPERATING EXPENSES
Research & Development		517,378			645,281			1,190,268			1,228,420			577,953			675,766			1,768,221			1,904,186
Selling, General & Administrative		2,033,116			1,788,534			4,155,106			3,610,225			1,960,978			2,213,821			6,116,085			5,824,046

Total Operating Expenses		2,550,494			2,433,815			5,345,374			4,838,645			2,538,931			2,889,587			7,884,306			7,728,232

INCOME FROM OPERATIONS		481,212			1,315,789			1,846,266			2,225,881			2,023,713			1,322,822			3,869,978			3,548,703

OTHER INCOME (EXPENSE)
Other Income		14,497			69,445			94,491			71,499			19,744			3,571			114,236			75,070
Funding from Paycheck Protection Program		-			558,901			-			648,872			-			-			-			648,872
Interest Expense		(2,502	)		(5,108	)		(2,902	)		(11,297	)		-			(6,145	)		(2,902	)		(17,442	)

Total Other Income		11,995			623,238			91,589			709,074
Total Other Income (Expense)														19,744			(2,574	)		111,334			706,500

INCOME BEFORE INCOME TAX EXPENSE		493,207			1,939,027			1,937,855			2,934,955			2,043,457			1,320,248			3,981,312			4,255,203

INCOME TAX BENEFIT (EXPENSE)
Current Tax Benefit (Expense)		109,150			309,962			(176,459	)		334,688
INCOME TAX (EXPENSE) BENEFIT
Current Tax (Expense) Benefit														(326,732	)		418,329			(503,191	)		753,017
Deferred Tax Benefit (Expense)		8,946			(41,056	)		67,155			67,134			51,932			(217,491	)		119,087			(150,357	)

Total Income Tax Benefit (Expense)		118,096			268,906			(109,304	)		401,822

Total Income Tax (Expense) Benefit														(274,800	)		200,838			(384,104	)		602,660

NET INCOME	$	611,303		$	2,207,933		$	1,828,551		$	3,336,777		$	1,768,657		$	1,521,086		$	3,597,208		$	4,857,863

NET INCOME PER SHARE:
Basic	$	0.06		$	0.20		$	0.17		$	0.31		$	0.16		$	0.14		$	0.33		$	0.45
Diluted	$	0.05		$	0.20		$	0.16		$	0.30		$	0.16		$	0.13		$	0.32		$	0.43

WEIGHTED AVERAGE SHARES:
Basic		10,857,673			10,772,315			10,857,429			10,763,652			10,858,302			10,830,183			10,857,724			10,786,107
Diluted		11,405,507			11,191,315			11,405,263			11,182,652			11,375,141			11,342,684			11,374,563			11,298,608

NET INCOME	$	611,303		$	2,207,933		$	1,828,551		$	3,336,777		$	1,768,657		$	1,521,086		$	3,597,208		$	4,857,863

Foreign Currency Translation Adjustment		(2,266,751	)		298,712			(2,025,601	)		1,224,325			(805,157	)		(260,681	)		(2,830,758	)		963,644

Total Other Comprehensive (Loss) Income	$	(2,266,751	)	$	298,712		$	(2,025,601	)	$	1,224,325
Total Other Comprehensive Income (Loss)													$	(805,157	)	$	(260,681	)	$	(2,830,758	)	$	963,644

COMPREHENSIVE (LOSS) INCOME	$	(1,655,448	)	$	2,506,645		$	(197,050	)	$	4,561,102
COMPREHENSIVE INCOME													$	963,500		$	1,260,405		$	766,450		$	5,821,507

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 and ~~Six~~Nine Months Ended ~~April 30,~~July 31, 2022 and 2021

(Unaudited)


								Accumulated															Accumulated
					Additional			Other												Additional			Other
	Common Stock				Paid-in			Comprehensive			Accumulated					Common Stock				Paid-in			Comprehensive			Accumulated
	Shares		Amount		Capital			Income (Loss)			Deficit			Total		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		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		-		-		174,447			-			-			174,447
Foreign currency translation adjustment		-		-		-			925,613			-			925,613		-		-		-			925,613			-			925,613
Net Income		-		-		-			-			1,128,844			1,128,844		-		-		-			-			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		10,751,881	$	10,753	$	60,306,862		$	(1,395,665	)	$	(22,296,778	)	$	36,625,172

Employee stock based compensation		-		-		135,157			-			-			135,157		-		-		135,157			-			-			135,157
Stock issued for options exercised		65,161		65		(65	)		-			-			-		65,161		65		(65	)		-			-			-
Foreign currency translation adjustment		-		-		-			298,712			-			298,712		-		-		-			298,712			-			298,712
Net Loss																	-		-		-			-			2,207,933			2,207,933
Balance, April 30, 2021																	10,817,042	$	10,818	$	60,441,954		$	(1,096,953	)	$	(20,088,845	)	$	39,266,974

Employee stock based compensation																	-		-		230,879			-			-			230,879
Stock issued for options exercised																	15,153		15		(15	)		-			-			-
Consultant stock based compensation																	25,000		25		220,725			-			-			220,750
Foreign currency translation adjustment																	-		-		-			(260,681	)		-			(260,681	)
Net Income		-		-		-			-			2,207,933			2,207,933		-		-		-			-			1,521,086			1,521,086
Balance, April 30, 2021		10,817,042	$	10,818	$	60,441,954		$	(1,096,953	)	$	(20,088,845	)	$	39,266,974
Balance, July 31, 2021																	10,857,195	$	10,858	$	60,893,543		$	(1,357,634	)	$	(18,567,759	)	$	40,979,008

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

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

Employee stock based compensation		-		-		365,568			-			-			365,568			-		-		365,568			-			-			365,568
Stock issued for options exercised		1,107		1		(1	)		-			-			-			1,107		1		(1	)		-			-			-
Foreign currency translation adjustment		-		-		-			(2,266,751	)		-			(2,266,751	)		-		-		-			(2,266,751	)		-			(2,266,751	)
Net Income		-		-		-			-			611,303			611,303			-		-		-			-			611,303			611,303
Balance, April 30, 2022		10,858,302	$	10,859	$	61,873,873		$	(3,692,660	)	$	(16,649,306	)	$	41,542,766			10,858,302	$	10,859	$	61,873,873		$	(3,692,660	)	$	(16,649,306	)	$	41,542,766

Employee stock based compensation																		-		-		285,104			-			-			285,104
Foreign currency translation adjustment																		-		-		-			(805,157	)		-			(805,157	)
Net Income																		-		-		-			-			1,768,657			1,768,657
Net Income (loss)																		-		-		-			-			1,768,657			1,768,657
Balance, July 31, 2022																		10,858,302	$	10,859	$	62,158,977		$	(4,497,817	)	$	(14,880,649	)	$	42,791,370

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

CODA OCTOPUS GROUP, INC.

Consolidated Statements of Cash Flows

(Unaudited)

							2022			2021
	Six Months Ended April 30,						Nine Months Ended July 31,
	2022			2021			2022			2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	1,828,551		$	3,336,777		$	3,597,208		$	4,857,863
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		443,941			599,864			652,762			827,509
Stock based compensation		690,743			309,604			975,847			761,233
Deferred income taxes		(63,824	)		(67,135	)		(93,289	)		150,357
Funding from Paycheck Protection Program recognized as income		-			(648,872	)		-			(648,872	)
(Increase) decrease in operating assets:
Accounts receivable		2,028,159			(1,085,743	)		(303,370	)		(191,768	)
Inventory		(588,779	)		(1,425,821	)		(415,752	)		(1,688,545	)
Unbilled receivables		711,678			(219,136	)		642,380			(306,261	)
Prepaid expenses		801,354			(115,307	)		727,360			60,923
Other current assets		28,144			(312,329	)		151,825			(312,041	)
Increase (decrease) in operating liabilities:
Accounts payable and other current liabilities		(278,061	)		(115,980	)		240,562			(379,552	)
Deferred revenue		(894,245	)		178,939			106,990			500,643
Net Cash Provided by Operating Activities		4,707,661			434,861			6,282,523			3,631,489
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(1,083,111	)		(551,153	)		(1,120,051	)		(759,733	)
Purchases of other intangible assets		(58,365	)		(48,036	)		(75,834	)		(78,893	)
Net Cash Used in Investing Activities		(1,141,476	)		(599,189	)		(1,195,885	)		(838,626	)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of notes		(63,559	)		(251,850	)		(63,559	)		(379,763	)
Proceeds from Paycheck Protection Program		-			648,872			-			648,872
Net Cash (Used in) Provided by Financing Activities		(63,559	)		397,022			(63,559	)		269,109
EFFECT OF CURRENCY TRANSLATION ON CHANGES IN CASH		(592,163	)		1,224,325			(1,399,815	)		963,644

NET INCREASE IN CASH		2,910,463			1,457,019			3,623,264			4,025,616

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

CASH AT THE END OF THE PERIOD	$	20,658,119		$	16,591,308		$	21,370,920		$	19,159,905
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest	$	2,902		$	28,152		$	2,902		$	17,442
Cash paid for taxes	$	51,264		$	-		$	74,432		$	-

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

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

~~April 30,~~July 31, 2022, and October 31, 2021

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

Coda Octopus Group, Inc. (“Coda,” “the Company,” or “we”) operates two distinct operating business units. These are the Marine Technology Business (“Products Business”, “Products Operations” or “Products Segment”) and the Marine Engineering Business (“Services Business”, “Engineering Business”; ~~“Engineering Operations”~~ or “Services Segment”). The Marine Technology Business sells technology solutions to the subsea and underwater markets. These solutions are designed, developed, manufactured and supported by the Company. Among the solutions which it offers to the market and currently its main revenue generating product, is its real time 3D volumetric imaging sonar which is a patented and leading product in the subsea/underwater market. This product is marketed under the name Echoscope^® and Echoscope PIPE^®, PIPE being an acronym for Parallel Intelligent Processing Engine. ItWe also recently launched a new diver management system (Diver Augmented Vision Display (DAVD)) ~~addressing~~for use in the global defense and commercial diving ~~market~~markets and which ~~it believes~~we believe is a significant part of ~~its~~our growth pillars. The requirements for the DAVD system emanated from the Office of Naval ~~Research and~~Research. DAVD uses a pair of transparent glasses in the diver’s head up display (HUD) on which real time data is rendered. The concept of using a pair of transparent glasses in the Head up Display (HUD) underwater is patented and licensed to the Company by the United States Department of the Navy at Naval Surface Warfare Center Panama City Division. The Marine Engineering Business ~~are sub-contractors~~is a sub-contractor to prime defense contractors and generally supplies proprietary sub-assemblies ~~to these Primes~~ for incorporation into broader mission critical defense systems. These parts typically are supplied for the life of the ~~program to which they pertain.~~program. The Marine Engineering Business scope typically includes concept, design, prototype and manufacture.

The consolidated financial statements include the accounts of Coda Octopus Group, Inc. and ~~our~~its wholly-owned domestic and foreign subsidiaries based outside of the US. All significant intercompany transactions and balances have been eliminated in the consolidated financial statements.

NOTE 2 – REVENUE RECOGNITION

The Company recognizes revenue ~~under~~in accordance with 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.

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 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

~~April 30,~~July 31, 2022, and October 31, 2021

NOTE 2 – REVENUE RECOGNITION (Continued)

Regarding 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 performed 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. These 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 by the provision of the activation codes to the software.

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 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.

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

~~April 30,~~July 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 ~~April 30,~~July 31, 2022 and October 31, 2021, we had deferred commissions of $~~3,496~~66,946 and $0, respectively. Amortization expense related to deferred commissions was $~~874~~16,186 and $03,884 in the ~~three~~nine months years ended ~~April 30,~~July 31, 2022, and 2021, respectively.

Other Revenue Disclosures

See Note 15 – Disaggregation of Revenue ~~for~~providing a breakdown of revenues from external customers and cost of those revenues between our Product Segment and Services Segment including information on the split of revenues by 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.

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

~~April 30,~~July 31, 2022, and October 31, 2021

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.

NOTE 5 – INVENTORY

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

SCHEDULE OF COMPONENTS OF INVENTORY

April 30, 2022 October 31, 2021

Raw materials and parts $ 7,403,241 $ 7,525,419
Work in progress 743,008 919,619
Finished goods 2,452,122 2,246,139
Total Inventory $ 10,598,371 $ 10,691,177
July 31, October 31,
2022 2021

Raw materials and parts $ 6,847,710 $ 7,525,419
Work in progress 660,890 919,619
Finished goods 2,674,613 2,246,139
Total Inventory $ 10,183,213 $ 10,691,177

NOTE 6 – FIXED ASSETS

Property and equipment consisted of the following as of:
SCHEDULE OF PROPERTY AND EQUIPMENT
July 31, October 31,
April 30, 2022 October 31, 2021 2022 2021

Buildings $ 5,745,658 $ 5,298,028 $ 5,618,650 $ 5,298,028
Land 200,000 200,000 200,000 200,000
Office machinery and equipment 1,661,846 1,622,871 1,687,417 1,622,871
Rental assets 2,395,856 2,326,486 2,345,544 2,326,486
Furniture, fixtures and improvements 1,165,094 1,218,217 1,146,145 1,218,217
Total 11,168,454 10,665,602
Totals 10,997,756 10,665,602
Less: accumulated depreciation (4,779,632 ) (4,628,501 ) (4,874,208 ) (4,628,501 )

Total Property and Equipment, net $ 6,388,822 $ 6,037,101 $ 6,123,548 $ 6,037,101

12

CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
~~April 30,~~July 31, 2022, and October 31, 2021

NOTE 7 – OTHER CURRENT ASSETS

Other current assets consisted of the following as of:
SUMMARY OF OTHER CURRENT ASSETS
April 30, 2022 October 31, 2021 July 31, October 31,
April 30, 2022 October 31, 2021 2022 2021

Deposits $ 47,026 $ 63,992 $
94,547
$ 63,992
Other Tax Receivables 144,671 -
136,633
-
Employee Retention Credit Receivables 386,759 563,627 237,995 563,627
Total Other Current Assets $ 578,456 $ 627,619 $ 469,175 $ 627,619

NOTE 8 – ESTIMATES

The preparation of consolidated financial statements in conformity with 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 earnings in excess of billings, billings in excess of costs and estimated earnings and the valuation of goodwill.

NOTE 9 – CONTRACTS IN 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 $~~353,302~~416,394 and $1,080,384as of ~~April 30,~~July 31, 2022, and October 31, 2021, respectively.

Our Deferred Revenue of $~~896,406~~1,905,834 and $1,879,790 as of ~~April 30,~~July 31, 2022, and October 31, 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.

Sales of equipment include a separate performance obligation for warranty, which is treated as deferred revenue, along with sales for which the customer may purchase extended warranty option. These amounts are amortized over the relevant obligation period (12 months is our standard warranty or 24, 36 or 60 months for our extended warranty, sold as Through Life Support (TLS) Package) from the date of delivery. These amounts are stated on the consolidated balance sheets as a component of Deferred Revenue and were $~~281,823~~ 253,468and $277,937as of ~~April 30,~~July 31, 2022, and October 31, 2021, respectively.

13

CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
~~April 30,~~July 31, 2022, and October 31, 2021

NOTE 10 – CONCENTRATIONS

Significant Customers

During the three months ended ~~April 30,~~July 31, 2022, the Company had one customer from whom it generated sales greater than 10% of net revenues. Revenue from this customer was $~~549,134~~660,750, or ~~11%~~ 10.5%of net revenues during the three months ended ~~April 30,~~July 31, 2022. Receivables from this customer ~~was~~were $~~184,374~~246,100, or ~~9.3~~5.8%% of net receivables as of ~~April 30,~~July 31, 2022.

During the three months ended ~~April 30,~~July 31, 2021, ~~the Company had three customers from whom it generated sales greater than 10% of net revenues. Revenues from these customers were $2,178,677, or~~ ~~41%~~ ~~of net revenues during three months ended April 30, 2021. Receivables from these customers were $1,048,055~~ or 33~~% of net receivable as of April 30, 2021.~~
~~During the six months ended April 30, 2022,~~ the Company had two customers from whom it generated sales greater than 10% of net revenues. Revenues from these customers were $~~2,374,201~~1,474,464, or ~~22%~~ 25%of net revenues during ~~six~~the three months ended ~~April 30, 2022.~~July 31, 2021. Receivables from these customers were $~~600~~ 72,449 or 3.2% of net receivable as of July 31, 2021.
During the nine months ended July 31, 2022, the Company had one customer from whom it generated sales of 10% or more of net revenues. Revenues from this customer were $~~0.03~~1,709,791, or 10% of net revenues during the nine months ended July 31, 2022. Receivables from this customer were $542,515 or 12.75% of net receivables as of ~~April 30,~~July 31, 2022

During the ~~six~~nine months ended ~~April 30,~~July 31, 2021, the Company had one customer from whom it generated sales ~~greater than~~ of $1,588,172, or 10% of net revenues. ~~Revenues from this customer were $1,045,367, or~~ ~~10%~~ ~~of net revenues six months ended April 30, 2021.~~ Receivables from this customer were $~~321,392~~ 72,449or 103.2%% of net ~~receivable~~receivables as of ~~April 30,~~July 31, 2021.

14

CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
~~April 30,~~July 31, 2022, and October 31, 2021

NOTE 11 – RECENT ACCOUNTING PRONOUNCEMENTS

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

NOTE 12 – EARNINGS PER SHARE
SCHEDULE OF EARNINGS PER SHARE BASIC AND DILUTED
Three Months Three Months Six Months Six Months
Three Months Three Months Six Months Six Months Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended Ended Ended Ended Ended
April 30 April 30 April 30 April 30 July 31 July 31 July 31 July 31
Fiscal Period 2022 2021 2022 2021 2022 2021 2022 2021
Numerator:
Net Income $ 611,303 $ 2,207,933 $ 1,828,551 $ 3,336,777 $ 1,768,657 $ 1,521,086 $ 3,597,208 $ 4,857,863

Denominator:
Basic weighted average common shares outstanding 10,857,673 10,772,315 10,857,429 10,763,652 10,858,302 10,830,183 10,857,724 10,786,107
Unused portion of options and restricted stock awards 547,834 419,000 547,834 419,000 516,839 512,501 516,839 512,501
Diluted outstanding shares 11,405,507 11,191,315 11,405,263 11,182,652 11,375,141 11,342,684 11,374,563 11,298,608

Net income per share

Basic $ 0.06 $ 0.20 $ 0.17 $ 0.31 $ 0.16 $ 0.14 $ 0.33 $ 0.45
Diluted $ 0.05 $ 0.20 $ 0.16 $ 0.30 $ 0.16 $ 0.13 $ 0.32 $ 0.43

15
~~CODA OCTOPUS GROUP, INC.~~
~~Notes to the Consolidated Financial Statements~~
~~April 30, 2022, and October 31, 2021~~
NOTE 13 – 2017 STOCK INCENTIVE PLAN
On December 6, 2017, the Board of Directors adopted the 2017 Stock Incentive Plan (the “2017 Plan”) with 913,612 shares of Common Stock available under the Plan for issuance. This Plan was approved by Stockholders at its meeting held on ~~or around~~ July 24, 2018.
On July 12, 2021, the Board of Directors adopted the 2021 Stock Incentive Plan (the “2021 Plan”). The 2021 Plan is identical to the 2017 in all material respects, except that the number of shares available for issuance thereunder is 1,000,000. This Plan was approved by Stockholders at its meeting held on September 14, 2021.
During the ~~six~~nine months ended ~~April 30,~~July 31, 2022, the Company granted to various eligible individuals Restricted Stock Awards of ~~55,181~~64,687 shares of common stock pursuant to the terms of the Plan. During the ~~six~~nine months ended ~~April 30,~~July 31, 2021, 36,501 options or Restricted Stock Grants were forfeited. During the nine months ended July 31, 2022, 177,333 options vested and ~~remain~~remained unexercised. In addition, 3,333 options were exercised on a cashless basis ~~and~~ resulting in the issuance of 1,107 ~~shares were issued.~~shares. As of ~~April 30,~~July 31, 2022, there were ~~1,365,778~~1,396,772 shares available for future issue under both 2017 and 2021 Plans. The total stock compensation expense during the ~~six~~nine months ended ~~April 30,~~July 31, 2022, was $~~690,743~~975,847.
During the ~~six~~nine months ended ~~April 30,~~July 31, 2021, the Company granted to various eligible individuals Restricted Stock Awards to purchase an aggregate of ~~4,000~~127,500 shares of common stock pursuant to the terms of the Plan. During the nine months ended July 31, 2021, 8,000 options were forfeited. ~~During the six months ended April 30,~~As of July 31, 2021, ~~182,667~~ ~~options vested. As of April 30, 2021,~~ ~~65,161~~80,314 shares of common stock were issued pursuant to the cashless exercise of ~~138,000~~169,332 options. In March 2021, ~~44,667~~13,333 options vested ~~in March 2021~~but remained unexercised as of ~~April 30,~~July 31, 2021. As of ~~April 30,~~July 31, 2021, there were ~~416,273~~288,773 shares of common stock available for future issue under the ~~2017~~ Plan. The total stock compensation expense during the ~~six~~nine months ended ~~April 30,~~July 31, 2021, was $~~309,604~~761,233.
NOTE 14 -SEGMENT ANALYSIS

Based on the fundamental difference in the types of offering, products and solutions versus services, we operate 2two distinct 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;~~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 which have been eliminated in our financial statements but are disclosed in the tables below for information purposes.

The following tables summarize segment asset and operating balances by reportable segment as of and for the three and ~~six~~nine months ended ~~April 30,~~July 31, 2022 and 2021, respectively.

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

● Americas

● Europe
● Australia/Asia
●
● Middle East/Africa
15
CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
July 31, 2022, and October 31, 2021
NOTE 14 -SEGMENT ANALYSIS (Continued)
SCHEDULE OF SEGMENT REPORTING INFORMATION
Marine Technology Business (Products) Marine Engineering Business (Services) Overhead Total

Three Months Ended July 31, 2022

Net Revenues $ 4,004,557 $ 2,262,852 $ - $ 6,267,409

Cost of Revenues 532,248 1,172,517 - 1,704,765

Gross Profit 3,472,309 1,090,335 - 4,562,644

Research & Development 605,857 (27,904 ) - 577,953
Selling, General & Administrative 731,200 700,820 528,958 1,960,978

Total Operating Expenses 1,337,057 672,916 528,958 2,538,931

Income (Loss) from Operations 2,135,252 417,419 (528,958 ) 2,023,713

Other Income (Expense)
Other Income 14,472 4,212 1,060 19,744
Funding from Paycheck Protection Program
Interest Expense - - - -

Total Other Income (Expense) 14,472 4,212 1,060 19,744

Income (Loss) before Income Taxes 2,149,724 421,631 (527,898 ) 2,043,457

Income Tax (Expense) Benefit
Current Tax Expense (226,264 ) (23,148 ) (77,320 ) (326,732 )
Deferred Tax Benefit 378 2,141 49,413 51,932

Total Income Tax (Expense) Benefit (225,886 ) (21,007 ) (27,907 ) (274,800 )

Net Income (Loss) $ 1,923,838 $ 400,624 $ (555,805 ) $ 1,768,657

Supplemental Disclosures

Total Assets $ 33,015,110 $ 13,354,167 $ 834,699 $ 47,203,976

Total Liabilities $ 3,246,151 $ 774,497 $ 391,958 $ 4,412,606

Revenues from Intercompany Sales - eliminated from sales above $ 966,316 $ 62,757 $ 607,500 $ 1,636,573

Depreciation and Amortization $ 174,739 $ 24,209 $ 9,873 $ 208,821

Purchases of Long-lived Assets $ 14,815 $ 22,125 $ 17,469 $ 54,409

16
CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
July 31, 2022, and October 31, 2021
NOTE 14 -SEGMENT ANALYSIS (Continued)
Marine Technology Business (Products) Marine Engineering Business (Services) Overhead Total

Three Months Ended July 31, 2021

Net Revenues $ 3,845,051 $ 1,982,324 $ - $ 5,827,375

Cost of Revenues 545,243 1,069,723 - 1,614,966

Gross Profit 3,299,808 912,601 - 4,212,409

Research & Development 540,553 135,213 - 675,766
Selling, General & Administrative 862,673 621,876 729,272 2,213,821

Total Operating Expenses 1,403,226 757,089 729,272 2,889,587

Income (Loss) from Operations 1,896,582 155,512 (729,272 ) 1,322,822

Other Income (Expense)
Other Income 3,554 17 - 3,571
Interest Expense (584 ) (365 ) (5,196 ) (6,145 )

Total Other Income (Expense) 2,970 (348 ) (5,196 ) (2,574 )

Income (Loss) before Income Taxes 1,899,552 155,164 (734,468 ) 1,320,248

Income Tax (Expense) Benefit
Current Tax Benefit (Expense) 157,333 260,996 - 418,329
Deferred Tax (Expense) Benefit (338,098 ) 108,141 12,466 (217,491 )

Total Income Tax (Expense) Benefit (180,765 ) 369,137 12,466 200,838

Net Income (Loss) $ 1,718,787 $ 524,301 $ (722,002 ) $ 1,521,086

Supplemental Disclosures

Total Assets $ 28,820,472 $ 14,608,555 $ 934,192 $ 44,363,219

Total Liabilities $ 2,159,921 $ 844,816 $ 379,474 $ 3,384,211

Revenues from Intercompany Sales - eliminated from sales above $ 492,579 $ 44,372 $ 675,000 $ 1,211,951

Depreciation and Amortization $ 195,103 $ 24,590 $ 7,952 $ 227,645

Purchases of Long-lived Assets $ 201,198 $ 7,655 $ 30,584 $ 239,437
17
CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
July 31, 2022, and October 31, 2021
NOTE 14 -SEGMENT ANALYSIS (Continued)
Marine Technology Business (Products) Marine Engineering Business (Services) Overhead Total

Nine Months Ended July 31, 2022

Net Revenues $ 11,319,314 $ 5,771,141 $ - $ 17,090,455

Cost of Revenues 1,920,573 3,415,598 - 5,336,171

Gross Profit 9,398,741 2,355,543 - 11,754,284

Research & Development 1,752,478 15,743 - 1,768,221
Selling, General & Administrative 2,059,147 2,040,608 2,016,330 6,116,085

Total Operating Expenses 3,811,625 2,056,351 2,016,330 7,884,306

Income (Loss) from Operations 5,587,116 299,192 (2,016,330 ) 3,869,978

Other Income (Expense)
Other Income 32,576 79,256 2,404 114,236
Interest Expense (2,502 ) - (400 ) (2,902 )

Total Other Income (Expense) 30,074 79,256 2,004 111,334

Income (Loss) before Income Taxes 5,617,190 378,448 (2,014,326 ) 3,981,312

Income Tax (Expense) Benefit
Current Tax Benefit (Expense) (492,505 ) 147,778 (158,464 ) (503,191 )
Deferred Tax (Expense) Benefit 5,159 (42,839 ) 156,767 119,087

Total Income Tax (Expense) Benefit (487,346 ) 104,939 (1,697 ) (384,104 )

Net Income (Loss) $ 5,129,844 $ 483,387 $ (2,016,023 ) $ 3,597,208

Supplemental Disclosures

Total Assets $ 33,015,110 $ 13,354,167 $ 834,699 $ 47,203,976

Total Liabilities $ 3,246,151 $ 774,497 $ 391,958 $ 4,412,606

Revenues from Intercompany Sales - eliminated from sales above $ 1,769,365 $ 305,450 $ 1,815,000 $ 3,889,815

Depreciation and Amortization $ 551,866 $ 72,056 $ 28,840 $ 652,762

Purchases of Long-lived Assets $ 1,085,877 $ 34,174 $ 75,834 $ 1,195,885
18

CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
~~April 30,~~July 31, 2022, and 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
Marine Technology Business (Products) Marine Engineering Business (Services) Overhead Total

Three Months Ended April 30, 2022
Nine Months Ended July 31, 2021

Net Revenues $ 3,491,009 $ 1,493,829 $ - $ 4,984,838 $ 11,777,739 $ 4,473,171 $ - $ 16,250,910

Cost of Revenues 816,033 1,137,099 - 1,953,132 2,462,219 2,511,756 - 4,973,975

Gross Profit 2,674,976 356,730 - 3,031,706 9,315,520 1,961,415 - 11,276,935

Research & Development 617,246 (99,868 ) - 517,378 1,521,175 383,011 - 1,904,186
Selling, General & Administrative 569,451 683,612 780,053 2,033,116 2,402,406 1,751,197 1,670,443 5,824,046

Total Operating Expenses 1,186,697 583,744 780,053 2,550,494 3,923,581 2,134,208 1,670,443 7,728,232

Income (Loss) from Operations 1,488,279 (227,014 ) (780,053 ) 481,212 5,391,939 (172,793 ) (1,670,443 ) 3,548,703

Other Income (Expense)
Other Income 9,055 4,098 1,344 14,497 74,173 51 846 75,070
Funding from Paycheck Protection Program 122,327 526,545 - 648,872
Interest Expense (2,502 ) - - (2,502 ) (1,069 ) (365 ) (16,008 ) (17,442 )

Total Other Income (Expense) 6,553 4,098 1,344 11,995 195,431 526,231 (15,162 ) 706,500

Income (Loss) before Income Taxes 1,494,832 (222,916 ) (778,709 ) 493,207 5,587,370 353,438 (1,685,605 ) 4,255,203

Income Tax (Expense) Benefit
Current Tax Benefit (Expense) 279 146,890 (38,019 ) 109,150
Deferred Tax (Expense) Benefit (1,926 ) (45,184 ) 56,056 8,946
Current Tax (Expense) Benefit 254,745 498,666 (394 ) 753,017
Deferred Tax Benefit (Expense) (356,164 ) 264,636 (58,829 ) (150,357 )

Total Income Tax (Expense) Benefit (1,647 ) 101,706 18,037 118,096 (101,419 ) 763,302 (59,223 ) 602,660

Net Income (Loss) $ 1,493,185 $ (121,210 ) $ (760,672 ) $ 611,303 $ 5,485,951 $ 1,116,740 $ (1,744,828 ) $ 4,857,863

Supplemental Disclosures

Total Assets $ 30,503,346 $ 13,541,238 $ 818,060 $ 44,862,644 $ 28,820,472 $ 14,608,555 $ 934,192 $ 44,363,219

Total Liabilities $ 2,255,971 $ 616,133 $ 447,774 $ 3,319,878 $ 2,159,921 $ 844,816 $ 379,474 $ 3,384,211

Revenues from Intercompany Sales - eliminated from sales above $ 413,654 $ 126,870 $ 607,500 $ 1,148,024 $ 1,367,619 $ 184,016 $ 2,025,000 $ 3,576,635

Depreciation and Amortization $ 241,469 $ 31,190 $ 9,816 $ 282,475 $ 707,761 $ 98,671 $ 21,077 $ 827,509

Purchases of Long-lived Assets $ 84,969 $ 11,049 $ 43,494 $ 139,512 $ 745,405 $ 13,203 $ 80,018 $ 838,626

1719

CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
~~April 30,~~July 31, 2022, and 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 April 30, 2021

Net Revenues $ 4,184,409 $ 1,188,667 $ - $ 5,373,076

Cost of Revenues 1,022,701 600,771 - 1,623,472

Gross Profit 3,161,708 587,896 - 3,749,604

Research & Development 538,878 106,403 - 645,281
Selling, General & Administrative 804,140 556,611 427,783 1,788,534

Total Operating Expenses 1,343,018 663,014 427,783 2,433,815

Income (Loss) from Operations 1,818,690 (75,118 ) (427,783 ) 1,315,789

Other Income (Expense)
Other Income 68,583 16 846 69,445
Funding from Paycheck Protection Program 122,327 436,574 - 558,901
Interest Expense
-
- (5,108 ) (5,108 )

Total Other Income (Expense) 190,910 436,590 (4,262 ) 623,238

Income (Loss) before Income Taxes 2,009,600 361,472 (432,045 ) 1,939,027

Income Tax (Expense) Benefit
Current Tax Benefit 72,292 237,670 - 309,962
Deferred Tax (Expense) Benefit (102,585 ) 112,550 (51,021 ) (41,056 )

Total Income Tax (Expense) Benefit (30,293 ) 350,220 (51,021 ) 268,906

Net Income (Loss) $ 1,979,307 $ 711,692 $ (483,066 ) $ 2,207,933

Supplemental Disclosures

Total Assets $ 27,086,894 $ 14,667,654 $ 966,418 $ 42,720,966

Total Liabilities $ 1,839,295 $ 1,027,958 $ 586,739 $ 3,453,992

Revenues from Intercompany Sales - eliminated from sales above $ 504,411 $ 90,443 $ 675,000 $ 1,269,854

Depreciation and Amortization $ 200,536 $ 26,436 $ 6,709 $ 233,681

Purchases of Long-lived Assets $ 144,232 $ 1,371 $ 44,442 $ 190,045
18
~~CODA OCTOPUS GROUP, INC.~~
~~Notes to the Consolidated Financial Statements~~
~~April 30, 2022, and 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

Six Months Ended April 30, 2022

Net Revenues $ 7,314,757 $ 3,508,289 $ - $ 10,823,046

Cost of Revenues 1,388,325 2,243,081 - 3,631,406

Gross Profit 5,926,432 1,265,208 - 7,191,640

Research & Development 1,146,621 43,647 - 1,190,268
Selling, General & Administrative 1,327,947 1,339,787 1,487,372 4,155,106

Total Operating Expenses 2,474,568 1,383,434 1,487,372 5,345,374

Income (Loss) from Operations 3,451,864 (118,226 ) (1,487,372 ) 1,846,266

Other Income (Expense)
Other Income 18,104 75,043 1,344 94,491
Interest Expense (2,502 ) - (400 ) (2,902 )

Total Other Income (Expense) 15,602 75,043 944 91,589

Income (Loss) before Income Taxes 3,467,466 (43,183 ) (1,486,428 ) 1,937,855

Income Tax (Expense) Benefit
Current Tax Benefit (Expense) (266,241 ) 170,926 (81,144 ) (176,459 )
Deferred Tax Benefit 4,781 (44,980 ) 107,354 67,155

Total Income Tax (Expense) Benefit (261,460 ) 125,946 26,210 (109,304 )

Net Income (Loss) $ 3,206,006 $ 82,763 $ (1,460,218 ) $ 1,828,551

Supplemental Disclosures

Total Assets $ 30,503,346 $ 13,541,238 $ 818,060 $ 44,862,644

Total Liabilities $ 2,255,971 $ 616,133 $ 447,774 $ 3,319,878

Revenues from Intercompany Sales - eliminated from sales above $ 803,049 $ 242,693 $ 1,207,500 $ 2,253,242

Depreciation and Amortization $ 377,127 $ 47,847 $ 18,967 $ 443,941

Purchases of Long-lived Assets $ 1,071,062 $ 12,049 $ 58,365 $ 1,141,476
19
~~CODA OCTOPUS GROUP, INC.~~
~~Notes to the Consolidated Financial Statements~~
~~April 30, 2022, and 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

Six Months Ended April 30, 2021

Net Revenues $ 7,932,688 $ 2,490,847 $ - $ 10,423,535

Cost of Revenues 1,916,976 1,442,033 - 3,359,009

Gross Profit 6,015,712 1,048,814 - 7,064,526

Research & Development 980,622 247,798 - 1,228,420
Selling, General & Administrative 1,540,218 1,129,321 940,686 3,610,225

Total Operating Expenses 2,520,840 1,377,119 940,686 4,838,645

Income (Loss) from Operations 3,494,872 (328,305 ) (940,686 ) 2,225,881

Other Income (Expense)
Other Income 70,619 34 846 71,499
Funding from Paycheck Protection Program 122,327 526,545 - 648,872
Interest Expense -
-
(11,297 ) (11,297 )

Total Other Income (Expense) 192,946 526,579 (10,451 ) 709,074

Income (Loss) before Income Taxes 3,687,818 198,274 (951,137 ) 2,934,955

Income Tax (Expense) Benefit
Current Tax Benefit 84,945 237,670 12,072 334,688
Deferred Tax (Expense) Benefit (113,740 ) 264,636 (83,761 ) 67,134

Total Income Tax (Expense) Benefit (28,795 ) 502,306 (71,689 ) 401,822

Net Income (Loss) $ 3,659,023 $ 700,580 $ (1,022,826 ) $ 3,336,777

Supplemental Disclosures

Total Assets $ 27,086,894 $ 14,667,654 $ 966,418 $ 42,720,966

Total Liabilities $ 1,839,295 $ 1,027,958 $ 586,739 $ 3,453,992

Revenues from Intercompany Sales - eliminated from sales above $ 875,040 $ 139,644 $ 1,350,000 $ 2,364,684

Depreciation and Amortization $ 512,658 $ 74,081 $ 13,125 $ 599,864

Purchases of Long-lived Assets $ 544,207 $ 5,548 $ 49,434 $ 599,189
20
~~CODA OCTOPUS GROUP, INC.~~
~~Notes to the Consolidated Financial Statements~~
~~April 30, 2022, and October 31, 2021~~

NOTE 15 –DISAGGREGATION OF REVENUE
SCHEDULE OF DISAGGREGATE OF REVENUE FROM CONTRACTS FOR SALE WITH CUSTOMERS BY GEOGRAPHIC LOCATION
For the Three Months Ended April 30, 2022 For the Three Months Ended July 31, 2022
Marine Marine Marine Marine
Technology Engineering Grand Technology Engineering Grand
Business Business Total Business Business Total
Disaggregation of Total Net Sales

Primary Geographical Markets
Americas $ 424,935 $ 578,244 $ 1,003,179 $ 1,626,657 $ 1,468,483 $ 3,095,140
Europe 221,334 915,585 1,136,919 278,973 794,369 1,073,342
Australia/Asia 2,226,457 - 2,226,457 1,435,637 - 1,435,637
Middle East/Africa 618,283 - 618,283 663,290 - 663,290

Total Revenues $ 3,491,009 $ 1,493,829 $ 4,984,838 $ 4,004,557 $ 2,262,852 $ 6,267,409

Major Goods/Service Lines
Equipment Sales $ 2,058,137 $ 543,134 $ 2,601,271 $ 2,928,019 $ 451,416 $ 3,379,435
Equipment Rentals 715,308 - 715,308 380,984 - 380,984
Software Sales 134,422 - 134,422 252,204 - 252,204
Engineering Parts - 618,335 618,335 - 999,228 999,228
Services 583,142 332,360 915,502 443,350 812,208 1,255,558

Total Revenues $ 3,491,009 $ 1,493,829 $ 4,984,838 $ 4,004,557 $ 2,262,852 $ 6,267,409

Goods transferred at a point in time $ 2,174,910 $ 543,134 $ 2,718,044 $ 3,180,223 $ 451,416 $ 3,631,639
Services transferred over time 1,316,099 950,695 2,266,794 824,334 1,811,436 2,635,770

Total Revenues $ 3,491,009 $ 1,493,829 $ 4,984,838 $ 4,004,557 $ 2,262,852 $ 6,267,409

2120

CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
~~April 30,~~July 31, 2022, and October 31, 2021

NOTE 15 –DISAGGREGATION OF REVENUE (Continued)
For the Three Months Ended April 30, 2021 For the Three Months Ended July 31, 2021
Marine Marine Marine Marine
Technology Engineering Grand Technology Engineering Grand
Business Business Total Business Business Total
Disaggregation of Total Net Sales

Primary Geographical Markets
Americas $ 914,529 $ 597,463 $ 1,511,992 $ 962,043 $ 589,560 $ 1,551,603
Europe 1,665,643 591,204 2,256,847 1,649,281 1,392,764 3,042,045
Australia/Asia 1,487,023 - 1,487,023 971,563 - 971,563
Middle East/Africa 117,214 - 117,214 262,164 - 262,164

Total Revenues $ 4,184,409 $ 1,188,667 $ 5,373,076 $ 3,845,051 $ 1,982,324 $ 5,827,375

Major Goods/Service Lines
Equipment Sales $ 3,090,462 $ 93,505 $ 3,183,967 $ 2,151,520 $ 782,255 $ 2,933,775
Equipment Rentals 598,190 - 598,190 713,389 - 713,389
Software Sales 221,053 - 221,053 153,150 - 153,150
Engineering Parts - 778,369 778,369 - 1,093,176 1,093,176
Services 274,704 316,792 591,496 826,992 106,893 933,885

Total Revenues $ 4,184,409 $ 1,188,667 $ 5,373,076 $ 3,845,051 $ 1,982,324 $ 5,827,375

Goods transferred at a point in time $ 3,311,515 $ 93,505 $ 3,405,020 $ 2,298,962 $ 670,255 $ 2,969,217
Services transferred over time 872,894 1,095,162 1,968,056 1,546,089 1,312,069 2,858,158

Total Revenues $ 4,184,409 $ 1,188,667 $ 5,373,076 $ 3,845,051 $ 1,982,324 $ 5,827,375

2221

~~CODA OCTOPUS GROUP, INC.~~
~~Notes to the Consolidated Financial Statements~~
~~April 30, 2022, and October 31, 2021~~
~~NOTE 15 –DISAGGREGATION OF REVENUE (Continued)~~
For the Six Months Ended April 30, 2022
Marine Marine
Technology Engineering Grand
Business Business Total
Disaggregation of Total Net Sales
Revenues
Primary Geographical Markets
Americas $ 2,482,603 $ 1,782,526 $ 4,265,129
Europe 712,350 1,725,763 2,438,113
Australia/Asia 3,041,541 - 3,041,541
Middle East/Africa 1,078,263 - 1,078,263

Total Revenues $ 7,314,757 $ 3,508,289 $ 10,823,046

Major Goods/Service Lines
Equipment Sales $ 4,016,982 $ 979,998 $ 4,996,980
Equipment Rentals 1,345,776 - 1,345,776
Software Sales 439,218 - 439,218
Engineering Parts - 1,918,953 1,918,953
Services 1,512,781 609,338 2,122,119

Total Revenues $ 7,314,757 $ 3,508,289 $ 10,823,046

Goods transferred at a point in time $ 4,438,551 $ 980,000 $ 5,418,551
Services transferred over time 2,876,206 2,528,289 5,404,495

Total Revenues $ 7,314,757 $ 3,508,289 $ 10,823,046
23

CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
~~April 30,~~July 31, 2022, and October 31, 2021

NOTE 15 –DISAGGREGATION OF REVENUE (Continued)
For the Nine Months Ended July 31, 2022
Marine Marine
Technology Engineering Grand
Business Business Total
Disaggregation of Total Net Sales

Primary Geographical Markets
Americas $ 4,109,260 $ 3,251,009 $ 7,360,269
Europe 991,323 2,520,132 3,511,455
Australia/Asia 4,477,178 - 4,477,178
Middle East/Africa 1,741,553 - 1,741,553

Total Revenues $ 11,319,314 $ 5,771,141 $ 17,090,455

Major Goods/Service Lines
Equipment Sales $ 6,945,001 $ 1,431,414 $ 8,376,415
Equipment Rentals 1,726,760 - 1,726,760
Software Sales 691,422 - 691,422
Engineering Parts - 2,918,181 2,918,181
Services 1,956,131 1,421,546 3,377,677

Total Revenues $ 11,319,314 $ 5,771,141 $ 17,090,455

Goods transferred at a point in time $ 7,618,774 $ 1,431,416 $ 9,050,190
Services transferred over time 3,700,540 4,339,725 8,040,265

Total Revenues $ 11,319,314 $ 5,771,141 $ 17,090,455

For the Six Months Ended April 30, 2021
Marine Marine
Technology Engineering Grand
Business Business Total
Disaggregation of Total Net Sales
Revenues
Primary Geographical Markets
Americas $ 1,463,807 $ 1,113,904 $ 2,577,711
Europe 2,790,755 1,376,943 4,167,698
Australia/Asia 3,495,233 - 3,495,233
Middle East/Africa 182,893 - 182,893

Total Revenues $ 7,932,688 $ 2,490,847 $ 10,423,535

Major Goods/Service Lines
Equipment Sales $ 5,883,949 $ 314,462 $ 6,198,411
Equipment Rentals 932,553 - 932,553
Software Sales 446,275 - 446,275
Engineering Parts - 1,634,716 1,634,716
Services 669,911 541,668 1,211,579

Total Revenues $ 7,932,688 $ 2,490,847 $ 10,423,535

Goods transferred at a point in time $ 6,367,552 $ 314,462 $ 6,682,014
Services transferred over time 1,565,136 2,176,385 3,741,521

Total Revenues $ 7,932,688 $ 2,490,847 $ 10,423,535
2422

CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
~~April 30,~~July 31, 2022, and October 31, 2021
NOTE 15 –DISAGGREGATION OF REVENUE (Continued)
For the Nine Months Ended July 31, 2021
Marine Marine
Technology Engineering Grand
Business Business Total
Disaggregation of Total Net Sales

Primary Geographical Markets
Americas $ 2,425,850 $ 1,703,464 $ 4,129,314
Europe 4,440,036 2,769,707 7,209,743
Australia/Asia 4,466,796 - 4,466,796
Middle East/Africa 445,057 - 445,057

Total Revenues $ 11,777,739 $ 4,473,171 $ 16,250,910

Major Goods/Service Lines
Equipment Sales $ 8,035,469 $ 1,096,718 $ 9,132,187
Equipment Rentals 1,645,942 - 1,645,942
Software Sales 599,425 - 599,425
Engineering Parts - 2,727,892 2,941,848
Services 1,496,903 648,561 1,931,508

Total Revenues $ 11,777,739 $ 4,473,171 $ 16,250,910

Goods transferred at a point in time $ 8,666,514 $ 984,717 $ 9,651,231
Services transferred over time 3,111,225 3,488,454 6,599,679

Total Revenues $ 11,777,739 $ 4,473,171 $ 16,250,910
23
CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
July 31, 2022, and October 31, 2021

NOTE 16 – COVID-19

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

The Engineering Services Business is dependent on its workforce and supply chain to deliver its products and services primarily to the U.S. and U.K. Governments. COVID-19 outbreaks among the workforce affect our ability to complete our projects within specified timeline and also increase the costs of such projects. Furthermore, costs of increase in labor due to a general shortage of labor or supply chain issues, may not be fully recoverable either from our customers or under existing insurance policies.

The Marine Technology Business is dependent on its workforce and/or distributors/resellers to sell and deliver its products and services. Travel restrictions introduced by governments in the areas in which we sell our solutions have impacted the Marine Products Business’s ability to deploy its workforce effectively. The Company’s activities are performed in certain international locations that are also impacted by the COVID-19 outbreak. Furthermore, it is critical for the Marine Technology Business to have in-person engagement with customers for the demonstration of its 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 and marketing activities, which require demonstrations at sea at customer locations.

Further, the Pandemic may continue to affect the Company’s results of operation, financial position, and liquidity.
25
~~CODA OCTOPUS GROUP, INC.~~
~~Notes to the Consolidated Financial Statements~~
~~April 30, 2022, and October 31, 2021~~
NOTE 17 – INCOME TAXES

The Company’s effective tax rate for the three months ended ~~April 30,~~July 31, 2022, and 2021 was ~~(23.9) %~~13.4 ~~and~~ ~~(13.9) %~~respectively. The decrease in the effective tax rate for the three months ended April 30, 2022, as compared to April 30, 2021, resulted from one of the US companies having a taxable loss for the three months. We have been recording the US tax rate of 21~~% for the US companies. We have been recording the UK tax rate at~~ ~~0.0% as we believe our R&D tax credits will offset any tax liability incurred.~~
~~The Company’s effective tax rate for the six months ended April 30, 2022, and 2021 was~~ ~~5.6~~ % and (~~(13.9)~~ 15.2) % respectively. The increase in the effective tax rate for the ~~six~~three months ended ~~April 30,~~July 31, 2022, as compared to ~~April 30,~~July 31, 2021, resulted from the US companies becoming tax paying entities having used up their net operating loss carryforwards. We have been recording the US tax rate of 2121%% for the US companies. We have been recording the UK tax rate at ~~0.0~~0.0%% as we believe our R&D tax credits will offset any tax liability incurred.
The Company’s effective tax rate for the nine months ended July 31, 2022, and 2021 was 9.6 % and (14.2) % respectively. The increase in the effective tax rate for the nine months ended July 31, 2022, as compared to July 31, 2021, resulted from the US companies becoming tax paying entities having used up their net operating loss carryforwards. We have been recording the US tax rate of 21% for the US companies. We have been recording the UK tax rate at 0.0% as we believe our R&D tax credits will offset any tax liability incurred.

NOTE 18 - RECLASSIFICATION OF PRIOR YEAR PRESENTATION

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications have no effect on the previously reported consolidated financial statements.

2624

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 February 14, 2022. This discussion should not be construed to imply that the results discussed herein will necessarily be indicative of actual operating results in the future. Such discussion represents only our management’s best present assessment.

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 ~~April 30,~~July 31, 2022
“Previous Quarter” Three-month period ended ~~April 30,~~July 31, 2021
“Current ~~Six-Month~~Nine-Month Period” The ~~Six-month~~Nine-month period ended ~~April 30,~~July 31, 2022
“Previous ~~Six-Month~~Nine-Month Period” The ~~Six-month~~Nine-month period ended ~~April 30,~~July 31, 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 Business” or “Services Segment”).

Our Marine Technology Business is an established technology solution provider to the subsea and underwater imaging, surveying and diving market. It has been operating ~~in this sector~~as a supplier of solutions comprising both hardware and software products for over 25 years and it owns key proprietary technology including real time volumetric 3D Imaging Sonar technology and cutting-edge diving technology, that are used in both in 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), offshore oil and gas, forward looking obstacle avoidance, complex underwater mapping, salvage operations, dredging, bridge inspection, underwater hazard detection, port security, mining, fisheries, commercial and defense diving, and marine sciences sectors. Our novel diving technology ~~which is new to the market~~ is distributed under the name “CodaOctopus^®DAVD” (Diver Augmented Vision Display) ~~addresses~~to the global defense and commercial diving markets. The DAVD embeds inside of the diver Head up Display (HUD) a pair of transparent glasses on which different types of information is rendered in real time. We believe that itthe DAVD system has the potential to radically change how diving operations are performed globally because it delivers a real time information platform for ~~diving,~~both divers and dive supervisors, allows diving operations to be performed in zero visibility water conditions, ~~and~~ provides real time mapping of the dive ~~area.~~area and serves as an important evidential record of the dive operations completed.

2725

Although we generate most of our revenues from our real time 3D sonar which includes both proprietary hardware and ~~proprietary~~ software, we have a number of other products in the subsea market such as our inertial navigation systems (F180 Series^® and F280 Series^®) and our geophysical hardware and software solutions, which include ~~machine learning~~artificial intelligence based automatic detection systems. Our customers include offshore service providers to major oil and gas companies, renewable energy companies, underwater construction companies, law enforcement agencies, ports, mining companies, defense bodies, prime defense contractors, research institutes and universities and diving companies.

Our Services Business acts primarily as a sub-contractor to prime defense ~~contractors and engineer~~contractors. It engineers 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. 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. The scope of services provided by the Services Business encompasses concept, design, prototype and manufacturing.

Key Pillars for our Growth Plans

Our volumetric real time imaging sonar technology and our DAVD are our most promising products for the Group’s near-term growth.

Our real time 3D/4D/5D/6D ~~Imaging~~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 and 6D moving objects underwater 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 3D inspection, placement and monitoring of moving objects underwater. Furthermore, we believe our Echoscope PIPE^®is the only technology that can generate multiple real time 3D/4D/5D and 6D acoustic images of moving objects underwater using different acoustic parameters such as frequency, field of view, pulse length and acoustic filters. Our previous generation of Echoscope^®sonars are capable of imaging one underwater object in real time 3D whereas Echoscope PIPE® is capable of imaging multiple underwater objects simultaneously in real time 3D using different acoustic parameters such as range, frequency, field of view, pulse length and acoustic filters. Echoscope PIPE® enables the consolidation of imaging sensors. This new technology can generate different types of 3D images for different parts of the surveying team simultaneously. This improves productivity gains and also reduces operation costs.

In the industry in which we operate, we are widely considered the leading solution providers for underwater real time 3D visualization.

We also believe that the DAVD system is poised to radically change the way 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)~~is now in early-stage adoption by different teams within the US Navy such as the underwater construction and salvage teams. The concept of utilizing a pair of transparent glasses in the ~~HUD~~Head Up Display (HUD) underwater, is protected by patent. The DAVD HUD is manufactured and distributed by the Company under exclusive license from the United States Department of the Navy at Naval Surface Warfare Center Panama City Division. The other component parts of the DAVD system are proprietary to the Company and include software (4G USE^®), Diver Processing Pack (DPP), Top Side Controller and real time 3D Sonar. ~~The successful adoption~~Our most recent system, the GEN 3 DAVD, is an “Approved Navy Use” item. Barriers to the roll out of the DAVD and broader market adoption have been Pandemic-related. A pre-requisite of adoption is ~~dependent on the Company’s ability to have on-site demonstrations with existing and prospective customers. The DAVD system does not lend itself to adoption without such~~in person demonstration and training. Travel restrictions have hindered us since 2020. However, in the Current Quarter we have been getting more opportunities to travel and work with potential adopters of the technology.

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 in the Current Quarter

Our Form 10-K for the fiscal year ended October 31, 2021, covers factors affecting our business and are incorporated by reference herein. Set out immediately below are additional factors that affect our business in the Current Quarter:

2826

Cumulative Supply Chain Issues ~~including Ripple Effect On Orders~~

The biggest challenge for the Company in the Current Quarter is the ongoing shortage of components in the market. We are experiencing a very high percentage of unavailability of routine items required for the manufacture of our products and solutions ~~or performing custom upgrades for customers that are unavailable for purchase in the market with~~and crippling lead times being quoted from anywhere between six months to a year. ~~In addition, suppliers~~Furthermore, we are now charging on an hourly basis for time spent on seeking alternative parts. Since the beginning of the Coronavirus outbreak in March 2020, the Company has been ramping up its investment in inventory items that were typically on long lead time. We believe that in the current year we have built sufficient inventory for these high value long lead items. However, our systems are complex, and it is the low value inventory items that have traditionally been readily available that have unexpectedly become unavailable. To complete a system or perform customer upgrades, we need all parts and not just a high percentage of parts and it is these previously readily available items that have now become extremely challenging.
Our suppliers of certain subassemblies are also receiving decommits (i.e., cancellation) on orders that have been under contract with their suppliers for a long time. Therefore, even if there is a supply contract in place, firm or expected delivery dates are increasingly no longer met by suppliers.
~~We are also~~ experiencing significant price increases for all our raw materials and components. Price increases sometimes exceed 100%. The significant price increases ~~also means that~~may adversely impact on our margins and net income, unless these increased prices are fully absorbed by ~~customers, margins~~customers. The unavailability of components and ~~net income~~raw materials may ~~be adversely affected.~~
also affect the utilization of our production staff and increase our cost of operations. Unless we have raw materials for the manufacture of our products available, we cannot manufacture systems.

The general shortage of components in the market impacts our Services Business ~~even~~ more acutely given the prototyping nature of its business which does not ~~enable~~lend itself to pre-emptive forward buying. The very nature of prototyping means that any requisite components are unknown until the prototype requirements are finalized and an order is placed by the customer. Therefore, these components cannot be pre-emptively purchased until contract award or a letter of intent is received.

Additionally, our customers are also experiencing supply chain problems. This impacts on their ability to progress to the point of placing orders for the sub-assemblies that we typically design and manufacture for them. Consequently, this delays orders and impacts the level of order take by the Business.

Pandemic

Our operations continue to be impacted by the ongoing Coronavirus outbreak with its various mutations (“Pandemic”), which in turn continues to impact the demand for our goods and services. ~~We rely on~~The main impacts of 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 and South Korea. During the Current Quarter, all of these countries had various degrees of entry restrictions which continue to prevent in-person visits with existing and prospective customers to demonstrate our new offerings which underpin our growth strategy. Our products and solutions, including the top end software which controls the sonar and DAVD are complex and, as a pre-requisite for adoption, do require in-person demonstration and training for customers. It is therefore not feasible to do these virtually.
~~Furthermore,~~Pandemic in the Current Quarter ~~our~~are constraints on travel to key countries for business ~~experienced critical shortage~~development and also an increase in the number of ~~staff~~employees off work due to the infection which also increases our operations costs. While some Asian countries, including Japan, have started to allow foreigners to visit, there are still many pre-visit compliance processes that result in significant travel constraints. For example, China still has a ~~high infection rate. This has resulted~~10-day quarantine period which makes it very challenging to visit our customers for business development with this quarantine policy in increased project costs for various ongoing internal and external projects and significantly reduced productivity which will have a negative impact on our overall performance during the current financial year.place.
Inflation
~~Due to the global supply chain issues and after-shock of the Pandemic, inflation~~Inflation measured as the Consumer Price Index is significant in the countries in which wethe group’s foreign subsidiaries operate. In the twelve months to ~~April~~July 2022, these were:

- Denmark ~~6.7%,~~8.7% - source: Statistics Denmark,
- UK ~~9.0%~~10.1% - source: Office of National Statistics; and
- USA ~~8.3%.~~8.5% - source: U.S. Bureau of Labor Statistics.

Inflation affects our business in a number of areas including increasing the costs of our operations and therefore our overall financial results. See the section of ~~this report~~the MD&A which concerns “Inflation and Foreign Currency”.
Currency Fluctuations

The Company has operations in the UK, USA, Denmark, Australia and India. In the Current Quarter the USD has strengthened against major currencies including the British Pound, Euro, ~~and~~ Danish Kroner and Indian Rupees (the functional currencies of the Company’s foreign subsidiaries). A significant part of our consolidated results is transacted in British Pounds and translated into USD, our reporting currency. In the Current Quarter, for the purposes of reporting revenues and expenses, the value of the Pound and Euro respectively fell ~~5.8%~~11.8% and 12.6%, against the USD, when compared to the Previous ~~Quarter and for~~Quarter. For the reporting of assets and liabilities, the Pound fell ~~9.1%~~12.4% when compared to the Previous Quarter. The impact of currency fluctuations, including the impact of the Pound falling, is discussed more fully below in the section which concerns “Inflation and Foreign Currency”. See also Note 4 (Foreign Currency Translation) and the section of this report which concerns “Inflation and Foreign Currency”. and also Note 14 and 15 (Segment Analysis and Disaggregation) showing more detailed information on each Segment financial results and the disaggregation of our revenues by geography.

Skills/Resource Shortages and Pressure on Salaries and Wages

We are experiencing ~~skills shortage~~skill shortages in areas that are critical to our growth strategy including experienced sales and marketing personnel and software developers.
Due to the inflationary conditions in the countries in which we operate (US, the UK, Denmark and ~~Denmark)~~India), there are significant pressures on wages making it difficult to attract staff and also risking retention of skills.

Impact on Revenues and Earnings

We are uncertain as to the extent that ~~these~~the factors reported immediately above ~~including~~and those on our Form 10-K for the ~~global supply chain issues~~fiscal year ended October 31, 2021 will have on our future financial results. InInflation may increase the ~~Current Quarter, we continue to be negatively impacted by the reduction in customer orders~~cost of operations including wages and salaries and the ~~resulting drop~~increase in raw materials and components may affect our gross profit margins negatively and our overall financial results. The unavailability of components may result in under-utilization of our resources or delay in converting orders into revenues, ~~and earnings. The supply chain issues further exacerbate this problem as our customers are unable to sub-contract to us, due to problems with availability~~which in turn may increase the cost of operations. Overall, inflation, shortage of components and ~~raw materials under the main part of the programs. Furthermore, with the significant increase in the costs of components and raw materials, this~~currency fluctuations may ~~affect~~adversely impact on our earnings, as we may not be able to sustainably pass on these dramatic increases onto our customers which may result in reduce demand for our products or services or the erosion of our gross profit margins.financial results.
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Impact on Liquidity, Balance Sheet and Assets

Failure to curb the Pandemic in the near future, or address inflation and the global supply chain issues ~~and inflation~~ may adversely ~~impact on our~~affect the availability of our free cash flow, working capital, earnings and business prospects. As of ~~April 30,~~July 31, 2022, we had cash and cash equivalents of approximately ~~$20,658,119.~~$21,370,920. Based on our outstanding obligations 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, 2021.

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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.

Regarding 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, 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.

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Income Taxes

The Company accounts for income taxes in accordance with Accounting Standards Codification Topic 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 US 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 consider 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. 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.

Summary of Consolidated Results of Operations in the Current Quarter

Our consolidated financial results in the Current Quarter were ~~down compared to~~up on the Previous Quarter. This is attributed to ~~reduced order bookings~~an increase in ~~both the Products~~our revenues by 7.6%. in conjunction with a fall in total operating expenses by 12.1%. Income from Operations increased by 53% and ~~Services businesses during~~net income before tax increased by 54.8% and was $2,043,457 in the Current Quarter compared to $1,320,248 in the Previous Quarter. ~~The Products Business experienced delays~~In the Current Quarter although we recorded a tax expense of $274,800 compared to a tax benefit of $200,838 in ~~several anticipated rental projects~~the Previous Quarter, net income increased by 16.3% and was $1,768,657 compared to $1,521,086. We also recorded a higher loss on foreign currency translation adjustments, which ~~were included~~affect Comprehensive Income, of $805,157 compared to a loss of $260,681 in the Previous Quarter. During the Current Quarter, the USD, our ~~pipeline~~reporting currency strengthened significantly against major currencies including the functional currencies of ~~opportunities in both the first quarter~~our foreign subsidiaries which make up a significant part of our consolidated results. See Note 4 (Foreign Currency Translation) and the ~~second quarter~~section of the financial year. This was further exacerbated by Oceanology 2022 (one of the main industry trade events) being held in March 2022. Typically, customers postpone capital expenditure investment decisions until after this trade event. Furthermore, many key customers from Asia were not in attendance of Oceanology 2022 due to the Pandemic-related restrictions in these countries. This has resulted in reduced order by the Marine Technology Product in the first two quarters of this financial year. Although we have experienced reduced demand, we believe this relates to the current environmentMD&A which concerns “Inflation and ~~not a broader issue with our offerings.~~Foreign Currency”.

The Services Business order take continues to be slower than anticipated and is compounded by their customers projects being affected by the ongoing supply chain shortages and inflationary prices and therefore impacting the timing of the placement of sub-contracts for sub-assemblies that would typically be awarded to the Services Business.
~~Furthermore, during the Current Quarter we continued to be materially impacted by the Pandemic-related constraints placed upon the business environment~~ which limited the extent of the business development activities the Products Business could undertake in Asia. Our UK operations were also significantly impacted by a high level of infection of the coronavirus amongst staff which impacted productively and hampered our progress.
Segment Summary

Products Business

In the Current Quarter, the Products Business generated ~~$3,491,009~~$4,004,557 or ~~70%~~63.9% of our consolidated revenues compared to ~~$4,184,409~~$3,845,051 or ~~77.9%~~66% in the Previous Quarter, representing an increase of 4.1%. Gross Profit Margin increased and was 86.7% in the Current Quarter compared to 85.8% in Previous Quarter. In the Current Quarter we sold less units through agents which resulted in a reduction in commissions on sales. We recorded $33,001 for commission in the Current Quarter compared to $61,540 in the Previous Quarter, representing a ~~fall~~reduction of ~~16.6%. Revenues generated from Europe fell by 86.7% and were $221,334 compared to $1,665,443~~46.4% in ~~the Previous Quarter. We believe that this is due to the Pandemic which surged in Europe in the first half of~~commission. This modestly improved our ~~financial year affecting demand in Europe for our products. Gross Profit Margin increased slightly by 1% and was 76.6%~~margins in the Current ~~Quarter compared to 75.6% in the Previous~~ Quarter. In the Current Quarter more units of revenues in the Products Business emanated from sales through agents, resulting in an increase in commissions on sales which were 165.2% higher at $266,300 in the Current Quarter compared to $100,400, thus negatively affecting margins. In the Current Quarter Total Operating Expenses fell in the Products Business by ~~11.6%,~~4.7% and was $1,337,057 compared to $1,403,226 in the Previous ~~Quarter and~~Quarter. Net ~~Income Before Taxes fell~~income before taxes increased by ~~20.8%~~13.2% and was ~~$1,494,832~~$2,149,724 compared to ~~$2,009,600~~$1,899,552 in the Previous Quarter.

Services Business

In the Current Quarter, the Services Business generated ~~$1,493,829~~$2,262,852 or ~~30%~~36.1% of our consolidated revenues compared to ~~$1,188,667~~$1,982,324 or ~~22.1%~~34% in the Previous Quarter, representing an increase in sales of 14.2%. Gross Profit Margin was 48.2% compared to 46.0%, representing an increase of 2.2%. Total Operating Expenses fell by 11.1% and was $672,916 compared to $757,089. In the Current Quarter the Services Business realized net income before taxes of $421,631 compared to $155,164 in the Previous Quarter, representing an increase of ~~25.7%~~171.7%. Gross Profit Margin was 23.9% representing a fall of 25.6%. The fall in Gross Profit Margin in the Services Business is largely due to the mix of engineering projects executed in the Current Quarter. Revenues generated by the Services Business includes equipment sales in the amount of $534,134 which carry a lower than typical Gross Profit Margin profile for the Services Business. This project afforded the Company an opportunity to serve a new market sector with a prestigious customer which we believe will open other opportunities with this customer in the new sector. Total Operating Expenses decreased by 12.0%, largely due to a decrease in R&D expenditures in the amount of $206,271, which resulted from R&D costs incurred being subsequently applied to a contracted engineering project and moved from Operating expenses to Direct Costs. In the Current Quarter the Services Business realized a loss before income taxes of $222,916 compared to an income of $361,472 in the Previous Quarter. Although the Services Business realized a loss in the Current Quarter, we do anticipate that on an annualized basis the Services Business operations will generate a net income, as we are expecting the third and fourth quarters to be more solid for this operating segment.

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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 ~~$4,984,838~~$6,267,409 and ~~$5,373,076~~$5,827,375 respectively, representing ~~a fall~~an increase of ~~7.8%~~7.6%. The Products Business revenues ~~fell from $4,184,409 in~~increased by 4.1% over the Previous Quarter to $3,491,009 in the Current Quarter, representing a fall of 16.6%. This is largely due to slower than anticipated closure of orders in the first two quarters of this financial year, where we are seeing customer projects being postponed, thus impacting order take. In the Current Quarter,and the Services Business revenues increased by ~~25.7% and was $1,493,829 compared to $1,188,667 in~~14.2% over the Previous Quarter. Although the Services Business is quoting more projects in this financial year, the pace of progress for closing these opportunities has slowed. We believe this is largely due to supply chain issues under the prime contract causing delay in the sub-contracting process.

Gross Profit Margins: Margin percentage was ~~weaker~~slightly stronger in the Current Quarter at ~~60.8%~~72.8% (gross profit of ~~$3,031,706~~$4,562,644 compared to ~~69.8%~~72.3% (gross profit of ~~$3,749,604)~~$4,212,409) in the Previous Quarter.

Gross Profit Margins in the reporting period may vary according to a number of factors. These include:

● The percentage of consolidated sales attributed to the Products Business. The Gross Profit Margin yielded by the Products 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.
● The mix of sales generated by the Products Business:

● Outright sales versus rentals.
● Hardware related sales versus Software related sales.
● Extent of Offshore Engineering Support Services provided in the period.
● Extent of paid customer engineering work relating to customizing our technology for ~~their purpose.~~these customers’ requirements.

● Level of commissions on sales (both the Services and Products businesses work with a global network of sales agents). Most sales by the Products Business from Asia attract commission as those are typically sales via our agents/distributors ~~Network.~~network. See Notes 14 & 15 to the Unaudited Consolidated Financial Statements for more information covering Segment reporting and the disaggregation of our revenues by type and geography.
● Level of assets in the rental pool and cost of sales associated with these Rental Assets (and which are subject to depreciation).

Services Business

In the Current Quarter Gross Profit Margins for the Services Business were ~~23.9%~~48.2% compared to ~~49.5%~~46.0% in the Previous ~~Quarter. This significant fall is due to the fact that 36.4%~~Quarter reflecting more units of ~~the total revenues generated~~manufacturing than engineering design work packages in the Current Quarter by this segment relates to a particular work package which has a much lower than typical Gross Profit Margin, due to the type of project it involves. This project afforded the Company an opportunity to serve a new market sector with a prestigious customer which we believe will open other opportunities for the Company with this customer and in this sector. This has impacted the Gross Profit Margin of the Services Business in the Current Quarter and overall consolidated Gross Profit Margin.
Quarter.

Products Business

In the Current Quarter Gross Profit Margins for the Products operations were ~~76.6%~~stronger in the Current Quarter at 86.7% compared to ~~75.6%~~85.8% in the Previous Quarter.

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 $ 2,058,137 $ 3,090,462 Decrease 33.4 % $ 2,928,019 $ 2,151,520 Increase 36.1%
Equipment Rentals 715,308 598,190 Increase 19.6 % 380,984 713,389 Decrease 46.6%
Software Sales 134,422 221,053 Decrease 39.2 % 252,204 153,150 Increase 64.7%
Services 583,142 274,704 Increase 112.3 % 443,350 826,992 Decrease 46.4%

Total Net Sales $ 3,491,009 $ 4,184,409 Decrease 16.6 % $ 4,004,557 $ 3,845,051 Increase 4.1%

In the Current Quarter, the Products Business incurred commission costs of ~~$262,632~~$33,001 compared to ~~$76,631~~$61,540 in the Previous Quarter, representing a ~~242.7% increase, resulting in~~46.4% fall, which improved Gross Profit Margins ~~being lower.~~in the Current Quarter.
Further information on the performance of each Segment including revenues by product and geography in the Current Quarter can be found in Notes 14 and 15 to the ~~Unaudited~~unaudited Consolidated Financial Statements.
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Research and Development (R&D): Total consolidated Research and Development expenditures infor the Current Quarter were ~~$517,378~~$577,953 compared to ~~$645,281,~~$675,766, representing a decrease of ~~19.8%~~14.5%. The ~~reduction~~decrease is largely due to a ~~fall~~decrease in ~~R&D~~these expenditures in the Services Segment. This is discussed more fully below.

● Services Segment.

During the Current Quarter the Services Business R&D expenditures were ($~~99,868) in the Current Quarter~~27,904) compared to ~~$106,403~~$135,213 in the Previous Quarter. This amount attributed to R&D in the Current Quarter concerns an initial investment made by the Company in R&D that can now be attributed to subsequently awarded customer contract. ~~The~~In general, the fall in R&D expenditures in this business unit isreflects a ~~reflection of~~ reduction in expenditures relating to the Thermite^®product line development which ~~has been on hold~~had slowed due to ~~many trials which we~~the Pandemic. We are now re-engaging our customers who had ~~commenced prior to~~ the ~~Pandemic being stalled. Until we can get the outcome of these trials, and therefore the customer requirements for the product, we are postponing expenditures in this area.~~Thermite® on trial. One such trial which had ~~hitherto been~~ stalled due to the Pandemic has re-started and we have received the order for a small quantity of prototypes. This is an important opportunity for the success of the Thermite^® range since it is for a US Navy shipboard application and if we are successful would lead to downstream follow-on production order for multiple units. This would also be a new program and customer for the Services Segment.
As we gain momentum on the Thermite and start to realize orders, we anticipate that R&D expenditures in this area will gradually increase.

● Products Segment

~~R&D expenditures in~~
During the Current Quarter the Products Business R&D expenditures increased ~~from $538,878~~by 12.1% and were $605,857 as compared to $540,553 in the Previous ~~Quarter~~Quarter. R&D expenditures are incurred by this business in connection with investments it makes in developing its products and solutions. These expenditures are an essential part of our business, as we need to ~~$617,246~~continue to innovate around our solutions on an ongoing basis. Furthermore, in the Current Quarter ~~representing an increase of 14.54%. The real increase in~~the Product’s Segment R&D ~~Expenditures is relatively modest given that in the Current Quarter this amount includes~~expenditures include an exceptional item of ~~expenditures~~expenditure of ~~$66,000~~$104,000 which represents aaccruals for sub-contractor’s costs for development of a new generation of an ASIC (Application-Specific Integrated Circuit) device for our sonar ~~technology, which will replace the previous generation of this device which we utilize.~~technology.

Segment April 30, 2022 April 30, 2021 Percentage Change
Services Segment R&D Expenditures $ (99,868 ) $ 106,403 Decrease 193.9 %
Products Segment R&D Expenditures $ 617,246 $ 538,878 Increase 14.54 %
Segment July 31, 2022 July 31, 2021 Percentage Change
Services Segment R&D Expenditures $ (27,904 ) $ 135,213 Decrease 120.6%
Products Segment R&D Expenditures $ 605,857 $ 540,553 Increase 12.1%

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Selling, General and Administrative Expenses (SG&A): SG&A expenses for the Current Quarter fell by 11.4% and was ~~$2,033,116~~$1,960,978 compared to ~~$1,788,534~~$2,213,821 in the Previous ~~Quarter, representing an increase in this area of expenditures of 13.7%.~~Quarter.

The ~~increase~~fall in SG&A in the Current Quarter is largely due to ~~several factors. These include increase~~a reduction in ~~wages and salaries and increase in~~the Legal and Professional ~~Fees. In addition,~~Fees by 22.5% and the recording of a significantly lower non-cash charge relating to stock compensation, which was $285,104 as compared to $451,629 in the Previous Quarter, representing a 36.9% reduction.
Within the category of SG&A we ~~recorded contributions of $48,288 under the UK Government’s Pandemic Relief Program, the Coronavirus Job Retention Scheme (CJRS)~~have transactions which ~~reduced payroll expenditures in the Previous Quarter~~are cash charges and ~~therefore SG&A.~~non-cash charges. The non-cash charges comprise Depreciation, Amortization and Stock-based compensation charges. In the Current Quarter ~~we recorded no such contributions. In addition, in the Current Quarter, we recorded an increase~~non-cash items as a percentage of ~~170.48% relating to stock compensation expenditures (a non-cash charge) and which~~SGA expenses was ~~$365,568~~21.2% compared to ~~$135,157~~26.9% in the Previous Quarter. We also incurred costs related to the establishment of Coda Octopus Products (India) Private Ltd which did not exist in the Previous Quarter. This entity has been established to mitigate the acute engineering and software skills shortage that we are experiencing in both the UK and USA.

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

Expenditure April 30, 2022 April 30, 2021 Percentage Change
Wages and Salaries $ 940,460 $ 791,759 Increase of 18.78 %
Legal and Professional Fees (including accounting and audit) $ 390,218 $ 258,736 Increase of 50.82 %
Rent for our various locations $ 14,742 $ 8,158 Increase of 80.71 %
Marketing $ 108,569 $ 32,116 Increase of 238.05 %
Expenditure July 31, 2022 July 31, 2021 Percentage Change
Wages and Salaries $ 983,029 $ 871,571 Increase of 12.8%
Legal and Professional Fees (including accounting and audit) $ 200,268 $ 258,309 Decrease of 22.5%
Rent for our various locations $ 15,389 $ 13,006 Increase of 18.3%
Marketing $ 58,684 $ 23,879 Increase of 145.8%
The increase in “Wages and Salaries” ~~is a reflection of~~reflects the increased costs associated with the market conditions for employment. With inflationary pressures currently at unprecedented levels in the countries in which we operate including the USA and UK, we expect this area is likely to continue to increase to remain competitive in ~~attracting~~retaining and ~~retaining~~attracting staff.

The ~~increase~~decrease in the Current Quarter of “Legal and Professional” category of expenditures ~~is a reflection of increased~~results from an adjustment in audit fees ~~associated with~~by $125,000 in the ~~performance of the Group’s audit services.~~Current Quarter reflecting adjustment in our UK auditors’ fees.

In general, the category of “Rent” is not material for the ~~Business~~Company as we own most of our premises and facilities. The current category of rent largely reflects ~~the~~our premises ~~we are using~~ in Copenhagen which has been established to mitigate, as far as possible, the impact of the United Kingdom withdrawing from the European Union.

The Marketing Expenditures in both the Current Quarter and Previous Quarter are atypical of our projected Marketing Expenditures. Typically, our Marketing Expenditures reflect a range of marketing events such as participation ofin trade shows in different parts of the world, particularly in Europe, North America, Asia and the Middle East. Since the ~~outset~~onset of the Pandemic in 2020, our marketing activities have been severely constrained due to the ~~various government~~prevailing Pandemic-related travel restrictions on ~~travel and gatherings. This has depressed~~these countries resulting in decreased expenditures in this ~~area of expenditure.~~area. However, we are beginning to participate in more marketing events, and this has resulted in an increase of Marketing expenditures in the Current Quarter. We expect this area to materially increase ~~over the fiscal year~~as we have shifted a large part of our focus from R&D to business development and ~~be more in line with our pre-Pandemic Marketing expenditures.~~brand building.
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Operating Income: In the Current Quarter ~~we realized an operating profit of $481,212~~Operating Income increased by 53% and was $2,023,713 compared to ~~$1,315,789~~$1,322,822 in the Previous ~~Quarter, representing a fall in Operating Income of 63.4%.~~Quarter. The ~~reduction~~increase in Operating Income is a result of ~~a fall~~an increase in our consolidated revenues in the Current Quarter by ~~7.2%~~7.6% compared to the Previous Quarter along with ~~weaker Gross Profit Margins and an increase~~a reduction in Total Operating Expenses of ~~4.8%~~12.1% compared to the Previous Quarter.

Interest Expense: ~~Interest expense fell by 51.0%~~The Company paid no interest in the Current Quarter compared to ~~$2,502 from $5,108~~interest expense of $6,145 in the Previous ~~Quarter.~~Quarter, representing a 100% reduction in this area of expenditure. In the Previous Quarter, the HSBC NA loan was still outstanding. We have since repaid these amounts in full and as such we do not expect this category to be ~~material since we do not have any significant loans. This category reflects interest and charges on banking facilities we have in place, such as business credit cards.~~material.

Other Income: In the Current Quarter, we had ~~$11,995~~$19,744 as “Other Income” compared to ~~$623,238~~$3,571 in the Previous Quarter. In the ~~Previous~~Current Quarter ~~as part~~the amounts in Other Income reflect payments received for renting a surplus car parking space and also use of the US Government Pandemic Relief Program, the Company recognized $558,901 as “Other Income”, which was received under the second round of the Payroll Protection Program for payroll assistance (“PPP”). In the Current Quarter, no PPP assistance was recorded. Except for amounts received for PPP, “Other Income” category is typicallyCompany’s apartment when not ~~material.~~used by staff members.

Net Income before income taxes: In the Current Quarter, we realized Net Income before income taxes of ~~$493,208~~$2,043,457 as compared to ~~$1,939,027~~$1,320,248 in the Previous Quarter, representing ~~a fall~~an increase of ~~74.6%~~54.8%. The ~~fall~~increase in ~~Net Income~~net income before taxes is due to ~~a fall~~an increase in our consolidated revenues in the Current Quarter of ~~7.2%~~7.6% with Gross Profit Margins being ~~weaker,~~stronger, in conjunction with ~~an increase~~a decrease in Total Operating Expenses by ~~4.8%~~12.1% over the Previous Quarter. In addition, in the Previous Quarter Net Income before taxes increased by the inclusion of $558,901 in “Other Income” which represented assistance received under the PPP. Without this PPP contribution in the Previous Quarter, the fall in Net Income before income taxes in the Current Quarter would be 64.3%.
33

Net Income: In the Current Quarter, the Company realized a net income of ~~$611,303~~$1,768,657 as compared to ~~$2,207,933~~$1,521,086 in the Previous Quarter, representing an increase of 16.3%, even though the Company recorded an Income Tax Expense of $274,800 compared to an Income Tax Benefit of $200,838 in the Previous Quarter. The increase in net income is a ~~fall~~result of ~~72.3%. The fall~~an increase in ~~Net Income~~our consolidated revenues by 7.6% in conjunction with a decrease in Total Operating Expenses by 12.1% in the Current Quarter is a result of a fall in our consolidated revenues in conjunction with an increase in Total Operating Expenses. In addition, in the Previous Quarter Net Income increased by the inclusion of $558,901 in “Other Income” which represented assistance received under PPP. Without this PPP contribution in the Previous Quarter, the fall in Net Income in the Current Quarter would be 62.9%. In the Current Quarter the Company’s effective tax rate decreased as a result of the Services Business having a taxable loss in the Current Quarter. In the Current Quarter the effective tax rate was (23.9)% compared to ~~(13.9)% in~~ the Previous Quarter.

Comprehensive Income (loss). In the Current Quarter, Comprehensive ~~loss~~Income was ~~($1,655,448)~~$963,500 compared to ~~a comprehensive income of $2,506,645~~$1,260,405 for the Previous ~~Quarter.~~Quarter reflecting significant adjustments resulting from foreign currency translations. This category is affected by fluctuations in foreign currency exchange ~~transactions.~~transactions both relating to our profit and loss expenses and valuation of our assets and liabilities comprised within our balance sheet. In the Previous Quarter we realized a ~~gain~~loss on foreign currency translation adjustments relating to ~~certain~~these transactions of ~~$298,712~~$260,681 compared to a loss on these transactions ~~of $2,266,751~~ in the Current ~~Quarter.~~Quarter of $805,157. In the Current Quarter the USD has strengthened against major currencies including the British Pound, Euro, ~~and~~ Danish Kroner and Indian Rupees (the functional currencies of our foreign operations). A substantial part of these losses are paper losses associated with re-valuation of our foreign subsidiaries balance sheet. A significant part of the Company’s operations is based in the UK, and therefore a significant part of our financial transactions is performed in Pounds which are translated into USD for reporting purposes. In the Current Quarter, the Pound has fallen significantly against the USD. This is a key factor in the loss relating to foreign currency translations transactions in the Current Quarter. See Table 1 under the section which concerns “Inflation & Foreign Currency” which shows the impact of the currency adjustments on ~~our Profit & Loss Account activities~~the Income Statement and the Balance Sheet
in the Current Quarter compared to the Previous Quarter.

Results of Operations for the Current ~~Six~~Nine Month Period compared to the Previous ~~Six~~Nine Month Period

Revenue: Total consolidated revenues for the Current ~~Six~~Nine Month Period and the Previous ~~Six~~Nine Month Period were ~~$10,823,046~~$17,090,455 and ~~$10,423,535~~$16,250,910 respectively, representing an increase of ~~3.8%~~5.2%. In the Current ~~Six~~Nine Month Period, the Products Business revenues ~~fell by 7.8%. The Products Business revenue in the Current Six Month Period was $7,314,757~~were $11,319,314 compared to ~~$7,932,688.~~$11,777,739, representing a 3.9% reduction over the Previous Nine Month Period. The Services Business revenues ~~increased~~ in the Current ~~Six~~Nine Month Period and ~~was $3,508,289 compared to $2,490,847,~~the Previous Nine Month Period were 5,771,141 and $4,473,171, representing an increase of ~~40.8%~~29%. In the Current Six Month Period both the Products and Services Businesses have experienced a slow pace of converting opportunities to firm orders and we have during the period booked less orders than anticipated in our business plan. In the Current Quarter our overall quotation percentage rate was higher than the Previous Quarter. However, we are experiencing a much slower rate of closure including projects moving out in time. We believe this is reflective of the challenging environment particularly the supply chain issues that persists globally and also the ongoing constraints caused by the Pandemic, particularly in Asia which is an important market for our solutions.

Gross Profit Margins: Consolidated Margin percentage was lower in the Current ~~Six~~Nine Month Period at ~~66.4%~~68.8% (gross profit of ~~$7,191,640)~~$11,754,284) compared to ~~67.8%~~69.4% (gross profit of ~~$7,064,526)~~$11,276,935). This is largely because Gross Profit Margins for the Services Business for the Current Nine Month Period was lower at 40.8% compared to 43.8% in the Previous Nine Month Period. This is discussed more fully below.

Gross Profit Margins in the reporting period vary according to several factors, including:

● The percentage of consolidated sales attributed to the Products Business. The Gross Profit Margin yielded by the Products 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.
● The mix of sales generated by the Products Business:

● Outright sales versus rentals.
● Hardware related sales versus Software related sales.
● Extent of Offshore Engineering Support Services provided in the period.
● Extent of paid customer engineering work relating to customizing our technology for ~~their purpose.~~these customers’ requirements.

● Level of commissions on sales (both the Services and Products businesses work with a global network sales agents). Most sales from Asia attract commission as those are typically sales via our Products Operations agents/distributors ~~Network.~~network. See Notes 14 & 15 to the Unaudited Consolidated Financial Statements for more information covering Segment reporting and the disaggregation of our revenues by type and geography.
● Level of assets in the rental pool and cost of ~~the~~ sales associated with these Rental Assets (and which are subject to depreciation).
32

Services Business

Gross Profit Margins for the Services Business were lower at ~~36.1%~~40.8% in the Current ~~Six~~Nine Month Period compared to ~~42.1%~~43.8% in the Previous ~~Six~~Nine Month Period. In the Current ~~Six~~Nine Month Period ~~27.9%~~24.8% of the Services Business revenues ($~~979,998)~~1,431,414) is attributable to an engineering project which carries a lower than typical Gross Profit Margin. This project has afforded the Company an opportunity to serve a new market sector (motor racing) with a prestigious customer which we believe will open other opportunities with this customer and in this sector. This mix has impacted on the overall Gross Profit Margins of the Services ~~Business.~~Business

Products Business

~~In the Current Six Month Period~~ Gross Profit Margins for the Products Business were ~~81.0%~~higher in the Current Nine Month Period at 83.0% compared to ~~75.8%~~79.1% in the Previous ~~Six~~Nine Month Period. ~~Even though we paid increased agents commission on~~In the Current Nine Month Period more units of sales ~~generated~~were made via our agents’ network which resulted in an increase in commissions which were 3.5% higher at $434,005 in the Current ~~Six~~Nine Month Period ~~($401,004~~ compared to ~~$357,736, 12.1% higher) Gross Profit Margins were stronger~~$419,276 in the Previous Nine Month Period, which marginally impacted margins in the Products Business due to increased units of equipment rentals (44.3% over the Previous Six Month Period) and service (125.8% increase over the Previous Six Month Period) both categories attracting a higher Gross Profit Margin than hardware product sales.Business.

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 ~~Six~~Nine Month Period compared to the Previous ~~Six~~Nine Month Period is set out below:

Six Month Period 2022 Six Month Period 2021 Percentage
Change
Equipment Sales $ 4,016,982 $ 5,883,949 Decrease 31.7 %
Equipment Rentals 1,345,776 932,553 Increase 44.3 %
Software Sales 439,218 446,275 Decrease 1.6 %
Services 1,512,781 669,911 Increase 125.8 %
Total Net Sales $ 7,314,757 $ 7,932,688 Decrease 7.8 %
Nine Month
Period 2022 Nine Month
Period 2021 Percentage Change
Equipment Sales $ 6,945,001 $ 8,035,469 Decrease 13.6%
Equipment Rentals 1,726,760 1,645,942 Increase 4.9%
Software Sales 691,422 599,425 Increase 15.3%
Services 1,956,131 1,496,903 Increase 30.7%
Total Net Sales $ 11,319,314 $ 11,777,739 Decrease 3.9%
In the Current ~~Six~~Nine Month Period, the Products Business incurred ~~Commission~~commission costs of ~~$401,400~~$434,005 compared to ~~$357,736,~~$419,276, representing a ~~12.1% increase, resulting in Gross Profit Margins being lower.~~3.5% increase.
Further information on the performance of each Segment including revenues by product and geography can be found in Notes 14 and 15 to the ~~Unaudited~~unaudited Consolidated Financial Statements.
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Research and Development (R&D): R&D expenditures in the Current ~~Six~~Nine Month Period were ~~$1,190,268~~$1,768,221 compared to the ~~$1,228,420~~$1,904,186 in the Previous ~~Six~~Nine Month Period, representing a decrease of ~~3.1%~~7.1%.

● Services Segment.

During the Current ~~Six~~Nine Month Period, the Services Business R&D expenditures decreased by ~~82.4%~~95.9%. ~~The~~In general, the fall in R&D expenditures in this business unit is a reflection of reduction in expenditures relating to the ~~development of the Thermite~~^® ~~product line. Since the start of the Pandemic~~ Thermite^®~~trials have stalled. Until we can get~~product line development which had slowed due to the ~~outcome of these trials, and therefore~~Pandemic. We are now re-engaging our customers who had the ~~customer requirements for the product, we are postponing expenditures in this area.~~Thermite® on trial. One such trial which had ~~hitherto been~~ stalled due to the Pandemic has re-started and we have received the order for a small quantity of prototypes. This is an important opportunity asfor the success of the Thermite^® range since it is ~~intended~~ for a US Navy shipboard ~~application. If~~application and if we are successful we would ~~expect it~~lead to ~~result in~~ downstream follow-on production order for multiple units. This would also be a new program and customer for the Services Segment.
As we gain momentum on the Thermite and start to realize orders, we anticipate that R&D expenditures in this area will gradually increase.

● Products Segment

During the Current ~~Six~~Nine Month Period R&D expenditures in the Products Segment increased by ~~16.9%~~15.2% from ~~$980,622~~$1,521,175 in the Previous ~~Six~~Nine Month Period to ~~$1,146,621.~~$1,752,478. R&D expenditures are incurred by this business in connection with investments it makes in developing its products and solutions. These expenditures are an essential part of our business, as on an ongoing basis we need to continue to innovate around our solutions. In the Current ~~Six~~Nine Month Period, Products Business R&D expenditures include an exceptional item of expenditure of ~~$66,000~~$170,000 which represents accruals for sub-contractor’s costs for development of a new generation of an ASIC (Application-Specific Integrated Circuit) device for our sonar technology.

Segment April 30, 2022 April 30, 2021 Percentage Change July 31, 2022 July 31, 2021 Percentage Change
Services Segment R&D Expenditures $ 43,647 $ 247,798 Decrease of 82.4 % $ 15,743 $ 383,011 Decrease of 95.9%
Products Segment R&D Expenditures $ 1,146,621 $ 980,622 Increase of 16.9 % $ 1,752,478 $ 1,521,175 Increase of 15.2%

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Selling, General and Administrative Expenses (SG&A): SG&A expenses for the Current ~~Six~~Nine Month Period increased to ~~$4,155,106~~$6,116,085 from ~~$3,610,225~~$5,824,046 in the Previous ~~Six~~Nine Month Period, representing an increase of ~~15.1%~~5.0%.

The increase in SG&A in the Current ~~Six~~Nine Month Period is due to several factors. These include increase in wages and salaries and increase in Legal and Professional Fees. In addition, in the Previous ~~Six~~Nine Month Period we recorded contributions of $131,788 under the UK Government’s Pandemic Relief Program, the Coronavirus Job Retention Scheme (CJRS) which reduced payroll expenditures in the Previous ~~Six~~Nine Month Period and therefore SG&A. In the Current ~~Six~~Nine Month Period, we recorded no such contributions.
SG&A includes transactions which are cash charges and non-cash charges. The non-cash charges comprise Depreciation, Amortization and Stock-based compensation charges. In the Current ~~Six-Month~~Nine Month Period ~~we recorded~~non-cash items as a ~~significant increase~~percentage of ~~123.1% relating~~SGA was 26.6% compared to 27.4% in the Previous Nine Month Period.
In the Current Nine-Month Period, stock compensation expenditures (a non-cash charge) increased by 28.2% and ~~which~~ were ~~$690,743~~$975,847 compared to ~~$309,604~~$761,233 in the Previous ~~Six Month Period. We also incurred costs related to the establishment of Coda Octopus Products (India) Private Ltd, which did not exist in the Previous Six~~Nine Month Period.
Key Areas of SG&A Expenditure across the Group for the Current Quarter compared to the Previous Quarter are:

Expenditure April 30, 2022 April 30, 2021 Percentage Change July 31, 2022 July 31, 2021 Percentage Change
Wages and Salaries $ 1,843,622 $ 1,630,065 Increase 13.10 % $ 2,826,651 $ 2,501,636 Increase 13.0%
Legal and Professional Fees (including accounting and audit) $ 749,235 $ 594,085 Increase 26.12 % $ 949,504 $ 853,154 Increase 11.3%
Rent for our various locations $ 30,487 $ 18,283 Increase 66.75 % $ 45,876 $ 31,289 Increase 46.6%
Marketing $ 122,335 $ 43,446 Increase 181.58 % $ 210,057 $ 67,325 Increase 212.0%

~~The increase in~~In the Previous Nine Month Period, “Wages and Salaries” included $131,788 which reflected the contributions under the UK Government’s CJRS scheme. In real terms therefore this category of ~~expenditure~~expenditures has increased by 7.34% in the Current ~~Six~~Nine Month Period iswhen compared to the Previous Nine Month Period. In the Current Nine Month Period our management head count has increased to reflect that we now have a ~~reflection~~divisional CEO of ~~tightness~~our Services Business in Utah and also a new CFO. In the ~~labor market resulting in competitive conditions causing~~Previous Nine Month Period, these roles were consolidated and performed by our Previous CFO. Going forward therefore wages and salaries will reflect this increase in ~~the costs of labor in the countries in which we operate including in US, UK, Denmark and India. The increase is a reflection of increases to salaries for existing staff and new hires.~~Management salaries.
The increase in the “Legal and Professional” category of expenditures in the Current ~~Six~~Nine Month Period ~~is a reflection of~~reflects an increase in the costs of our accounting and audit services ~~fees.~~fees as we have added additional resources to this area of our business.
In general, the category of “Rent” is not material for the ~~Business~~Company as we own most of premises and facilities. The current category of rent largely reflects ~~the~~our premises in Copenhagen and storage facility that we ~~use in Copenhagen.~~maintain for our business operations.

~~The Marketing Expenditures in both the Previous Six Month Period and Current Six Month Period are atypical of our Marketing Expenditures.~~ Our marketing comprises of a raft of activities which include trade shows in different parts of the world, particularly in Europe, North America, Asia and the Middle East. In the Previous ~~Six~~Nine Month Period our marketing activities ~~have~~had been severely constrained due to the Pandemic which prevented activities such as travel to customer or attending trade shows. We are now participating in more marketing related events. However, we are still significantly constrained and not back to pre-Pandemic levels of marketing activities due to the ongoing ~~Pandemic, which restricts marketing activities in~~Pandemic-related constraints as they pertain to travel to key countries such as those in Asia where there are still significant restrictions on foreigners entering these countries. The nature of our offerings, particularly our technology solutions require us to be in close proximity with our customers including being able to physically demonstrate the performance of our solutions. Therefore, virtual meetings cannot substitute for the key requirements to be physically able to demonstrate our capabilities on water in the customer’s place of operation. As these barriers are removed including entry restrictions into these countries, we anticipate that this area of expenditures will materially increase and be more in line with our pre-Pandemic expenditures.

Operating Income: Our income from our operating activities in the Current ~~Six~~Nine Month Period was ~~$1,846,266~~$3,869,978 as compared to ~~$2,225,881~~$3,548,703 in the Previous ~~Six~~Nine Month Period which represents ~~a fall~~an increase of ~~17.1%~~9.1%. This ~~fall is a reflection of weaker Gross Profit Margins combined with~~reflects an increase in ~~Total Operating Expenses~~our revenues by ~~10.5%, as a result of a significant increase in our SG&A Expenditures~~5.2% in the Current ~~Six~~Nine Month Period over the Previous Nine Month Period.

Interest Expense: Interest expense in the Current ~~Six~~Nine Month Period was $2,902 compared to ~~$11,297~~$17,442 in the Previous ~~Six~~Nine Month Period, representing a reduction of ~~74.3%~~83.4%. WeIn the Previous Nine Month Period, we had a loan outstanding to HSBC NA which attracted interest expense. This has now been repaid in full and therefore we do not expect Interest Expense to be material for our business ~~since~~as we ~~currently~~ do not have any significant loans. ~~This~~Going forward, this category will typically ~~reflects~~reflect charges on our banking facilities such as Business credit cards.

Other Income: In the Current ~~Six~~Nine Month Period, we had Other Income of ~~$91,589~~$114,236 as compared to ~~$709,074~~$723,942 in the Previous ~~Six~~Nine Month Period. In the Previous ~~Six~~Nine Month Period Other Income included $648,872 reflecting Pandemic-related contributions under the PPP. In the Current ~~Six~~Nine Month Period, there are no such contributions. Without such contributions, this category is generally not material.

Net Income before income taxes: In the Current ~~Six~~Nine Month Period, we had a net income before income taxes of ~~$1,937,856~~$3,981,312 as compared to ~~$2,934,955~~$4,255,203 in the Previous ~~Six~~Nine Month Period, representing a fall of ~~34.0%~~6.4%. This fall is due to the fall in our consolidated revenues in the Current Quarter impacting our year-to-date consolidated revenues along with weaker gross profit margins in conjunction with an increase in Total Operating Expenses by 10.5%. In addition,largely because in the Previous ~~Six~~Nine Month Period ~~Net Income~~net income before income taxes increased by the inclusion of $648,872 in “Other Income” which represented assistance received under the PPP. Without this PPP contribution in the Previous ~~Six~~Nine Month Period, ~~the fall in Net Income~~net income before income taxes in the Current ~~Six~~Nine Month Period ~~would be 15.2%~~increased by 10.4%.

3634

Net Income: In the Current ~~Six~~Nine Month Period net income fell by ~~45.2~~26.0 % to ~~$1,828,552~~$3,597,208 from ~~$3,336,777~~$4,857,863 in the Previous ~~Six~~Nine Month Period. ~~This is due to the fall in our consolidated revenues along with weaker gross profit margins in conjunction with an increase in Total Operating Expenses.~~There are two factors which account for this reduction. In ~~addition, in~~ the Previous ~~Six~~Nine Month Period ~~Net Income~~net income increased by the inclusion of $648,872 in “Other Income” which represented assistance received under the ~~PPP. Without this~~ PPP ~~contribution~~and in the Previous ~~Six~~Nine Month Period ~~the fall in Net Income~~we had a tax benefit of $602,660 compared to a tax expense of $384,104 in the Current ~~Six~~Nine Month ~~Period would be 31.9%. In the Current Six Month Period the Company’s effective tax rate increased and was 5.5% compared to (13.9)% in the Previous Six Month~~ Period. The increase in the effective tax rate in the Current Six Month Period results from the exhaustion of the Company’s net operating losses in the United States. Furthermore, the effective tax rate in the Current Six Month Period is a lower rate because one of our subsidiaries in the United States incurred a loss in the Current Quarter.

Comprehensive Income (loss). In the Current ~~Six~~Nine Month Period Comprehensive ~~loss~~income was ~~$197,050~~$766,450 compared to Comprehensive ~~gain~~Income of ~~$4,561,102~~$5,821,507 for the Previous ~~Six~~Nine Month ~~Period.~~Period reflecting significant adjustments resulting from foreign currency translations. This category is affected by fluctuations in foreign currency exchange ~~transactions.~~transactions both relating to our profit and loss expenses and valuation of our assets and liabilities on our balance sheet. In the Previous ~~Six~~Nine Month Period we had a gain of ~~$1,224,325~~$963,644 on foreign currency translation adjustment transactions compared to a loss on these transactions of ~~$2,025,601~~$2,830,758 in the Current ~~Six~~Nine Month Period. In the Current ~~Six~~Nine Month Period, the USD has strengthened against most major currencies including the British Pound, Euro, ~~and~~ Danish Kroner ~~the~~and Indian Rupees (the functional currencies of our foreign ~~subsidiaries.~~subsidiaries). A substantial part of these losses are paper losses associated with re-valuation of our foreign subsidiaries balance sheet. A significant part of the Company’s operations is based in the UK, and therefore a significant part of our financial transactions is performed in Pounds which are translated into USD for reporting purposes. In the Current ~~Six~~Nine Month Period, the Pound has fallen significantly against the USD. This is a key factor in the ~~loss~~reduction relating to foreign currency translations transactions in the Current ~~Six~~Nine Month Period. See Table 2 under the section which concerns “Inflation & Foreign Currency” which shows the impact of the currency adjustments on our ~~Profit & Loss Account activities~~Income Statement and Balance ~~Sheet.~~Sheet in the Current Nine Month Period compared to the Previous Nine Month Period.

Liquidity and Capital Resources

At ~~April 30,~~July 31, 2022, the Company had an accumulated deficit of ~~$16,649,306,~~$14,880,649, working capital of ~~$31,336,268~~$32,781,206 and stockholders’ equity of ~~$41,542,766.~~$42,791,370. For the ~~Six~~Nine Months Ended ~~April 30,~~July 31, 2022, the Company’s operating activities provided cash of ~~$4,707,661.~~$6,337,905.

Financing Activities

Secured Promissory Note

On April 28, 2017, the Company and its wholly-owned US based subsidiaries, Coda Octopus Products, Inc. and Coda Octopus Colmek, Inc. (together, the “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 Loan was satisfied in full on December 28, 2021.

Revolving Credit Line

The Company entered into a $4,000,000 revolving line of credit with HSBC Bank NA on November 27, 2019 (renewed up to November 2022), with interest at the prime rate. The outstanding balance on the line of credit was $0 as of ~~April 30,~~July 31, 2022.
37

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;
●
Australian Dollars for our Australian Operations
● Indian Rupees for our Indian Operations

Fluctuations in currency exchange rates can affect the Company’s sales, profitability, balance sheet valuation and financial position when the foreign currencies of its international operations are translated into US. 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.

35
The impact of currency fluctuations on the three months and ~~six~~nine months ended ~~April 30,~~July 31, 2022, is shown in Table 1 and Table 2 below.
For the purpose of Table 1 “Constant Rates” is defined as the prevailing exchange rate for balance sheet transactions in the Previous Quarter and weighted average exchange rate prevailing in the Previous Quarter for related revenues and expenses.

Table 1: Three Months ended ~~April 30,~~July 31, 2022

British Pounds Australian Dollar Danish Kroner Indian Rupee US Dollar British Pounds Australian Dollar Danish Kroner Indian Rupee US Dollar
Actual Constant Actual Constant Actual Constant Actual Constant Actual Constant Total Actual Constant Actual Constant Actual Constant Actual Constant Actual Constant Total
Results Rates Results Rates Results Rates Results Rates Results Rates Effect Results Rates Results Rates Results Rates Results Rates Results Rates Effect
Revenues 3,280,837 3,412,590 - - 700,819 751,162 - - 3,981,656 4,163,752 (182,096 ) 2,779,524 3,005,172 - - 392,743 431,641 - - 3,172,267 3,436,814 (264,547 )
Costs and Other (Income) Expense 2,529,514 2,631,095 319 333 38,881 41,674 (25,077 ) (25,861) 2,543,637 2,647,241 (103,604 )
Costs 2,116,993 2,288,856 (123 ) (130 ) (9,993 ) (10,983 ) 32,751 22,505 2,139,628 2,300,348 (160,720 )
Net profit (losses) 751,323 781,495 (319 ) (333 ) 661,938 709,488 25,077 25,861 1,438,019 1,516,511 (78,492 ) 662,531 716,317 123 130 402,736 442,624 (32,751 ) (22,605 ) 1,032,639 1,136,465 (103,826 )
Assets 21,722,299 23,651,516 32,203 34,323 2,687,985 2,947,397 18,822 18,429 24,461,309 26,651,665 (2,190,356 ) 21,542,823 24,597,369 31,814 33,412 3,003,536 3,488,577 13,785 14,597 24,591,958 28,133,955 (3,541,997 )
Liabilities (1,675,791 ) (1,824,623 ) (2,415 ) (2,574 ) (58,317 ) (63,945 ) (67,054 ) (65,652 ) (1,803,577 ) (1,956,794 ) 153,217 (1,552,446 ) (1,772,567 ) (2,392 ) (2,512 ) (51,832 ) (60,202 ) (89,270 ) (94,525 ) (1,695,940 ) (1,929,806 ) 233,866
Net assets 20,046,508 21,826,893 29,788 31,749 2,629,668 2,883,452 (48,232 ) (47,223 ) 22,657,732 24,694,871 (2,037,139 ) 19,990,377 22,824,802 29,422 30,900 2,951,704 3,428,375 (75,485 ) (79,928 ) 22,896,018 26,204,149 (3,308,131 )
This table shows that the effect of constant exchange rates, versus the actual exchange rate fluctuations, decreased our net income on activities in the Current Quarter by ~~$78,492~~$103,826 and decreased net assets by ~~$2,037,139.~~$3,308,131.

Table 2: ~~Six~~Nine Months ended ~~April 30,~~July 31, 2022

The impact of currency fluctuations on the ~~six~~nine months ended ~~April 30,~~July 31, 2022, is shown below. In this context “Constant Rates” is defined as the prevailing exchange rate for balance sheet transactions in the Previous ~~Six~~Nine Month Period and weighted average exchange rate prevailing in the Previous ~~Six~~Nine Month Period for related revenues and expenses.

British Pounds Australian Dollar Danish Kroner Indian Rupee US Dollar British Pounds Australian Dollar Danish Kroner Indian Rupee USD
Actual Constant Actual Constant Actual Constant Actual Constant Actual Constant Total Actual Constant Actual Constant Actual Constant Actual Constant Actual Constant Total
Results Rates Results Rates Results Rates Results Rates Results Rates Effect Results Rates Results Rates Results Rates Results Rates Results Rates Effect
Revenues 5,816,119 6,049,685 - - 1,089,562 1,167,830 - - 6,905,681 7,217,515 (311,834 ) 8,595,643 9,177,322 - - 1,482,305 1,632,822 - - 10,077,948 10,810,144 (732,196 )
Costs & Other (Income) Expense 4,791,775 4,984,205 24,573 25,677 109,026 116,858 (25,077 ) (25,861) 4,900,297 5,100,879 (200,582 )
Costs 6,908,773 7,376,297 24,450 25,970 99,033 109,089 7,673 7,916 7,039,929 7,519,272 (479,343 )
Net profit (losses) 1,024,344 1,065,480 (24,573 ) (25,677 ) 980,536 1,050,972 25,077 25,861 2,005,384 2,116,636 (111,252 ) 1,686,870 1,801,025 (24,450 ) (25,970 ) 1,383,272 1,523,733 (7,673 ) (7,916 ) 3,038,019 3,290,872 (252,853 )
Assets 21,722,299 23,651,516 32,203 34,323 2,687,985 2,947,397 18,822 18,429 24,461,309 26,651,665 (2,190,356 ) 21,542,823 24,597,369 31,814 33,412 3,003,536 3,488,577 13,785 14,597 24,591,958 28,133,955 (3,541,997 )
Liabilities (1,675,791 ) (1,824,623 ) (2,415 ) (2,574 ) (58,317 ) (63,945 ) (67,054 ) (65,652 ) (1,803,577 ) (1,956,794 ) 153,217 (1,552,446 ) (1,772,567 ) (2,392 ) (2,512 ) (51,832 ) (60,202 ) (89,270 ) (94,525 ) (1,695,940 ) (1,929,806 ) 233,866
Net assets 20,046,508 21,826,893 29,788 31,749 2,629,668 2,883,452 (48,232 ) (47,223 ) 22,657,732 24,694,871 (2,037,139 ) 19,990,377 22,824,802 29,422 30,900 2,951,704 3,428,375 (75,485 ) (79,928 ) 22,896,018 26,204,149 (3,308,131 )

This table shows that the effect of constant exchange rates, versus the actual exchange rate fluctuations, decreased our net income ~~on activities~~ in the Current ~~Six~~Nine Months Period by ~~$111,252~~$252,853 and decreased net assets by ~~$2,037,139.~~$3,308,131.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Item 3. Qualitative and Quantitative 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 ~~April 30, 2021.~~July 31, 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 reporting period covered by this report.

3836

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)

3937

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: ~~June~~September 14, 2022 /s/ Annmarie Gayle
Annmarie Gayle
Chief Executive Officer

Date: ~~June~~September 14, 2022 /s/ ~~Michael Midgley~~Nathan Parker
~~Michael Midgley~~Nathan Parker
Chief Financial Officer

4038

	April 30, 2022		October 31, 2021

Raw materials and parts	$	7,403,241	$	7,525,419
Work in progress		743,008		919,619
Finished goods		2,452,122		2,246,139
Total Inventory	$	10,598,371	$	10,691,177

	July 31,		October 31,
	2022		2021

Raw materials and parts	$	6,847,710	$	7,525,419
Work in progress		660,890		919,619
Finished goods		2,674,613		2,246,139
Total Inventory	$	10,183,213	$	10,691,177

		Three Months		Three Months		Six Months		Six Months
	Three Months		Three Months		Six Months		Six Months		Three Months		Three Months		Nine Months		Nine Months
	Ended		Ended		Ended		Ended		Ended		Ended		Ended		Ended
	April 30		April 30		April 30		April 30		July 31		July 31		July 31		July 31
Fiscal Period	2022		2021		2022		2021		2022		2021		2022		2021
Numerator:
Net Income	$	611,303	$	2,207,933	$	1,828,551	$	3,336,777	$	1,768,657	$	1,521,086	$	3,597,208	$	4,857,863

Denominator:
Basic weighted average common shares outstanding		10,857,673		10,772,315		10,857,429		10,763,652		10,858,302		10,830,183		10,857,724		10,786,107
Unused portion of options and restricted stock awards		547,834		419,000		547,834		419,000		516,839		512,501		516,839		512,501
Diluted outstanding shares		11,405,507		11,191,315		11,405,263		11,182,652		11,375,141		11,342,684		11,374,563		11,298,608

Net income per share

Basic	$	0.06	$	0.20	$	0.17	$	0.31	$	0.16	$	0.14	$	0.33	$	0.45
Diluted	$	0.05	$	0.20	$	0.16	$	0.30	$	0.16	$	0.13	$	0.32	$	0.43

	●	Americas

	●	Europe

	●	Australia/Asia
	●
	●	Middle East/Africa

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

Three Months Ended July 31, 2022

Net Revenues	$	4,004,557		$	2,262,852		$	-		$	6,267,409

Cost of Revenues		532,248			1,172,517			-			1,704,765

Gross Profit		3,472,309			1,090,335			-			4,562,644

Research & Development		605,857			(27,904	)		-			577,953
Selling, General & Administrative		731,200			700,820			528,958			1,960,978

Total Operating Expenses		1,337,057			672,916			528,958			2,538,931

Income (Loss) from Operations		2,135,252			417,419			(528,958	)		2,023,713

Other Income (Expense)
Other Income		14,472			4,212			1,060			19,744
Funding from Paycheck Protection Program
Interest Expense		-			-			-			-

Total Other Income (Expense)		14,472			4,212			1,060			19,744

Income (Loss) before Income Taxes		2,149,724			421,631			(527,898	)		2,043,457

Income Tax (Expense) Benefit
Current Tax Expense		(226,264	)		(23,148	)		(77,320	)		(326,732	)
Deferred Tax Benefit		378			2,141			49,413			51,932

Total Income Tax (Expense) Benefit		(225,886	)		(21,007	)		(27,907	)		(274,800	)

Net Income (Loss)	$	1,923,838		$	400,624		$	(555,805	)	$	1,768,657

Supplemental Disclosures

Total Assets	$	33,015,110		$	13,354,167		$	834,699		$	47,203,976

Total Liabilities	$	3,246,151		$	774,497		$	391,958		$	4,412,606

Revenues from Intercompany Sales - eliminated from sales above	$	966,316		$	62,757		$	607,500		$	1,636,573

Depreciation and Amortization	$	174,739		$	24,209		$	9,873		$	208,821

Purchases of Long-lived Assets	$	14,815		$	22,125		$	17,469		$	54,409

	For the Three Months Ended April 30, 2022						For the Three Months Ended July 31, 2022
	Marine		Marine				Marine		Marine
	Technology		Engineering		Grand		Technology		Engineering		Grand
	Business		Business		Total		Business		Business		Total
Disaggregation of Total Net Sales

Primary Geographical Markets
Americas	$	424,935	$	578,244	$	1,003,179	$	1,626,657	$	1,468,483	$	3,095,140
Europe		221,334		915,585		1,136,919		278,973		794,369		1,073,342
Australia/Asia		2,226,457		-		2,226,457		1,435,637		-		1,435,637
Middle East/Africa		618,283		-		618,283		663,290		-		663,290

Total Revenues	$	3,491,009	$	1,493,829	$	4,984,838	$	4,004,557	$	2,262,852	$	6,267,409


Major Goods/Service Lines
Equipment Sales	$	2,058,137	$	543,134	$	2,601,271	$	2,928,019	$	451,416	$	3,379,435
Equipment Rentals		715,308		-		715,308		380,984		-		380,984
Software Sales		134,422		-		134,422		252,204		-		252,204
Engineering Parts		-		618,335		618,335		-		999,228		999,228
Services		583,142		332,360		915,502		443,350		812,208		1,255,558

Total Revenues	$	3,491,009	$	1,493,829	$	4,984,838	$	4,004,557	$	2,262,852	$	6,267,409


Goods transferred at a point in time	$	2,174,910	$	543,134	$	2,718,044	$	3,180,223	$	451,416	$	3,631,639
Services transferred over time		1,316,099		950,695		2,266,794		824,334		1,811,436		2,635,770

Total Revenues	$	3,491,009	$	1,493,829	$	4,984,838	$	4,004,557	$	2,262,852	$	6,267,409

	For the Three Months Ended April 30, 2021						For the Three Months Ended July 31, 2021
	Marine		Marine				Marine		Marine
	Technology		Engineering		Grand		Technology		Engineering		Grand
	Business		Business		Total		Business		Business		Total
Disaggregation of Total Net Sales

Primary Geographical Markets
Americas	$	914,529	$	597,463	$	1,511,992	$	962,043	$	589,560	$	1,551,603
Europe		1,665,643		591,204		2,256,847		1,649,281		1,392,764		3,042,045
Australia/Asia		1,487,023		-		1,487,023		971,563		-		971,563
Middle East/Africa		117,214		-		117,214		262,164		-		262,164

Total Revenues	$	4,184,409	$	1,188,667	$	5,373,076	$	3,845,051	$	1,982,324	$	5,827,375


Major Goods/Service Lines
Equipment Sales	$	3,090,462	$	93,505	$	3,183,967	$	2,151,520	$	782,255	$	2,933,775
Equipment Rentals		598,190		-		598,190		713,389		-		713,389
Software Sales		221,053		-		221,053		153,150		-		153,150
Engineering Parts		-		778,369		778,369		-		1,093,176		1,093,176
Services		274,704		316,792		591,496		826,992		106,893		933,885

Total Revenues	$	4,184,409	$	1,188,667	$	5,373,076	$	3,845,051	$	1,982,324	$	5,827,375


Goods transferred at a point in time	$	3,311,515	$	93,505	$	3,405,020	$	2,298,962	$	670,255	$	2,969,217
Services transferred over time		872,894		1,095,162		1,968,056		1,546,089		1,312,069		2,858,158

Total Revenues	$	4,184,409	$	1,188,667	$	5,373,076	$	3,845,051	$	1,982,324	$	5,827,375

	For the Six Months Ended April 30, 2022
	Marine		Marine
	Technology		Engineering		Grand
	Business		Business		Total
Disaggregation of Total Net Sales
Revenues
Primary Geographical Markets
Americas	$	2,482,603	$	1,782,526	$	4,265,129
Europe		712,350		1,725,763		2,438,113
Australia/Asia		3,041,541		-		3,041,541
Middle East/Africa		1,078,263		-		1,078,263

Total Revenues	$	7,314,757	$	3,508,289	$	10,823,046


Major Goods/Service Lines
Equipment Sales	$	4,016,982	$	979,998	$	4,996,980
Equipment Rentals		1,345,776		-		1,345,776
Software Sales		439,218		-		439,218
Engineering Parts		-		1,918,953		1,918,953
Services		1,512,781		609,338		2,122,119

Total Revenues	$	7,314,757	$	3,508,289	$	10,823,046


Goods transferred at a point in time	$	4,438,551	$	980,000	$	5,418,551
Services transferred over time		2,876,206		2,528,289		5,404,495

Total Revenues	$	7,314,757	$	3,508,289	$	10,823,046

	For the Nine Months Ended July 31, 2022
	Marine		Marine
	Technology		Engineering		Grand
	Business		Business		Total
Disaggregation of Total Net Sales

Primary Geographical Markets
Americas	$	4,109,260	$	3,251,009	$	7,360,269
Europe		991,323		2,520,132		3,511,455
Australia/Asia		4,477,178		-		4,477,178
Middle East/Africa		1,741,553		-		1,741,553

Total Revenues	$	11,319,314	$	5,771,141	$	17,090,455

Major Goods/Service Lines
Equipment Sales	$	6,945,001	$	1,431,414	$	8,376,415
Equipment Rentals		1,726,760		-		1,726,760
Software Sales		691,422		-		691,422
Engineering Parts		-		2,918,181		2,918,181
Services		1,956,131		1,421,546		3,377,677

Total Revenues	$	11,319,314	$	5,771,141	$	17,090,455

Goods transferred at a point in time	$	7,618,774	$	1,431,416	$	9,050,190
Services transferred over time		3,700,540		4,339,725		8,040,265

Total Revenues	$	11,319,314	$	5,771,141	$	17,090,455

	For the Six Months Ended April 30, 2021
	Marine		Marine
	Technology		Engineering		Grand
	Business		Business		Total
Disaggregation of Total Net Sales
Revenues
Primary Geographical Markets
Americas	$	1,463,807	$	1,113,904	$	2,577,711
Europe		2,790,755		1,376,943		4,167,698
Australia/Asia		3,495,233		-		3,495,233
Middle East/Africa		182,893		-		182,893

Total Revenues	$	7,932,688	$	2,490,847	$	10,423,535


Major Goods/Service Lines
Equipment Sales	$	5,883,949	$	314,462	$	6,198,411
Equipment Rentals		932,553		-		932,553
Software Sales		446,275		-		446,275
Engineering Parts		-		1,634,716		1,634,716
Services		669,911		541,668		1,211,579

Total Revenues	$	7,932,688	$	2,490,847	$	10,423,535


Goods transferred at a point in time	$	6,367,552	$	314,462	$	6,682,014
Services transferred over time		1,565,136		2,176,385		3,741,521

Total Revenues	$	7,932,688	$	2,490,847	$	10,423,535

	For the Nine Months Ended July 31, 2021
	Marine		Marine
	Technology		Engineering		Grand
	Business		Business		Total
Disaggregation of Total Net Sales

Primary Geographical Markets
Americas	$	2,425,850	$	1,703,464	$	4,129,314
Europe		4,440,036		2,769,707		7,209,743
Australia/Asia		4,466,796		-		4,466,796
Middle East/Africa		445,057		-		445,057

Total Revenues	$	11,777,739	$	4,473,171	$	16,250,910

Major Goods/Service Lines
Equipment Sales	$	8,035,469	$	1,096,718	$	9,132,187
Equipment Rentals		1,645,942		-		1,645,942
Software Sales		599,425		-		599,425
Engineering Parts		-		2,727,892		2,941,848
Services		1,496,903		648,561		1,931,508

Total Revenues	$	11,777,739	$	4,473,171	$	16,250,910

Goods transferred at a point in time	$	8,666,514	$	984,717	$	9,651,231
Services transferred over time		3,111,225		3,488,454		6,599,679

Total Revenues	$	11,777,739	$	4,473,171	$	16,250,910

“Current Quarter”	Three-month period ended ~~April 30,~~July 31, 2022
“Previous Quarter”	Three-month period ended ~~April 30,~~July 31, 2021
“Current ~~Six-Month~~Nine-Month Period”	The ~~Six-month~~Nine-month period ended ~~April 30,~~July 31, 2022
“Previous ~~Six-Month~~Nine-Month Period”	The ~~Six-month~~Nine-month period ended ~~April 30,~~July 31, 2021

	●	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 Business” or “Services Segment”).

	-	Denmark ~~6.7%,~~8.7% - source: Statistics Denmark,
	-	UK ~~9.0%~~10.1% - source: Office of National Statistics; and
	-	USA ~~8.3%.~~8.5% - source: U.S. Bureau of Labor Statistics.

	●	The percentage of consolidated sales attributed to the Products Business. The Gross Profit Margin yielded by the Products 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.
	●	The mix of sales generated by the Products Business:

		●	Outright sales versus rentals.
		●	Hardware related sales versus Software related sales.
		●	Extent of Offshore Engineering Support Services provided in the period.
		●	Extent of paid customer engineering work relating to customizing our technology for ~~their purpose.~~these customers’ requirements.

	●	Level of commissions on sales (both the Services and Products businesses work with a global network of sales agents). Most sales by the Products Business from Asia attract commission as those are typically sales via our agents/distributors ~~Network.~~network. See Notes 14 & 15 to the Unaudited Consolidated Financial Statements for more information covering Segment reporting and the disaggregation of our revenues by type and geography.
	●	Level of assets in the rental pool and cost of sales associated with these Rental Assets (and which are subject to depreciation).

	Current Quarter Products		Previous Quarter Products		Percentage Change			Current Quarter Products		Previous Quarter Products		Percentage Change
Equipment Sales	$	2,058,137	$	3,090,462		Decrease 33.4	%	$	2,928,019	$	2,151,520	Increase 36.1%
Equipment Rentals		715,308		598,190		Increase 19.6	%		380,984		713,389	Decrease 46.6%
Software Sales		134,422		221,053		Decrease 39.2	%		252,204		153,150	Increase 64.7%
Services		583,142		274,704		Increase 112.3	%		443,350		826,992	Decrease 46.4%

Total Net Sales	$	3,491,009	$	4,184,409		Decrease 16.6	%	$	4,004,557	$	3,845,051	Increase 4.1%

Segment	April 30, 2022			April 30, 2021		Percentage Change
Services Segment R&D Expenditures	$	(99,868	)	$	106,403		Decrease 193.9	%
Products Segment R&D Expenditures	$	617,246		$	538,878		Increase 14.54	%

Segment	July 31, 2022			July 31, 2021		Percentage Change
Services Segment R&D Expenditures	$	(27,904	)	$	135,213	Decrease 120.6%
Products Segment R&D Expenditures	$	605,857		$	540,553	Increase 12.1%

Expenditure	April 30, 2022		April 30, 2021		Percentage Change
Wages and Salaries	$	940,460	$	791,759		Increase of 18.78	%
Legal and Professional Fees (including accounting and audit)	$	390,218	$	258,736		Increase of 50.82	%
Rent for our various locations	$	14,742	$	8,158		Increase of 80.71	%
Marketing	$	108,569	$	32,116		Increase of 238.05	%

	Six Month Period 2022		Six Month Period 2021		Percentage Change
Equipment Sales	$	4,016,982	$	5,883,949		Decrease 31.7	%
Equipment Rentals		1,345,776		932,553		Increase 44.3	%
Software Sales		439,218		446,275		Decrease 1.6	%
Services		1,512,781		669,911		Increase 125.8	%
Total Net Sales	$	7,314,757	$	7,932,688		Decrease 7.8	%

	Nine Month Period 2022		Nine Month Period 2021		Percentage Change
Equipment Sales	$	6,945,001	$	8,035,469	Decrease 13.6%
Equipment Rentals		1,726,760		1,645,942	Increase 4.9%
Software Sales		691,422		599,425	Increase 15.3%
Services		1,956,131		1,496,903	Increase 30.7%
Total Net Sales	$	11,319,314	$	11,777,739	Decrease 3.9%

	●	US Dollars for US Operations;
	●	British Pound for United Kingdom Operations;
	●	Danish Kroner for our Danish Operations;
	●	Australian Dollars for our Australian Operations
	●	Indian Rupees for our Indian Operations

	British Pounds						Australian Dollar						Danish Kroner						Indian Rupee						US Dollar									British Pounds						Australian Dollar						Danish Kroner						Indian Rupee						US Dollar
	Actual			Constant			Actual			Constant			Actual			Constant			Actual			Constant			Actual			Constant			Total			Actual			Constant			Actual			Constant			Actual			Constant			Actual			Constant			Actual			Constant			Total
	Results			Rates			Results			Rates			Results			Rates			Results			Rates			Results			Rates			Effect			Results			Rates			Results			Rates			Results			Rates			Results			Rates			Results			Rates			Effect
Revenues		3,280,837			3,412,590			-			-			700,819			751,162			-			-			3,981,656			4,163,752			(182,096	)		2,779,524			3,005,172			-			-			392,743			431,641			-			-			3,172,267			3,436,814			(264,547	)
Costs and Other (Income) Expense		2,529,514			2,631,095			319			333			38,881			41,674			(25,077	)		(25,861)			2,543,637			2,647,241			(103,604	)
Costs																																			2,116,993			2,288,856			(123	)		(130	)		(9,993	)		(10,983	)		32,751			22,505			2,139,628			2,300,348			(160,720	)
Net profit (losses)		751,323			781,495			(319	)		(333	)		661,938			709,488			25,077			25,861			1,438,019			1,516,511			(78,492	)		662,531			716,317			123			130			402,736			442,624			(32,751	)		(22,605	)		1,032,639			1,136,465			(103,826	)
Assets		21,722,299			23,651,516			32,203			34,323			2,687,985			2,947,397			18,822			18,429			24,461,309			26,651,665			(2,190,356	)		21,542,823			24,597,369			31,814			33,412			3,003,536			3,488,577			13,785			14,597			24,591,958			28,133,955			(3,541,997	)
Liabilities		(1,675,791	)		(1,824,623	)		(2,415	)		(2,574	)		(58,317	)		(63,945	)		(67,054	)		(65,652	)		(1,803,577	)		(1,956,794	)		153,217			(1,552,446	)		(1,772,567	)		(2,392	)		(2,512	)		(51,832	)		(60,202	)		(89,270	)		(94,525	)		(1,695,940	)		(1,929,806	)		233,866
Net assets		20,046,508			21,826,893			29,788			31,749			2,629,668			2,883,452			(48,232	)		(47,223	)		22,657,732			24,694,871			(2,037,139	)		19,990,377			22,824,802			29,422			30,900			2,951,704			3,428,375			(75,485	)		(79,928	)		22,896,018			26,204,149			(3,308,131	)

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)

	Coda Octopus Group, Inc. (Registrant)

Date: ~~June~~September 14, 2022	/s/ Annmarie Gayle
	Annmarie Gayle
	Chief Executive Officer

Date: ~~June~~September 14, 2022	/s/ ~~Michael Midgley~~Nathan Parker
	~~Michael Midgley~~Nathan Parker
	Chief Financial Officer