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 ~~July~~January 31, ~~2022~~2023

☐ 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)~~(863) ~~735 2406~~937 8985

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ 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 ~~September 14, 2022~~March 15, 2023 is ~~10,858,302~~11,020,167.

INDEX

	Page
PART I - Financial Information	3

Item 1: Financial Statements	3

~~Item 1: Financial Statements~~Consolidated Balance Sheets as of January 31, 2023 (Unaudited) and October 31, 2022	3

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

Consolidated Statements of Income and Comprehensive Income for the Three ~~and Nine~~ Months Ended ~~July~~January 31, 2023 and 2022 (Unaudited)	5

Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended January 31, 2023 and ~~2021~~2022 (Unaudited)	6

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

Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~July~~January 31, 2023 and 2022 ~~and 2021~~ (Unaudited)	87

Notes to Unaudited Consolidated Financial Statements	98

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations	2520

Item 3: Quantitative and Qualitative Disclosures about Market Risks	28
	36
Item 4: Controls and Procedures	28

~~Item 4: Controls and Procedures~~PART II - Other Information	29
	36
Item 1: Legal Proceedings	29

~~PART II - Other Information~~Item 1A: Risk Factors	3729

~~Item 1: Legal Proceedings~~	37

~~Item 1A: Risk Factors~~	37

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds	3729

Item 3: Default Upon Senior Securities	3729

Item 4: Mine Safety Disclosures	3729

Item 5: Other Information	3729

Item 6: Exhibits	3729

Signatures	3830

PART I. FINANCIAL INFORMATION

~~Item 1. Financial Statements~~

~~Unaudited Consolidated Financial Statements~~

~~For the Three Months Ended July 31 2022 and 2021~~

~~Contents~~

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

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

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

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

~~Notes to Unaudited Consolidated Financial Statements~~	9

CODA OCTOPUS GROUP, INC.

Consolidated Balance Sheets

~~July~~January 31, ~~2022~~2023 and October 31, ~~2021~~2022

	2022		2021		2023		2022
	Unaudited				Unaudited
ASSETS
CURRENT ASSETS

Cash	$	21,370,920	$	17,747,656	$	24,522,383	$	22,927,371
Accounts Receivable, net		4,254,168		4,207,996		3,142,879		2,870,600
Inventory		10,183,213		10,691,177		11,177,386		10,027,111
Unbilled Receivables		416,394		1,080,384		650,774		602,115
Prepaid Expenses		397,127		1,202,327		381,011		240,464
Other Current Assets		469,175		627,619		431,807		343,061

Total Current Assets		37,090,997		35,557,159		40,306,240		37,010,722

FIXED ASSETS
Property and Equipment, net		6,123,548		6,037,101		6,071,611		5,832,532

OTHER ASSETS
Goodwill and Other Intangibles, net		3,825,878		3,794,383		3,830,437		3,824,394
Deferred Tax Asset		163,553		76,776		295,817		259,810

Total Other Assets		3,989,431		3,871,159		4,126,254		4,084,204

Total Assets	$	47,203,976	$	45,465,419	$	50,504,105	$	46,927,458

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

CODA OCTOPUS GROUP, INC.

Consolidated Balance Sheets (Continued)

~~July~~January 31, ~~2022~~2023 and October 31, ~~2021~~2022

	2022			2021			2023			2022
		Unaudited					Unaudited
LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES

Accounts Payable	$	836,978		$	1,454,611		$	1,414,610		$	793,247
Accrued Expenses and Other Current Liabilities		1,416,326			740,449			1,612,168			1,731,706
Note Payable		-			63,559
Deferred Revenue		2,056,487			1,999,841			805,045			943,569

Total Current Liabilities		4,309,791			4,258,460			3,831,823			3,468,522

LONG TERM LIABILITIES

Deferred Revenue, less current portion		102,815			157,886			101,813			76,127

Total Long Term Liabilities		102,815			157,886

Total Liabilities		4,412,606			4,416,346			3,933,636			3,544,649

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
Common Stock, $.001 par value; 150,000,000 shares authorized, 10,942,353 issued and outstanding as of January 31, 2023 and 10,916,853 shares issued and outstanding as of October 31, 2022								10,943			10,918
Treasury Stock								(28,337	)		(28,337	)
Additional Paid-in Capital		62,158,977			61,183,131			62,496,116			62,313,988
Accumulated Other Comprehensive Loss		(4,497,817	)		(1,667,059	)		(3,129,474	)		(4,737,124	)
Accumulated Deficit		(14,880,649	)		(18,477,857	)		(12,778,779	)		(14,176,636	)

Total Stockholders�� Equity		42,791,370			41,049,073
Total Stockholders’ Equity								46,570,469			43,382,809

Total Liabilities and Stockholders’ Equity	$	47,203,976		$	45,465,419		$	50,504,105		$	46,927,458

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

CODA OCTOPUS GROUP, INC.

Consolidated Statements of Income and Comprehensive Income

(Unaudited)

													2023			2022
	Three Months Ended July 31,						Nine Months Ended July 31,						Three Months Ended January 31,
	2022			2021			2022			2021			2023			2022

Net Revenues	$	6,267,409		$	5,827,375		$	17,090,455		$	16,250,910		$	5,596,284		$	5,838,208
Cost of Revenues		1,704,765			1,614,966			5,336,171			4,973,975			1,843,279			1,678,274

Gross Profit		4,562,644			4,212,409			11,754,284			11,276,935			3,753,005			4,159,934

OPERATING EXPENSES
Research & Development		577,953			675,766			1,768,221			1,904,186			444,458			672,890
Selling, General & Administrative		1,960,978			2,213,821			6,116,085			5,824,046			1,962,451			2,111,112

Total Operating Expenses		2,538,931			2,889,587			7,884,306			7,728,232			2,406,909			2,784,002

INCOME FROM OPERATIONS		2,023,713			1,322,822			3,869,978			3,548,703			1,346,096			1,375,932

OTHER INCOME (EXPENSE)
Other Income		19,744			3,571			114,236			75,070			15,765			79,994
Funding from Paycheck Protection Program		-			-			-			648,872
Interest Expense		-			(6,145	)		(2,902	)		(17,442	)		-			(11,278	)

Total Other Income (Expense)		19,744			(2,574	)		111,334			706,500
Total Other Income														15,765			68,716

INCOME BEFORE INCOME TAX EXPENSE		2,043,457			1,320,248			3,981,312			4,255,203			1,361,861			1,444,648

INCOME TAX (EXPENSE) BENEFIT
Current Tax (Expense) Benefit		(326,732	)		418,329			(503,191	)		753,017
Deferred Tax Benefit (Expense)		51,932			(217,491	)		119,087			(150,357	)
Current Tax Expense														(11	)		(285,609	)
Deferred Tax Benefit														36,007			58,209

Total Income Tax (Expense) Benefit		(274,800	)		200,838			(384,104	)		602,660
Total Income Tax Expense														35,996			(227,400	)

NET INCOME	$	1,768,657		$	1,521,086		$	3,597,208		$	4,857,863		$	1,397,857		$	1,217,248

NET INCOME PER SHARE:
Basic	$	0.16		$	0.14		$	0.33		$	0.45		$	0.13		$	0.11
Diluted	$	0.16		$	0.13		$	0.32		$	0.43		$	0.12		$	0.11

WEIGHTED AVERAGE SHARES:
Basic		10,858,302			10,830,183			10,857,724			10,786,107			10,946,683			10,857,195
Diluted		11,375,141			11,342,684			11,374,563			11,298,608			11,379,356			11,396,861

NET INCOME	$	1,768,657		$	1,521,086		$	3,597,208		$	4,857,863		$	1,397,857		$	1,217,248

Foreign Currency Translation Adjustment		(805,157	)		(260,681	)		(2,830,758	)		963,644			1,607,650			241,150

Total Other Comprehensive Income (Loss)	$	(805,157	)	$	(260,681	)	$	(2,830,758	)	$	963,644
Total Other Comprehensive Income													$	1,607,650		$	241,150

COMPREHENSIVE INCOME	$	963,500		$	1,260,405		$	766,450		$	5,821,507		$	3,005,507		$	1,458,398

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

CODA OCTOPUS GROUP, INC.

Consolidated Statements of Changes in Stockholders’ Equity

For the Three ~~and Nine~~ Months Ended ~~July~~January 31, ~~2022~~2023 and ~~2021~~2022

(~~(Unaudited)~~Unaudited)

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

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

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

Employee stock based compensation - - 135,157 - - 135,157
Stock issued for options exercised 65,161 65 (65 ) - - -
Foreign currency translation adjustment - - - 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 - - - - 1,521,086 1,521,086
Balance, July 31, 2021 10,857,195 $ 10,858 $ 60,893,543 $ (1,357,634 ) $ (18,567,759 ) $ 40,979,008

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

Balance, October 31, 2021		10,857,195	$	10,858	$	61,183,131	$	(1,667,059	)	$	(18,477,857	)	$	-	$	41,049,073

Employee stock-based compensation		-		-		325,175		-			-			-		325,175
Foreign currency translation adjustment		-		-		-		241,150			-			-		241,150
Net Income		-		-							1,217,248			-		1,217,248
Balance, January 31, 2022		10,857,195	$	10,858	$	61,508,306	$	(1,425,909	)	$	(17,260,609	)	$	-	$	42,832,646

Accumulated
Additional Other
Common Stock Paid-in Comprehensive Accumulated
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

Employee stock based compensation - - 325,175 - - 325,175
Foreign currency translation adjustment - - - 241,150 - 241,150
Net Income - - - - 1,217,248 1,217,248
Balance, January 31, 2022 10,857,195 $ 10,858 $ 61,508,306 $ (1,425,909 ) $ (17,260,609 ) $ 42,832,646

Employee stock based compensation - - 365,568 - - 365,568
Stock issued for options exercised 1,107
1
(1 ) - - -
Foreign currency translation adjustment - - - (2,266,751 ) - (2,266,751 )
Net Income - - - - 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

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

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

Balance, October 31, 2022		10,916,853	$	10,918	$	62,313,988		$	(4,737,124	)	$	(14,176,636	)	$	(28,337	)	$	43,382,809
Beginning balance		10,916,853	$	10,918	$	62,313,988		$	(4,737,124	)	$	(14,176,636	)	$	(28,337	)	$	43,382,809

Employee stock-based compensation		-		-		182,153			-			-			-			182,153
Stock issued from options exercised		25,500		25		(25	)		-			-			-			-
Foreign currency translation adjustment		-		-		-			1,607,650			-			-			1,607,650
Net Income		-		-								1,397,857			-			1,397,857
Balance, January 31, 2023		10,942,353	$	10,943	$	62,496,116		$	(3,129,474	)	$	(12,778,779	)	$	(28,337	)	$	46,570,469
Ending balance		10,942,353	$	10,943	$	62,496,116		$	(3,129,474	)	$	(12,778,779	)	$	(28,337	)	$	46,570,469

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

statements.

CODA OCTOPUS GROUP, INC.

Consolidated Statements of Cash Flows

(Unaudited)

	2022			2021			2023			2022
	Nine Months Ended July 31,						Three Months Ended January 31,
	2022			2021			2023			2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	3,597,208		$	4,857,863		$	1,397,857		$	1,217,248
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		652,762			827,509			164,007			161,466
Stock based compensation		975,847			761,233
Stock-based compensation								182,153			325,175
Deferred income taxes		(93,289	)		150,357			(36,007	)		(9,750	)
Funding from Paycheck Protection Program recognized as income		-			(648,872	)
(Increase) decrease in operating assets:
Accounts receivable		(303,370	)		(191,768	)		(161,980	)		2,608,920
Inventory		(415,752	)		(1,688,545	)		(602,467	)		(613,670	)
Unbilled receivables		642,380			(306,261	)		(37,958	)		675,179
Prepaid expenses		727,360			60,923			(128,140	)		863,618
Other current assets		151,825			(312,041	)		(84,586	)		(26,093	)
Increase (decrease) in operating liabilities:
Accounts payable and other current liabilities		240,562			(379,552	)		446,526			(1,047,139	)
Deferred revenue		106,990			500,643			(154,519	)		(693,455	)
Net Cash Provided by Operating Activities		6,282,523			3,631,489			984,886			3,461,499
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(1,120,051	)		(759,733	)		(84,422	)		(987,093	)
Purchases of other intangible assets		(75,834	)		(78,893	)		(21,485	)		(14,871	)
Net Cash Used in Investing Activities		(1,195,885	)		(838,626	)		(105,907	)		(1,001,964	)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of notes		(63,559	)		(379,763	)		-			(63,559	)
Proceeds from Paycheck Protection Program		-			648,872
Net Cash (Used in) Provided by Financing Activities		(63,559	)		269,109
Net Cash Used in Financing Activities								-			(63,559	)
EFFECT OF CURRENCY TRANSLATION ON CHANGES IN CASH		(1,399,815	)		963,644			716,033			567,596

NET INCREASE IN CASH		3,623,264			4,025,616			1,595,012			2,963,572

CASH AT THE BEGINNING OF THE PERIOD		17,747,656			15,134,289			22,927,371			17,747,656

CASH AT THE END OF THE PERIOD	$	21,370,920		$	19,159,905		$	24,522,383		$	20,711,228
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest	$	2,902		$	17,442		$	-		$	11,278
Cash paid for taxes	$	74,432		$	-		$	-		$	51,264

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

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

~~July~~January 31, ~~2022,~~2023 and October 31, ~~2021~~2022

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”,~~(also referred to in this Form 10-Q as “Products ~~Operations”~~Business,” or “Products Segment”) and the Marine Engineering Business ~~(“Services~~(also referred to in this Form 10-Q as “Services Business”, “Engineering Business”; 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~~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. We also recently~~Engine). In 2021, the Products Business launched a new diver management system (Diver Augmented Vision Display ~~(DAVD)~~(“DAVD”)) for use in the global defense and commercial diving markets and which ~~we believe~~ is a significant part of our growth ~~pillars.~~plans for the Company. The requirements for the DAVD system emanated from the Office of Naval ~~Research.~~Research as part of its Future Naval Requirements Program. The DAVD ~~uses~~embeds inside of the diver Head up Display (HUD) a pair of transparent glasses inwhich is used as the ~~diver’s head up display (HUD)~~ ~~on which~~data hub for displaying real time data ~~is rendered.~~to the diver. The concept of using a pair of transparent glasses in the Head up Display (HUD) underwater for this purpose is ~~patented~~protected by patent 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 is aan established sub-contractor to prime defense contractors and generally supplies proprietary sub-assemblies for incorporation into broader mission critical defense systems. These ~~parts~~sub-assemblies typically are supplied for the life of the program. The Marine Engineering Business scope typically includes concept, design, prototype and manufacture. The manufacturing contracts for these sub-

assemblies can run over many years.

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

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 2 – REVENUE RECOGNITION

The Company recognizes revenue 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~~Identify the contract with athe customer;

	●	~~Determine~~Identify the performance obligations in ~~that contract;~~the contract with customer;

	●	Determine the transaction price;

	●	Allocate the transaction price to ~~the~~ performance obligations; and

	●	~~Determine~~Recognize revenue when ~~to recognize revenue.~~(or as) a performance obligation is satisfied.

Our revenues are earned under formal contracts with our ~~customers and~~customers. These are derived from both sales and rental of underwater technologies and equipment for real time 3D imaging, mapping, defense and survey applications by the Marine Technology Business and from engineering services which wethe Company’s Services Business provide via sub-contracts primarily towith 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

~~July~~January 31, ~~2022,~~2023 and October 31, ~~2021~~2022

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, customization of our technology for bespoke application, 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~~a relative ~~fair value of each deliverable~~standalone selling price basis and recognize revenue when performance obligations are met including when equipment is delivered, and for rental of equipment, when installation, training and other services prescribed by the contract 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~~these prepayments 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~~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.

109

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

~~July~~January 31, ~~2022,~~2023 and October 31, ~~2021~~2022

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

Other Revenue Disclosures

See ~~Note~~Notes 14 and 15 – Segment Analysis and Disaggregation of ~~Revenue~~ ~~providing~~ ~~a breakdown~~Revenue. These Notes provide disclosure of our revenue by segment (Products Business versus Services Business); revenues from external customers and cost of those ~~revenues between our Product Segment~~revenues; and ~~Services Segment including information on the~~ split of ~~revenues~~revenue by ~~geography.~~geography including within and outside the USA.

NOTE 3 – COST OF GOODS SOLD

Our Cost of goods sold includes the cost of materials and related direct costs. With respect to sales made through the Company’s sales agents distribution network, we include in our costs of goods sold commissions paid to agents for the specific sales they make. Without using agents, we would not be eligible to participate in the Request for Proposals (“RFP”) for these sales on which we incur commission costs. All other sales-related expenses, including those related to unsuccessful bids, are included in selling, general and administrative costs. As a component of Cost of Goods Sold, commission in the 3 months period ended January 31, 2023 was $505,376 compared to $138,372 for the 3 months period ended January 31, 2022.

NOTE 34 – FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments include cash, accounts receivable, accounts payable, and accrued ~~expenses and notes payable.~~expenses. 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.~~

1110

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

~~July~~January 31, ~~2022,~~2023 and October 31, ~~2021~~2022

NOTE 45 – 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~~ is 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 56 – INVENTORY

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

SCHEDULE OF COMPONENTS OF INVENTORY

	July 31,		October 31,		January 31,		October 31,
	2022		2021		2023		2022

Raw materials and parts	$	6,847,710	$	7,525,419	$	8,072,400	$	7,219,344
Work in progress		660,890		919,619		527,401		383,427
Finished goods		2,674,613		2,246,139		2,577,585		2,424,340
Total Inventory	$	10,183,213	$	10,691,177	$	11,177,386	$	10,027,111

NOTE 67 – ~~FIXED ASSETS~~PROPERTY AND EQUIPMENT

Property and equipment consisted of the following as of:

SCHEDULE OF PROPERTY AND EQUIPMENT

July 31, October 31,
2022 2021

Buildings $ 5,618,650 $ 5,298,028
Land 200,000 200,000
Office machinery and equipment 1,687,417 1,622,871
Rental assets 2,345,544 2,326,486
Furniture, fixtures and improvements 1,146,145 1,218,217
Totals 10,997,756 10,665,602
Less: accumulated depreciation (4,874,208 ) (4,628,501 )

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

	January 31,			October 31,
	2023			2022

Buildings	$	5,701,653		$	5,419,946
Land		200,000			200,000
Office machinery and equipment		1,676,401			1,556,030
Rental assets		2,396,579			2,252,292
Furniture, fixtures and improvements		1,164,560			1,108,787
Total		11,139,193			10,537,055
Less: accumulated depreciation		(5,067,582	)		(4,704,523	)

Total Property and Equipment, net	$	6,071,611		$	5,832,532

1211

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

~~July~~January 31, ~~2022,~~2023 and October 31, ~~2021~~2022

NOTE 78 – OTHER CURRENT ASSETS

Other current assets consisted of the following as of:

SUMMARY OF OTHER CURRENT ASSETS

July 31, October 31,
2022 2021

Deposits $
94,547
$ 63,992
Other Tax Receivables
136,633
-
Employee Retention Credit Receivables 237,995 563,627
Total Other Current Assets $ 469,175 $ 627,619

~~NOTE 8 –~~ ~~ESTIMATES~~

	January 31,		October 31,
	2023		2022

Deposits	$	11,015	$	18,631
Other Tax Receivables		267,579		151,217
Employee Retention Credit Receivables		153,213		173,213
Total Other Current Assets	$	431,807	$	343,061

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.~~sheet date. These amounts are stated on the consolidated balance sheets as Unbilled Receivables of $~~416,394~~650,774 and $~~1,080,384~~602,115 as of ~~July~~January 31, ~~2022,~~2023, and October 31, ~~2021,~~2022, respectively.

Our Deferred Revenue of $~~1,905,834~~673,158 and $~~1,879,790~~790,458 as of ~~July~~January 31, ~~2022,~~2023, and October 31, ~~2021,~~2022, 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.~~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.~~options which may be optionally purchased by the customer. 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 our 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 $~~253,468~~233,700 and $~~277,937~~229,238 as of ~~July~~January 31, ~~2022,~~2023, and October 31, ~~2021,~~2022, respectively.

1312

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

~~July~~January 31, ~~2022,~~2023 and October 31, ~~2021~~2022

NOTE 10 – CONCENTRATIONS

Significant Customers

During the three months ended ~~July~~January 31, ~~2022,~~2023, the Company had ~~one customer~~two customers from whom it generated sales greater than 10% of net revenues. Revenue from ~~this customer~~these customers was $~~660,750~~1,575,724, or ~~10.5%~~28% of net revenues during the three months ended ~~July~~January 31, ~~2022.~~2023. Receivables from ~~this customer~~these customers were $~~246,100~~836,315, or ~~5.8%~~27% of net receivables as of ~~July~~January 31, ~~2022~~.2023.

During the three months ended ~~July~~January 31, ~~2021,~~2022, the Company had two customers from whom it generated sales greater than 10% of net revenues. Revenues from these customers were $~~1,474,464~~1,855,731, or ~~25%~~32% of net revenues during the three months ended ~~July~~January 31, ~~2021.~~2022. Receivables from these customers were $~~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 less than 10%~~or more~~ ~~of net revenues. Revenues from this customer were $1,709,791, or~~ ~~10%~~ ~~of net revenues during the nine months ended July 31, 2022. Receivables from this customer were $542,515~~ or 1~~2.75~~% of net receivables as of ~~July~~January 31, ~~2022~~2022.

~~During the nine months ended July 31, 2021, the Company had one customer from whom it generated sales of $1,588,172, or~~ ~~10%~~ ~~of net revenues. Receivables from this customer were $72,449~~ or ~~3.2%~~ ~~of net receivables as of July 31, 2021.~~

~~CODA OCTOPUS GROUP, INC.~~

~~Notes to the Consolidated Financial Statements~~

~~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
	Ended		Ended
	January 31,		January 31,
Fiscal Period	2023		2022
Numerator:
Net Income	$	1,397,857	$	1,217,248

Denominator:
Basic weighted average common shares outstanding		10,946,683		10,857,195
Unused portion of options and restricted stock awards		432,673		539,666
Diluted outstanding shares		11,379,356		11,396,861

Net income per share

Basic	$	0.13	$	0.11
Diluted	$	0.12	$	0.11

Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
July 31 July 31 July 31 July 31
Fiscal Period 2022 2021 2022 2021
Numerator:
Net Income $ 1,768,657 $ 1,521,086 $ 3,597,208 $ 4,857,863

Denominator:
Basic weighted average common shares outstanding 10,858,302 10,830,183 10,857,724 10,786,107
Unused portion of options and restricted stock awards 516,839 512,501 516,839 512,501
Diluted outstanding shares 11,375,141 11,342,684 11,374,563 11,298,608

Net income per share

Basic $ 0.16 $ 0.14 $ 0.33 $ 0.45
Diluted $ 0.16 $ 0.13 $ 0.32 $ 0.43

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

January 31, 2023 and October 31, 2022

NOTE 13 – 2017 STOCK INCENTIVE PLAN

2017 Stock Incentive Plan

On December 6, 2017, the Board of Directors adopted the 2017 Stock Incentive Plan (the “2017 Plan”) ~~with~~ . The purpose of the Plan is to advance the interests of the Company and its stockholders by enabling the Company and its subsidiaries to attract and retain qualified individuals through opportunities for equity participation in the Company, and to reward those individuals who contribute to the Company’s achievement of its economic objectives. The Plan was adopted subject to stockholders’ approval and was approved by Stockholders at the Company’s Annual General Meeting held on July 24, 2018.

~~913,612~~

The maximum number of shares of Common Stock available for issuance under the 2017 Plan is 913,612. The shares available for ~~issuance. This~~issuance under the 2017 Plan may, at the election of the Compensation Committee, be either treasury shares or shares authorized but unissued, and, if treasury shares are used, all references in the 2017 Plan to the issuance of shares will, for corporate law purposes, be deemed to mean the transfer of shares from treasury.

During the three months ended January 31, 2023, the Company granted to various eligible individuals restricted stock awards of 44,500 shares of common stock pursuant to the terms of the 2017 Plan. During the said period, 29,500 restricted stock awards vested, and no options or restricted stock awards were forfeited. As of January 31, 2023, there were 306,001shares available for future issuance under the 2017 Plan. The total stock compensation expense during the three months ended January 31, 2023 was ~~approved by Stockholders at its meeting held on July 24, 2018.~~$182,153.

2021 Stock Incentive Plan

On July 12, 2021, the Board of Directors adopted the 2021 Stock Incentive Plan (the “2021 Plan”). The 2021 Plan was approved by the Company’s stockholders at its Annual General Meeting held on September 14, 2021. The 2021 Plan is identical to the 2017 Plan 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 nine months ended July 31, 2022, the Company granted to various eligible individuals Restricted Stock Awards~~

The total number of~~64,687~~ ~~shares of common stock pursuant to the terms of the Plan. During the nine months ended 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 remained unexercised.~~ ~~In addition,~~ ~~3,333~~ ~~options were exercised on a cashless basis~~ ~~resulting in the issuance of~~ ~~1,107~~ ~~shares. As of July 31, 2022, there were~~ ~~1,396,772~~ shares available for ~~future issue~~issuance under ~~both~~the 2017 Plan and 2021 ~~Plans. The total stock compensation expense during the nine months ended July 31, 2022, was $~~Plan is ~~975,847~~1,306,001.

~~During the nine months ended July 31, 2021, the Company granted to various eligible individuals Restricted Stock Awards to purchase an aggregate of~~ ~~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. As of July 31, 2021,~~ ~~80,314~~ ~~shares of common stock were issued pursuant~~ to ~~the~~ ~~cashless~~ ~~exercise of~~ ~~169,332~~ ~~options. In March 2021,~~ ~~13,333~~ ~~options vested but remained unexercised as of July 31, 2021. As of July 31, 2021, there were~~ ~~288,773~~ ~~shares of common stock available for future issue under the Plan. The total stock compensation expense during the nine months ended July 31, 2021, was $761,233~~.

NOTE 14 -– SEGMENT ANALYSIS

Based on the fundamental difference in the types of offering, products and solutions versus services, we operate two distinct reportable segments which are managed separately. Coda Octopus Products (“Marine Technology Business” or “Products Business” or “Products Segment”) operations are comprised primarily of sale and/or rental of underwater technology sonar solutions, products for underwater operations including hardware and software and support services and our diver management ~~system and rental of solutions and products to the underwater market.~~system. Coda Octopus Martech and Coda Octopus Colmek (“Marine Engineering Business” or “Services Segment”) ~~provides~~provide 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 nine~~ months ended ~~July~~January 31, ~~2022~~2023 and ~~2021,~~2022, respectively.

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

	●	Americas

	●	Europe

	●	Australia/Asia

	●	Middle East/Africa

~~CODA OCTOPUS GROUP, INC.~~

~~Notes to the Consolidated Financial Statements~~

~~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

~~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

~~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

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

~~July~~January 31, ~~2022,~~2023 and October 31, ~~2021~~2022

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

Nine Months Ended July 31, 2021
Three Months Ended January 31, 2023

Net Revenues	$	11,777,739		$	4,473,171		$	-		$	16,250,910		$	3,824,159		$	1,772,125		$	-		$	5,596,284

Cost of Revenues		2,462,219			2,511,756			-			4,973,975			1,064,244			779,035			-			1,843,279

Gross Profit		9,315,520			1,961,415			-			11,276,935			2,759,915			993,090			-			3,753,005

Research & Development		1,521,175			383,011			-			1,904,186			438,308			6,150			-			444,458
Selling, General & Administrative		2,402,406			1,751,197			1,670,443			5,824,046			661,759			646,310			654,382			1,962,451

Total Operating Expenses		3,923,581			2,134,208			1,670,443			7,728,232			1,100,067			652,460			654,382			2,406,909

Income (Loss) from Operations		5,391,939			(172,793	)		(1,670,443	)		3,548,703			1,659,848			340,630			(654,382	)		1,346,096

Other Income (Expense)
Other Income		74,173			51			846			75,070
Funding from Paycheck Protection Program		122,327			526,545			-			648,872
Interest Expense		(1,069	)		(365	)		(16,008	)		(17,442	)
Other Income														15,020			745			-			15,765

Total Other Income (Expense)		195,431			526,231			(15,162	)		706,500
Total Other Income														15,020			745			-			15,765

Income (Loss) before Income Taxes		5,587,370			353,438			(1,685,605	)		4,255,203			1,674,868			341,375			(654,382	)		1,361,861

Income Tax (Expense) Benefit
Current Tax (Expense) Benefit		254,745			498,666			(394	)		753,017			(18,873	)		(19,856	)		38,718			(11	)
Deferred Tax Benefit (Expense)		(356,164	)		264,636			(58,829	)		(150,357	)
Deferred Tax (Expense) Benefit														-			-			36,007			36,007

Total Income Tax (Expense) Benefit		(101,419	)		763,302			(59,223	)		602,660			(18,873	)		(19,856	)		74,725			35,996

Net Income (Loss)	$	5,485,951		$	1,116,740		$	(1,744,828	)	$	4,857,863		$	1,655,995		$	321,519		$	(579,657	)	$	1,397,857

Supplemental Disclosures

Total Assets	$	28,820,472		$	14,608,555		$	934,192		$	44,363,219		$	36,176,835		$	13,377,560		$	949,710		$	50,504,105

Total Liabilities	$	2,159,921		$	844,816		$	379,474		$	3,384,211		$	2,694,766		$	758,160		$	480,710		$	3,933,636

Revenues from Intercompany Sales - eliminated from sales above	$	1,367,619		$	184,016		$	2,025,000		$	3,576,635		$	829,674		$	45,707		$	680,000		$	1,555,381

Depreciation and Amortization	$	707,761		$	98,671		$	21,077		$	827,509		$	128,838		$	24,910		$	10,259		$	164,007

Purchases of Long-lived Assets	$	745,405		$	13,203		$	80,018		$	838,626		$	79,642		$	4,780		$	21,485		$	105,907

1915

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

~~July~~January 31, ~~2022,~~2023 and October 31, ~~2021~~2022

NOTE 14 - SEGMENT ANALYSIS (Continued)

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

Three Months Ended January 31, 2022

Net Revenues	$	3,823,748		$	2,014,460		$	-		$	5,838,208

Cost of Revenues		572,292			1,105,982			-			1,678,274

Gross Profit		3,251,456			908,478			-			4,159,934

Research & Development		529,375			143,515			-			672,890
Selling, General & Administrative		753,614			651,149			706,349			2,111,112

Total Operating Expenses		1,282,989			794,664			706,349			2,784,002

Income (Loss) from Operations		1,968,467			113,814			(706,349	)		1,375,932

Other Income (Expense)
Other Income		9,049			70,945			-			79,994
Interest Expense		(4,882	)		(5,026	)		(1,370	)		(11,278	)

Total Other Income (Expense)		4,167			65,919			(1,370	)		68,716

Income (Loss) before Income Taxes		1,972,634			179,733			(707,719	)		1,444,648

Income Tax (Expense) Benefit
Current Tax (Expense) Benefit		(266,520	)		24,036			(43,125	)		(285,609	)
Deferred Tax (Expense) Benefit		6,708			204			51,297			58,209

Total Income Tax (Expense) Benefit		(259,812	)		24,240			8,172			(227,400	)

Net Income (Loss)	$	1,712,822		$	203,973		$	(699,547	)	$	1,217,248

Supplemental Disclosures

Total Assets	$	30,847,114		$	13,893,382		$	658,735		$	45,399,231

Total Liabilities	$	1,635,666		$	501,339		$	429,580		$	2,566,585

Revenues from Intercompany Sales - eliminated from sales above	$	389,395		$	115,823		$	600,000		$	1,105,218

Depreciation and Amortization	$	135,658		$	16,657		$	9,151		$	161,466

Purchases of Long-lived Assets	$	986,093		$	1,000		$	14,871		$	1,001,964

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

January 31, 2023 and October 31, 2022

NOTE 15 –DISAGGREGATION OF REVENUE

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

	For the Three Months Ended July 31, 2022						For the Three Months Ended January 31, 2023
	Marine		Marine				Marine		Marine
	Technology		Engineering		Grand		Technology		Engineering		Grand
	Business		Business		Total		Business		Business		Total
Disaggregation of Total Net Sales

Revenues
Primary Geographical Markets
Americas	$	1,626,657	$	1,468,483	$	3,095,140	$	486,293	$	1,322,977	$	1,809,270
Europe		278,973		794,369		1,073,342		696,410		449,148		1,145,558
Australia/Asia		1,435,637		-		1,435,637		2,432,428		-		2,432,428
Middle East/Africa		663,290		-		663,290		209,028		-		209,028

Total Revenues	$	4,004,557	$	2,262,852	$	6,267,409	$	3,824,159	$	1,772,125	$	5,596,284

Major Goods/Service Lines
Equipment Sales	$	2,928,019	$	451,416	$	3,379,435	$	2,572,560	$	-	$	2,572,560
Equipment Rentals		380,984		-		380,984		265,903		-		265,903
Software Sales		252,204		-		252,204		417,170		-		417,170
Engineering Parts		-		999,228		999,228		-		1,149,079		1,149,079
Services		443,350		812,208		1,255,558		568,526		623,046		1,191,572

Total Revenues	$	4,004,557	$	2,262,852	$	6,267,409	$	3,824,159	$	1,772,125	$	5,596,284

Goods transferred at a point in time	$	3,180,223	$	451,416	$	3,631,639	$	2,989,730	$	-	$	2,989,730
Services transferred over time		824,334		1,811,436		2,635,770		834,429		1,772,125		2,606,554

Total Revenues	$	4,004,557	$	2,262,852	$	6,267,409	$	3,824,159	$	1,772,125	$	5,596,284

2017

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

~~July~~January 31, ~~2022,~~2023 and October 31, ~~2021~~2022

NOTE 15 –DISAGGREGATION OF REVENUE (Continued)

	For the Three Months Ended July 31, 2021						For the Three Months Ended January 31, 2022
	Marine		Marine				Marine		Marine
	Technology		Engineering		Grand		Technology		Engineering		Grand
	Business		Business		Total		Business		Business		Total
Disaggregation of Total Net Sales

Revenues
Primary Geographical Markets
Americas	$	962,043	$	589,560	$	1,551,603	$	1,709,901	$	1,204,282	$	2,914,183
Europe		1,649,281		1,392,764		3,042,045		838,783		810,178		1,648,961
Australia/Asia		971,563		-		971,563		815,084		-		815,084
Middle East/Africa		262,164		-		262,164		459,980		-		459,980

Total Revenues	$	3,845,051	$	1,982,324	$	5,827,375	$	3,823,748	$	2,014,460	$	5,838,208

Major Goods/Service Lines
Equipment Sales	$	2,151,520	$	782,255	$	2,933,775	$	1,958,845	$	436,864	$	2,395,709
Equipment Rentals		713,389		-		713,389		630,468		-		630,468
Software Sales		153,150		-		153,150		304,796		-		304,796
Engineering Parts		-		1,093,176		1,093,176		-		1,300,618		1,300,618
Services		826,992		106,893		933,885		929,639		276,978		1,206,617

Total Revenues	$	3,845,051	$	1,982,324	$	5,827,375	$	3,823,748	$	2,014,460	$	5,838,208

Goods transferred at a point in time	$	2,298,962	$	670,255	$	2,969,217	$	2,263,641	$	436,866	$	2,700,507
Services transferred over time		1,546,089		1,312,069		2,858,158		1,560,107		1,577,594		3,137,701

Total Revenues	$	3,845,051	$	1,982,324	$	5,827,375	$	3,823,748	$	2,014,460	$	5,838,208

2118

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

~~July~~January 31, ~~2022,~~2023 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

~~CODA OCTOPUS GROUP, INC.~~

~~Notes to the Consolidated Financial Statements~~

~~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

~~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.~~

~~NOTE 17~~ – INCOME TAXES

The Company’s effective tax rate for the three months ended ~~July~~January 31, ~~2022,~~2023, and ~~2021~~2022, was ~~13.4~~(2.6) % % and (~~15.2~~15.7 %~~) %~~ respectively. The increase in the effective tax rate for the three 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%~~25% 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 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 -~~17 – ~~RECLASSIFICATION OF PRIOR YEAR PRESENTATION~~SUBSEQUENT EVENTS

~~Certain prior year~~On February 1, 2023 (with HSBC NA) and February 15, 2023 (with Jyske Bank), respectively, the Company established certified deposit interest-bearing accounts with its current bankers. These interest-bearing accounts are for rolling fixed short-term periods not exceeding 3 months. The table below indicates the applicable interest rates and amounts ~~have been reclassified for consistency with~~which are held in certified deposit interest bearing accounts at the ~~current year presentation. These reclassifications have no effect on the previously reported consolidated financial statements.~~date hereof:

SCHEDULE OF INTEREST RATES AND AMOUNTS HELD IN CERTIFIED DEPOSIT INTEREST BEARING ACCOUNTS

Currency Denomination	Amount		HSBC NA		Jyske Bank (Denmark)
USD	$	12,441,445.25		4.5%
Euro	€	665,000				1.3	%
British Pound	£	414,000				2.65	%
Danish Kroner	DKK	2,850,000				0.91	%
USD	$	819,000				3.41	%

2419

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.~~January 30, 2023. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only ~~our management’s~~the best present ~~assessment.~~assessment of our management.

General Overview

Throughout these discussions “Current Quarter” means the ~~following terminologies listed immediately below are used~~Three-month period ended January 31, 2023 and ~~have~~“Previous Quarter” means the ~~meanings ascribed to them in the said table.~~Three-month period ended January 31, 2022.

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

~~We operate~~The Company operates two distinct ~~business operations.~~businesses. 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”, 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 as a supplier of solutions comprising both hardware and software products for over 25 years to this market and it owns key proprietary technology including real time volumetric 3D ~~Imaging Sonar~~imaging sonar technology and cutting-edge diving technology, that are used in both 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 is distributed under the name “CodaOctopus^®DAVD” (Diver Augmented Vision Display) to the global defense and commercial diving ~~markets.~~markets and is new to the market. 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~~used as the data hub for displaying real ~~time.~~time data to the diver. We believe that the DAVD system has the potential to radically ~~change~~transform how diving operations are performed globally because it ~~delivers~~provides a fully integrated singular system for topside control and a fully connected HUD system for the diver allowing both the topside and diver to share a range of critical information including depth (pressure and temperature), compass and head tracking, real time dive timers and alerts, diver position and navigation, ultra-low light enhanced video system and enhanced digital voice communications. Limitations of current diving operations are that the diver only shares analog voice communications with the topside and there is no real time information ~~platform~~including real time navigation, tracking and mapping of the dive area. The topside must also manage several independent systems for ~~both divers~~video, communications, and ~~dive supervisors, allows~~positioning. The Company’s solution addresses these deficiencies. Importantly also, using our sonar technology, diving ~~operations to~~can be performed in zero visibility ~~water~~ conditions, ~~provides real time mapping of the dive area and serves as an important evidential record of the dive operations completed.~~

a common problem which besets these operations.

2520

Although we generate most of our revenues from our real time 3D sonar which includes both proprietary hardware and software, we have a number of other products inwhich we supply to the ~~subsea~~marine offshore market such as our inertial navigation systems ~~(F180 Series~~^® ~~and F280~~(F280 Series^®) and our geophysical hardware (DA4G) and software solutions (GeoSurvey and Survey Engine®, which include artificial intelligence based automatic detection ~~systems.~~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, navies, research institutes and universities and diving companies.

~~Our Services Business acts primarily as a sub-contractor to prime defense 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~~working with Prime Defense Contractors to 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~~Company’s near-term growth.

Our real time 3D/4D/5D/6D ~~imaging~~Imaging sonars are the only underwater imaging sonars which are capable of providing ~~not only~~ complex seabed mapping, ~~but inspecting~~real time inspection and monitoring ~~in real time~~and providing 3D/4D/~~5D and~~ 5D/6D data of moving underwater objects ~~underwater~~ irrespective of water conditions including in zero visibility ~~water conditions (a perennial~~(which is a common and costly problem in underwater operations). Competing ~~technology~~products such as the multibeam sonar 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~~We also believe our Echoscope PIPE^®is the only technology that can generate multiple real time 3D/4D/~~5D and~~ 5D/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~~providing a fully integrated suite of ~~communication, ability to consume and use digital information and~~sensor data shared in real time ~~imaging sonar~~by the dive supervisor on the surface and the diver. Current diving is done largely by voice command missions from the topside using disparate suite of systems for video data, ~~thereby improving safety~~communications and ~~reducing the costs of these operations.~~ positioning.

The DAVD is now in early-stage adoption by different teams within the US Navy such as the underwater construction and salvage ~~teams.~~ teams and has been moved from R&D phase to operational phase. Operational phase means that this is now a standard item available for purchase and for which budget lines are established within the various user commands within the Navy.

The concept of utilizing a pair of transparent glasses in the 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~~All component parts of the DAVD system are proprietary to the Company and include software (4G USE^®), Diver Processing Pack – telemetry system (DPP), Top Side Controller and real time 3D Sonar. ~~Our most recent system,~~The Company benefits from the ~~GEN 3~~exclusive license from the United States Department of the Navy at Naval Surface Warfare Center Panama City Division to exploit the utility patent covering the concept of using the pair of transparent glasses as a data hub underwater. The 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 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~~Following is a short description of some of the most critical and pressing factors that affect our business. For a more detailed discussion of these and additional factors, refer to our Form 10-K for the fiscal year ended October 31, ~~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:~~2022.

2621

Cumulative Supply Chain Issues

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 and crippling lead times being quoted from anywhere between six months to a year. Furthermore, we are experiencing significant price increases for all our raw materials and components. Price increases sometimes exceed 100%. The significant price increases may adversely impact on our margins and net income, unless these increased prices are fully absorbed by customers. The unavailability of components and raw materials may 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 more acutely given the prototyping nature of its business which does not 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~~We 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. The main impacts~~experience shortage of ~~the Pandemic~~key electronic components in the ~~Current Quarter~~market and suppliers are ~~constraints on travel to key countries~~still quoting lead times as long as 12 months out for routine components, including FPGAs (Field Programmable Gate Arrays). The unavailability of components affects our business ~~development and also an increase~~ in ~~the~~a number of 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 10-day quarantine period which makes it very challenging to visit our customers for business development with this quarantine policy in place.ways, including:

	Ø	Our ability to progress ongoing projects including customer projects, particularly on the Engineering Segment.
	Ø	Significant increase in prices because demand exceeds supply for these components.
	Ø	Our ability to manufacture systems in our Products Business.
	Ø	Our ability to fully utilize our Production staff, as critical parts are unavailable.
	Ø	Our ability to perform outstanding contractual obligations in the Engineering Business.

Inflation

Inflation measured as the Consumer Price Index is significant in the countries in which we operate. For the ~~group’s foreign subsidiaries operate. In the twelve months to July 2022, these were:~~12-month period preceding January 2023, this was:

	-Ø	Denmark ~~8.7%~~7.7% - source: Statistics Denmark,
	-Ø	UK 10.1% - source: Office of National Statistics; and
	-Ø	USA ~~8.5%~~6.4% - source: U.S. Bureau of Labor Statistics.

Inflation affects our business in a number of areas including increasing our cost of operations and our bill of material costs for the ~~costs of our operations~~products we sell and therefore our overall financial results. See the ~~section of the~~ MD&A section which concerns “Inflation and Foreign Currency”.

Currency Fluctuations

The Company has operations in the UK, USA, Denmark, Australia and India. Our consolidated results include the Company’s foreign subsidiaries results which are translated into USD, our reporting currency. Revenue and expenses are translated using the weighted average exchange rates in effect during the reporting period. In the Current Quarter the USD has strengthened against major currencies including the British Pound, Euro, 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 Danish Kroner and translated into USD ~~our~~for reporting ~~currency.~~purposes. In the Current Quarter, for the purposes of reporting revenues and expenses, the value of the Pound and Euro (the Danish Kroner is pegged to the Euro) respectively fell ~~11.8%~~9.5% and ~~12.6%~~5.8%, against the USD, when compared to the Previous Quarter. For the reporting of assets and liabilities, the Pound fell ~~12.4%~~8.3% when compared to the Previous ~~Quarter.~~Quarter and the Danish Kroner fell 3.1% over the same period. The impact of currency fluctuations ~~including the impact of the Pound falling,~~ is discussed more fully below ~~in the section which concerns~~under “Inflation and Foreign Currency”. See also Note 45 (Foreign Currency Translation) to the Unaudited Consolidated Financial Statements 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 skill shortages in areas that are critical to our growth strategy including experienced sales and marketing personnel, software developers and ~~software developers. Due to the~~skilled electronic technicians. The inflationary conditions in the countries in which we operate (US, the UK, Denmark and India)~~, there are significant pressures on wages making~~ make it difficult for us to ~~attract staff~~compete for these skills as there is extreme pressure on wages.

Concentration of Business Opportunities Where the Sales Cycle is Long and Unpredictable

The Services Business revenues are highly concentrated and are generated from sub-contracts with Prime Defense Contractors. The sales cycle is generally protracted and this may affect quarterly revenues. It is also ~~risking retention~~dependent on the federal government appropriating budget for defense projects and where the federal government is unable to find consensus in the US Congress, this affects the timely award of ~~skills.~~sub-contract from Prime Defense Contractors to our Services Business, which is reliant on these awards. Furthermore, the Products Business key opportunities which are critical to its growth strategy are in the Defense Market for both its imaging sonars and the DAVD both of which are key pillars of the Company’s growth strategy. Due to the protracted nature of the government procurement process and cycle for defense spending under federal and/or state budgets, the sales cycle can be long and unpredictable, thus affecting timing of orders and thus quarterly revenues.

Impact on Revenues and Earnings

We are uncertain as to the extent ~~that~~of the impact the factors ~~reported immediately~~disclosed above and ~~those on~~in our Form 10-K ~~for the~~covering fiscal year ended October 31, ~~2021~~2022 will have on our future financial results. Inflation may increase the cost of operations including wages and salaries and the 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, which in turn may increase the cost of operations. Overall, inflation, shortage of components and currency fluctuations may adversely impact on our financial results.

2722

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~~These factors may adversely ~~affect the~~impact on our availability of ~~our~~ free cash flow, working capital ~~earnings~~ and business prospects. As of ~~July~~January 31, ~~2022,~~2023, we had cash and cash equivalents of ~~approximately $21,370,920.~~$24,522,383 and in the Current Quarter we generated $984,886 of cash from operations. 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~~Annual Report on Form 10-K for the fiscal year ended October 31, ~~2021.~~2022.

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,~~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, 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 unaudited consolidated financial statements and Note 2 “Summary of Accounting Policies” in our Annual Report on Form 10-K for the fiscal year ended October 31, ~~2021.~~2022.

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~~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.

2823

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.~~GAAP.

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. There were no impairment charges during the periods presented.

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.~~zero, if any. At the end of each year, we evaluate goodwill on a separate reporting unit basis to assess recoverability, and impairments, if any, are recognized in earnings. An impairment loss would be recognized in an amount equal to the excess of the carrying amount of the goodwill over the implied fair value of the goodwill. There were no impairment charges during the periods presented.

~~Summary of~~ Consolidated Results of Operations ~~in the Current Quarter~~

Our consolidated financial results include the results of the Company’s foreign subsidiaries. Foreign subsidiaries results are translated from their functional currencies to USD for reporting purposes. Fluctuations in currency can therefore impact our translated revenue. One factor in the Current Quarter ~~were up on~~is that the translated revenue of the Company’s foreign subsidiaries was impacted by currency fluctuations as a result of the strengthening of the USD against the Pound and the Danish Kroner. During the Current Quarter our consolidated revenue was $5,596,284 compared to $5,838,208 in the Previous ~~Quarter. This is attributed to~~Quarter, representing a decrease of 4.1%. However, applying the same exchange rate as the Previous Quarter, revenue of our foreign subsidiaries would have increased by $342,146 resulting in an increase in ~~our revenues by 7.6%. in conjunction with a fall in total operating expenses by 12.1%. Income from Operations increased by 53% and net income before tax increased by 54.8% and was $2,043,457~~consolidated revenue in the Current Quarter compared to $1,320,248 in the Previous Quarter. In the Current Quarter although we recorded a tax expense of $274,800 compared to a tax benefit of $200,838 in 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 affect Comprehensive Income, of $805,157 compared to a loss of $260,681 in1.7% over the Previous Quarter. During the Current Quarter total operating expenses fell by 13.5% and Income from operations fell by 2.2%. This was affected by the ~~USD, our reporting currency strengthened significantly against major currencies including the functional currencies~~high percentage of agents’ commissions incurred on sales of our ~~foreign subsidiaries~~technology in Asia in the Current Quarter – which ~~make up a significant part~~were $486,341 compared to $138,372 in the Previous Quarter, representing an increase on commission recorded of ~~our consolidated results. See Note 4 (Foreign Currency Translation)~~251% over the Previous Quarter (see Notes 14 and 15 to the ~~section~~Unaudited Consolidated Financial Statements for more information on Segment reporting and Disaggregation of ~~the MD&A which concerns “Inflation~~Revenue by Segment and ~~Foreign Currency”~~geography). Net income before taxes fell by 5.7% and was $1,361,861 compared to $1,444,648 and net income after taxes was $1,397,857 compared to $1,217,248, representing an increase of 14.8%.

Segment Summary

Products Business

In the Current Quarter, the Products Business generated ~~$4,004,557~~$3,824,159 or ~~63.9%~~68.3% of our consolidated revenues compared to ~~$3,845,051~~$3,823,748 or ~~66%~~65.5% in the Previous Quarter ~~representing an increase~~and was broadly in line with the Previous Quarter. Although in its native currency the foreign subsidiaries revenue increased over the Previous Quarter, the USD equivalent was reduced due to the sharp depreciation of ~~4.1%.~~the British Pound and Danish Kroner against the USD. Gross Profit Margin ~~increased~~fell by 15% and was ~~86.7%~~72% in the Current Quarter compared to ~~85.8%~~85% in Previous ~~Quarter. In~~Quarter due to the significant agents’ commissions we incurred on sales. A significant proportion of the Products Business’ sales in the Current Quarter was conducted through sales agents due to geographic location of sales (Asia) and we ~~sold less units through agents which resulted in a reduction in commissions on sales. We~~ recorded ~~$33,001 for~~ commission of $486,341 in the Current Quarter compared to ~~$61,540~~$138,372 in the Previous Quarter, representing a ~~reduction of 46.4%~~251% increase in ~~commission. This modestly improved our margins in the Current Quarter.~~this area. In the Current Quarter Total Operating Expenses fell in the Products Business by ~~4.7%~~14.3% and was ~~$1,337,057~~$1,100,067 compared to ~~$1,403,226~~$1,282,989 in the Previous Quarter. ~~Net income before taxes increased by 13.2% and was $2,149,724 compared to $1,899,552 in the Previous Quarter.~~

Services Business

In the Current Quarter, the Services Business generated ~~$2,262,852~~$1,772,125 or ~~36.1%~~31.7% of our consolidated revenues compared to ~~$1,982,324~~$2,014,460 or ~~34%~~34.5% in the Previous Quarter, representing ~~an increase~~a fall in sales of ~~14.2%~~12%. The main factor in the fall in sales in the Services Business is that it is experiencing delays in both closing contracts and progressing existing contracts with its prime defense contractor customers due to supply chain issues. A number of projects have stalled due to component shortage and also several of its key opportunities have stalled in the Current Quarter due to ongoing supply chain issues. This has resulted in a fall in the revenues of this segment in the Current Quarter. Gross Profit Margin was ~~48.2%~~56% compared to ~~46.0%~~45%, ~~representing an increase~~reflecting the types of ~~2.2%.~~engineering projects performed during the reporting period. Total Operating Expenses fell by ~~11.1%~~17.9% and was ~~$672,916~~$652,460 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 171.7%.~~$794,664.

2924

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 ~~$6,267,409~~$5,596,284 and ~~$5,827,375~~$5,838,208 respectively, representing ~~an increase~~a decrease of ~~7.6%~~4.1%. ~~The Products~~This is caused by the Services Business revenue decreasing by 12.0% due to order take slowing because of supply chain issues on broader defense programs. This has resulted in delays in our customers placing orders. Additionally, the Company’s foreign subsidiaries revenues ~~increased~~were impacted by ~~4.1% over~~currency fluctuations caused by the sharp depreciation of the Pound, Euro and Danish Kroner against the USD. A significant part of our revenues is derived from our foreign subsidiaries in the UK and Denmark and therefore for the purpose of our financial reporting, the functional currencies of these subsidiaries are translated into USD. Applying the same exchange rate as the Previous Quarter, ~~and the Services Business revenues~~revenue of our foreign subsidiaries would have increased by ~~14.2% over~~$342,146 and be largely in line with the Previous ~~Quarter.~~Quarter

Gross Profit Margins: Margin percentage was ~~slightly stronger~~weaker in the Current Quarter at ~~72.8%~~67.1% (gross profit of ~~$4,562,644~~$3,753,005) compared to ~~72.3%~~71.3% (gross profit of ~~$4,212,409)~~$4,159,934) in the Previous Quarter. The main factor which affected Gross Profit Margins in the Current Quarter was the level of sales commission incurred. A significant percentage of recorded sales generated by the Products Business emanated from Asia and these were conducted through sales agents, resulting in increased commission level. For the Products Business we recorded $486,341 in commission in the Current Quarter compared to $138,372 in the Previous Quarter, representing an increase of 251%.

Gross ~~Profit Margins~~profit margins reported in ~~the reporting period~~our financial results may vary according to ~~a number of~~several factors. These include:

	●	The percentage of consolidated sales attributed to the ~~Products~~Marine Technology Business versus the Services Business. The ~~Gross Profit Margin~~gross profit margin yielded by the ~~Products~~Marine Technology Business is generally higher than that of the Services Business.
	●	The percentage of consolidated sales attributed to the Services Business. The Services Business yields a lower gross profit margin on generated sales which are largely based on time and materials ~~contracts.~~for our Department of Defense contracts (DoD sub-contracts).
	●	The mix of sales ~~generated by~~within the ~~Products Business:~~Marine Technology Business during the reporting period:


		●	Outright ~~sales~~Sale versus ~~rentals.~~Rentals.
		●	Hardware ~~related sales~~Sale versus Software, ~~related sales.~~software is generally higher margin.
		●	~~Extent~~Mix of Services rendered in the period – Offshore Engineering ~~Support~~ Services ~~provided in the period.~~
●	~~Extent of~~versus paid ~~customer engineering work relating to customizing our technology for these customers’ requirements.~~Customer Research and Development Projects.

	●	Level of commissions on ~~sales (both~~products which may vary according to volume. Both the Services and ~~Products businesses~~Marine Technology Businesses work with ~~a global network~~sales/distribution agents. Most of the Marine Technology Business sales ~~agents). Most sales by the Products Business from~~in Asia ~~attract commission as those are typically sales~~is via ~~our agents/distributors network.~~agents or distributors. See ~~Notes 14 & 15 to the Unaudited Consolidated Financial Statements~~Note 3 “Cost of Goods Sold” for more ~~information covering Segment reporting and the disaggregation of our revenues by type and geography.~~discussion on this.
	●	Level of ~~assets~~Rental Assets in the ~~rental pool~~Marine Technology Business’ Rental Pool and ~~cost~~therefore the depreciation expenses may vary accordingly.
	●	The mix of ~~sales associated with these Rental Assets (and which are subject to depreciation).~~engineering projects performed by our Services Business (Design prototyping versus manufacturing), may also affect Gross Profit Margins.

~~Services Business~~

In the Current Quarter, ~~Gross Profit Margins~~gross profit margins for the Products Business were 72.2% compared to 85.0% in the Previous Quarter. For the Services Business these were ~~48.2% compared to 46.0% in the Previous Quarter reflecting more units of manufacturing than engineering design work packages in the Current Quarter.~~

~~Products Business~~

~~In the Current Quarter Gross Profit Margins for the Products operations were stronger~~56.0% in the Current Quarter ~~at 86.7%~~ compared to ~~85.8%~~45.1% in the Previous Quarter.

Since there are more variable factors affecting ~~Gross Profit Margins~~gross profit margins in the ~~Products~~Marine Technology Business (Products Business), a table showing a summary of break-out of sales generated by the ~~Products Business~~this 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	$	2,928,019	$	2,151,520	Increase 36.1%	$	2,572,560	$	1,958,845		31.3	%
Equipment Rentals		380,984		713,389	Decrease 46.6%		265,903		630,468		(57.8	)%
Software Sales		252,204		153,150	Increase 64.7%		417,170		304,796		36.9	%
Services		443,350		826,992	Decrease 46.4%		568,526		929,639		(38.8	)%

Total Net Sales	$	4,004,557	$	3,845,051	Increase 4.1%	$	3,824,159	$	3,823,748		0.0	%

In the Current Quarter the ~~Products~~Marine Technology Business incurred commission costs of ~~$33,001~~$486,341 compared to ~~$61,540~~$138,372 in the Previous Quarter, representing ~~a 46.4% fall, which improved Gross Profit Margins~~an increase of 251%, resulting in ~~the Current Quarter.~~gross profit margins being lower. A significant percentage of our sales in foreign territories such as South Korea, Japan and China are conducted through our sales agents and distributors.

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

Research and Development (R&D): ~~Total consolidated Research and Development~~R&D expenditures ~~for~~in the Current Quarter were ~~$577,953~~$444,458 compared to ~~$675,766,~~$672,890 in the Previous Quarter, representing a decrease of ~~14.5%~~33.9%. ~~The decrease is largely due to a decrease in these expenditures in the Services Segment. This is discussed more fully below.~~

Segment
January 31,
2023

January 31,
2022
Percentage
Change
Services Segment R&D Expenditures $ 6,150 $ 143,515 Decrease of 95.7%
Products Segment R&D Expenditures $ 438,308 $ 529,375 Decrease of 17.2%
● ~~Services Segment.~~25

~~During the Current Quarter the Services Business~~The decrease in R&D expenditures ~~were ($27,904) compared to $135,213 in the Previous Quarter. This amount attributed to~~is a reflection that we had less R&D projects ongoing 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. In general, the fall in R&D expenditures in this business unit reflects a reduction in expenditures relating to the Thermite^®product line development which had slowed due to the Pandemic. We are now re-engaging our customers who had the Thermite® on trial. One such trial which had 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.Quarter.
● ~~Products Segment~~
During the Current Quarter the Products Business R&D expenditures increased by 12.1% and were $605,857 as compared to $540,553 in the Previous 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 continue to innovate around our solutions on an ongoing basis. Furthermore, in the Current Quarter the Product’s Segment R&D expenditures include an exceptional item of expenditure of $104,000 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 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%

Selling, General and Administrative Expenses (SG&A): SG&A expenses for the Current Quarter fell by ~~11.4% and was $1,960,978 compared~~7.0% to ~~$2,213,821~~$1,962,451 from $2,111,112 in the Previous Quarter.

The fall in SG&A in the Current Quarter is largely due ~~to a reduction in the Legal and Professional Fees by 22.5% and the~~ recording of a significantly lower non-cash charge relating to stock compensation, which was ~~$285,104~~$182,153 as compared to ~~$451,629~~$325,175 in the Previous Quarter, representing a ~~36.9%~~44.0% reduction.

Within the category of SG&A we have transactions which are cash charges and non-cash charges. The non-cash charges comprise Depreciation, Amortization and Stock-based compensation charges. In the Current Quarter non-cash items as a percentage of ~~SGA~~SG&A expenses was ~~21.2%~~14.5% compared to ~~26.9%~~22.0% in the Previous Quarter.

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

Expenditure
January 31,
2023

January 31,
2022
Percentage
Change
Wages and Salaries $ 847,514 $ 903,162 Decrease of 6.2%
Legal and Professional Fees (including accounting and audit) $ 405,088 $ 359,018 Increase of 12.8%
Rent for our various locations $ 12,712 $ 15,745 Decrease of 19.3%
Marketing $ 20,442 $ 13,766 Increase of 48.5%
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~~Although in the Current Quarter “Wages and Salaries” ~~reflects~~have fallen, we believe on the ~~increased costs associated with~~full year basis this category will increase due to inflation and potential new hires to fill open positions. Our revision of salaries for the ~~market conditions for employment. With inflationary pressures currently at unprecedented levels~~Fiscal Year 2023 will start to be recorded in our second quarter, due to 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 retaining and attracting staff.~~date when these increases became effective.

The ~~decrease~~increase in ~~the Current Quarter of~~ “Legal and Professional” ~~category of expenditures results from~~reflects an ~~adjustment~~increase in audit ~~fees by $125,000 in the Current Quarter reflecting adjustment in our UK auditors’~~ fees.

~~In general, the category~~The increase in marketing is anticipated within our plans. This is an area of ~~“Rent” is not material for the Company as~~expenditures which we own most of our premises and facilities. The current category of rent largely reflects our premises 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 in trade shows in different parts of the world, particularly in Europe, North America, Asia and the Middle East. Since the onset of the Pandemic in 2020, our marketing activities have been severely constrained due to the prevailing Pandemic-related travel restrictions on these countries resulting in decreased expendituresanticipate will increase materially in this ~~area. However,~~fiscal year and subsequent years. As 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 as we have shifted a large part ofshift our focus from R&D to business development and ~~brand building.~~
marketing, including undertaking efforts to build our brands, we anticipate a significant increase in this area of expenditure.
31

Operating Income: In the Current Quarter Operating Income ~~increased~~marginally fell by ~~53%~~2.2% and was ~~$2,023,713~~$1,346,096 as compared to ~~$1,322,822~~$1,375,932 in the Previous Quarter. The ~~increase~~slight decrease in Operating Income is ~~a result of an increase~~due to the fall in our consolidated revenues and gross profit margins realized in the Current ~~Quarter by 7.6% compared to the Previous Quarter along with a reduction in Total Operating Expenses of 12.1% compared to the Previous~~ Quarter.
~~Interest Expense~~: The Company paid no interest in the Current Quarter compared to interest expense of $6,145 in the Previous 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.

Other Income: In the Current Quarter, we had ~~$19,744 as “Other Income”~~Other Income of $15,765 compared to ~~$3,571 in~~$68,716, representing a decrease of 77.1% from the Previous Quarter. In the Current Quarter $12,861 of this amount represents interest earned on our deposits. We have established certified deposit accounts with our bankers and would expect that interest earned will be material in the ~~amounts in Other Income reflect payments received for renting a surplus car parking space and also use of the Company’s apartment when not used by staff members.~~future. See Note 17 (“Subsequent Events”) where we discuss this further.

Net Income before income taxes: In the Current Quarter, we ~~realized Net Income~~had income before income taxes of ~~$2,043,457~~$1,361,861 as compared to ~~$1,320,248~~$1,444,648 in the Previous Quarter, representing a decrease of 5.7%. Net income before income taxes fell due to the decrease in our consolidated revenues compounded by the decrease in Gross Profit Margins in the Current Quarter.
26
Net Income: In the Current Quarter we had Net Income of $1,397,857 compared to $1,217,248 in the Previous Quarter, representing an increase of ~~54.8%~~14.8%. ~~The increase in net income before taxes is due to an increase in our consolidated revenues~~In the Previous Quarter we recorded Current Tax Expense of $285,609 and in the Current Quarter we recorded Current Tax Benefit of ~~7.6% with Gross Profit Margins being stronger,~~$35,996. The Company has utilized all its net operating losses carryforwards. Our tax liability included in ~~conjunction with a decrease in Total Operating Expenses by 12.1% over~~our consolidated financial results will depend on the ~~Previous Quarter.~~
~~Net Income:~~ composition of our consolidated income, whether they relate to the Company’s foreign subsidiaries or US subsidiaries and similarly the percentage of consolidated income from US and Foreign subsidiaries. In the Current Quarter, the Company ~~realized net~~and its US subsidiaries had no taxable income. The UK companies have carryforward losses which will be applied to defray income ~~of $1,768,657 as compared to $1,521,086 in~~tax liability and therefore no provision has been made for tax liability for 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 result of an increaseforeign subsidiaries in our consolidated ~~revenues by 7.6% in conjunction with a decrease in Total Operating Expenses by 12.1% in~~results for the Current ~~Quarter compared to the Previous~~ Quarter.
Comprehensive Income ~~(loss)~~. In the Current Quarter, Comprehensive Income was $963,500 compared to $1,260,405 for the Previous Quarter reflecting significant adjustments resulting from foreign currency translations. This category is affected by fluctuations in foreign currency exchange 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 loss on foreign currency translation adjustments relating to these transactions of $260,681 compared to a loss on these transactions in the Current Quarter of $805,157. In the Current Quarter the USD has strengthened against major currencies including the British Pound, Euro, 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 the Income Statement and the Balance Sheet in the Current Quarter compared to the Previous Quarter.
~~Results of Operations for the Current Nine Month Period compared to the Previous Nine Month Period~~
~~Revenue~~: Total consolidated revenues for the Current Nine Month Period and the Previous Nine Month Period were $17,090,455 and $16,250,910 respectively, representing an increase of 5.2%. In the Current Nine Month Period, the Products Business revenues were $11,319,314 compared to $11,777,739, representing a 3.9% reduction over the Previous Nine Month Period. The Services Business revenues in the Current Nine Month Period and the Previous Nine Month Period were 5,771,141 and $4,473,171, representing an increase of 29%.
~~Gross Profit Margins~~: Consolidated Margin percentage was lower in the Current Nine Month Period at 68.8% (gross profit of $11,754,284) compared to 69.4% (gross profit of $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 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. 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).~~
32
~~Services Business~~
Gross Profit Margins for the Services Business were lower at 40.8% in the Current Nine Month Period compared to 43.8% in the Previous Nine Month Period. In the Current Nine Month Period 24.8% of the Services Business revenues ($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
~~Products Business~~
Gross Profit Margins for the Products Business were higher in the Current Nine Month Period at 83.0% compared to 79.1% in the Previous Nine Month Period. In the Current Nine Month Period more units of sales were made via our agents’ network which resulted in an increase in commissions which were 3.5% higher at $434,005 in the Current Nine Month Period compared to $419,276 in the Previous Nine Month Period, which marginally impacted margins in the Products 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 Nine Month Period compared to the Previous Nine Month Period is set out below:
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 Nine Month Period, the Products Business incurred commission costs of $434,005 compared to $419,276, representing a 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 Consolidated Financial Statements.~~
~~Research and Development (R&D)~~~~: R&D expenditures in the Current Nine Month Period were $1,768,221 compared to the $1,904,186 in the Previous Nine Month Period, representing a decrease of 7.1%.~~
● ~~Services Segment.~~
During the Current Nine Month Period, the Services Business R&D expenditures decreased by 95.9%. In general, the fall in R&D expenditures in this business unit is a reflection of reduction in expenditures relating to the Thermite^®product line development which had slowed due to the Pandemic. We are now re-engaging our customers who had the Thermite® on trial. One such trial which had 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~~
During the Current Nine Month Period R&D expenditures in the Products Segment increased by 15.2% from $1,521,175 in the Previous Nine Month Period to $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 Nine Month Period, Products Business R&D expenditures include an exceptional item of expenditure of $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 July 31, 2022 July 31, 2021 Percentage Change
Services Segment R&D Expenditures $ 15,743 $ 383,011 Decrease of 95.9%
Products Segment R&D Expenditures $ 1,752,478 $ 1,521,175 Increase of 15.2%
33
~~Selling, General and Administrative Expenses (SG&A)~~: ~~SG&A expenses for the Current Nine Month Period increased to $6,116,085 from $5,824,046 in the Previous Nine Month Period, representing an increase of 5.0%.~~
The increase in SG&A in the Current 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 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 Nine Month Period and therefore SG&A. In the Current 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 Nine Month Period non-cash items as a percentage of 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 were $975,847 compared to $761,233 in the Previous Nine Month Period.~~
~~Key Areas of SG&A Expenditure across the Group for the Current Quarter compared to the Previous Quarter are:~~
Expenditure July 31, 2022 July 31, 2021 Percentage Change
Wages and Salaries $ 2,826,651 $ 2,501,636 Increase 13.0%
Legal and Professional Fees (including accounting and audit) $ 949,504 $ 853,154 Increase 11.3%
Rent for our various locations $ 45,876 $ 31,289 Increase 46.6%
Marketing $ 210,057 $ 67,325 Increase 212.0%
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 expenditures has increased by 7.34% in the Current Nine Month Period when 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 divisional CEO of our Services Business in Utah and also a new CFO. In the 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 Management salaries.
The increase in the “Legal and Professional” category of expenditures in the Current Nine Month Period reflects an increase in the costs of our accounting and audit services fees as we have added additional resources to this area of our business.
In general, the category of “Rent” is not material for the Company as we own most of premises and facilities. The current category of rent largely reflects our premises in Copenhagen and storage facility that we maintain for our business operations.
Our marketing comprises 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 Nine Month Period our marketing activities 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-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 Nine Month Period was $3,869,978 as compared to $3,548,703 in the Previous Nine Month Period which represents an increase of 9.1%. This reflects an increase in our revenues by 5.2% in the Current Nine Month Period over the Previous Nine Month Period.
~~Interest Expense~~: Interest expense in the Current Nine Month Period was $2,902 compared to $17,442 in the Previous Nine Month Period, representing a reduction of 83.4%. In 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 as we do not have any significant loans. Going forward, this category will typically reflect charges on our banking facilities such as Business credit cards.
~~Other Income~~: In the Current Nine Month Period, we had Other Income of $114,236 as compared to $723,942 in the Previous Nine Month Period. In the Previous Nine Month Period Other Income included $648,872 reflecting Pandemic-related contributions under the PPP. In the Current 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 Nine Month Period, we had a net income before income taxes of $3,981,312 as compared to $4,255,203 in the Previous Nine Month Period, representing a fall of 6.4%. This fall is largely because in the Previous Nine Month Period 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 Nine Month Period, net income before income taxes in the Current Nine Month Period increased by 10.4%.
34
~~Net Income:~~ In the Current Nine Month Period net income fell by 26.0 % to $3,597,208 from $4,857,863 in the Previous Nine Month Period. There are two factors which account for this reduction. In the Previous Nine Month Period net income increased by the inclusion of $648,872 in “Other Income” which represented assistance received under the PPP and in the Previous Nine Month Period we had a tax benefit of $602,660 compared to a tax expense of $384,104 in the Current Nine Month Period.
~~Comprehensive Income (loss)~~. In the Current ~~Nine Month Period~~Quarter Comprehensive income was ~~$766,450~~$3,005,507 compared to Comprehensive Income of ~~$5,821,507~~$1,458,398 for the Previous ~~Nine Month Period~~Quarter reflecting ~~significant~~ adjustments resulting from foreign currency translations. This category is affected by fluctuations in foreign currency exchange transactions both relating to our profit and loss expenses and valuation of our assets and liabilities on our balance sheet. In the Previous ~~Nine Month Period~~Quarter we had a gain of ~~$963,644~~$241,150 on foreign currency translation adjustment transactions compared to a ~~loss on these transactions~~gain of ~~$2,830,758~~$1,607,650 in the Current Nine Month Period. In the Current Nine Month Period, the USD has strengthened against most major currencies including the British Pound, Euro, Danish Kroner and Indian Rupees (the functional currencies of our foreign subsidiaries). A substantial part of these losses are paper losses associated with re-valuation of our foreign subsidiaries balance sheet.Quarter. A significant part of the Company’s operations is based in the UK and Denmark, and therefore a ~~significant~~major part of our assets and liabilities recorded in our consolidated balance sheet and financial transactions ~~is performed in Pounds which~~ are translated from the functional currencies of these subsidiaries into USD for reporting purposes. In the Current Nine Month Period, the Pound has fallen significantly against the USD. This is a key factor in the reduction relating to foreign currency translations transactions in the Current Nine Month Period. See Table 2 under the section which concerns “Inflation & Foreign Currency” which shows the impact of the currency adjustments on our Income Statement and Balance Sheet in the Current ~~Nine Month Period~~Quarter compared to the Previous ~~Nine Month Period.~~Quarter.
Liquidity and Capital Resources
~~At July~~As of January 31, ~~2022,~~2023, the Company had an accumulated deficit of ~~$14,880,649,~~$12,778,779, working capital of ~~$32,781,206~~$36,474,417, cash of $24,522,383 and stockholders’ equity of ~~$42,791,370.~~$46,570,469. For the ~~Nine Months Ended July 31, 2022,~~Current Quarter, the Company’s operating activities provided cash of ~~$6,337,905.~~$984,866.
~~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.~~prime. The outstanding balance on the line of credit was $0 as of ~~July~~January 31, ~~2022.~~2023. This revolving credit line will expire on November 26, 2023, unless renewed.
27

Inflation and Foreign Currency

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

● US Dollars for US ~~Operations;~~Operations.
● British Pound for United Kingdom ~~Operations;~~Operations.
● Danish Kroner for our Danish ~~Operations;~~Operations.
● Australian Dollars for our Australian ~~Operations~~Operations.
● Indian Rupees for our Indian ~~Operations~~Operations.
See Note 5 (Foreign Currency Translation) of our Unaudited Consolidated Financial Statements for more information on the applicable rates used for our Balance Sheet transactions and Statement of Income and Comprehensive Income.

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.~~U.S. dollars for financial reporting. In addition, we are also subject to currency fluctuation risk with respect to certain foreign currency denominated receivables and payables. The Company cannot predict the extent to which currency fluctuations may affect the Company’s business and financial position, and there is a risk that such fluctuations will have an adverse impact on the Company’s sales, profits and financial position. Also, because differing portions of our revenues and costs are denominated in foreign currency, movements can impact our margins by, for example, decreasing our foreign revenues when the dollar strengthens without correspondingly decreasing our expenses. The Company does not currently hedge its currency exposure.
35

~~The~~Applying the Constant Rate, the impact of currency fluctuations on the three months ~~and nine months~~ ended ~~July~~January 31, ~~2022,~~2023, is shown ~~in Table 1 and Table 2~~ below. In this context “Constant Rates” is defined as:

~~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.
For Revenue and Expenses (Income Statement Transactions)
The Prevailing weighted average exchange rate in the Previous Quarter
For balance sheet transactions The Prevailing exchange rate as of October 31, 2022 (the Balance Sheet Date”)

~~Table 1: Three Months ended July 31, 2022~~Information is not specified for INR and AUD as there is limited scope of operations in these jurisdictions and therefore contributions are immaterial. However, the information for INR and AUD is included in the totals.
British Pounds based Danish Kroner based US Dollar
Actual Constant Actual Constant Actual Constant Total
Results $ Rates $ Results $ Rates $ Results $ Rates $ Effect $
Revenues 2,431,323 2,687,865 1,371,456 1,457,060 3,802,779 4,144,925 (342,146 )
Costs 1,907,019 2,108,239 296,109 314,592 2,210,184 2,430,592 (220,408 )
Net profit (losses) 524,304 579,626 1,075,347 1,142,468 1,592,595 1,714,333 (121,738 )
Assets 22,847,165 21,350,036 4,146,903 3,771,741 27,025,529 25,150,688 1,875,056
Liabilities (1,800,852 ) (1,682,846 ) (71,667 ) (65,183 ) (1,871,399 ) (1,746,803 ) (124,475 )
Net assets 21,046,313 19,667,190 4,075,236 3,706,558 25,154,130 23,403,885 1,750,580
British Pounds Australian Dollar Danish Kroner Indian Rupee US Dollar
Actual Constant Actual Constant Actual Constant Actual Constant Actual Constant Total
Results Rates Results Rates Results Rates Results Rates Results Rates Effect
Revenues 2,779,524 3,005,172 - - 392,743 431,641 - - 3,172,267 3,436,814 (264,547 )
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) 662,531 716,317 123 130 402,736 442,624 (32,751 ) (22,605 ) 1,032,639 1,136,465 (103,826 )
Assets 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 (1,552,446 ) (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 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 ~~$103,826~~$121,738 and ~~decreased~~increased net assets by ~~$3,308,131.~~
~~Table 2: Nine Months ended July 31, 2022~~
~~The impact of currency fluctuations on~~$1,750,580. In addition, the ~~nine months ended July 31, 2022, is shown below. In this context “Constant Rates” is defined as the prevailing~~Company recorded a transactional exchange rate ~~for balance sheet transactions in the Previous Nine Month Period and weighted average exchange rate prevailing in the Previous Nine Month Period for related revenues and expenses.~~
British Pounds Australian Dollar Danish Kroner Indian Rupee USD
Actual Constant Actual Constant Actual Constant Actual Constant Actual Constant Total
Results Rates Results Rates Results Rates Results Rates Results Rates Effect
Revenues 8,595,643 9,177,322 - - 1,482,305 1,632,822 - - 10,077,948 10,810,144 (732,196 )
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) 1,686,870 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 21,542,823 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 (1,552,446 ) (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 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~~loss of ~~constant exchange rates, versus the actual exchange rate fluctuations, decreased our net income in~~$72,649 during the Current ~~Nine Months Period by $252,853 and decreased net assets by $3,308,131.~~Quarter.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

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

Not required for smaller reporting companies.

Item 4. Controls and Procedures

a) Evaluation of Disclosure Controls and Procedures

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

The Company’s management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial (and principal accounting) Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of ~~July~~January 31, ~~2022.~~2023. Based upon that evaluation the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were ~~effective~~ineffective as of the end of the period covered by this ~~report.~~report due to the material weakness previously identified in our Annual Report on Form 10-K filed on with the SEC on January 30, 2023.
The material weakness concerned a lack of adequate processes and procedures regarding the review of the elimination entries pertaining to the consolidation process.
We have implemented new controls and procedures that we believe will address the material weakness described above and will carefully monitor the effectiveness of these controls and procedures over the next several quarterly consolidations to determine their effectiveness in addressing the material weakness.
We have implemented additional qualitative and quantitative controls over eliminations including implementing metrics that will be compared to each quarter’s results and deviations from those metrics will be investigated before the consolidation is considered complete. We have also expanded the review of the quarterly and annual consolidation process.
28

(b) Changes in Internal Controls.

~~There was~~During the period covered by this report, except as disclosed above, there were no ~~change~~changes in ~~our internal controls over financial reporting that has materially affected, or is reasonable likely to materially affect, our~~the Company’s internal control over financial reporting ~~during~~(as defined in Rule 13a-15(f) and 15d–15(f) under the ~~reporting period covered by this report.~~Exchange Act) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

36
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.~~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)

3729

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: ~~September 14, 2022~~March 16, 2023 /s/ Annmarie Gayle
Annmarie Gayle
Chief Executive Officer

Date: ~~September 14, 2022~~March 16, 2023 /s/ Nathan Parker
Nathan Parker
Chief Financial Officer

3830

	Three Months		Three Months		Nine Months		Nine Months
	Ended		Ended		Ended		Ended
	July 31		July 31		July 31		July 31
Fiscal Period	2022		2021		2022		2021
Numerator:
Net Income	$	1,768,657	$	1,521,086	$	3,597,208	$	4,857,863

Denominator:
Basic weighted average common shares outstanding		10,858,302		10,830,183		10,857,724		10,786,107
Unused portion of options and restricted stock awards		516,839		512,501		516,839		512,501
Diluted outstanding shares		11,375,141		11,342,684		11,374,563		11,298,608

Net income per share

Basic	$	0.16	$	0.14	$	0.33	$	0.45
Diluted	$	0.16	$	0.13	$	0.32	$	0.43

	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 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

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	January 31, 2023		January 31, 2022		Percentage Change
Wages and Salaries	$	847,514	$	903,162	Decrease of 6.2%
Legal and Professional Fees (including accounting and audit)	$	405,088	$	359,018	Increase of 12.8%
Rent for our various locations	$	12,712	$	15,745	Decrease of 19.3%
Marketing	$	20,442	$	13,766	Increase of 48.5%

	●	~~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 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. 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).~~

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

For Revenue and Expenses (Income Statement Transactions)		The Prevailing weighted average exchange rate in the Previous Quarter
For balance sheet transactions		The Prevailing exchange rate as of October 31, 2022 (the Balance Sheet Date”)

	British Pounds based						Danish Kroner based						US Dollar
	Actual			Constant			Actual			Constant			Actual			Constant			Total
	Results $			Rates $			Results $			Rates $			Results $			Rates $			Effect $
Revenues		2,431,323			2,687,865			1,371,456			1,457,060			3,802,779			4,144,925			(342,146	)
Costs		1,907,019			2,108,239			296,109			314,592			2,210,184			2,430,592			(220,408	)
Net profit (losses)		524,304			579,626			1,075,347			1,142,468			1,592,595			1,714,333			(121,738	)
Assets		22,847,165			21,350,036			4,146,903			3,771,741			27,025,529			25,150,688			1,875,056
Liabilities		(1,800,852	)		(1,682,846	)		(71,667	)		(65,183	)		(1,871,399	)		(1,746,803	)		(124,475	)
Net assets		21,046,313			19,667,190			4,075,236			3,706,558			25,154,130			23,403,885			1,750,580

	British Pounds						Australian Dollar						Danish Kroner						Indian Rupee						US Dollar
	Actual			Constant			Actual			Constant			Actual			Constant			Actual			Constant			Actual			Constant			Total
	Results			Rates			Results			Rates			Results			Rates			Results			Rates			Results			Rates			Effect
Revenues		2,779,524			3,005,172			-			-			392,743			431,641			-			-			3,172,267			3,436,814			(264,547	)
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)		662,531			716,317			123			130			402,736			442,624			(32,751	)		(22,605	)		1,032,639			1,136,465			(103,826	)
Assets		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		(1,552,446	)		(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		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: ~~September 14, 2022~~March 16, 2023	/s/ Annmarie Gayle
	Annmarie Gayle
	Chief Executive Officer

Date: ~~September 14, 2022~~March 16, 2023	/s/ Nathan Parker
	Nathan Parker
	Chief Financial Officer