Quarterlytics / Industrials / Aerospace & Defense / Coda Octopus Group, Inc.

Coda Octopus Group, Inc.

coda · NASDAQ Industrials
Claim this profile
Ticker coda
Exchange NASDAQ
Sector Industrials
Industry Aerospace & Defense
Employees 103
← All annual reports
FY2021 Annual Report · Coda Octopus Group, Inc.
Sign in to download
Loading PDF…
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

☒ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended October 31, 2021

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-38154

CODA OCTOPUS GROUP, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

34-2008348
(I.R.S. Employer
Identification Number)

3300 S Hiawassee Rd, Suite 104-105, Orlando, Florida, 32835
(Address, Including Zip Code of Principal Executive Offices)

407 735 2406
(Issuer’s telephone number)

Securities registered under Section 12(b) of the Exchange Act:
COMMON STOCK, $0.001 PAR VALUE PER SHARE

Securities registered under Section 12(g) of the Exchange Act:
NONE

●

●

●

●

●

●

●

●

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 or a smaller reporting company.

Large accelerated filer ☐
Non-accelerated filer ☐

Accelerated filer ☐
Smaller reporting company ☒

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

State issuer’s revenues for its most recent fiscal year: $21,331,527

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity
was  last  sold,  or  the  average  bid  and  asked  price  of  such  common  equity,  as  of  April  30,  2021  representing  the  last  business  day  of  the  registrant’s  most  recently
completed fiscal year: approximately $46,355,000

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 10,857,195 as of February 11, 2022.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TABLE OF CONTENTS

PART I

ITEM 1.

BUSINESS

ITEM 1A. RISK FACTORS

ITEM 1B. UNRESOLVED STAFF COMMENTS

ITEM 2.

PROPERTIES

ITEM 3.

LEGAL PROCEEDINGS

ITEM 4.

MINE SAFETY DISCLOSURES

PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES

ITEM 6.

SELECTED FINANCIAL DATA

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

ITEM 9A

CONTROLS AND PROCEDURES

ITEM 9B

OTHER INFORMATION

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

ITEM 11.

EXECUTIVE COMPENSATION

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

SIGNATURES

2

4

16

16

17

17

17

18

18

19

40

40

40

40

41

47

49

50

50

51

52

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FORWARD-LOOKING STATEMENTS

This Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, which we refer to in this annual report as
the  Securities  Act,  and  Section  21E  of  the  Securities  Exchange  Act  of  1934,  as  amended,  which  we  refer  to  in  this  annual  report  as  the  Exchange  Act.  Forward-looking
statements are not statements of historical fact but rather reflect our current expectations, estimates and predictions about future results and events. These statements may use
words  such  as  “anticipate,”  “believe,”  “estimate,”  “expect,”  “intend,”  “predict,”  “project”  and  similar  expressions  as  they  relate  to  us  or  our  management.  When  we  make
forward-looking statements, we are basing them on our management’s beliefs and assumptions, using information currently available to us. These forward-looking statements
are subject to risks, uncertainties and assumptions, including but not limited to, risks, uncertainties and assumptions discussed in this annual report. Factors that can cause or
contribute to these differences include those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we
projected.  Any  forward-looking  statement  you  read  in  this  annual  report  reflects  our  current  views  with  respect  to  future  events  and  is  subject  to  these  and  other  risks,
uncertainties  and  assumptions  relating  to  our  operations,  results  of  operations,  growth  strategy  and  liquidity.  All  subsequent  written  and  oral  forward-looking  statements
attributable to us, or individuals acting on our behalf are expressly qualified in their entirety by this paragraph. You should specifically consider the factors identified in this
annual report, which would cause actual results to differ before making an investment decision. We are under no duty to update any of the forward-looking statements after the
date of this annual report or to conform these statements to actual results.

3

 
 
 
 
 
ITEM 1. BUSINESS

Overview

PART I

Coda Octopus Group, Inc. (“Coda” “the Company” or “we”), through its wholly owned subsidiaries, operates two distinct businesses:

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

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

Our Marine Technology Business is a technology solution provider to the subsea and underwater market. It owns key proprietary technology including real time volumetric
imaging sonar technology and diving technology, both of which are applicable to the underwater defense and commercial markets. All design, development and manufacturing
of our technology and solutions are performed within the Company.

Our  imaging  sonar  technology  products  and  solutions  marketed  under  the  name  of  Echoscope®  and  Echoscope  PIPE®  are  used  primarily  in  the  underwater  construction
market,  offshore  wind  energy  industry  (offshore  renewables),  and  offshore  oil  and  gas,  complex  underwater  mapping,  salvage  operations,  dredging,  bridge  inspection,
underwater hazard detection, port security, mining, fisheries, commercial and defense diving, and marine sciences sectors. Our diving technology marketed under the name
“CodaOctopus® DAVD” (Diver Augmented Vision Display) addresses the global defense and commercial diving markets and has the potential to radically change how diving
operations  are  performed  globally  because  it  delivers  a  real  time  information  platform  for  diving  and  allows  diving  operations  to  be  performed  in  zero  visibility  water
conditions and provides real time map of the dive area.

Our  Marine  Engineering  Businesses  are  suppliers  of  embedded  solutions  and  sub-assemblies  which  they  design  and  manufacture  and  sell  into  mission  critical  integrated
defense systems such as the Close-In-Weapons System (CIWS). The Services Segment established its business in 1977 and has been supporting a number of significant defense
programs for over 40 years, including Raytheon’s CIWS and Northrop Grumman’s Mine Hunting Systems Program. The Services Segment’s business model entails designing
sub-assembly prototypes which are utilized in broader defense programs. These prototype contracts typically lead to contracts for the manufacture, repair and upgrade of these
sub-assemblies. We are the sole source for the parts that we design and supply into these programs. This business model ensures recurring and long tail revenues since we
continue to supply parts, typically for the life of the program, which can span decades. Coda Octopus Colmek, Inc. and Coda Octopus Martech Ltd, each qualifies as a small
business. This opens opportunity under state requirements to collaborate with Prime Defense Contractors on these programs.

Due to the above, a significant part of the revenues generated by the Marine Engineering Business is highly concentrated and is derived from a small number of prime defense
contractors  such  as  Raytheon  or  Northrop.  In  any  one  year,  between  20%  to  30%  of  our  consolidated  revenues  may  be  derived  from  these  customers  individually  or
collectively.

The  Services  Segment  operates  through  our  wholly  owned  subsidiaries,  Coda  Octopus  Colmek,  Inc  (“Colmek”)  based  in  Salt  Lake  City,  Utah,  and  Coda  Octopus  Martech
Limited (“Martech”) based in Dorset, United Kingdom.

Cross-Group Synergies

Our Marine Technology Business and Marine Engineering Services Business have established synergies in terms of customers and specialized engineering skills for robust,
rugged and repeated engineering solutions relating to data acquisition, data computation and display of the data. Increasingly drawing on each part of the business strengths, the
Marine Technology Business and Marine Engineering Business work jointly on projects including responding jointly for tenders. We believe the Services Business is important
to our overall growth strategy as it brings significant engineering depth for the onward development of our technology solutions. This also ensures more tight control over our
intellectual property rights which are important for our market position in the space we operate.

Key Pillars for our Growth Plans

Our volumetric real time imaging sonar technology and our Diver Augmented Vision Display (“DAVD”) are our most promising products for the Group’s near-term growth.

Our  real  time  3D/4D/5D/6D  Imaging  sonars  are  the  only  underwater  imaging  sonars  which  are  capable  of  providing  not  only  complex  seabed  mapping  but  inspecting  and
monitoring  in  real  time  3D/4D/5D  /6D  moving  underwater  objects  irrespective  of  water  conditions  including  in  zero  visibility  water  conditions  (a  perennial  problem  in
underwater operations). Competing technology can perform mapping (but not complex mapping) without the ability to perform real time inspection and monitoring of moving
objects  underwater.  We  also  believe  our  Echoscope  PIPE®  is  the  only  technology  that  can  generate  multiple  real  time  3D/4D/5D  and  6D  acoustic  images  using  different
acoustic parameters such as frequency, field of view, pulse length, filters.

Our  customers  include  service  providers  to  major  oil  and  gas  (“O&G”)  companies,  renewable  companies,  underwater  construction  companies,  law  enforcement  agencies,
navies, ports, mining companies, defense bodies, diving companies, research institutes and universities. We are widely considered the leading solution providers for real time
3D visualization underwater.

We  also  believe  that  the  DAVD  system  is  poised  to  radically  change  the  way  commercial  and  diving  operations  are  performed  globally  by  advancing  the  methods  of
communication,  ability  to  consume  and  use  digital  information  and  real  time  imaging  sonar  data,  thereby  improving  safety  and  reducing  the  costs  of  these  operations.  The
DAVD HUD (Head Up Display) concept is protected by patent and is manufactured and distributed under License from United States Department of the Navy at Naval Surface
Warfare Center Panama City Division to the Company.

Our corporate structure is as follows:

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate History

The Company began as Coda Technologies Limited. This company now operates under the name Coda Octopus Products Limited, a United Kingdom corporation formed in
1994  as  a  start-up  company  with  its  origins  as  a  research  group  at  Herriot-Watt  University,  Edinburgh,  Scotland.  Initially,  its  operations  consisted  primarily  of  developing
software for subsea mapping and visualization using sidescan sonar (a technology widely used in commercial offshore geophysical survey and naval mine-hunting to detect
objects on, and textures of, the surface of the seabed).

4

 
 
 
 
In June 2002, we acquired Octopus Marine Systems Ltd, a UK corporation, and changed our name to Coda Octopus Limited. At the time of its acquisition, Octopus Marine
Systems was producing geophysical products broadly similar to those of Coda, but targeted at the less sophisticated, easy-to-use, “work-horse” market. The Octopus Marine
Systems acquisition led to the introduction of the Motion product (F180® series) into the Products Segment.

In December 2002, Coda Octopus Ltd acquired OmniTech AS, a Norwegian company, which became a wholly owned subsidiary of the Company, and which subsequently
changed its name to Coda Octopus R&D AS. OmniTech owned the patents to a “method for producing a 3-D Image” (which has now expired). At the time of acquisition, this
company had been engaged for over ten years in developing a revolutionary imaging sonar technology capable of producing real time three-dimensional (“3D”) underwater
images for use in subsea activities. Coda Octopus Products Limited (Edinburgh based) then developed the visualization software to control and display the images from the real
time  3D  sonar  device.  This  patented  technology  is  now  marketed  by  us  under  the  brand  name  “Echoscope®”  and  Echoscope  PIPE®.  All  activities  of  this  now-defunct
Norwegian subsidiary, Coda Octopus R&D AS, have been transferred to Coda Octopus Products Limited (Edinburgh).

On  July  13,  2004,  the  Company  effected  a  reverse  merger  pursuant  to  the  terms  of  a  share  exchange  agreement  between  The  Panda  Project,  Inc.  (“Panda”),  a  Florida
corporation, and a now defunct entity affiliated with Coda Octopus Ltd. (“Coda Parent”). Panda acquired the shares of Coda Octopus Limited, a UK corporation and a wholly-
owned subsidiary of Coda Parent, in consideration for the issuance of a total of 1,432,143 shares of common stock to Coda Parent and other shareholders of Coda Octopus
Limited. The shares issued represented approximately 90.9% of the issued and outstanding shares of Panda. The share exchange was accounted for as a reverse acquisition of
Panda by Coda. Subsequently, Panda was reincorporated in Delaware and changed its name to Coda Octopus Group, Inc.

In June 2006, we acquired Coda Octopus Martech Limited which is part of our Services Segment or Marine Engineering Business. This is an English corporation.

In April 2007, we acquired Coda Octopus Colmek, Inc. which is part of our Services Segment or Marine Engineering Business. This is a Utah corporation.

Both Martech and Colmek largely have the same business model, provide similar engineering services and sell to a similar customer base (one is UK focused and the other is
US focused).

In December 2013 Coda Octopus Products Limited established Coda Octopus Products Pty Ltd (Australia) to grow our presence in Australia and New Zealand. However, since
2020 we have not been able to do meaningful business development due to the Australian borders being closed because of the Coronavirus Pandemic.

In 2017 Coda Octopus Products Limited established a subsidiary Coda Octopus Products A/S in Denmark as part of the mitigation strategy relating to the UK withdrawal from
the European Union (See Item 7 Management’s Discussion and Analysis…”).

Coda Octopus Group, Inc., is organized under the laws of the State of Delaware as a holding company that conducts its business through subsidiaries, several of which are
organized under the laws of foreign jurisdictions, including England, Scotland, Denmark, Australia and recently India. This may have an adverse impact on the ability of U.S.
investors to enforce a judgment obtained in U.S. courts against these entities, or to effect service of process on the officers and directors managing the foreign subsidiaries.
These companies’ operations must comply with the laws of the countries under which they are incorporated and are likely to be different from the equivalent laws of the United
States.

5

 
 
 
 
 
 
 
 
 
 
 
Marine Technology Business (“Products Segment”)

Our  Marine  Technology  Business  develops  proprietary  solutions  for  both  the  commercial  and  defense  subsea  market.  The  range  of  our  solutions  are  complementary  and
include:

Type of Systems
Geophysical Systems
GNSS-Aided Navigation Systems (Attitude and Positioning Systems)
Real Time Volumetric Imaging Sonar
Diver Augmented Vision Display System

  Description
  Comprising Hardware and Software;
  Comprising Hardware and Software
  Comprising Hardware and Software
  Comprising Hardware and Software

These products are sold, leased or rented into various marine sectors and include:

● Marine geophysical survey
● Offshore Renewables (“Wind Energy”)
● Underwater construction, inspection and monitoring
● Diving Companies
● Commercial and Defense Diving
● Salvage and decommissioning
● Oil and Gas (“O&G”)
● Commercial fisheries
● Environmental, mammal and habitat monitoring
● Underwater Defense Applications
● Marine vehicles and robotics
● Port and Harbor Security, law enforcement and first responders
● Research and education

1. Geophysical Range of Products

Our  geophysical  systems  (“GEO”)  range  of  products  include  geophysical  data  acquisition  systems,  processing  and  analysis  software  that  are  used  primarily  by  survey
companies, offshore renewable companies, research institutions, salvage companies. The Company’s GEO range of products are used in conjunction with sidescan sonars to
survey  large  areas  and  create  images  of  the  seabed,  identify  seabed  boulders  and  objects,  mark  seabed  type  boundaries  and  identify  existing  subsurface  structural  features,
geological layers, and/or buried debris. The Company started its first innovation with this range of products and in fact was the first company to digitalize sidescan sonar data.
The Company GEO range is a strong brand in the geophysical market space.

2. GPS aided Inertial Positioning Systems

These are referred to as our MOTION range of products and offer high accuracy GPS aided inertial positioning and attitude data, essential for all marine survey applications.
The products are commonly bundled with our GEO and real time sonar solutions offering our customers a seamless integration and support experience.

3. Real Time Volumetric Imaging Sonars (ranging from 3D/4D, 5D and 6D)

We design, develop and supply what we believe is the world’s most advanced series of real time volumetric imaging sonar. This is the culmination of over 25 years of research
and development. This technology is protected by multiple patents. Furthermore, we continue to file patents relating to our new and revolutionary sonars, our 5-Dimensional
(5D) and 6-Dimensional (6D) real time volumetric imaging sonars (marketed under the name Echoscope PIPE® (Parallel Intelligent Processing Engine). Our sonar innovations
are multi-tiered and extend to hardware, firmware and software, all of which co-exist and are co-dependent on each other. In other words, hardware, firmware and software
operate  as  sub-systems  to  each  other.  We  believe  that  the  highly  complex  nature  of  this  new  technology  will  make  it  extremely  difficult  to  reverse  engineer  our  products.
Pioneering this unique technology gives us a significant advantage over our competitors in the subsea real time 3D imaging sonar market sectors. We also believe that our
three-tier product development capability of hardware, software and solution delivery adds to our competitive lead.

We  believe  that  this  technology  is  superior  to  the  other  imaging  sonars  in  the  market  as  it  generates  real  time  3D,  4D,  5D  and  6D  images  of  the  underwater  environment
irrespective of low or zero visibility conditions and, unlike conventional sonars, can image a volume (as opposed to a slice of data) and provide real time 3D inspection and
monitoring  capability  underwater.  The  capability  of  our  volumetric  imaging  sonars  covers  a  broad  breadth  of  activities  underwater  particularly  for  any  form  of  underwater
construction, salvaging, placements, decommissioning, obstacle avoidance and complex underwater mapping.

About the Company’s 5D and 6D Sonars Innovations

5D and 6D sonars are new to the subsea market and constitute an innovation by the Marine Technology Business of the Company. We have several patents pending for these
innovations.

5D Sonars (Echoscope PIPE®)

The advancement that the Company has made with its 5D Sonars is the ability to process and utilize much more of the data that is acquired by our volumetric imaging sonars.
In the previous generation of our sonars, due to the state of the art of processing generally, there was an upper limit to the quantity of the acquired data that could be processed
and displayed by the sonar system. This meant that in the previous generation of sonars when a signal was emitted, it returned a single range and intensity value per beam. In
the  5D  Sonars  we  return  multiple  range  and  intensity  values  (Full  Time  Series  (“FTS”))  per  beam.  This  new  capability  provides  more  information  about  the  underwater
environment. For example, it will give the user the ability to see multiple layers of soft target areas underwater such as gas leaks and suspended sediment above the seabed all
concurrently (not one or the other) or concurrent imagery of marine life, sea growth on installations and the installations themselves. FTS will deliver all range values per beam
as opposed to either the First (First Above Threshold (“FAT”) or the strongest return (MAX) provided by the previous generation of Echoscope technology. Our 5D capability is
protected by a recently granted patent (US 10,718,865 – which concerns a method of compressing beamforming sonar data).

6D Sonars (Echoscope PIPE®)

The Company’s 6D Sonars processes and utilizes much more of the data acquired by the sonar. 6D Sonars are sonars which generate multiple real time 3D Full Time Series
Images. In the previous generation of sonars, we could image and display one 3D Image in real time. Our technology generates multiple 3D Images simultaneously in real time
using different sonar/acoustic parameters (such as frequency, range, field of view, pulse length and other acoustic filters or shading). Our new technology enables one sensor to

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
provide  different  3D/4D/5D/6D  data  sets  (through  multiple  parallel  processing  capability)  to  different  parts  of  the  survey  team  operations  in  real  time  per  their  different
operational requirements (thus consolidating the sensors and the associated costs and effectiveness of the solution). 6D Sonars can also record raw data that can be subject to
PIPE Offline processing to generate unlimited data outputs. We are not aware of any sonars that can offer either 5D or 6D Capability.

In summary, our previous generation of real time 3D sonar was capable of providing only single acoustic images of underwater objects in real time 3D whereas the PIPE family
of sonars is capable of providing multiple acoustic images of underwater objects in real time 3D/4D.

Sonar Hardware

During fiscal 2019, we completed critical innovation and advancement milestones around our core volumetric real time sonar technology. We have now introduced the world’s
first  5D  and  6D  series  of  volumetric  imaging  sonar  technology.  This  new  series  of  sonars  are  marketed  under  the  brand  name  Echoscope  PIPE® (an  acronym  for  Parallel
Intelligent Processing Engine). We believe our 5D and 6D series of sonars herald a significant leap forward in real time subsea imaging as this inventive capability allows a
single sonar to provide different parts of the survey operations with multiple real time data sets (as opposed to one 3D dataset) for each part of the survey teams’ requirements.

The Differences between our standard Echoscope® sonar series and our newly launched Echoscope PIPE® series of sonars is set out below:

Description

Real Time Capability
Angular Cover Dual Frequency
Adaptive Frequency Capability
Ping Rate
Multiple Real Time 4D Images
Number of Data Points per Single Ping
Number of Beams and Values per Beam

  Current Echoscope®
  Yes, 4D Images

50ox50o and 24ox24o

  No
  Up to 20Hz
  No, one single Real Time Image
  Up to 16,386

128x128x1 Value

Multiple Sequential Configuration Files to capture data using different
parameters
Full Time Series Raw Data Capture
Full Time Series Raw Data Offline Processing
Multiple Parallel Beamformed Data Output

  No Capability

  No Capability
  No Capability
  No Capability

Smart Ping Manager using Frequency, Field of View, Filtering in Real-Time   No Capability
  No Capability
Adaptative Real Time Beamforming

  PIPE® Sonars
  Yes, 4D, 5D and 6D

54ox54o - 47ox47o and 32ox32o - 28ox28o

  Yes
  Up to 40Hz
  Capable of Multiple Real Time Images
  Up to 40 million
  Up to 180 x 180 with up to 2,500 values (depending

on viewing range)

  Up to 10 Configuration sets for real time capture

and display

  Capture of Raw Data
  Capable of Raw Data Offline Processing
  Capable of Multiple Parallel Beamformed Data

Outputs
  Capable
  ●
●
●

FFT Beamforming
Dynamic Co-efficient Beamforming
Split Aperture Beamformer

6

 
 
 
 
 
 
 
 
 
We believe that our Echoscope®  technology  will  shepherd  in  the  new  generation  of  underwater  real  time  3D  imaging  sonar  which  will  evolve  into  a  real  time  information
platform  and  gain  market  share  through  the  increased  adoption  of  real  time  3D  volumetric  imaging  sonar  technology.  Current  competing  imaging  technologies  such  as  the
single beam, multibeam and scanning sonars are either 2D real time imaging sonars or 3D imaging sonars which are not capable of real time 3D imaging. The competing 3D
technology, the multibeam, which is the current standard bearer in the market is a sonar for mapping only. The Echoscope® technology can not only map the seabed (and is
superior to the multibeam for complex mapping and inspection of complex underwater structures) but can image in real time 3D moving objects underwater and therefore is the
primary  tool  of  choice  for  inspecting  and  monitoring  in  real  time  all  types  of  underwater  operations  and  the  only  choice  in  poor  visibility  conditions.  In  addition,  the
Echoscope® can also in many instances enable the user to monitor underwater operations from a surface vessel and in this way replace Remotely Operated Vehicles (ROVs)
thus bringing considerable cost savings to our customers.

Prior to January 2018, we were selling our third generation (3G) sonar series. In January 2018 we launched the first product within our fourth generation series of sonars (“4G
sonar  series”).  The  4G  sonar  series  was  an  important  development  milestone  for  the  Company  and  since  its  introduction  has  seen  increased  number  of  units  being  sold  or
rented. Due to the form factor of our previous generation of 3G sonar series this limited the types of subsea vessels/vehicles this generation of sonar could be integrated on (and
therefore be used for) due to (i) size; (ii) weight and (iii) power requirements (“form factor barriers”). With the launch of the 4G sonar series we have removed these form factor
barriers  and  can  now  integrate  on  the  majority  of  underwater  vehicles  in  the  market  including  the  new  and  fast  emerging  smaller  underwater  vehicles  such  as  autonomous
surface vehicles (ASVs) and unmanned underwater vehicles (UUVs) which are propelling growth in the underwater market.

The 4G sonar series developments were largely form factor driven as opposed to being based on performance and capability advancements. In fiscal years 2019 and 2020 we
continued our innovation of our sonar technology to focus on performance and capability advancements, particularly on the beamforming and the data processing capability of
our  sonar  series.  In  the  previous  generation  of  our  sonars,  due  to  limitations  in  processing  capability  technology  there  were  restrictions  on  how  much  of  the  captured
Echoscope® sonar data could be processed by us. Our previous generations of sonars processed 16,384 pieces of data per sonar ping (compared to around 256 pieces of data per
sonar ping for competing technology such as the multibeam). Under our new Echoscope PIPE® sonar series for each signal that is generated by the sonar we receive back up to
40 million pieces of information which we can now process. In this context, we have two recent patents concerning a method of compressing beamforming sonar data and a
method of compressing sonar data. We believe that this allows us to deliver to the market the first 5-Dimensional (5D) sonar and 6-Dimensional (6D) sonar capabilities and
significantly  builds  on  our  4G  sonar  series  which  radically  changed  the  form  factor  and  power  requirements  which  were  previously  barriers  to  increased  adoption.  The
advantages offered by our 5D and 6D Sonar Series have been discussed above under the heading (About the Company’s 5D and 6D Sonars Innovations). We started selling
Echoscope PIPE® in the market in March 2020. We are also seeing increased interest in Echoscope PIPE® technology in the market especially with OEM underwater vehicle
manufacturers.

The release of the Echoscope PIPE® hardware, is a significant milestone. We are now focused on the value add to the technology via firmware and software capability. The
finalization of this development now gives the Company a real opportunity to pursue its strategy to standardize this technology in the underwater imaging sonar market. We
believe  that  in  order  to  make  the  subsea  and  underwater  market  more  efficient,  it  is  mandatory  that  the  standard  moves  to  a  real  time  3D  information  platform.  Many
underwater operations are stalled due to low visibility water conditions, preventing the remotely operated vehicles (ROVs) from flying and also the lack of ability to utilize the
sonar  data  immediately  because  it  requires  post  processing,  which  represents  a  significant  challenge  and  higher  costs.  The  subsea  market  is  experiencing  structural  and
technology transitional changes including the introduction of the new generation of smaller and lighter vessels (both surface and underwater). This creates a demand for new
sensors and solutions for real time 3D imaging. We believe that our lead in this area gives us a real opportunity to increase our market share.

Diver Augmented Vision Display (DAVD) System

Funded by the Office of Naval Research (“ONR”) through its Future Naval Capabilities (FNC) program, and in close collaboration with NAVSEA 00C3 and Naval Surface
Warfare Center, Panama City Division (“NSWC PCD”) we have developed a diver see-through integrated information display system (DAVD).

DAVD is a complete end-to-end diver management solution incorporating as a key element a high-resolution, fully transparent glass head-up display (HUD) integrated directly
inside the diving helmet (for hard hat surface air supply diving) or full-facemask (for tethered and untethered defense, commercial and recreational diving applications). The
DAVD HUD is currently deployed in the world leading and most widely used Kirby Morgan® range of dive helmets and is currently being released in the industry standard
Interspiro and OTS full-face masks. The DAVD HUD and system technology is not however limited to these products and applications. We continue to work with NASA who
has used the DAVD system at its 6.2 million gallons Neutral Buoyancy Laboratory (NBL) located near the Johnson Space Center in Texas, US. It is now exploring its ‘potential
use in NASA’s planned return to the moon’.

7

 
 
 
 
 
 
 
 
 
Problem In Context

Navy and Commercial diving share common issues and challenges with location, visibility, communication, safety and data and information sharing. Divers work mainly in
murky or disorientating water conditions and rely heavily on their sense of touch to navigate and function. They work in the water column, around complex structure and on the
cluttered sea bottoms which is neither safe nor efficient. They, and the diver support team, require dark spatial awareness memory as they work, arms outstretched in deep, dark,
frigid  waters  to  remember  hazardous  underwater  debris,  targets  and  terrain.  Complexity  of  the  task  and  this  challenging  environment  directly  increases  risk,  stress,  and
inefficiency for the entire team.

How does DAVD Change this?

The DAVD system addresses all the challenges described above. The DAVD technology benefits not only the diver and direct supervisor on the surface, but also engineers, end-
clients, rescue workers and support personnel whom all have vested interest in a successful and safe mission. DAVD provides the location of the diver, the dive support vessel,
work site assets and any hazards that are known or discovered in real-time. Real-time compass and depth are also displayed to the diver to reduce disorientation. visibility for
Diver and team is dramatically enhanced with both real-time camera and 3D sonar (providing underwater night-vision) and also high-resolution maps and models of the entire
work site and surroundings. Communication is transformed from low quality audio speech to high quality digital audio and video, text messaging, visual alerts and automated
navigation guidance. The safety of the diver and team is paramount. DAVD ensures the Diver and Supervisor are visually synchronized and can safely coordinate movement,
tasks and instructions with full health monitoring and logging of the entire mission. Data and information sharing traditionally ends when the diver leaves the surface. DAVD
provides a seamless and effective way to share any type of data, image, video, process or procedure instantly in real-time through the DAVD fully transparent HUD display
(equivalent  of  >100”  HD  TV  in-front  of  the  diver).  Data  and  information  also  flows  up  from  the  Diver  to  the  Supervisor  where  the  diver  can  look  at  an  asset,  make
measurements or recordings and the entire task is captured and documented on the DAVD system.

The concept of using a pair of transparent glasses in the HUD for underwater applications is protected by patent and Coda Octopus has an exclusive licence from United States
Department  of  the  Navy  at  NSWC  PCD  to  exploit  this  patent  for  all  underwater  diving  activities. The  DAVD  is  a  significant  technology  for  both  defense  and  commercial
underwater diving applications and we believe that Coda Octopus has the opportunity to standardize this technology globally. The DAVD comprises both hardware comprising
the HUD, Diver Processing Pack (DPP) (which is a Thermite® variant), Cables and Topside Control Unit along with 4G USE® DAVD Edition real time visualization software.
All these development and products have been designed and developed by the Company.

The DAVD is currently in early-stage adoption with the US Navy and enjoys the benefit of an Approved Navy Use (ANU) product. We have also started marketing (through
live  demonstrations)  this  technology  to  friendly  Navies  globally  and  also  to  the  commercial  diving  market.  We  have  significant  interest  from  a  number  of  reputable  global
commercial  offshore  service  providers  and  are  working  with  them  for  early  adoption  of  the  technology  and  also  a  number  of  European  friendly  Navies  including  the  UK
Ministry of Defense (MOD).

GEN 3 of the DAVD which opens the market further by extending support to Full Face Masks (FFM), has now also been released to the Navy for trials.

Sonar Software

Our  software  development  capability  is  an  important  part  of  our  strategy  to  maintain  our  lead  in  designing,  manufacturing,  and  selling  state-of-the-art  real  time  volumetric
imaging sonars and our DAVD System.

Our existing third generation (3G) Underwater Survey Explorer software used in conjunction with our real time volumetric sonars, is a product which we have been developing
for over 15 years. Because of technological advancements, including access to off the shelf components for more advanced processing of data (speed and size being factors), in
2016,  the  Company  started  the  process  of  re-conceiving  and  developing  its  top-end  software  for  our  now  much  more  advanced  sonars.  We  have  now  launched  our  fourth-
generation multi-sensor platform which is marketed under the name “4G USE®”. We have also filed several provisional patents around our 4G USE®. 4G USE® is a multi-
sensor platform allowing users to bring in and utilize a variety of sensor data including sonar, positioning, camera, lidar, video processing and other sources of point cloud data
and seamlessly merging above and below the water data captured from the sonar and camera. It is also the platform for our DAVD software, and this is marketed under the
brand 4G USE® DAVD Edition.

8

 
 
 
 
 
 
 
 
 
 
 
 
Geophysical Products and Solutions

The  Geophysical  range  of  products  are  important  for  both  Offshore  Renewables  and  O&G.  We  therefore  believe  that  with  the  expansion  of  the  markets  into  Offshore
Renewables, we will see an increase in the take up of this product suite, particularly in the global rental market. Our GeoSurvey® and DA4G ranges are strong brands in these
markets.

We started our business in 1994 designing and developing the GeoSurvey® software and hardware package for acquisition and processing of sidescan sonar and sub-bottom
profiler data. For over two decades, our GeoSurvey has been an industry leading software package in the market for data acquisition and interpretation and provides feature rich
solutions and productivity enhancing tools for the most exacting survey requirements. Designed specifically for sidescan and sub-bottom data acquisition, GeoSurvey has been
purchased by numerous leading survey companies throughout the world.

The Products Business generates around 2% of its revenues from this range of products. With the launch of the new products based on Artificial Intelligence technology for
which we believe there is increased demand we would anticipate our revenues from this product line to increase over time.

Geophysical Hardware

These consist of a range of hardware solutions for field acquisition of sidescan sonar and sub-bottom profiler, which includes analog and digital interfaces compatible with all
geophysical survey systems.

In 2018, we introduced our DA4G-USB product. This allows customers to integrate the DA4G hardware into their own PC configuration. Based on the CodaOctopus® DA4G
system, it offers the same functionality, robustness and ease of use. CodaOctopus® DA4G is the fourth generation of our successful DA series and is built on twenty years of
knowledge,  experience  and  innovation  in  supplying  unparalleled  products  and  service  to  the  worldwide  geophysical  survey  sector.  These  purpose-built,  turn-key,  systems
incorporate the very latest hardware specifications and are designed and delivered to meet the demanding nature of offshore survey work.

The CodaOctopus® DA4G range consists of a number of options and is backed (like all our products) with global service and support.

This  consists  of  an  integrated  suite  of  software  that  automates  the  tasks  of  analyzing,  annotating  and  mosaicking  complex  data  sets,  thus  ensuring  faster  and  more  precise
results.

Geophysical Software

Our GeoSurvey® software is supplied to complement our DA4G hardware, offering field acquisition of sidescan sonar and sub-bottom profiler data.

Our Survey Engine software product offers a more advanced post-processing solution for sidescan sonar and sub-bottom profiler data. Designed to streamline processing of
very large data sets – many 100GBs – it offers comprehensive processing, interpretation, visualization, reporting and exporting functionality.

We continue to advance this range of products and in 2018 we launched our first product based on Artificial Intelligence techniques which allows us to automatically identify
boulders on the seabed – SEADP – “Survey Engine Automatic Object Detection”. This new product presents a real opportunity to radically change workflow process for post-
processing and analyzing side scan sonar data to assess, among other things, the suitability of an area for exploration and construction activities (O&G installations, pipeline
and cable laying activities). This is in its early stage of roll out and has sparked significant interest. This is an area where we are investing our research and development efforts.
We are also seeing good results from SEADP and some good quality early adopters of this new technology in the market.

9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additionally, in 2019 we introduced our Seabed Classification module (again based on Artificial Intelligence techniques). This automatically classifies sidescan sonar imagery
into different seabed types, computes and exports polygonal boundaries for these areas, and thereby simplifies sidescan processing.

Inertial Positioning and Attitude Measurement Systems (“Motion Products”)

Our Motion Products are Global Navigational Satellite System (referred to in the industry as “GNSS” Aided Inertial Measurement Units) provide measurement data on the
position and attitude of a vessel. This device provides real-time data on these measurements which are applied to compensate for vessel movement in order to align sonar data
and remove motion blur.

We have had our F180® series in the market for over 15 years and due to advancement of technology and the increasing demand for more precise GNSS Aided instruments, we
have now developed our new generation of Motion Products, our F280 Series®.

New Generation of Motion Products

We have now completed the ground up development of our new generation of Motion Products F280 Series® The new F280 Series® is based on more advanced technology and
is  more  accurate  than  our  F180®  series.  The  new  technology  is  much  more  scalable  towards  future  development  of  new  product  variants.  The  F280Series®  is  highly
complementary to our real time volumetric sonar series and they are packaged together to provide a more comprehensive solution to our customers. The F280® is sold with and
without our sonar series. We have now started to market the F280 Series®

Sales and Marketing

We  market  our  products  primarily  through  our  website,  industry  events  such  as  trade  shows,  webinars  and  industry  relationships.  We  also  have  a  small  internal  sales  and
marketing team which is engaged in marketing and selling our products. In addition, we have a network of non-exclusive independent global sales agents. In 2022, a significant
part  of  our  business  plan  budget  is  allocated  to  business  development,  sales  and  marketing  which  will  include  recruiting  new  staff  for  more  direct  sales  and  business
development.

Coda Octopus Products Limited has the requisite accreditations for its business including being Lloyds Register accredited to ISO 9001:2015 and Cyber Essentials certification.

10

 
 
 
 
 
 
 
 
 
 
 
Marine Engineering Businesses (“Services Segment”)

Our Marine Engineering Businesses comprise Coda Octopus Colmek, Inc. based in Salt Lake City and Coda Octopus Martech Limited based in the United Kingdom.

These two operating entities supply engineered sub-assembly solutions which form part of mission critical integrated defense systems, test equipment, instrumentation, and the
like. They operate as sub-contractors to prime defense contractors, and their engineering solutions are typically within broader defense programs where high levels of reliability
and quality are essential pre-requisites for securing and maintaining these agreements with their customers. Typically, we prototype products for these customers and after going
through various acceptance tests, including first article inspection approvals, we are given the production contracts. Many of these production contracts have a repeat orders
profile which typically follows the life cycle of the defense program that is using the production part.

These arrangements often give us long term preferred/sole supplier status for the parts we supply, technology refresh and obsolescence management business opportunities with
these customers and we generally use these long-standing relationships to win more contracts with these customers.

This business relies on increasing the number of new programs it attracts annually.

In addition, we are increasingly combining our engineering capabilities with our product offerings. This enables us to offer systems which are complete with installation and
support to maximize the utilization of our collective expertise to advance our real time volumetric sonar technology.

Coda Octopus Martech Limited (“Martech”)

Martech operates in the specialized niche of bespoke design and manufacturing services mainly to the United Kingdom defense and subsea industries. Its services are provided
on a custom sub-contract basis where high quality and high integrity devices are required in small quantities.

The Company enjoys pre-approvals to allow it to be short-listed for certain types of government contracts. Much of the more significant business secured by Martech is through
the formal government or government contractor tendering process.

11

 
 
 
 
 
 
 
 
 
 
 
Coda Octopus Colmek, Inc. (“Colmek”)

Colmek are suppliers of embedded solutions and sub-assemblies which they design and manufacture and sell into mission critical integrated defense systems such as the Close-
In-Weapons System (CIWS). This business was established 1977 and has been supporting several significant US defense programs for over 40 years, including Raytheon’s
CIWS and Northrop Grumman’s Mine Hunting Systems Program. Colmek’s business model entails designing sub-assembly prototypes for defense programs which typically
lead to contracts for the manufacture, repair and upgrade of these sub-assemblies. We are the sole source for the parts that we supply into these programs. This business model
ensures recurring and long tail revenues since we continue to supply parts, typically for the life of the program, which can span decades.

In order to diversify its business opportunity, in June 2014 Colmek completed the acquisition of the Thermite® which is a rugged visual mission computer line and the Sentiris®
AV1 XMC video card for $1,100,000 in cash. Colmek also acquired hardware, Thermite inventory and other intellectual property rights (such as software code and trademarks
pertaining to these products). Thermite® was acquired with the goal of updating the technology and expanding the market for this rugged mission computer.

Thermite® Rugged Visual Computers

● Rugged, graphics-based PCs designed to perform in the most brutal environmental conditions;

● Focus on graphics-based high-performance computing with integrated accelerated video capture capability;

● Lightweight, power efficient and conduction-cooled;

● Three models optimized for man-wearable, vehicle, and airborne platforms; and

● Programs include dismounted soldier training, mission rehearsal, real time imaging, robotic control, weapon system control, sensor processing and display.

12

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
We consider Thermite® to be an important part of our growth strategy. We have now designed and developed our next generation of the Thermite® Octal.

Within the Diver Augmented Vision Display (DAVD), Colmek supplies the “Diver Processing Pack” which is worn on the diver, and this is a variant of Thermite®.

Other products offered by Colmek include subsea telemetry and data acquisition systems, rugged workstations, analog-to-digital converters and rugged LCD displays.

Competition

In our Products Segment, we are exposed to the following competitive challenges:

Data Acquisition Products (GEO Products)

The industry for data acquisition and processing systems for sidescan and sub-bottom profiler data is fragmented with several companies occupying niche areas, and we face
competition from different companies with respect to our different products.

In the field of geophysical products, Triton Imaging Inc., a US-based company, now part of the ECA Group (Toulon, France), Chesapeake, a US-based company, and Oceanic
Imaging Consultants, Hawaii, USA, dominate the market with an estimated 25% each of world sales, while we believe that we control approximately 5% of world-wide sales.

13

 
 
 
 
 
 
 
 
 
 
GNSS Aided Inertial Positioning and Attitude Measurement Systems (“Motion Products”)

In the field of GNSS-aided inertial positioning and attitude sensing equipment, where our product addresses a small segment of the overall market, we believe that we have four
principal  competitors:  Teledyne  Marine  (part  of  US  based  Teledyne  Technologies  Inc.)  which  is  focused  on  the  mid-performance  segments  with  an  estimated  25%  of  the
market;  iXblue,  a  French  company  which  covers  all  segments,  with  an  estimated  20%  of  the  market;  Kongsberg  Seatex  AS,  a  Norwegian  company  (part  of  Kongsberg
Gruppen) which has products across all segments, with an estimated 15% of the market; and Applanix, a Canadian company (part of Trimble) which has one major product
focused on the high end of the market, with an estimated 20% of the market. We believe that our market share in this market segment of motion sensing equipment is about 5%.
This  market  is  fiercely  competitive  and  with  the  advancement  of  technology  coupled  with  the  development  of  autonomous  land  and  marine  platforms  there  are  additional
vendors in the market such as SBG Systems S.A.S (a French based manufacturer of motion sensors). We sell our MOTION range as part of our equipment suite to complement
our 3D sonar range as well as supplying it individually. The development and introduction of our F280 Series® of GNSS Aided Inertial Positioning and Attitude Measurement
System® constitutes our new generation of Motion Products and gives us the opportunity to increase our market share.

Real Time 3D/4D/5D and 6D Volumetric Sonar

In the field of Real Time 3D/4D/5D imaging, we are unaware of other companies offering a similar product. In this context it is important to understand some of the capabilities
we bring to this field include:

-
-
-
-
-
-
-
-
-
-
-
-
-

Acoustic Projector/Transmitter design, manufacturing, and testing
Acoustic Receiver Array design, manufacturing, and testing
Acoustic encapsulation and sensitivity measurement
Acoustic Projector/Transmitter beam pattern and sensitivity measurement
Pressure housing Design and Manufacture (sonar systems)
3D/5D/6D Real-Time digital beamforming (on-device)
1D and 2D Digital Beamforming
Broadband Beamforming
Signal Processing
Active High Frequency Sonar Systems
Passive Mid Frequency Sonar Systems
Data acquisition and recording hardware and software
Real-time 2D and 3D sonar visualization rendering and processing software

The  entry  into  this  market  is  dependent  upon  specialized  marine  electronics,  acoustic  and  software  development  skills.  The  learning  curve,  which  has  resulted  in  the
advancement of our real time 3D sonar device, is the culmination of two decades of research and development into this field. Companies such as Kongsberg Gruppen, R2Sonic,
LLC, Tritech International Ltd., United Kingdom, BlueView Technologies Inc., USA (now a part of Teledyne Technologies Incorporated), and Norbit Group AS Norway are
examples, but none of these sonar offerings are directly comparable or competitors to our real time volumetric 3D/4D/5D and 6D sonar solutions as their scanning sonar, single
beam or multibeam sonars are not real time 3D imaging sonars and therefore cannot image moving targets underwater. Specifically, we believe that they do not have the same
capabilities as our Echoscope® technology in terms of real time inspection and monitoring by generating 3D, 4D, 5D and 6D images of moving objects underwater including in
environments in low or zero visibility conditions. Nor do they have the ability to use a single sonar for multiple real time 3D/4D images simultaneously. Notwithstanding it
should be noted that Teledyne has acquired a significant number of substantial subsea companies (examples are Reson and BlueView). Teledyne has much greater resources,
liquidity and market reach than our Company and has many operating verticals. We therefore can give no assurance that companies such as these will not enter this market.
Furthermore, companies such as Kongsberg Gruppen and Teledyne can expend significantly more in any one fiscal year on R&D and Business Development, key pillars for
increasing market share of underwater imaging sonars, than Coda Octopus. Notwithstanding, we believe that our recent development and introduction of 5D/6D - Echoscope
PIPE®) sonar capability in conjunction with our software (4G USE® a multi-sensor platform) further distinguishes our volumetric sonars and significantly extends our lead
over competitors in the subsea imaging market. We are not aware of any other imaging sonars in the market capable of generating real time 5D and 6D imagery underwater,
which are Coda Octopus inventions. The innovations around Echoscope PIPE® are the subject of numerous patent applications.

We  seek  to  compete  on  the  basis  of  producing  high  quality  products  employing  cutting  edge  technology  that  is  easy  to  use  by  operators  without  specialized  skills  in  sonar
technology. We intend to continue our research and development activities to continually improve our products, seek new applications for our existing products, to develop new
innovative products and grow the market for our products and expertise.

In our Services Segment, we are exposed to the following competitive challenges:

Marine Engineering Businesses

Through our marine engineering operations, Coda Octopus Colmek, Inc. and Coda Octopus Martech Limited, we are involved in custom engineering for the defense industry in
the United States and in the United Kingdom. Martech and Colmek compete with larger contractors in the defense industry. Typical among these are Ultra Electronics, BAE
Systems, and Thales, all of whom are also partners on various projects. In addition, the strongest competitors are often the clients themselves. Because of their size, they often
have the option to proceed with a project under their Prime Defense Contract in-house instead of outsourcing to a sub-contractor like Martech or Colmek.

Intellectual Property

Our  product  portfolio  and  technologies  are  protected  by  intellectual  property  rights  including  trademarks,  copyrights  and  patents.  In  the  last  2  years  we  have  advanced  our
existing sonar technology and have filed a number of significant patents applications pertaining to these inventions including covering our newly innovated 5D and 6D sonars.
Furthermore, we have recently been awarded a patent which concerns a method of predicting and adjusting the laying of cable using sonar imaging. This is a significant patent
for Offshore Renewables Market (Wind Energy), which is a rapidly increasing market sector and an important one for our growth. Our Echoscope® and Echoscope PIPE®
technology is used for real time monitoring of cable installations for offshore wind projects. This Method which we have patented is used in conjunction with our Echoscope
and automates the tracking of the cable (thus removing the need for an Echoscope® operator who previously would be manually clicking on the cable touchdown point). This
method covered by our recently awarded patent also projects the cable touchdown point.

Patents

Our patented inventions along with our strategy to enhance these inventions are at the heart of the Company’s strategy for growth and development. We expend a material part
of our cash resources in building our Patent Portfolio. We also incentivize our staff by having in place a Patent Reward Scheme.

14

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Our patent portfolio consists of the following:

Patent No.
US 7,466,628

US 7,489,592

  Description
  Concerns a “Method of constructing mathematical representations of objects from reflected

  Expiration Date
January 1, 2027

sonar signals.”

  Concerns a “Method of automatically performing a patch test for a sonar system, where data
from  a  plurality  of  overlapping  3D  sonar  scans  of  a  surface,  as  the  platform  is  moved,  are
used to compensate for biases in mounting the sonar system on the platform”.

July 8, 2027

US 7,898,902

  Concerns  a  “method  of  representation  of  sonar  images”  allowing  sonar  three-dimensional

July 13, 2028

US 8,059,486
US 8,854,920
US 9,019,795
US 10,088,566
US 10,718,865
US 10,816,652
Japan 5565964

(3D) data to be represented by a two-dimensional image.

  Concerns a method of rendering volume representation of sonar images.
  Concerns a method of volumetric rendering of three-dimensional sonar data sets
  Concerns a method of object tracking using sonar imaging
  Concerns a method of object tracking using sonar imaging
  Concerns a method of compressing beamforming sonar data
  Concerns a method of compressing sonar data
  To provide a method for drilling/levelling thereof by an Underwater drilling/levelling work

  April 16, 2028
June 22, 2033

  November 30, 2033
  November 26, 2036
  March 1, 2039
  October 28, 2038
January 31, 2031

machine construction device

Japan 5565957

  To  Provide  a  construction  management  method  by  a  three-  dimensional  Sonar  by  a

  October 31, 2031

US 11,061,136
US 11204108**

  Concerns a method of tracking unknown possible objects with sonar
  Concerns a method of predicting and adjusting the laying of cable using sonar imaging.

  March 28, 2039
  March 22, 2039

construction management device

* This is a significant patent as it covers our new innovation relating to our 5D Real Time Imaging Sonar (a real time sonar providing full time series 3D data) – See above
where we discuss more about 5D Sonars under section “About the Company’s 5D and 6D Sonars Innovations”

** This is a significant patent for Offshore Renewables Market. Our Echoscope® technology is used for real time monitoring of cable installations for offshore wind projects.
This Method which we have patented is used in conjunction with our Echoscope and automates the tracking of the cable (thus removing the need for an Echoscope® operator
who previously would be manually clicking on the cable touchdown point. This method also projects the cable touchdown point.

Trademarks

We own the registered trademarks listed below and they are used in conjunction with the products that we market and sell:

Coda®,  Octopus®,  CodaOctopus®,  CodaOctopus  &  Design®,  Octopus  &  Design®,  F180®,  F280®,  F280  Series®,  Echoscope®,  Echoscope  4G®,  Echoscope  5D®,  5D
Echoscope®,  Echoscope  6D®,  6D  Echoscope®,  Echoscope  PIPE®  Ping-Pong  Echoscope  Sonar®,  Ping-Pong  Echoscope®,  Ping-Pong  Sonar®,  4G  Underwater  Survey
Explorer®,  4G  USE®,  Survey  Engine®,  Dimension®,  DAseries®,  GeoSurvey®  CodaOctopus®  Air,  CodaOctopus®  Vantage;  CodaOctopus®  UIS;  CodaOctopus®  USE,
Sentiris® and Thermite®.

In  addition,  we  have 
www.martechsystems.co.uk.

registered 

several 

internet  domain  names 

including  www.codaoctopus.com;  www.codaoctopusgroup.com;  www.colmek.com  and

Research and Development (“R&D”)

Research and Development is foundational to our business strategy to ensure our growth strategy and maintain our competitiveness. During the fiscal years ended 2021 and
2020, we spent $2,982,676 and $3,188,389, respectively, on R&D, which in 2021 FY represented a reduction in this area of expenditures by 6.5%. With the crystallization of
several significant hardware development projects by the Company, we would expect R&D expenditures to remain materially unchanged in 2022 financial year.

Our products are complex and therefore we can give no assurance that even with spending a significant part of our resources on R&D, we will be successful in our development
goals or realize significant monetization of these developments. Furthermore, even following launch of any product we may not succeed. Moreover, we may incur significant
research and development expenditures without realizing viable products.

15

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Government Regulation

Because of the nature of some of our products, they may be subject to export control regimes including in the United States, United Kingdom, Denmark and Australia where we
conduct business operations. Where our products are subject to such export control requirements, they may only be exported to our customers if there is a valid export license
granted  by  the  relevant  government  body.  Moreover,  these  regulations  may  change  from  time  to  time  in  these  jurisdictions,  including  the  United  States,  depending  on  the
existing relationship with the country to which the goods are exported. See Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operation) for
further discussion on this topic.

We are also required to maintain certain accreditations such as ISO accreditation, cyber security certifications, approvals to hold government items or materials and/or certain
personnel or facility clearances.

In  addition,  as  a  provider  for  the  US  Government,  we  may  be  subject  to  numerous  laws  and  regulations  relating  to  the  award,  administration,  Defense  Federal  Acquisition
Regulations  (“DFARs”)  and  performance  of  US  Government  contracts,  including  the  False  Claims  Act.  Non-compliance  found  by  any  one  agency  could  result  in  fines,
penalties, debarment, or suspension from receiving additional contracts with all US Government agencies. Given our dependence on US Government business, suspension or
debarment could have a material adverse effect on our business and results of operations.

Employees

As of the date hereof, we employ approximately 95 employees worldwide, of which 12 hold management positions. A large majority of our employees have a background in
science, technology and engineering, with a substantial part being educated to degree and PhD level. None of our employees are employed under a collective agreement and we
have not experienced any organized labor difficulties in the past.

ITEM 1A. RISK FACTORS

Not required for smaller reporting companies.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

16

 
 
 
 
 
 
 
 
 
 
 
 
ITEM 2. PROPERTIES

Orlando, Florida

Our corporate offices are co-located with our subsidiary Coda Octopus Products, Inc. in Orlando. We own these business premises comprising 3,000 square feet that includes
office space and R&D facilities.

Salt Lake City, Utah, USA

Coda Octopus Colmek operates from its premises which comprises 16,000 square feet and includes manufacturing, R&D Facilities and office space. These premises are owned
by Coda Octopus Colmek.

Edinburgh, Scotland, UK

Coda Octopus Products Limited (Edinburgh based) operates from its premises comprising 12,070 square feet of internal space and includes manufacturing, R&D Facilities and
office space. These premises are owned by Coda Octopus Products Limited.

Copenhagen, Denmark

As a mitigation strategy in relation to the UK leaving the European Union membership, thus limiting trade relations with EU member states, we have established a Danish
subsidiary, Coda Octopus Products A/S and leased business premises in Copenhagen, Denmark. The lease is a fixed term lease for the period September 1, 2019 to September
1, 2023.

Annual rent is DKK 131,625 plus Value Added Tax (being an equivalent of $19,660 per annum) with an annual increase of 3%.

Portland, Dorset, UK

Martech uses premises owned by Coda Octopus Products Limited. These premises are located in the Marine Center in Portland, Dorset, United Kingdom, and comprise 9,890
square feet. The building comprises both office space and manufacturing and testing facilities. The lease was on a rent-free basis for a period of 2 years expiring December 31,
2020. Martech resumed paying Coda Octopus Products Limited rent in January 2021, amounting to the equivalent of $56,457 per annum.

All non-US Dollar denominated rents are stated according to prevailing exchange rates as of the date of each respective lease agreement.

ITEM 3. 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 4. MINE SAFETY DISCLOSURES.

Not Applicable.

17

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PART II

ITEM  5.  MARKET  FOR  REGISTRANT’S  COMMON  EQUITY,  RELATED  STOCKHOLDER  MATTERS  AND  ISSUER  PURCHASES  OF  EQUITY
SECURITIES

Our  common  stock  has  been  traded  on  the  Nasdaq  Capital  Market  under  the  symbol  “CODA”  since  July  19,  2017.  Prior  thereto,  it  had  been  quoted  on  the  OTCQX  since
February 8, 2017, under the symbol COGI, and prior thereto, on the OTC Pink Sheets under the symbol CDOC. The following table sets forth the range of high and low bid
prices of our common stock as reported and summarized on the Nasdaq, for the periods indicated. These prices are based on inter-dealer bid and asked prices, without markup,
markdown, commissions, or adjustments and may not represent actual transactions.

Year Ended October 31, 2021
First Quarter
Second Quarter
Third Quarter
Fourth Quarter

Year Ended October 31, 2020
First Quarter
Second Quarter
Third Quarter
Fourth Quarter

$
$
$
$

$
$
$
$

HIGH

LOW

HIGH

6.67 
9.50 
9.90 
9.50 

9.26 
7.04 
6.17 
6.73 

$
$
$
$

$
$
$
$

LOW

5.21 
6.95 
7.70 
8.31 

6.29 
4.63 
4.41 
5.42 

We have not declared or paid any cash dividends on our common stock, and we currently intend to retain future earnings, if any, to finance the expansion of our business, and
we do not expect to pay any cash dividends in the foreseeable future. The decision whether to pay cash dividends on our common stock will be made by our board of directors,
in their discretion, and will depend on our financial condition, operating results, capital requirements and other factors that the board of directors considers significant.

ITEM 6. SELECTED FINANCIAL DATA

Not applicable.

18

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 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. This discussion should not be construed to imply that the
results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future.
Such discussion represents only the best present assessment of our management.

General Overview

We operate two distinct business operations. These are:

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

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

Our Marine Technology Business is a technology solution provider to the subsea and underwater market. It has a long-established pedigree in this market, and it innovates,
designs, develops and manufactures proprietary solutions for this market (both for commercial and defense applications) including our range of flagship volumetric real time
sonar solutions.

These solutions and products are used primarily in the underwater construction market, offshore oil and gas, offshore wind energy industry, and in the complex dredging, port
security,  mining  and  marine  sciences  sectors.  Our  customers  include  service  providers  to  major  offshore  renewable  companies,  oil  and  gas  (“O&G”)  companies,  law
enforcement  agencies,  ports,  mining  companies,  underwater  vehicle  manufacturers,  Prime  Defense  Contractors  as  OEM  integrators,  defense  bodies,  fisheries  and  research
institutes.

Our Marine Engineering Business is a supplier of engineering services and embedded solutions (such as mission computers) to prime defense contractors such as Raytheon,
Northrop  Grumman,  Thales  Underwater,  Atlas  Electronik  UK  and  Babcock  International  Group.  Generally,  the  items  supplied  into  the  defense  market  are  sub-systems  in
broader mission critical integrated systems and thus requires a high level of reliability, consistency in standards and robustness.

We have long-standing relationships with prime defense contractors, and we use these credentials to secure more business. We support some significant defense programs by
supplying  and  maintaining  proprietary  parts  (or  parts  for  which  we  are  preferred  suppliers)  through  obsolescence  management  programs.  These  services  provide  recurring
stream of revenues for our Services segment.

19

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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.

Factors Affecting our Business

Our business is affected by a number of factors including those set out below:

A. United Kingdom’s withdrawal from the European Union (“Brexit”)

The UK was a member of the European Union member states for close to 50 years. This membership enabled the freedom of movement of goods, persons, capital and
services between member states. Following a referendum in 2016 the country voted to leave the EU. The UK withdrew from its membership of the EU on December
31, 2020. This withdrawal removed these rights.

As part of the withdrawal, the UK Government and EU reached an agreement on December 30, 2020, on trade in certain areas.

The change in the UK EU membership status adversely impacts our business in several important areas:

● Our shipments into the European Union are subject to customs process. This results in increased costs and time for the processing of shipments. This operates
as a deterrent for EU customers to work with us. We endeavor to mitigate this by shipping to our subsidiary in Denmark which ships to our customer. This
means increased costs which we are unable to recover and significant delays which may risks the project.

● Our technology requires training to support its effective implementation. Typically for sales and rentals we would mobilize our engineers to train and assist
these customers in set up of the equipment. Under the new trade agreement, we will need to obtain the necessary work permits from the EU member state to
which we intend to send our engineer. This will be time consuming and costly and the rules for granting such permit will vary from member state to member
state. Furthermore, we have no precedent to know if these permits will be granted.

● We are not able to recruit from EU Member states without getting work permits. As a result, we are subject to skills shortages and significant increase in the

costs of salaries as many technology companies are competing for the same skills.

The Company established a company, Coda Octopus Products A/S, in Denmark to maintain a presence in the European Union and to address some of the foreseeable
issues. This subsidiary is crucial for our continued relationship with EU customers.

20

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
B. Currency Risks:

The Company’s operations are split between the United States, United Kingdom, Denmark and Australia. A large proportion of our revenues (approximately 73%) and
costs are incurred outside of the USA with a significant part (68.3% of our total revenues) of that in the United Kingdom (“UK”). In addition, a significant part of our
assets (both current and fixed) is held in British Pounds by our foreign subsidiaries. Significant currency fluctuations (particularly the British Pound or Danish Kroner
versus the US Dollar) may affect our financial results and the value of our assets. With the conclusion of the trade agreement between the UK and EU which removed
a lot of the ongoing uncertainty associated with the UK’s withdrawal from the European Union we anticipate the British Pound will be less volatile against other major
currencies including the US Dollar.

C.

Impact of Coronavirus Outbreak (referred to in this Form 10-K as “Coronavirus”, “Pandemic” or “COVID-19”)

General Impact

The global outbreak of the Coronavirus has resulted in governments throughout the world, implementing measures restricting the freedom of movement of people and
other curtailment of business activities including business closure to curb the spread of the Coronavirus.

The Company’s operations started to be impacted from the Pandemic early in the second quarter of 2020 FY. During the 2020 FY this resulted in a steep decline in our
business activities and therefore demand for our goods and services. This caused a fall in revenue with operating expenses remaining relatively fixed. This affected our
overall financial performance in the 2020 FY.

Throughout  the  2021  FY,  we  have  been  impacted  less  by  the  Pandemic  when  compared  to  the  2020  FY.  However,  we  continue  to  be  affected  in  that  the  Marine
Technology  Business  heavily  relies  on  trade  shows  and  in-person  visits  to  various  countries  such  as  Japan,  South  Korea,  China  and  EU-Bloc  to  meet  potential
customers and conduct on-water demonstrations. Since March 2020, we have not been able to conduct business development through in-person trips. This has affected
the pace of adoption and uptake of our products including both the Echoscope PIPE® and the DAVD systems, which require on-water demonstrations.

Furthermore,  we  sell  our  products  and  solutions  globally.  We  are  dependent  on  these  countries  allowing  foreigners  to  enter  the  country.  In  2021  FY  Japan,  China,
Singapore,  South  Korea,  Australia  and  New  Zealand  did  not  allow  in-person  visits.  These  limitations  have  severely  hampered  our  ability  to  increase  significant
demand for our goods and services.

Finally, the Marine Technology offerings are used at sea. The Pandemic has resulted in an overall reduction of offshore activities. Only high priority projects are going
ahead. This directly impacts on the demand for both the sale or rental of our products.

Impact on Revenues and Earnings

Until  the  business  environment  normalizes,  we  are  uncertain  as  to  the  extent  of  the  impact  the  coronavirus  outbreak  will  have  on  our  future  financial  results.  The
inability  to  have  unrestricted  travel  and  movement  which  is  crucial  for  in-person  customer  engagements,  severely  limits  our  ability  to  engage  with  our  potential
customers and therefore the opportunity to increase demand for our goods and services.

On the Products Business side, a significant part of our revenues is generated from field customer support work (training, assistance in mobilization of equipment or
operating the equipment on behalf of our customers). Coronavirus has caused many of these field projects to be postponed indefinitely – which in turn negatively
affects our revenues and financial results.

21

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
On the Services Business side, travel is also an important element as many of its engineering projects require customers to come to our facilities to conduct Critical
Design Reviews (“CDRs”). Also, in-person customer engagement is important to increase demand for our services. The Pandemic has severely curtailed our ability to
proactively engage our customers thereby adversely affecting the pipeline of opportunities we are pursuing. In addition, with Government employees working from
home, the opportunity to have in-person engagements is significantly reduced. This directly reduces demand for our services.

Furthermore,  the  requirements  for  social  distancing  measures  mean  that  we  are  significantly  under-utilizing  our  capacity,  particularly  production  capacity  and  thus
increasing our overall costs of operations.

Government Policies on Coronavirus

Our  operations  are  based  in  a  number  of  countries,  with  each  country  establishing  different  rules  related  to  Coronavirus  including  rules  on  restricting  business
operations, limiting staff travel work and quarantining rules. This has generally resulted in a much less predictable working environment for planning and delivering
customer projects and project cost management. Several implications flow from this including:

● Impairment of the business’ productivity
● Project over runs
● Increased operation costs resulting from our Pandemic response
● Increase project costs due to the delay caused by self-isolation rules or business closure or restriction on travel to work
● Higher staff costs due to increased sick pay allowance which varies according to the country where the business operations are located, combined

with lower overall productivity.

Impact on Liquidity, Balance Sheet and Assets

Failure to curb the coronavirus Pandemic in the near future, coupled with a downturn in the global economic outlook, may adversely impact on our availability of our
free  cashflow,  working  capital  and  business  prospects.  As  of  October  31,  2021,  we  had  cash  and  cash  equivalents  of  $17,747,656  and  for  the  year  then  ended  we
generated $3,269,770 of cash from operations. Based on our outstanding obligations including loans and notes payable, their terms and our cash balances we believe
we have sufficient working capital to effectively continue our business operations for the foreseeable future.

Products Business Outlook

In the 2020 and 2021 FY we were impacted by varying degrees of limitation caused by the Pandemic.

In  the  2020  FY  the  Products  Business  revenues  were  severely  impacted  by  the  Coronavirus  Pandemic  (“Pandemic”).  In  the  Second  Quarter  of  the  2020  FY,  the
business activities were severely curtained for this reason. Later in 2020 FY, the business climate started to improve with increased moderation of the global lockdown
which facilitated more business activities. Notwithstanding, in the 2020 FY our business activities were severely limited by the Pandemic resulting in a steep decline in
our  financial  performance  for  that  period  and  a  sharp  reduction  in  our  backlog.  This  also  caused  our  pipeline  of  opportunities  to  shrink  as  business  development,
marketing and customer engagements were extremely limited.

In the 2021 FY, we saw an improvement in the business conditions with less restrictions. Nevertheless, have not returned to pre-Pandemic levels. In the 2021 FY we
had  limited  opportunities  to  participate  in  trade  shows  and  in-person  customer  engagements,  which  are  key  pillars  for  increasing  the  demand  for  our  goods  and
services. In addition, we sell our products globally with most of our sales from Asia. A key pillar of the promotion and selling of our products is the ability to have in-
person  visits  and  engagements  with  our  customers  in  their  home  countries  and  perform  on-water  demonstration.  Also  Industry  Trade  Shows  are  pivotal  for  our
business development activities. An important trade show in the Asian calendar was the Japanese Offshore Renewable Wind Energy Trade Show which took place in
October 2021. Due to the rules in place in Japan, foreign companies were not allowed to attend. The ongoing restrictions have meant that since March 2020, we have
had very limited opportunities to travel to visit our customers in-person or perform on-water demonstration of our underwater products. This impacts the Company’s
ability  to  effectively  promote  its  products  and  solution  and  therefore  increase  demands  at  a  viable  pace  and  hinders  the  building  of  meaningful  pipeline  of
opportunities.

A significant part of the Products Business human capital and resources are based in the UK. In the 2021 FY period The UK Government introduced a tiered system to
manage the Coronavirus outbreak in various regions of the UK. In January 2021, the Scottish Government moved to the highest levels of restrictions which introduced
a national lockdown during January. This restriction hampers our ability to have meaningful interaction with our customers and therefore limit the amount of business
development activities which we can pursue.

22

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
A substantial part of our revenues is generated by our UK operations. With the UK leaving the European Union, we believe that we may realize less sales from the EU
member states countries unless we are able to effectively staff the Danish subsidiary, Coda Octopus Products A/S. With the ongoing Pandemic it has remained difficult
to effectively recruit and train staff for our Danish operations.

We rely on specialist software development skills. There is an acute shortage of these skills which has resulted in reduced resourcing of these skills in our business and
at the same time significantly increased costs associated with securing these skills. This impacts our ability to service and develop our products and/or serve to increase
our overall costs, and therefore may impact on our financial results.

We rely on sophisticated electronics for our products, and we anticipate delay in the supply chain and increases in prices. This may affect, among other things, our
gross margins and ability to fulfill customer orders in a timely manner along with a resulting decline in revenues.

In the 2021 FY the Products Business revenues were $15,804,222 compared to $11,278,181 in the 2020 FY, representing an increase of 40.1%.

Services Business Outlook

In the 2021 FY the Services Business revenues were $5,527,305 compared to $8,765,629 in the 2020 FY, representing a fall of 36.9%.

In 2020 FY the Services Business mainly executed backlog orders and therefore although it was affected by the Pandemic, it could use its resources on the backlog
work. In 2021 FY due to the Pandemic, the Services Business had difficulties in performing business development and thereby increase the demand for its services.
This was further compounded by the delays in receiving anticipated orders from Prime Defense Contractors.

The ongoing Pandemic combined with the protractedness of Defense Contracting has affected the performance of the Services Business.

The Services Segment business opportunities are concentrated around a few US Prime Defense Contractors and is very dependent on securing sub-contracts from these
primes. This also means that the Services Segment revenues are from a highly concentrated source. Furthermore, a change in Administration always has the effect of
delaying spending including on new defense projects and this is typical for the first year of the new Administration.

D. Political Landscape/Exporting to China

We sell our products globally and increasingly to Asia. The recent change in both the US and UK Governments attitude towards trade with China and to a lesser extent
the European Union member states, directly affects the sale of our products to customers based in China. Our real time 3D sonars which are rated above 300 meters
along with our inertial navigation and attitude measurement sensors (F280® series) are subject to export control for certain countries, including China. We also are not
allowed to promote our DAVD technology in China.

In December 22, 2020 the US Government Department of Commerce (Bureau of Industry and Security, Commerce) amended the Export Administration Regulations
(EAR) to add seventy-seven (77) Chinese entities “determined ….to be acting contrary to the national security or foreign policy interests of the United States”. The
amended EAR in general states that there is a “presumption of denial” of grant of export licenses to these entities and their affiliates. In a new pronouncement dated
November 4, 2021, the US Government has expanded the list significantly which is an indication that the US Government policy and disposition towards China is
hardening and companies in the technology space will increasingly find it difficult to sell to China due to government restrictions.

The UK Government is generally in lock step with the US Government’s position and recently, refused to grant export licenses for several applications for end users in
China for the first time in 25 years of our dealing with the UK Export Control Organization. The curtailment of access to this market due to refusal to issue export
licenses is likely to significantly impact our revenues from Asia.

Furthermore, even though our sonars which are rated at 250m or less do not require export licenses for China, and our other products such as our geophysical products
and Pan & Tilt devices, the UK Customs are now indiscriminately seizing all our shipments which are destined for China.

In 2020 FY we were unable to meet demand for $1,300,000 of sales order for China, due to refusal by the UK Government to issue export licenses. In the 2021 FY we
had much less sales/opportunities enquiries from China than previous years.

The removal of China as a trading partner is likely to have significant negative impact on our revenues and growth strategy. China has one of the largest planned
investment programs for offshore renewables, the market for which most of our technology is used for in China. After significant business development in China, we
had started to see persistent and credible growth for our products in this market. Unless there is a change in this policy, we are likely to see a decline in growth and
sales into the Chinese Market. It is estimated that around 50-75 multibeam sonars are sold to China Commercial Market each year (approximately $10 million). It is
this market we had started to make significant inroads in to increase our global market share. Unless the Government’s current policy/stance changes and becomes
favorable to resumption of trade with China, we are unlikely to realize this potential.

23

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
E. Supply Chain Disruption

Due to the exceptionally high demand in the semi-conductor market, we are experiencing extreme lead times for components which are necessary for the manufacture
and service of our products. We are also seeing significant price increases for these and other routine components. Both the extended lead time, in some instances 99
weeks  lead  time  is  being  quoted  by  suppliers,  and  the  price  increase  may  affect  our  ability  to  meet  customer  requirements  and  make  the  prices  of  our  products
uncompetitive. The Products Business may reasonably endeavor to reduce the impact of the extended lead times we are experiencing by priming supply chain as far as
possible. However, the impact on the Engineering Business is more severe and could grind their operations to a halt since this part of our business does not know what
parts  or  components  are  required  until  their  customers  place  an  order  for  bespoke  engineering  work  package.  We  therefore  have  a  high  risk  that  our  Engineering
Business’ may be severely impacted by the shortages that we are currently experiencing. The increase in inventory in our financial statements evidence our mitigation
strategy to increase inventory where we can.

Our  technology  is  based  on  electronics  that  are  designed  and  manufactured  to  our  specification  exclusively  for  us.  These  electronic  components  are  costly.
Advancement  in  technology  may  make  these  specialized  components  or  circuits  obsolete.  Reengineering  these  key  components  could  result  in  significant  capital
expenditure and also may cripple the production of our products since quick replacements cannot be found and would require new engineering work. Furthermore,
there is no broader market for these components.

F. Significant Increase in the Price of Raw Materials

In addition to the disruption in the Supply Chain, we are also experiencing very significant increase in price of raw materials which we are unlikely to be able to pass
on to our customers. These increases may make the cost of making our products prohibitive and uncompetitive and could affect our margins and also the viability of
our business.

  G. Defense Federal Acquisition Regulation Supplement (“DFARS”)

As a sub-contractor to Prime Defense Contractors in general we are subject to flow-down from their contract with the Government. Some of these flow downs may be
onerous. Recently we have been receiving DFARS for mandatory vaccination against COVID-19 of all our staff members who work in the Services Business in the US
under  Executive  Order  14042.  Executive  order  14042  also  establishes  Safety  Protocols  for  Federal  Contractors/Subcontractors  to  safeguard  against  the  spread  of
COVID-19. As a small business with limited resources and inability to attract key skills central to the business activities (engineering, software development etc), if
we are unable to implement the DFAR due to personnel not willing to have the vaccination, we could lose vital skills which could impact our ability to provide the
services we do, particularly in this competitive climate which currently prevails. The impact of losing staff is greater for a small business where it has limited surplus
resources and necessarily suffers from a high degree of concentration of skills.

  H. Shortage of Key Skills/Resourcing Levels

We  are  experiencing  an  extreme  shortage  of  personnel  with  key  skills  which  are  critical  to  our  business,  such  as  electronic.  software  development  skills,  technical
support  engineers,  field  support  engineers  and  business  development  skills.  Recently,  it  was  widely  reported  in  both  the  UK  and  US  media  that  there  were  over
1,000,000 unfilled vacancies.

This  situation  is  further  compounded  by  significant  global  increases  in  salaries.  In  addition,  with  the  UK  withdrawing  from  EU  membership,  this  exacerbates  an
already critical situation for businesses.

Since we are a small business, we are hindered in our ability to compete for certain specialized electronic engineering skills as our remuneration package is not as
competitive as those offered by bigger companies which are competing for the same skills.

We are looking to address the skills shortage by establishing a subsidiary in India, where potentially software development skills and support engineers’ skills are more
readily available (as we do not believe the local situation will improve in the near future- given the different Tech companies that are competing for the same skills).
We can, however, give no assurance that this will serve as adequate mitigation for this issue.

I.

Supplying Products without Training

The underwater imaging products which we supply are complex. Customers benefit from our on-site training program as part of the adoption of the technology. The
customers  for  our  products  are  globally  based.  Since  February  2020,  we  have  not  been  able  to  provide  hands-on  field  support  to  our  customers.  Pre-pandemic  we
would typically supply equipment with engineering support for training and mobilization assistance and would also provide a number of customer training events. The
Pandemic has rendered this impossible due to the various and varying restrictions applicable in the places where our customers reside. Our products are complex and
without support, there is substantially increased risks for customers’ dissatisfaction, thus jeopardizing the long- term customer relationship and the reputation of the
products.

J. Government Spending for Defense:

We are dependent on the timely allocation of funds to defense procurement by governments in the United States and the United Kingdom. A large part of our revenues
in the Services Segment derives from government funding in the defense sector. In general, where there is a change of government, spending priorities may change
from those priorities of the previous Administration. This may adversely impact on our revenues. Furthermore, the US Federal Defense Budget is dependent on the
New Administration being able to secure approval in Congress for the defense budget. The slim majority on which the current Administration operates is likely to
hinder future spending on new defense projects.

24

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  K. Investments:

We lack the financial resources to advance our flagship technology at the commercially appropriate pace required to capture new markets and increase our sales which
could  facilitate  new  entrants  to  the  market.  For  example,  Teledyne  Technologies  Incorporated,  a  multi-billion  company,  has  in  recent  years  acquired  a  number  of
subsea companies that may speed up their entry into our market.

In  relative  terms,  the  Company  has  limited  external  sources  of  capital  available,  and  as  such  is  reliant  upon  its  ability  to  sell  its  products  and  services  to  provide
sufficient working capital for its operations and obligations. Notwithstanding, on or around November 27, 2019 the Company secured a $4 million Revolving Credit
Line from HSBC NA, its current bankers, which can be used for working capital purposes, including expansion activities as required. This line of credit is subject to
annual renewals by HSBC.

L. Technological Advancement:

A  significant  part  of  our  growth  strategy  is  predicated  on  our  flagship  real  time  volumetric  imaging  sonar  technology  and  our  Diver Augmented  Vision  Display
(DAVD) solution. The technology space is inherently uncertain due to the fast pace of innovations and therefore we can give no assurance that we can maintain our
leading position in these areas or that innovations in other areas may not surpass our solutions that we currently supply to the subsea market. An example of new
technology  entering  the  subsea  market  is  LIDAR  technology.  However,  unlike  our  sonar  technology,  LIDAR  technology  cannot  be  employed  in  zero  visibility
conditions and cannot generate a volume pulse or image moving objects required for real time inspection and monitoring underwater.

Critical Accounting Policies and Estimates

This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements that have been prepared in accordance with
accounting principles generally accepted in the United States of America (“US GAAP”). The preparation of financial statements in conformity with US 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.

Revenue Recognition

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

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

For further discussion of our revenue recognition accounting policies, refer to Note 2, paragraph h – “Revenue Recognition” in the financial statements.

25

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock based Compensation

We recognize the expense related to the fair value of stock based compensation awards within the consolidated statements of income and comprehensive income. The stock
based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized
over the periods in which the related services are rendered.

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 lives 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. Note 7 to the Consolidated Financial Statements discusses the amounts of deferred tax assets and liabilities, and also
presents the impact of significant differences between financial reporting income and taxable income.

26

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

Goodwill and Intangible Assets

Goodwill  and  intangible  assets  consist  principally  of  the  excess  of  cost  over  the  fair  value  of  net  assets  acquired  (i.e.,  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 intangible assets using the straight-line method over their estimated period of benefit. We
periodically evaluate the recoverability of goodwill and intangible assets and carefully consider events or circumstances that warrant revised estimates of useful lives or that
indicate that impairment exists.

Step 1 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 discounted cash flows, exceeds the carrying amount, goodwill is not considered impaired. The Company has adopted Accounting Standards
Codification 2017 – 04, Simplifying the Test for Goodwill Impairment, which permits the Company to impair the difference between carrying amount in excess of the fair
value of the reporting unit as the reduction in goodwill.

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 reporting unit compared to the fair value of the reporting unit. To date, the Company has
not had any goodwill impairments.

Fiscal Year 2021 Consolidated Results of Operations

In this Form 10-K, the following meanings are ascribed to the terminologies set out immediately below:

FY
2020 FY
2021 FY

Financial Year
Means the Fiscal Year ended October 31, 2020
Means the Fiscal Year ended October 31, 2021

Although in the 2021 FY our financial results have improved over the 2020 FY, this should be contextualized by the fact that starting in the second quarter of the 2020 FY, our
business was severely curtailed by the Pandemic resulting in a steep decline in our financial performance in 2020 FY.

Even  though  in  the  2021  FY  our  financial  results  have  improved  over  the  2020  FY,  we  are  still  not  back  to  pre-Pandemic  conditions,  and  we  continue  to  be  affected  by
constraints associated with the ongoing Pandemic. This in turn affects our business opportunities including limiting the sales and marketing effort that we can perform since our
markets are global with a significant emphasis on Asia for our Marine Technology Business. It also reduces demand for our products and services and impacts on the pipeline
we can build for future business.

However,  the  Business  is  still  impacted  by  the  constraints  placed  upon  the  global  business  environment  from  the  ongoing  Pandemic  and  the  various  measures  taken  by
respective  governments  such  as  limitations  on  opening  of  business,  quarantining  rules  or  restrictions  on  travel  (both  domestic  and  abroad)  and  excluding  foreigners  from
entering into the country (Japan, Singapore, China and South Korea, which are important markets for us). In addition, the Services Business financial performance in the 2021
FY was significantly below our business plan goals and this was largely due to delays in securing defense orders and to conduct meaningful business development activities, all
of  which  impacted  on  the  performance  of  the  Services  Business,  and  thus,  the  overall  performance  of  the  Group.  Because  of  the  slim  congressional  majority  that  the  US
Administration is operating with in a very divided political climate this has hindered the pace of defense spending and anticipated awards of projects.

In the 2021 FY, the Products Business generated 74.1% of our consolidated revenues and our Services Segment generated 25.9% of our consolidated revenues. In the 2020 FY
the Products Business generated 56.3% of our consolidated revenues and our Services Segment generated 43.7% of our consolidated revenues.

In the 2021 FY we received $648,872 under the Paycheck Protection Program (PPP) from the US Government. This amount was utilized in accordance with the purpose and
objective  of  the  program  and  has  now  been  forgiven.  The  amount  was  recorded  in  our  financial  statements  as  “Other  Income”.  We  also  received  $135,000  from  the  UK
Government under its Coronavirus Job Retention Scheme (“CJRS”), this reduced our Selling General & Administrative Expenses. In 2021FY we also received a benefit of
$701,568 in Employee Retention Credits which resulted in the reduction of our tax obligations.

Comparison of fiscal year ended October 31, 2021 to fiscal year ended October 31, 2020

The information provided below pertains to the Company’s consolidated financial results. For information on the performance of each Segment including the disaggregation of
revenues and geographical split, see Note 12 (“Segment Analysis”) of our audited Consolidated Financial Statements of October 31, 2021 and 2020.

27

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue:

$

Year Ended October 31, 2021

Year Ended October 31, 2020

21,331,527 

$

20,043,810   

Percentage Change
Increase of 6.4%

We realized an increase in revenues in the 2021 FY compared to the 2020 FY.

This is largely due to an increase in the revenues of the Products Business.

Products Business Revenues 2021 FY
Products Business Revenues 2020 FY
Services Business Revenues 2021 FY
Services Business Revenues 2020 FY

$
$
$
$

15,804,222 
11,278,181 
5,527,305 
8,765,629 

The Products Business revenues increased by 40.1% in the 2021 FY over the 2020 FY and the Services Business revenues declined by 36.9% over that same period. Notably,
equipment sales and rental revenues generated by the Products Business increased significantly over the 2020 FY.

During the year ended October 31, 2021, the Company had one customer from whom it generated sales greater than 10% of net revenues. Revenue from this customer was
$2,484,173, or 12% of net revenues during the period. Total accounts receivable from this customer as of October 31, 2021 was $468,149 or 11% of accounts receivable.

Gross Margin:

Year Ended October 31, 2021
69.2%
(gross profit of $14,769,718)

Year Ended October 31, 2020
63.5%
(gross profit of $12,729,448)

Percentage Change
Increase of 5.7 percentage points

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

● The percentage of consolidated sales attributed to our Marine Technology Business. The Gross Profit Margin yielded by the Marine Technology Business is generally

higher than that of the Services Business;

● The percentage of consolidated sales attributed by the Services Business. The Services Business yields a lower gross profit margin on generated sales which are largely

based on time and materials contracts (except for its Thermite® products);

● The mix of sales within the Marine Technology Business including:
Outright Sale versus Rentals;
Hardware Sale versus Software;
Mix of Services rendered in the period – Offshore Engineering Services versus Paid Customer Research and Development Projects

●
●
●

● The mix of engineering projects performed (design prototyping versus manufacturing), may also affect Gross Profit Margins;
● Level of applicable commissions earned by Third Party Sales Agents or Distributors on sales of our Products.
● Level of Depreciation associated with rental assets used by the Marine Technology Business for servicing the rental market.

In the 2021 FY Gross Profit Margins for the Marine Technology Business were 79.9% compared to 80.0% in the 2020 FY. For the Services Operation these were 38.6% in the
2021 FY compared to 42.3% in the 2020 FY.

Since there are more variable factors affecting Gross Profit Margins in the Marine Technology Business, a table showing a summary break-out of sales generated by the Marine
Technology Business in the 2021 FY compared to the 2020 FY is set out below:

Equipment Sales
Equipment Rentals
Software Sales
Engineering Parts
*Services

Total Net Sales

2021 FY 
Products

2020 FY 
Products

Percentage Change

$

$

$

10,914,124   
2,324,773   
669,968   
-   
1,895,357   

7,183,580   
1,361,151   
453,638   
-   
2,279,812   

15,804,222   

$

11,278,181   

51.9%
70.8%
47.7%
N/A 
(16.9)%

40.1%

*  Due  to  the  restriction  on  global  travel,  the  Marine  Technology  Business  is  often  unable  to  attend  customers  sites  to  assist  with  engineering  services  such  as  set  up  of
equipment  and  training.  Since  2020  we  have  largely  been  supporting  customers  remotely  and,  in  principle,  we  are  less  able  to  recover  fees  for  virtual/on-line  support.  The
reduction in revenue for this category reflects this shift.

In the 2021 FY we paid $605,620 in commission compared to $610,088 in the 2020 FY. Although equipment sales increased significantly, there was a higher percentage of
direct sales in the 2021 FY compared to the 2020 FY where a significantly higher percentage emanated from Asia thus attracting more commission.

For  more  detailed  information  on  the  composition  and  disaggregation  of  our  revenues,  please  refer  to  Note  13  (“Disaggregation  of  Revenue”)  of  our  audited  Consolidated
Financial Statements of October 31, 2021 and 2020.

28

 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
 
    
 
  
 
 
  
 
 
 
Research and Development (R&D):

Year Ended October 31, 2021

Year Ended October 31, 2020

$

2,982,676 

$

3,188,389   

Percentage Change
Decrease of 6.5%

Research and Development costs are, in general, an ongoing cost for the Marine Technology Business operations since it will need to either maintain the products it has in the
market or continue to advance these products to keep them competitive (both in price and performance) and to expand the product offerings which we have in the market.

In this connection, we continue to invest in research and development to further our business goals including maintaining our lead in the real time volumetric imaging sonar
sector (Marine Technology Business) and becoming an embedded supplier of mission computers through re-engineering our Thermite® (now Thermite® Octal) via our Services
Business and launching derivatives of the newly designed Thermite® Octal. The key unique selling point for the Thermite® range that is a rugged COTS system that we can
customize these for specific customer requirements. Competing companies sell standard COTS mission computers and, in general, do not offer customize solutions. This is the
business opportunity for our Thermite technology.

In the 2021 FY this category of expenditure decreased by 6.5%. The decrease is largely due to reduced spending in this area in the Marine Engineering Business (expenditures
fell by 54.6% and was $473,569 in the 2021 FY compared to $1,042,243). This reflects our strategy to reduce expenditures on the Thermite® Octal development until we can
gage customer requirements through the demonstrations and other engagements that we were performing pre-Pandemic.

In 2021 FY the Products Business continued to develop the range of its product offerings including its volumetric real time imaging sonar series, the new inertial navigation and
positioning system (its new F280® series), its new sonar software platform and 4G USE® Software Development. The Products Business has now crystallized many of these
developments and we do not expect this area of expenditures to materially increase in the 2022 FY.

29

 
 
 
 
 
   
 
 
 
 
 
 
In  the  2020  FY,  we  had  $190,000  of  R&D  expenditures  attributable  to  the  Diver  Augmented  Vision  Display  (DAVD)  System  which  was  during  that  period  funded  by  the
Group. The subsequent generations of the DAVD (GEN 2, GEN 3 (and now GEN 4) are funded by the Office of Naval Research.

In the 2021 FY we have incurred exceptional expenses of $363,900 for sub-contracting costs for an ASIC device for our sonar series. The overall anticipated expenditure for
the  new  ASIC  device  is  approximately  $1  million.  The  current  ASIC  device  being  used  is  obsolete  and  this  has  necessitated  the  development.  We  anticipate  that  we  will
complete the development of the ASIC Device in FY 2022.

Changes in this category by Segment are set out immediately below:

Description
Marine Technology Business (Products Segment) 2021FY
Marine Technology Business (Products Segment) 2020FY
Marine Engineering Business (Services Segment) 2021 FY
Marine Engineering Business (Services Segment) 2020 FY
Coda Octopus Group, Inc. 2021 FY (representing the Head Up Display Costs)
Coda Octopus Group, Inc. 2020 FY

Selling, General and Administrative Expenses (SG&A):

Amount

% increase /
(decrease)

$
$
$
$
$
$

2,509,107   
1,955,364   
473,569   
1,042,243   
-   
190,782   

28.3%

(54.6)%

(100.0)%

Year Ended October 31, 2021

Year Ended October 31, 2020

$

7,915,575 

$

6,737,294   

Percentage Change
Increase of 17.5%

SG&A in the 2021 FY increased by 17.5% over the 2020 FY period. There are several factors which account for this increase. Some of the material factors are:

● Pandemic Relief Contributions:  In  the  2020  FY  we  had  certain  contributions  relating  to  Pandemic-relief  under  the  UK  Government’s  Coronavirus  Job  Retention
Scheme (“CJRS”). Although in the 2021 FY we had some contributions under the CJRS, these amounts were reduced by 91%. This affects the area of Wages and
Salaries.

● Increase in Legal and Professional Fees. In the 2020 FY due to the uncertainties of the impact of the Pandemic on the Business, we had certain waivers of fees by
our CEO and Board members which, in the 2020 FY reduced expenditures relating to this category. In the 2021 FY we also incurred bonus costs of $100,000 to our
CEO. We also paid bonus of $55,034 to a key member of staff.

● Stock  Based  Compensation  Expenses  (Non-Cash  Item).  In  the  2021  FY  we  expensed  $1,050,821  for  stock  based  compensation  as  compared  to  $610,780  in  the

corresponding 2020 FY, representing an increase of 72%

Further discussions on SG&A are set out immediately below.

30

 
 
 
 
 
 
   
 
 
 
 
 
  
 
 
 
 
  
 
 
 
 
  
 
 
 
 
   
 
 
 
 
 
 
 
 
Key Areas of SG&A Expenditure across the Group for the year ended October 31, 2021 compared to the year ended October 31, 2020

Expenditure

October 31, 2021

October 31, 2020

Percentage Change

Wages and Salaries
Legal and Professional Fees (including accounting, audit and
investment banking services)
Rent for our various locations
Marketing

$

$
$
$

3,361,494 

1,284,590 
51,443 
48,214 

$

$
$
$

3,194,061   

Increase of 5.2%

1,004,340   

Increase of 27.9%
55,581    Decrease of 7.4%
92,296    Decrease of 47.8%

We incurred a material increase in the category of expenditures relating to Wages and Salaries. In the 2020 FY we had contributions under the CJRS of $257,844 compared to
$135,000 in the 2021 FY. Without this contribution, the real cost of Wages and Salaries in the 2021 FY would be $3,496,494 and $3,451,905 in the 2020 FY. Due to the scarcity
of skills, we require for our business we are experiencing a significant pressure in the costs of Wages and Salaries. Market conditions for wages and salaries have changed
significantly. We are seeing a persistently sharp rise in the costs of labor in the market and therefore anticipate that this area of expenditures will continue to increase in the
2022 Financial Year.

In the 2021 FY expenditures relating to the category of “Rent” reduced by 7.4% compared to FY 2020. Rent is not a material expenditure in the Group as most premises which
we now use for our business operations are owned by the Company except for premises used in Denmark and other small storage facilities that we use in other parts of the
Group.

In 2021 FY expenditures relating to the category of “Marketing” was reduced by 47.8% due to decreases in travel and trade show costs as a result of the Pandemic which
restricted  movement  of  people.  In  the  event  that  the  Pandemic  should  recede  allowing  for  unrestricted  global  travel  this  is  an  area  of  expenditures  which  we  project  will
increase significantly. We are also investing in building a global brand for our products and this will require significant investment in the 2022 through to 2024 Financial Years
– subject to the Pandemic-related barriers discussed throughout being removed. We are budgeting approximately $400,000 per year for marketing within our business plan.
These  amounts  will  include  personnel  costs,  marketing  equipment  and  material  costs,  website  development  etc.  and  a  products  channel,  but  this  will  be  intended  for  our
products and brands in the market.

In the 2021 FY we had expenses of $1,050,821 for stock based compensation (a non-cash item) as compared to $610,780 in the corresponding 2020 FY.

31

 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income:

Year Ended October 31, 2021

Year Ended October 31, 2021

$

3,871,467 

$

2,803,765   

Percentage Change
Increase of 38.1%

In the 2021 FY Operating Income increased by 40.0%, although Total Operating Expenses increased by 9.2%. The increase in Operating Income is largely due to the increase
in Revenue by 6.4% over the 2020FY coupled with an increase in our Gross Profit Margins.

Other Income:

Year Ended October 31, 2021

Year Ended October 31, 2020

$

1,435,382 

$

668,245   

Percentage Change
Increase of 114.8%

In the Financial Year Other Income increased by 114.8%.

The makeup of Other Income is as follows:

In  both  Financial  Years  2021  and  2020  we  received  in  $648,872  and  $648,871,  respectively,  under  the  Paycheck  Protection  Program  scheme  (“PPP”)  which  the  US
Administration made available as part of the Pandemic response package for US companies. All the PPP amounts received have been utilized in accordance with the purpose
and objective of the program and these amounts have now been forgiven under the Program.

In addition, in Financial Year 2021 we received $701,568 in Employee Retention Credits (ERC), as part of the Pandemic response package for US companies. These are payroll
tax refunds for maintaining our employees throughout the Pandemic

In addition to the amounts received pursuant to the PPP and ERC schemes described above, we have in the 2021 FY recorded an amount of $84,942 for Other Income in our
Financial Statements.

Interest Expense:

Year Ended October 31, 2021

Year Ended October 31, 2020

$

53,605 

$

70,203   

Percentage Change
Decrease of 23.6%

In the 2021 FY Interest Expenses reduced by 23.6%. This is due to the reduction in the principal amount outstanding under our Senior Secured Debenture with HSBC NA. This
loan will mature in December 2021 – see Note 16 Subsequent Events of Notes to the Consolidated Financial Statements for further information on the HSBC Debentures. We
therefore do not anticipate Interest Expense to be a material item of expenses in our financial statements.

32

 
 
 
 
 
   
 
 
 
 
 
 
   
 
 
 
 
  
 
 
 
 
 
   
 
 
 
Net Income before Income taxes for the year ended October 31, 2021, compared to the year ended October 31, 2020

Year Ended October 31, 2021

Year Ended October 31, 2020

$

5,253,244 

$

3,401,807   

Percentage Change
Increase of 54.4%

In the 2021 FY, Net Income before taxes increased by 54.4% due to an increase in revenues (by 6.4% or $1,287,717 over the previous 2020 FY), an increase in Other Income
and a reduction in the category of Interest Expenses.

Net Income after Income taxes for the year ended October 31, 2021 compared to the year ended October 31, 2020

Year Ended October 31, 2021

Year Ended October 31, 2020

$

4,947,765 

$

3,343,585   

Percentage Change
Increase of 48.0%

In  the  2021  FY  Net  Income  after  taxes  increased  by  48.0%.  This  is  due  to  the  increase  in  Net  Income  before  Income  taxes  coupled  with  the  recording  in  the  2021  FY  of
$701,568 in Employee Retention Credits which we received as part of the US Government’s response to the Pandemic compared to $0 in the 2020 FY.

Comprehensive Income for the year ended October 31, 2021 compared to the year ended October 31, 2020

Year Ended October 31, 2021

Year Ended October 31, 2020

$

5,601,984 

$

3,157,715   

Percentage Change
Increase of 77.4%

In the 2021 FY Comprehensive Income increased by 77.4%. A large part of our Comprehensive Income changes relates to foreign currency adjustments relating to fluctuations
during the reporting period.

We conduct a large part of our business in various foreign currencies, for example, the British pound, Danish Kroner, Euros and Australian Dollars.

This category is affected by foreign currency adjustments during the reporting period. In the 2021 FY we had a gain of $654,219 compared to a loss of $185,870 in the 2020
FY. There are generally significant foreign currency fluctuations, particularly between the US dollar (our reporting currency) and the British Pound. Since the UK decided to
leave  the  European  Union,  the  British  Pound  has  been  falling  significantly  against  the  US  dollar  (see  Note  2,  paragraph  n  of  Notes  to  the  audited  Consolidated  Financial
Statements for October 31, 2021 and 2020 for fuller information regarding our Foreign Currency Translation policy).

Segment Analysis

We are operating in two reportable segments, which are managed separately based upon fundamental differences in their operations. Segment operating income is total segment
revenue reduced by operating expenses identifiable with the business segment. Overhead includes general corporate administrative costs.

33

 
 
 
 
 
   
 
 
 
 
 
 
   
 
 
 
 
 
 
   
 
 
 
 
 
 
 
The Company evaluates performance and allocates resources based upon 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 in the table below which have been eliminated from our financial statements. However, for the purpose of segment reporting, these inter-segment
sales are included in the table below only.

The following tables summarize certain balance sheet and statement of operations information by reportable segment for the financial years ending October 31, 2021 and 2020,
respectively.

Coda Octopus Martech and Coda Octopus Colmek (“Services Segment” or “Marine Engineering Business”) are providing engineering services as sub-contractors mainly to
prime defense contractors and Coda Octopus Products operations are comprised primarily of product sales, technology solutions sales, rental of equipment and/or software and
associated services (“Products Segment” or “Marine Technology Business”).

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

● Americas

● Europe

● Australia/Asia

● Middle East/Africa

34

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended October 31, 2021

Revenues from External Customers

  $

15,804,222 

  $

5,527,305 

  $

Marine Technology
Business (Products)  

Marine Engineering
Business (Services)  

Overhead

Total

Cost of Revenues

Gross Profit

Research & Development
Selling, General & Administrative

Total Operating Expenses

Income (Loss) from Operations

Other Income (Expense)
Other Income
Interest Expense

3,169,835 

12,634,387 

2,509,107 
3,220,883 

5,729,990 

6,904,397 

3,391,974 

2,135,331 

473,569 
2,284,997 

-    $

-     

-     

-     
2,409,695     

21,331,527 

6,561,809 

14,769,718 

2,982,676 
7,915,575 

2,758,566 

2,409,695     

10,898,251 

(623,235)    

(2,409,695)    

3,871,467 

354,373 
(12,588)  

1,079,374 

(19,668)    

1,635     
(21,349)    

1,435,382 
(53,605)

Total Other Income (Expense)

341,785 

1,059,706 

(19,714)    

1,381,777 

Income (Loss) before Income Taxes

7,246,182 

436,471    

(2,429,409)    

5,253,244 

Income Tax Benefit (Expense)
Current Tax Benefit (Expense)
Deferred Tax (Expense) Benefit

35,032 
(418,338)  

(51,624)    
409,205 

-

(279,754)    

(16,592)
(288,887)

Total Income Tax Benefit (Expense)

(383,306)  

357,581 

(279,754)    

(305,479)

Net Income (Loss)

Supplemental Disclosures

Total Assets

Total Liabilities

Revenues from Intercompany Sales - eliminated from sales above

Depreciation and Amortization

Purchases of Long-lived Assets

  $

  $

  $

  $

  $

  $

6,862,876 

  $

794,052 

  $

(2,709,163)   $

4,947,765 

30,631,442 

  $

14,117,747 

  $

716,230    $

45,465,419 

3,166,999 

  $

849,306 

  $

400,041    $

4,416,346 

2,075,387 

  $

355,608 

  $

3,470,000    $

5,900,995 

780,434 

  $

114,022 

  $

29,617    $

793,995 

  $

51,907 

  $

118,302    $

924,073 

964,204 

35

 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
   
     
 
 
 
  
 
 
  
   
      
  
 
 
 
  
 
 
  
   
      
  
 
 
 
  
 
 
  
   
      
  
 
 
 
 
   
 
 
 
  
 
 
  
   
      
  
 
 
 
 
   
 
 
 
  
 
 
  
   
      
  
 
 
 
 
   
 
 
 
 
   
 
 
 
  
 
 
  
   
      
  
 
 
 
 
   
 
 
 
  
 
 
  
   
      
  
 
 
 
 
 
 
 
  
 
 
  
   
      
  
 
 
  
 
 
  
   
      
  
 
 
 
 
   
 
 
 
 
 
 
  
 
 
  
   
      
  
 
 
 
 
   
 
 
 
  
 
 
  
   
      
  
 
 
 
 
 
 
 
  
 
 
  
   
      
  
 
 
  
 
 
  
   
      
  
 
 
 
 
   
 
 
 
   
 
 
 
  
 
 
  
   
      
  
 
 
 
   
 
 
 
  
 
 
  
   
      
  
 
 
 
  
 
 
  
   
      
  
 
 
  
 
 
  
   
      
  
 
 
 
  
 
 
  
   
      
  
 
 
 
  
 
 
  
   
      
  
 
 
 
  
 
 
  
   
      
  
 
 
 
  
 
 
  
   
      
  
 
 
 
  
 
 
  
   
      
  
 
Year Ended October 31, 2020

Revenues from External Customers

$

11,278,181 

$

8,765,629 

$

-   

$

20,043,810 

Marine Technology
Business (Products)  

Marine Engineering
Business (Services)

Overhead

Total

Cost of Revenues

Gross Profit

Research & Development
Selling, General & Administrative

Total Operating Expenses

Income (Loss) from Operations

Other Income (Expense)
Other Income
Interest (Expense)

Total Other Income (Expense)

Income (Loss) before Income Taxes

Income Tax (Expense) Benefit
Current Tax Benefit (Expense)
Deferred Tax (Expense) Benefit

Total Income Tax (Expense) Benefit

Net Income (Loss)

Supplemental Disclosures

Total Assets

Total Liabilities

Revenues from Intercompany Sales - eliminated from sales
above

Depreciation and Amortization

Purchases of Long-lived Assets

5,060,354 

3,705,275 

1,042,243 
2,260,849 

3,303,092 

402,183 

526,734 
(15,672)  

511,062 

913,245 

- 
273,666 

273,666 

$

$

$

$

$

$

1,186,911 

14,347,827 

1,321,011 

354,373 

105,775 

19,660 

$

$

$

$

$

$

2,254,008 

9,024,173 

1,955,364 
2,779,662 

4,735,026 

4,289,147 

141,511 
(10,612)  

130,899 

4,420,046 

63,590 
(196,664)  

(133,074)  

4,286,972 

22,200,123 

1,572,314 

997,150 

678,449 

811,352 

36

$

$

$

$

$

$

-   

-   

190,782   
1,696,783   

1,887,565   

(1,887,565)  

-   
(43,919)  

(43,919)  

7,314,362 

12,729,448 

3,188,389 
6,737,294 

9,925,683 

2,803,765 

668,245 
(70,203)

598,042 

(1,931,484)  

3,401,807 

(12,927)  
(185,887)  

(198,814)  

50,663 
(108,885)

(58,222)

(2,130,298)  

$

3,343,585 

1,491,201   

749,558   

2,700,000   

22,462   

167,323   

$

$

$

$

$

38,039,151 

3,642,883 

4,051,523 

806,686 

998,335 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
  
 
 
  
 
 
    
 
  
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
Liquidity and Capital Resources

As of October 31, 2021, the Company had an accumulated deficit of $18,477,857, working capital of $31,310,563 and stockholders’ equity of $41,049,073. For the year then
ended, the Company generated cash flow from operations of $3,269,770.

We believe that our current level of cash and cash generation will be sufficient to meet our short and medium-term liquidity needs. As of October 31, 2021, we had cash on
hand of approximately $17.75 million and both billed and unbilled receivables of approximately $5.29 million. Our current cash balance represents approximately 27 months of
Selling, General and Administrative Expenses. The Company continues to critically evaluate the level of expenses that we incur and reduce those expenses as appropriate.

We also have access to a revolving line of credit of $4 million from HSBC NA. This line of credit is available to the Company for short-term working capital purpose. All
amounts under the Revolving Line of Credit are payable at the end of each financial year. The facility was renewed for another year and extends to November 2022. To date,
the Company has not borrowed any funds under this credit line.

Our main liquidity issues are forward buying components and inventory for our products which encompass specialized electronics for which there is no after-market except for
the products which they are designed to for, funding our research and development program (“R&D”) which requires significant expenditures in attracting engineering skills
and incurring non-recoverable costs for researching, developing and prototyping products and managing our currency exposure and business development and marketing costs
required for the success of our business.

Operating Activities

Net cash generated from operating activities for the year ended October 31, 2021 was $3,269,770. We recorded net income for the period of $4,947,765. Other items in uses and
sources  of  funds  from  operations  included  non-cash  charges  related  to  depreciation  and  amortization,  deferred  tax  asset  and  stock-based  compensation,  which  collectively
totaled $2,460,020. Funding from the Paycheck Protection Program was recognized as income and reduced cash from operating activities by $648,872. Changes in operating
assets decreased net cash from operating activities by $4,772,155 and changes in current liabilities increased net cash from operating activities by $1,283,012.

37

 
 
 
 
 
 
 
 
 
Investing Activities

Net cash used in investing activities for the year ended October 31, 2021 was $964,204.

Financing Activities

Net cash provided in financing activities for the year ended October 31, 2021 was $139,233 and resulted in paying down the debt of the Company and receiving funding from
the Paycheck Protection Program.

Secured Promissory Note

On April 28, 2017, Coda Octopus Group, Inc. (the “Company”) together with its wholly owned US 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 annual
interest rate is fixed at 4.56%.

The  obligations  in  connection  with  the  repayment  of  the  Loan  are  secured  by  all  assets  of  the  Company  and  its  Subsidiaries.  In  addition,  the  repayment  of  the  Loan  is
guaranteed by three of the Company’s overseas subsidiaries.

In March 2018, the Company repaid a significant portion of the outstanding HSBC Debenture. As of October 31, 2021, we had $63,559 outstanding under this loan.

The remaining balance of $63,559 was repaid by the end of the calendar year of 2021 - see Note 16 Subsequent Events of Notes to the Consolidated Financial Statements for
further information on the HSBC Debentures.

All security interests held by HSBC NA is expected to be released pursuant to the terms of the Loan Documents (Security Agreement). There will then be no encumbrances
relating to debentures recorded against the Company and/or its assets.

Foreign Currency

The  Company  maintains  its  books  in  local  currency:  US  Dollars  for  its  US  operations,  British  Pounds  for  its  United  Kingdom  operations,  Danish  Kroner  for  its  Danish
operations and Australian Dollars for its Australian operations.

For the 2021 FY, 27% of the Company’s operations were conducted inside the United States and 73% outside the United States through its wholly owned subsidiaries. As a
result,  currency  fluctuations  may  significantly  affect  the  Company’s  sales,  profitability,  balance  sheet  valuations  and  financial  position  when  the  foreign  currencies  of  its
international operations are translated into U.S. dollars for financial reporting purposes. In addition, we are also subject to currency fluctuation risks with respect to certain
foreign currency denominated receivables and payables. Although the Company cannot predict the extent to which currency fluctuations may affect the Company’s business
and financial position, there is a risk that such fluctuations will have an adverse impact on the Company’s sales, profits, balance sheet valuations and financial position. Because
differing portions of our revenues and costs are denominated in foreign currency, movements in those currencies could impact our margins by, for example, decreasing our
foreign revenues when the dollar strengthens and not correspondingly decreasing our expenses. The Company does not currently hedge its currency exposure. In the future, we
may engage in hedging transactions to mitigate foreign exchange risk.

38

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The translation of the Company’s denominated balance sheets and results of operations into US dollars (USD) are affected by changes in the average value of USD against the
currencies of our foreign subsidiaries (British, Danish and Australian) included in our consolidated results.

British Operations 2021 FY and 2020 FY

  British Pound against USD

  Average exchange rate was $1.3758 USD to

  An increase in the value of the GBP

the GBP against $1.2897 USD

against the USD by 6.7%

Australian Operations 2021 FY and 2020 FY   Australian Dollar (“AUD”) against

  Average exchange rate was $0.7531 against

  An increase in the value of the AUD

USD

$0.6830 USD

against the USD by 10.3%

Danish Operations 2021 FY and 2020 FY

  Danish Kroner (DKK) against USD   Average exchange rate was $0.1603 against

  An increase in the value of the DKK

$0.1517 USD to the DKK

against the USD by 5.7%

These are the values we have used in the calculations below which show the impact of these currency fluctuations on our operations in the 2021 FY:

British Pounds

Australian Dollar

Danish Kroner

Revenues
Costs
Net profit (losses)
Assets

Liabilities
Net assets

  Actual Rates  
  14,587,423 
  10,429,820 
4,157,603 
  23,537,209 

Constant
Rates
  13,674,591 
9,777,157 
3,897,434 
  22,265,882 

(2,548,701)  

(2,411,037)  

  20,988,508 

  19,854,846 

  Actual Rates  
- 

(34,449)  
34,449 
34,735 
(2,574)  
32,161 

Constant
Rates

    Actual Rates    
-     
(31,243)    
31,243     
32,446     
(2,404)    
30,042     

1,024,206     
37,767     
986,439     
1,785,049     
(30,623)    
1,754,426     

Constant
Rates

    Actual Rates    

US Dollars
Constant
Rates

969,592      15,611,629      14,644,183     
9,781,667     
35,753      10,433,138     
4,862,516     
5,178,491     
933,839     
1,796,581      25,356,993      24,094,910     
(2,444,262)    
(2,581,898)    
1,765,760      22,775,095      21,650,648     

(30,821)    

Total 
Effect

967,446 
651,471 
315,975 
1,262,083 
(137,636)
1,124,447 

This table shows that the effect of constant exchange rates, versus the actual exchange rate fluctuations, increased net income for the year by $315,975 and increased net assets
by $1,124,447. These amounts are material to our overall financial results.

Since the UK voted to leave the European Union membership in 2016 until recently, the UK’s future trade relationship with the European Union was uncertain. This uncertainty
gave rise to significant volatility of the UK Pound against major currencies including the US Dollar causing us to suffer losses due to currency fluctuations. With the future
relationship now determined, it is anticipated that the fluctuations between the British Pound and other major currencies including the US Dollar will not be as extreme and we
anticipate that losses suffered due to this is likely to reduce.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Inflation

The effect of inflation on the Company’s operating results in the 2021 FY was not significant.

Notwithstanding, while the past few years have seen fairly benign rates of inflation in labour and materials both in the countries in which we operate, those that we source from
and those that we sell to, since the end of the 2021 FY,we are now seeing worrying signs of inflation in almost all countries. In the US, UK and Denmark, countries in which we
have operations, inflation has moved from 1.2%, 0.9%, and 0.3% in 2020 to 7.0%, 5.4%, and 1.6% today respectively.

This is combined with shortages of supply both in components and availability of skills and labour. As examples, we have seen labour rates for new hires in the US, UK and
Denmark rise by approximately 10%, which leads to knock-on demands for increased pay across all our existing staff. We have also seen some key component availability go
from 4-week lead time to 78 weeks combined with significant price increases of on some components for our products. The levels of our margins are therefore at risk and
preservation of our margins is dependent upon our ability to pass on these increases to our customers which is improbable, particularly since our customer base is global (in the
Far East inflation profiles are very different).

39

 
 
 
 
 
 
 
 
 
 
   
   
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reference is made to the Index of Financial statements following Part III of this Report for a listing of the Company’s Consolidated Financial Statements and Notes thereto.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

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 (the “SEC”) 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, performed 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  October  31,  2021.  Based  upon  that  evaluation  the  Chief  Executive  Officer  and  Chief  Financial  Officer  concluded  that  the  Company’s
disclosure controls and procedures were effective as of the end of the period covered by this report.

Management’s Report on Internal Control over Financial Reporting

A  company’s  internal  control  over  financial  reporting  is  a  process  designed  by,  or  under  the  supervision  of,  a  public  company’s  principal  executive  and  principal  financial
officers,  or  persons  performing  similar  functions,  and  effected  by  the  board  of  directors,  management  and  other  personnel,  to  provide  reasonable  assurance  regarding  the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with US generally accepted accounting principles (“US GAAP”)
including those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of
the assets of the company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with US
GAAP, and that receipts and expenditures are being made only in accordance with authorizations of management and directors of the company, and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial
statements.

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Our management, with the participation of our Chief Executive
Officer  and  Chief  Financial  Officer,  has  assessed  the  effectiveness  of  our  internal  control  over  financial  reporting  as  of  October  31,  2021.  In  making  this  assessment,  our
management  used  the  criteria  established  in  Internal  Control—Integrated  Framework  issued  by  the  Committee  of  Sponsoring  Organizations  of  the  Treadway  Commission
(COSO 2013 Framework). Based on its assessment, our management believes that, as of October 31, 2021, our internal control over financial reporting was effective based on
those criteria.

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to rules of the SEC that permit the Company to
provide only management’s report in this annual report.

Changes in Internal Control over Financial Reporting

During the year ended October 31, 2021, there were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d–15(f) under
the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B. Other Information

Not Applicable

40

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

Directors and Executive Officers

The following persons are the executive officers and directors as of the date hereof:

PART III

Name
Annmarie Gayle
Michael Midgley
Kevin Kane
Blair Cunningham
Michael Hamilton
Captain Charlie Plumb
Mary Losty
Tyler G. Runnels

Age
57
69
57
52
74
79
61
65

  Position
  Chief Executive Officer and Chairman
  Chief Financial Officer,
  Chief Executive Officer (Coda Octopus Colmek)
  President of Technology
  Director
  Director
  Director
  Director

Annmarie  Gayle  has  been  our  Chief  Executive  Officer  and  a  member  of  the  Board  of  Directors  since  2011  and  our  Chairman  since  March  2017.  She  is  also  our  Chief
Executive Officer for our flagship products business, Coda Octopus Products, Limited (UK) since 2013. Prior thereto, she spent two years assisting with the restructuring of our
Company. She previously served with the Company as Senior Vice President of Legal Affairs between 2006 and 2007. Earlier in her career she worked for a leading City-
London law firm specializing in Intellectual Property Rights, the United Nations and the European Union. Ms. Gayle has a strong background in restructuring and has spent
more than 12 years in a number of countries where she has been the lead adviser to a number of transitional administrations on privatizing banks and reforming state-owned
assets  in  the  Central  Eastern  European  countries  including  banking,  infrastructure,  mining  and  telecommunications  assets.  Ms.  Gayle  has  also  managed  a  number  of  large
European Union funded projects providing transitional support and capacity. Ms. Gayle holds a Law degree gained at the University of London and a Master of Law degree in
International  Commercial  Law  from  Cambridge  University  and  has  completed  her  professional  law  exams  to  practice  law  in  England  &  Wales.  Because  of  her  wealth  of
experience  in  corporate  governance,  large  scale  project  management,  restructuring,  strategy,  structuring  and  managing  corporate  transactions,  we  believe  that  she  is  highly
qualified to act as our Chief Executive Officer.

Michael Midgley joined the Company in the capacity as Financial Controller in 2008. He was appointed as our Chief Financial Officer in December 2017 and has been our
acting Chief Financial Officer since 2013. He also served as Chief Executive Officer of Colmek from 2010 to July 2021. He is a qualified CPA and has had his own practice as
well as working for regional accounting firms, specializing in SEC and Tax practice areas. Mr. Midgley attended the University of Utah where he obtained a BA in Accounting.
Due to Mr. Midgley’s expertise in financial reporting, we believe that he is highly qualified to serve as the Company’s Chief Financial Officer.

Blair Cunningham joined the Company in July 2004 and has had a number of roles in the Company including Chief Technology Officer between July 2004 and July 2005. He
is currently our President of Technology. Mr. Cunningham received an HND in Computer Science in 1989 from Moray College of Further Education, Elgin, Scotland. Because
of Mr. Cunningham’s expertise in technology, systems software development and project management, the Company believes that he is highly qualified to serve in his current
roles.

Kevin Kane joined the Company in July 2021. He is the Chief Executive Officer of Coda Octopus Colmek, Inc. (“Colmek”). Mr. Kane holds a Bachelor of Science Degree in
Computer Engineering from the Rochester Institute of Technology, and a Master of Business Administration degree from Saint John Fisher College (USA). Because of Kane’s
background  and  experience  working  with  Prime  Defense  Contractors  in  the  area  of  business  development,  the  Company  believes  that  he  is  highly  qualified  to  serve  as  the
Divisional Chief Executive Officer of Colmek.

Michael Hamilton  was  our  Chairman  of  the  Board  between  June  2010  and  March  2017.  He  is  currently  serving  as  an  independent  director  of  our  Board.  Since  2014,  Mr.
Hamilton has provided accounting and valuation services for a varied list of clients. He was Senior Vice President of Powerlink Transmission Company from 2011 through
2014. From 1988 to 2003, he was an audit partner at PricewaterhouseCoopers. He holds a Bachelor of Science in Accounting from St. Frances College and is a certified public
accountant and is accredited in business valuation. Because of Mr. Hamilton’s background in auditing, strategic corporate finance solutions, financial management and financial
reporting, we believe that he is highly qualified to be a member of our Board of Directors.

G. Tyler Runnels was elected as a director at the 2018 annual meeting. Mr. Runnels has nearly 30 years of investment banking experience including debt and equity financings,
private placements, mergers and acquisitions, initial public offerings, bridge financings, and financial restructurings. Since 2003 Mr. Runnels has been the Chairman and Chief
Executive Officer of T.R. Winston & Company, LLC, an investment bank and member of FINRA, where he began working in 1990. Mr. Runnels was an early-stage investor in
our company and T.R. Winston & Company, LLC has served as our exclusive placement agent in one of our private placements raising early rounds of capital for our company.
Mr.  Runnels  has  successfully  completed  and  advised  on  numerous  transactions  for  clients  in  a  variety  of  industries,  including  healthcare,  oil  and  gas,  business  services,
manufacturing,  and  technology.  Mr.  Runnels  is  also  responsible  for  working  with  high-net-worth  clients  seeking  to  diversify  their  portfolios  to  include  real  estate  products
through established relationships with real estate brokers, accountants, attorneys, qualified intermediaries and financial advisors. Prior to joining T.R. Winston & Co., LLC, Mr.
Runnels held the position of Senior Vice President of Corporate Finance for H.J. Meyers & Company, a regional investment bank. Mr. Runnels received a B.S. and MBA from
Pepperdine University. Mr. Runnels holds FINRA Series 7, 24, 55, 63 and 79 licenses.

41

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Captain J. Charles Plumb has been a member of Coda’s Board of Directors since September 2019. Captain Plumb is a retired U.S. Navy fighter pilot. On his 75th combat
mission, just five days before the end of his tour in Vietnam, he was shot down over Hanoi, taken prisoner and tortured. During his nearly six years as a prisoner of war, he
distinguished  himself  as  a  pro  in  underground  communications.  He  was  a  great  inspiration  to  all  the  other  POWs  and  served  as  chaplain  for  two  years.  Following  his
repatriation, Captain Plumb continued his Navy flying career in Reserve Squadrons where he flew A-4 Sky Hawks, A-7 Corsairs and FA-18 Hornets. His last two commands as
a Naval Reservist were on the Aircraft Carrier Corral Sea and at Fighter Air Wing in California. He retired from the United States Navy after 28 years of service. His military
honors include two Purple Hearts, the Legion of Merit, the Silver Star, the Bronze Star and the P.O.W. Medal. He has been a motivational speaker, consultant and executive
coach since 1973. His clients include General Motors, FedEx, Hilton, Aflac, the U.S. Navy, BMW and NASA. Since 2010, he has been member of the Board of Directors of the
Lightspeed Aviation Foundation. Captain Plumb earned a B.S. in electrical engineering from the U.S. Naval Academy at Annapolis. We selected Captain Plumb to be a member
of the Board of Directors because of his close ties to the U.S. Defense establishment.

Mary Losty has been a director since July 2017. She is a private investor in both US equities and real estate. She currently serves as Commissioner on both Dorchester County
and the City of Cambridge, Maryland’s Planning and Zoning Commissions. She also serves as a Committeeman for the Eastern Shore Land Conservancy as well as the Pine
Street Committee of Cambridge, MD. She served as a member of the Board of Procera Networks, Inc. from March 2007 until that company was successfully sold in June 2015
to a private equity firm. She was a member of that company’s Audit Committee and the former Chairman of the Nominating and Governance Committee. Ms. Losty was a
director  of  Blue  Earth,  Inc.  (formerly  Genesis  Fluid  Solutions  Holdings,  Inc.)  from  2009  to  2011.  Ms.  Losty  retired  in  2010  as  the  General  Partner  at  Cornwall  Asset
Management, LLC, a portfolio management firm located in Baltimore, Maryland, where she was responsible for the firm’s investment in numerous companies since 1998. Ms.
Losty’s prior experience includes working as a portfolio manager at Duggan & Associates from 1992 to 1998 and as an equity research analyst at M. Kimelman & Company
from  1990  to  1992.  Prior  to  that,  she  worked  as  an  investment  banker  at  Morgan  Stanley  and  Co.,  and  for  several  years  prior  to  that  she  was  the  top  aide  to  James  R.
Schlesinger, a five-time U.S. cabinet secretary. Ms. Losty received both her BS and JD from Georgetown University, the latter with magna cum laude distinction. We believe
that Ms. Losty’s extensive dealings with the investment community makes her highly qualified to be a member of our Board of Directors.

Family Relationships

Other than Tyler Runnels and Charlie Plumb who are brothers in law, none of our Directors are related by blood, marriage, or adoption to any other Director, executive officer,
or other key employees.

42

 
 
 
 
 
 
Board Leadership Structure

The Board of Directors is currently chaired by the Chief Executive Officer of the Company, Annmarie Gayle. The Company believes that combining the positions of Chief
Executive Officer and Chairman of the Board of Directors helps to ensure that the Board of Directors and management act with a common purpose. Integrating the positions of
Chief Executive Officer and Chairman can provide a clear chain of command to execute the Company’s strategic initiatives. The Company also believes that it is advantageous
to have a Chairman with an extensive history with, and knowledge of, the Company. Notwithstanding the combined role of Chief Executive Officer and Chairman, key strategic
initiatives and decisions involving the Company are discussed and approved by the entire Board of Directors. The Company believes that the current leadership structure and
processes maintains an effective oversight of management and independence of the Board of Directors as a whole without separate designation of a lead independent director.
However, the Board of Directors will continue to monitor its functioning and will consider appropriate changes to ensure the effective independent function of the Board of
Directors in its oversight responsibilities.

Independence of the Board of Directors and its Committees

After  review  of  all  relevant  transactions  or  relationships  between  each  director,  or  any  of  his  or  her  family  members,  and  the  Company,  its  senior  management  and  its
Independent  Registered  Public  Accounting  Firm,  the  Board  of  Directors  has  determined  that  all  of  the  Company’s  directors  are  independent  within  the  meaning  of  the
applicable NASDAQ listing standards, except Ms. Gayle, the Company’s Chairman and Chief Executive Officer. The Board of Directors met 4 times and acted by unanimous
written consent 4 times during the fiscal year ended October 31, 2021. Each member of the Board of Directors attended all meetings of the Board of Directors held in the last
fiscal year during the period for which he or she was a director and of the meetings of the committees on which he or she served in the last fiscal year during the period for
which he or she was a committee member.

The Board of Directors has three committees: the Audit Committee, the Compensation Committee and the Nominating Committee. Below is a description of each committee of
the Board of Directors. The Board of Directors has determined that each member of each committee meets the applicable rules and regulations regarding “independence” and
that each member is free of any relationship that would interfere with his or her individual exercise of independent judgment with regard to the Company.

Audit Committee

The Audit Committee of the Board of Directors oversees the Company’s corporate accounting and financial reporting process. For this purpose, the Audit Committee performs
several  functions.  The  Audit  Committee,  among  other  things:  evaluates  the  performance,  and  assesses  the  qualifications,  of  the  Independent  Registered  Public  Accounting
Firm; determines and pre-approves the engagement of the Independent Registered Public Accounting Firm to perform all proposed audit, review and attest services; reviews
and pre-approves the retention of the Independent Registered Public Accounting Firm to perform any proposed, permissible non-audit services; determines whether to retain or
terminate the existing Independent Registered Public Accounting Firm or to appoint and engage a new independent registered Public Accounting Firm for the ensuing year;
confers  with  management  and  the  Independent  Registered  Public  Accounting  Firm  regarding  the  effectiveness  of  internal  control  over  financial  reporting;  establishes
procedures as required under applicable law, for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls
or  auditing  matters  and  the  confidential  and  anonymous  submission  by  employees  of  concerns  regarding  questionable  accounting  or  auditing  matters;  reviews  the  financial
statements  to  be  included  in  the  Company’s  Annual  Report  on  Form  10-K  and  the  Company’s  periodic  quarterly  filings  on  Form  10-Q,  recommends  whether  or  not  such
financial statements should be so included; and discusses with management and the Independent Registered Public Accounting Firm the results of the annual audit and review
of the Company’s quarterly financial statements.

The Audit Committee is currently composed of three outside directors: Michael Hamilton (Chairman), Mary Losty and Captain J. Charles Plumb. The Audit Committee met
four times during the fiscal year ended October 31, 2021. The Audit Committee Charter is available on the Company’s website, www.codaoctopusgroup.com.

43

 
 
 
 
 
 
 
 
 
 
The Board of Directors periodically reviews the NASDAQ listing standards’ definition of independence for Audit Committee members and has determined that all members of
the Company’s Audit Committee are independent (as independence is currently defined in Rule 5605(c)(2)(A) of the NASDAQ listing standards and Rule 10A-3(b)(1) of the
Securities  Exchange  Act,  as  amended).  The  Board  of  Directors  has  determined  that  Michael  Hamilton  qualifies  as  an  “audit  committee  financial  expert,”  as  defined  in
applicable SEC rules. The Board of Directors made a qualitative assessment of Mr. Hamilton’s level of knowledge and experience based on a number of factors, including his
formal education and his service in executive capacities having financial oversight responsibilities.

Compensation Committee

The Compensation Committee of the Board of Directors reviews, modifies and approves the overall compensation strategy and policies for the Company. The Compensation
Committee, among other things, reviews and approves corporate performance goals and objectives relevant to the compensation of the Company’s officers; determines and
approves  the  compensation  and  other  terms  of  employment  of  the  Company’s  Chief  Executive  Officer;  determines  and  approves  the  compensation  and  other  terms  of
employment  of  the  other  officers  of  the  Company;  and  administers  the  Company’s  stock  option  and  purchase  plans,  pension  and  profit  sharing  plans  and  other  similar
programs.

The Compensation Committee is composed of three outside directors: Michael Hamilton (Chairman), Mary Losty and G. Tyler Runnels. All members of the Compensation
Committee are independent (as independence is currently defined in Rule 5605(a)(2) of the NASDAQ listing standards). The Compensation Committee met three times during
the fiscal year ended October 31, 2021. The Compensation Committee Charter is available on the Company’s website at: www.codaoctopusgroup.com.

Compensation Committee Interlocks and Insider Participation

No  member  of  our  compensation  committee  has  at  any  time  been  an  employee  of  ours.  None  of  our  executive  officers  serves  as  a  member  of  the  board  of  directors  or
compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee.

Nominating Committee

The  Nominating  Committee  of  the  Board  of  Directors  is  responsible  for,  among  other  things,  identifying,  reviewing  and  evaluating  candidates  to  serve  as  directors  of  the
Company;  reviewing,  evaluating  and  considering  incumbent  directors;  recommending  to  the  Board  of  Directors  candidates  for  election  to  the  Board  of  Directors;  making
recommendations to the Board of Directors regarding the membership of the committees of the Board of Directors, and assessing the performance of the Board of Directors.

The  Nominating  and  Governance  Committee  is  currently  composed  of  three  outside  directors:  Mary  Losty  (Chair),  G.  Tyler  Runnels  and  Captain  J.  Charles  Plumb.  All
members  of  the  Nominating  Committee  are  independent  (as  independence  is  currently  defined  in  Rule  5605(a)(2)  of  the  NASDAQ  listing  standards).  The  Nominating
Committee  met  one  time  during  the  fiscal  year  ended  October  31,  2021.  The  Nominating  Committee  Charter  is  available  on  the  Company’s  website  at
www.codaoctopusgroup.com.

The Nominating Committee has not established any specific minimum qualifications that must be met for recommendation for a position on the Board of Directors. Instead, in
considering  candidates  for  director  the  Nominating  Committee  will  generally  consider  all  relevant  factors,  including  among  others  the  candidate’s  applicable  education,
expertise and demonstrated excellence in his or her field, the usefulness of the expertise to the Company, the availability of the candidate to devote sufficient time and attention
to the affairs of the Company, the candidate’s reputation for personal integrity and ethics and the candidate’s ability to exercise sound business judgment. Other relevant factors,
including diversity, experience and skills, will also be considered. Candidates for director are reviewed in the context of the existing membership of the Board of Directors
(including the qualities and skills of the existing directors), the operating requirements of the Company and the long-term interests of its stockholders.

44

 
 
 
 
 
 
 
 
 
 
 
 
The Nominating Committee considers each director’s executive experience and his or her familiarity and experience with the various operational, scientific and/or financial
aspects of managing companies in our industry.

With respect to diversity, the Nominating Committee seeks a diverse group of individuals who have executive leadership experience and a complementary mix of backgrounds
and skills necessary to provide meaningful oversight of the Company’s activities. The Company meets the NASDAQ standards for diversity on the board of directors. The
Nominating Committee annually reviews the Board’s composition in light of the Company’s changing requirements. The Nominating Committee uses the Board of Director’s
network of contacts when compiling a list of potential director candidates and may also engage outside consultants. Pursuant to its charter, the Nominating Committee will
consider, but not necessarily recommend to the Board of Directors, potential director candidates recommended by stockholders. All potential director candidates are evaluated
based  on  the  factors  set  forth  above,  and  the  Nominating  Committee  has  established  no  special  procedure  for  the  consideration  of  director  candidates  recommended  by
stockholders.

Employment Agreements

Annmarie Gayle

Pursuant to the terms of an employment agreement dated March 16, 2017, the Company employs Ms. Gayle as its Chief Executive Officer on a full-time basis and a member of
its Board of Directors. Effective July 1, 2019, Ms. Gayle’s annual salary was revised from $230,000 to $305,000. She is also entitled to an annual performance bonus of up to
$100,000, upon achieving certain targets that are to be defined on an annual basis. The agreement provides for 30 days of paid vacation in addition to public holidays observed
in Denmark where she is resident.

The agreement has no definitive term and may be terminated upon twelve months’ prior written notice by Ms. Gayle. In the event that the Company terminates her at any time
without  cause,  she  is  entitled  to  a  payment  equal  to  her  annual  salary  as  well  as  a  separation  bonus  of  $150,000.  The  Company  may  terminate  the  agreement  for  cause,
immediately  and  without  notice.  Among  others,  “for  cause”  includes  gross  misconduct,  a  serious  or  repeated  breach  of  the  agreement  and  negligence  and  incompetence  as
reasonably determined by the Company’s Board. The agreement includes a 12-month non-compete and non-solicitation provision.

Blair Cunningham

Under  the  terms  of  an  employment  contract  dated  January  1,  2013,  our  wholly  owned  subsidiary  Coda  Octopus  Products,  Inc.  employs  Blair  Cunningham  as  its  Chief
Executive Officer and President of Technology. He is being paid an annual base salary of $200,000 with effect from January 1, 2020, subject to review by the Company’s Chief
Executive Officer. Mr. Cunningham is entitled to 25 vacation days in addition to any public holiday.

The agreement may be terminated only upon twelve-month prior written notice without cause. The Company may terminate the agreement for cause, immediately and without
notice. Among others, “for cause” includes gross misconduct, a serious or repeated breach of the agreement and negligence and incompetence as reasonably determined by the
Company’s Board. The agreement includes an 18-month non-compete and non-solicitation provision.

Michael Midgley

Pursuant to the terms of an employment agreement dated June 1, 2011, Mike Midgley was appointed the Chief Executive Officer of our wholly owned subsidiary Coda Octopus
Colmek, Inc and our Chief Financial Officer. He is being paid an annual salary of $210,000 with effect from January 1, 2020, subject to an annual review by Colmek’s Board of
Directors and the Company’s Chief Executive Officer. Mr. Midgley is entitled to 20 vacation days in addition to any public holiday.

45

 
 
 
 
 
 
 
 
 
 
 
 
 
Change in Role

On December 6, 2017, the board of directors of the Company appointed Mr. Midgley to be the Company’s Chief Financial Officer. In connection with this appointment, all
rights and obligations under Mr. Midgley’s employment agreement with Colmek were transferred to and have been assumed by the Company.

Amendment to Michael Midgley’s Employment Agreement

The Company and Mr. Midgley entered into an agreement for the Amendment of his Employment Agreement on February 15, 2021.

The following amendments were made:

Role
Reduction in hours
Paid Time Off
Benefits

Now Chief Financial Officer of the Company. Removing the position of CEO of Coda Octopus Colmek.
Working hours reduced to approximately 60% and his compensation reduced proportionally to $126,000.
Reduced proportionately and is now 12 days
Reduced proportionately

The  agreement  may  be  terminated  at  any  time  upon  4  months  prior  written  notice.  The  Company  may  terminate  the  agreement  for  cause,  immediately  and  without  notice.
Among  others,  “for  cause”  includes  gross  misconduct,  a  serious  or  repeated  breach  of  the  agreement  and  negligence  and  incompetence  as  reasonably  determined  by  the
Company’s Board. The agreement includes a 12-month non-compete and non-solicitation provision.

Kevin Kane

Pursuant  to  the  terms  of  an  Employment  Agreement  dated  May  7,  2021,  as  amended  and  modified,  Kevin  Kane  was  appointed  the  Chief  Executive  Officer  of  Colmek
commencing July 6, 2021. The Employment Agreement provides for an annual base salary of $200,000. He will also be eligible for an annual performance bonus based on the
Company’s financial performance. Assuming that the Company meets its targets during the current fiscal year, Mr. Kane will be paid a performance bonus of $12,000. As a
further inducement, he was granted 15,000 restricted stock units out of the Company’s 2017 Stock Incentive Plan that vest in three equal annual instalments commencing on the
first anniversary of grant.

The  agreement  may  be  terminated  by  the  Company  at  any  time.  In  the  event  that  the  Company  terminates  the  employment  agreement  for  whatever  reason,  the  following
severance payments apply:

Year 1 of employment
Year 2 of employment
Year 3 of employment

2 Weeks
1 Month
4 Months

The agreement includes a 12-month non-compete and non-solicitation provision.

Code of Ethics

We have adopted a code of ethics for all our employees, including our chief executive officer, principal financial officer and principal accounting officer or controller, and/or
persons performing similar functions, which is available on our website, under the link entitled “Code of Ethics”.

46

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 11. EXECUTIVE COMPENSATION

The  Summary  Compensation  Table  shows  certain  compensation  information  for  services  rendered  for  the  fiscal  years  ended  October  31,  2021  and  2020  by  our  executive
officers.  The  following  information  includes  the  dollar  value  of  base  salaries,  bonus  awards,  stock  options  grants  and  certain  other  compensation,  if  any,  whether  paid  or
deferred.

Name and Principal Position

Annmarie Gayle*
Chief Executive Officer

Michael Midgley
Chief Financial Officer

Kevin Kane**
Divisional Chief Executive Officer

Blair Cunningham
President of Technology

Year  

2021  
2020  

2021  
2020  

2021  
2020  

2021  
2020  

Salary
($)
305,000   
271,115   

Bonus
($)
100,000   
-0-   

193,846   
208,077   

86,615   
-0-   

213,160   
195,192   

-0-   
-0-   

-0-   
-0-   

-0-   
-0-   

Option
Awards
($)

* All Other
Compensation   
($)

Restricted
Stock
Awards
($)

-0-   

26,400-   
-0-   

132,000   
-0-   

-0-   
221,000   

-0-   
221,000   

-0-   
-0-   

26,400   
-0-   

-   
165,750   

Total
($)
405,000 
491,115 

236,879 
445,075 

219,046 
-0- 

260,417 
380,199 

-0-   
-0-   

16,633   
15,998   

431   
-0-   

20,857   
19,257   

*The amounts described in the category of “All Other Compensation” comprise Health, Dental, Vision, Short Term Disability, Long Term Disability and Accidental Death and
Dismemberment insurance premiums which the Company contributed to the officers’ identified plan.

* Ms. Gayle’s annual salary is $305,000. During the Pandemic she waived certain amounts of her salary as is disclosed on Form 8-K filed with the SEC in 2020.

** Mr. Kevin Kane took over as Divisional Chief Executive Officer of Coda Octopus Colmek in July 2021. Previously, this role had been discharged by Mr. Michael Midgley.

Grants of restricted stock awards at October 31, 2021

Name

Kevin Kane
Michael Midgley
Blair Cunningham

Grant Date
6/9/2021
6/9/2021
6/9/2021

Outstanding option awards at October 31, 2021

Name

Annmarie Gayle
Michael Midgley
Blair Cunningham

All other 
restricted 
awards;
number of 
securities 
underlying 
restricted stock
awards

Exercise 
or base 
price of 
restricted stock 
awards

Grant date 
fair value 
of restricted stock 
awards

15,000 
3,000 
3,000 

8.80   
8.80   
8.80   

132,000 
26,400 
26,400 

Option Awards

Number of 
securities 
underlying
unexercised 
options
unexercisable

Exercise
or base 
price of 
option 
swards

      - 
- 
- 

4.62   
4.62   
4.62   

Option 
expiration 
date
3/23/2023
3/23/2023
3/23/2023

Number of
securities 
underlying
unexercised 
options 
exercisable

66,667 
66,667 
50,000 

47

 
 
 
 
 
   
   
   
   
 
 
 
 
 
   
   
   
   
   
 
 
 
 
 
 
 
 
 
 
 
 
    
 
 
 
 
 
 
 
 
    
 
    
 
    
 
    
 
    
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
 
    
 
    
 
    
 
    
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
 
    
 
    
 
    
 
    
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Option exercises for October 31, 2021

Annmarie Gayle
Michael Midgley
Blair Cunningham

Name

Option Awards

Number of
shares
acquired on 
exercise

16,630 
16,107 
11,456 

Value 
realized on 
exercise

76,831 
74,415 
52,927 

The  following  table  sets  forth  the  compensation  paid  to  each  of  our  directors  (who  are  not  also  officers  of  the  Company)  for  the  fiscal  year  ended  October  31,  2021,  in
connection with their services to the company. In accordance with the SEC’s rules, the table omits columns showing items that are not applicable. Except as set forth in the
table, no other persons were paid any compensation for director services.

DIRECTOR COMPENSATION

Name
Michael Hamilton
Captain J Charles Plumb
Mary Losty
Tyler G Runnels

Stock Incentive Plans

Fees Earned 
or Paid in 
Cash ($)

40,000 
40,000 
40,000 
40,000 

Stock Awards 
($)

Total 
($)

-   
-   
-   

40,000 
40,000 
40,000 
40,000 

The Company has two active Stock Incentive Plan. 2017 Stock Incentive Plan and 2021 Stock Incentive Plan.

2017 Stock Incentive Plan

On December 6, 2017, the Board of Directors adopted the 2017 Stock Incentive Plan (the “2017 Plan”). 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. This Plan was
approved by Stockholders at its meeting held on July 24, 2018.

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

The Plan is administered by the Compensation Committee of the Board of Directors which has the authority to determine all provisions of Incentive Awards as the Committee
may deem necessary or desirable and as consistent with the terms of the Plan, including, without limitation, the following: (i) eligible recipients; (ii) the nature and extent of the
Incentive  Awards  to  be  made  to  each  Participant;  (iii)  the  time  or  times  when  Incentive  Awards  will  be  granted;  (iv)  the  duration  of  each  Incentive  Award;  and  (v)  the
restrictions and other conditions to which the payment or vesting of Incentive Awards may be subject.

During the fiscal year ended October 31, 2021, the Company granted 127,500 restricted stock awards to purchase an aggregate of 127,500 shares of common stock pursuant to
the terms of the 2017 Plan to various eligible individuals. During the year 8,000 options were forfeited. As a result, as of October 31, 2021, there were 238,112 shares available
for future issue under the 2017 Plan.

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 meeting
held on August 2, 2021.  The 2021 Plan is identical to the 2017 in all material respects, except that the number of shares available for issuance thereunder is 1,000,000.

During the fiscal year ended October 31, 2021, no grants were made under the 2021 Plan and there were 1,000,000 shares available for future issue under the 2021 Plan.

Section 16(a) Beneficial Ownership Reporting Compliance

Under  the  Exchange  Act,  our  directors,  our  executive  officers,  and  any  persons  holding  more  than  10%  of  our  common  stock  are  required  to  report  their  ownership  of  the
common stock and any changes in that ownership to the SEC. To our knowledge, based solely on our review of the copies of such reports received or written representations
from certain reporting persons that no other reports were required, except as set forth below, we believe that during our fiscal year ended October 31, 2020, no reports relating
to our securities required to be filed by current reporting persons were filed late.

We will continue monitoring Section 16 compliance by each of our directors and executive officers and will assist them where possible in their filing obligations.

48

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information as of January 31, 2022, regarding the beneficial ownership of our Common Stock, based on information provided by (i) each of our
executive  officers  and  directors;  (ii)  all  executive  officers  and  directors  as  a  group;  and  (iii)  each  person  who  is  known  by  us  to  beneficially  own  more  than  5%  of  the
outstanding shares of our Common Stock. The percentage ownership in this table is based on 10,857,195 shares issued and outstanding as of January 31, 2022.

Unless otherwise indicated, we believe that all persons named in the following table have sole voting and investment power with respect to all shares of Common Stock that
they beneficially own.

Name and Address of Beneficial Owner (1)  
Michael Hamilton
Annmarie Gayle (2)  
Michael Midgley (3)  
Blair Cunningham (4)  
Kevin Kane (5)  
J. Charles Plumb
Mary Losty
Niels Sondergaard
Carit Etlars Vej 17A
8700 Horsens
Denmark
G. Tyler Runnels (6)
2049 Century Park East, Suite 320
Los Angeles, CA 90067  
J. Steven Emerson (7)
1522 Ensley Avenue
Los Angeles, CA 90024  
Bryan Ezralow (8)
23622 Calabasas Rd. Suite 200
Calabasas, CA 91302  
Tocqueville Asset Management LP
40 West 57th Street, 19th Floor
New York, NY 10019
All Directors and Executive Officers as a Group (Eight persons):

*) Less than 1%.

Amount and 
Nature 
of Beneficial 
Ownership of
Common Stock

Percent of 
Common Stock

1,143   
2,304,581   
33,333   
52,298   
-0-   
11,434   
57,143   

2,241,581   

1,125,685   

1,168,232   

1,073,120   

544,003   
3,585,617   

  * 
21.2%
  * 
  * 
n/a   
  * 
  * 

20.6%

10.4%

10.8%

9.9%

5.0%
33.0%

1) Unless otherwise indicated, the address of all individuals and entities listed below is c/o Coda Octopus Group, Inc. 3300 S Hiawassee Rd, Suite 104-105, Orlando, Florida,

32835.

2) Consists  of  29,667  shares  held  by  Ms.  Gayle  and  2,241,581  shares  beneficially  owned  by  Ms.  Gayle’s  spouse,  Niels  Sondergaard.  Ms.  Gayle  disclaims  any  beneficial

ownership in those shares. Also includes 33,333 shares issuable upon exercise of options that will become exercisable within 60 days of the date hereof.

Includes 25,000 shares issuable upon exercise of options that will become exercisable within 60 days of the date hereof.

3) Consist of shares issuable upon exercise of options that will become exercisable within 60 days of the date hereof.
4)
5) Does not include 15,000 shares issuable upon excise of restricted stock award units that vest in three equal annual installments commencing on July 6, 2022.
6)

Includes 859,331 shares held by the G. Tyler Runnels and Jasmine Niklas Runnels TTEES of The Runnels Family Trust DTD 1-11-2000 of which Mr. Runnels is a trustee;
227,700 shares held by T.R. Winston; 24,368 shares held by TRW Capital Growth Fund, Ltd.; and 14,286 shares held by Pangaea Partners. The Company has been advised
that Mr. Runnels has voting and dispositive power with respect to all of these shares.
Includes the following: 167,081 held by J. Steven Emerson IRA R/O II; 300,000 shares held by J. Steven Emerson Roth IRA; 49,328 shares held by the Brian Emerson
IRA; 310,928 shares held by Emerson Partners; 180,250 shares held by 1993 Emerson Family Trust; 8,286 shares held by the Alleghany Meadows IRA; 8,286 shares held
by the Jill Meadows IRA; and 144,073 shares held by the Emerson family Foundation. The Company has been advised that Mr. Emerson has voting and dispositive power
with respect to all of these shares.

7)

8) Consists of 896,079 shares held by the Bryan Ezralow 1994 Trust u/t/d 12/22/1994; and 177,041 shares held by EZ MM&B Holdings, LLC. According to filings made

with the SEC, Mr. Ezralow has voting and dispositive power with respect to these shares.

49

 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

None that are required to be reported herein.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees. The aggregate fees billed by Frazier & Deeter, LLC, our principal accountants, for professional services rendered for the audit and audit related services of the
Company’s annual financial statements for the last two fiscal years and for the reviews of the financial statements included in the Company’s Quarterly reports on Form 10-Q
during the last two fiscal years 2021 and 2020 were $247,118 and $212,369 respectively.

Tax Fees. The Company did not engage its principal accountants to render any tax services to the Company during the last two fiscal years.

All Other Fees. The Company did not engage its principal accountants to render services to the Company during the last two fiscal years, other than as reported above.

Prior to the Company’s engagement of its independent auditor, such engagement is approved by the Company’s Audit Committee. The services provided under this engagement
may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to
the particular service or category of services and is generally subject to a specific budget. Pursuant to the Company’s Audit Committee Charter, the independent auditors and
management are required to report to the Company’s audit committee at least quarterly regarding the extent of services provided by the independent auditors in accordance with
this pre-approval, and the fees for the services performed to date. The audit committee may also pre-approve particular services on a case-by-case basis. All audit-related fees,
tax fees and other fees incurred by the Company for the year ended October 31, 2021, were approved by the Company’s audit committee.

50

 
 
 
 
 
 
 
 
 
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

Exhibit
Number
2.1
3.1
3.1.1.
3.2
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33

10.34
10.35
10.36
10.37
10.38
14
23.1
31.1
32

Description

  Plan and Agreement of Merger dated July 12, 2004 by and between Panda and Coda Octopus *
  Restated Certificate of Incorporation**
  Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock******
  By-Laws *
  Deed of Amendment to Loan Note Transaction Documents dated October 31, 2015 by and between the Company and CCM Holdings LLC***
  [Reserved]
  Employment Contract between Coda Octopus Colmek, Inc. and Mike Midgley****
  [Reserved]
  Employment Contract dated January 1, 2013 between Coda Octopus Products, Inc. and Blair Cunningham****
  Deed of Amendment to Loan Note Transaction Documents dated October 17, 2016 by and between the Company and CCM Holdings LLC**
  Deed of Amendment to Loan Note Transaction Documents dated November 1, 2016 by and between the Company and CCM Holdings LLC*****
  Employment Contract dated March 16, 2017 between the Company and Annmarie Gayle*****
  Loan Agreement, dated as of April 28, 2017, by and between Coda Octopus Group, Inc., Coda Octopus Products, Inc., Coda Octopus Colmek, Inc. and HSBC

Bank USA, N.A.******

  Form of Security Agreement, dated April 28, 2017******
  Promissory Note dated April 28, 2017******
  2017 Stock Incentive Plan*******
  Employment Agreement dated May 7, 2021 between Coda Octopus Colmek, Inc and Kevin Kane (filed herewith)
  2021 Stock Incentive Plan*******
  Code of Ethics*******
  Consent of Frazier & Deeter, LLC (filed herewith)
  Chief Executive Office and Chief Financial Officer Certification
  Certificate Pursuant to 18 U.S.C Section 1350

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 (embedded within the Inline XBRL document)

  Incorporated by reference to the Company’s Registration Statement on Form SB-2 (SEC File No.143144)
  Incorporated by reference to the Company’s Registration Statement on Form 10.
  Incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended October 31, 2007
  Incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended October 31, 2010
  Incorporated by reference to the Company’s Registration Statement on Form 10/A filed March 29,2017
  Incorporated by reference to the Company’s Current Report on Form 8-K filed May 2, 2017

*
**
***
****
*****
******
*******   Incorporated by reference to the Company’s Annual Report on Form 10 for the year ended October 31, 2017
********   Incorporated by reference to the Company’s Definitive Proxy Statement filed August 2, 2021

51

 
 
 
 
 
   
 
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.

DATE: February 14, 2022

CODA OCTOPUS GROUP, INC.

SIGNATURES

/s/ Annmarie Gayle
Chief Executive Officer

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Annmarie Gayle, his or her true and lawful attorney-in-fact and agent, with full power of substitution and
re-substitution, severally, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this annual report on Form 10-K,
and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or their or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue hereof. This power of attorney may be executed in counterparts.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.

Signature

  Title

/s/ Annmarie Gayle
Annmarie Gayle

/s/ Michael Midgley
Michael Midgley

/s/ Michael Hamilton
Michael Hamilton

/s/ Captain Charlie Plumb
Charlie Plumb

/s/ Mary Losty
Mary Losty

  Chief Executive Officer and Chairman

(Principal Executive Officer)

  Chief Financial Officer

(Principal Financial and Accounting Officer)

  Director

  Director

  Director

/s/ G. Tyler Runnels

  Director

52

  Date

  February 14, 2022

  February 14, 2022

  February 14, 2022

  February 14, 2022

  February 14, 2022

  February 14, 2022

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CODA OCTOPUS GROUP, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM

CONSOLIDATED BALANCE SHEETS AS OF OCTOBER 31, 2021 AND 2020

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE YEARS ENDED OCTOBER 31, 2021 AND 2020

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED OCTOBER 31, 2021 AND 2020

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED OCTOBER 31, 2021 AND 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE

F-1

F-2

F-4

F-5

F-6

F-7

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Coda Octopus Group, Inc.

Opinion on the Consolidated Financial Statements

We  have  audited  the  accompanying  consolidated  balance  sheets  of  Coda  Octopus  Group,  Inc.  and  subsidiaries  (the  “Company”)  as  of  October  31,  2021  and  2020,  and  the
related consolidated statements of income and comprehensive income, changes in stockholders’ equity, and cash flows for the years ended October 31, 2021 and 2020, and the
related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of the Company as of October 31, 2021 and 2020, and the results of their operations and cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.

Basis for Opinion

These  consolidated  financial  statements  are  the  responsibility  of  the  Company’s  management.  Our  responsibility  is  to  express  an  opinion  on  the  Company’s  consolidated
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are
required  to  be  independent  with  respect  to  the  Company  in  accordance  with  the  U.S.  federal  securities  laws  and  the  applicable  rules  and  regulations  of  the  Securities  and
Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but
not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures  that  respond  to  those  risks.  Such  procedures  included  examining,  on  a  test  basis,  evidence  regarding  the  amounts  and  disclosures  in  the  consolidated  financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the
audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective,
or complex judgments. We determined that there are no critical audit matters.

/s/ Frazier & Deeter, LLC

We have served as the Company’s auditor since 2014.

Tampa, Florida
February 14, 2022

F-1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS

Cash
Accounts Receivable, net
Inventory
Unbilled Receivables
Prepaid Expenses
Other Current Assets

Total Current Assets

FIXED ASSETS

Property and Equipment, net

OTHER ASSETS

Goodwill and Other Intangibles, net
Deferred Tax Asset

Total Other Assets

Total Assets

CODA OCTOPUS GROUP, INC.
Consolidated Balance Sheets
October 31, 2021 and 2020

ASSETS

2021

2020

$

$

17,747,656 
4,207,996 
10,691,177 
1,080,384 
1,202,327 
627,619 

35,557,159 

15,134,289 
2,014,660 
9,142,273 
861,300 
289,204 
244,171 

27,685,897 

6,037,101 

6,059,900 

3,794,383 
76,776 

3,871,159 

3,731,452 
561,902 

4,293,354 

$

45,465,419 

$

38,039,151 

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

F-2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
  
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
CODA OCTOPUS GROUP, INC.
Consolidated Balance Sheets (Continued)
October 31, 2021 and 2020

LIABILITIES AND STOCKHOLDERS’ EQUITY

2021

2020

CURRENT LIABILITIES

Accounts Payable
Accrued Expenses and Other Current Liabilities
Note Payable
Deferred Revenue

Total Current Liabilities

LONG TERM LIABILITIES

Deferred Revenue, less current portion
Note Payable, less current portion

Total Long Term Liabilities

Total Liabilities

STOCKHOLDERS’ EQUITY

Common Stock, $.001 par value; 150,000,000 shares authorized, 10,857,195 shares issued and
outstanding as of October 31, 2021, and 10,751,881 shares issued and outstanding as of October 31,
2020, respectively
Additional Paid-in Capital
Accumulated Other Comprehensive Loss
Accumulated Deficit

Total Stockholders’ Equity

$

$

1,454,611 
740,449 
63,559 
1,999,841 

4,258,460 

157,886 
- 

157,886 

4,416,346 

10,858 
61,183,131 
(1,667,059)  
(18,477,857)  

41,049,073 

Total Liabilities and Stockholders’ Equity

$

45,465,419 

$

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

F-3

1,284,097 
584,202 
509,769 
1,006,454 

3,384,522 

195,022 
63,339 

258,361 

3,642,883 

10,753 
60,132,415 
(2,321,278)
(23,425,622)

34,396,268 

38,039,151 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
  
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
Net Revenues
Cost of Revenues

Gross Profit

OPERATING EXPENSES

Research & Development
Selling, General & Administrative

Total Operating Expenses

INCOME FROM OPERATIONS

OTHER INCOME
Other Income
Interest Expense

Total Other Income

INCOME BEFORE INCOME TAX EXPENSE

INCOME TAX BENEFIT (EXPENSE)
Current Tax (Expense) Benefit
Deferred Tax Expense

Total Income Tax Expense

NET INCOME

NET INCOME PER SHARE:

Basic
Diluted

WEIGHTED AVERAGE SHARES:

Basic
Diluted

NET INCOME

Foreign Currency Translation Adjustment

Total Other Comprehensive Income (Loss)

COMPREHENSIVE INCOME

CODA OCTOPUS GROUP, INC.
Consolidated Statements of Income and Comprehensive Income
For the Periods Indicated

Year Ended October 31,

2021

2020

$

21,331,527 
6,561,809 

$

20,043,810 
7,314,362 

12,729,448 

3,188,389 
6,737,294 

9,925,683 

2,803,765 

668,245 
(70,203)

598,042 

3,401,807 

50,663 
(108,885)

(58,222)

3,343,585 

0.31 
0.30 

10,733,799 
11,294,799 

14,769,718 

2,982,676 
7,915,575 

10,898,251 

3,871,467 

1,435,382 

(53,605)  

1,381,777 

5,253,244 

(16,592)  
(288,887)  

(305,479)  

4,947,765 

0.46 
0.44 

10,804,074 
11,309,740 

$

$
$

$

$
$

$

$

$

4,947,765 

$

3,343,585 

654,219 

654,219 

5,601,984 

$

$

(185,870)

(185,870)

3,157,715 

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

F-4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
  
 
 
  
 
 
 
 
CODA OCTOPUS GROUP, INC.
Consolidated Statements of Changes in Stockholders’ Equity
For the Year’s Ended October 31, 2021 and 2020

Common Stock

Shares

Amount

  Additional

Paid-in

Capital

  Accumulated  
Other
  Comprehensive  
Income (Loss)  

  Accumulated  

Deficit

Total

Balance, October 31, 2019

  10,721,881   

$

10,723   

$ 59,521,665   

$

(2,135,408)  

$ (26,769,207)  

$ 30,627,773 

Employee stock based compensation
Consultant stock based compensation
Foreign currency translation adjustment
Net Income
Balance, October 31, 2020

Employee stock based compensation
Stock issued for options exercised
Consultant stock based compensation
Foreign currency translation adjustment
Net Income
Balance, October 31, 2021

-   
30,000   
-   
-   
  10,751,881   

$

-   
30   
-   
-   
10,753   

441,280   
169,470   
-   
-   
$ 60,132,415   

$

-   
-   
(185,870)  
-   
(2,321,278)  

-   
-   
-   
3,343,585   
$ (23,425,622)  

441,280 
169,500 
(185,870)
3,343,585 
$ 34,396,268 

80,314   
25,000   

80   
25   

830,071   
(80)  
220,725   

654,219   

  10,857,195   

$

10,858   

$ 61,183,131   

$

(1,667,059)  

830,071 
- 
220,750 
654,219 
4,947,765 
$ 41,049,073 

4,947,765   
$ (18,477,857)  

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

F-5

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
   
 
   
 
   
 
   
 
 
 
 
 
 
    
 
    
 
    
 
    
 
    
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
 
    
 
    
 
    
 
    
 
  
 
 
    
 
    
 
 
    
 
    
 
 
 
 
 
 
    
 
    
 
 
 
 
 
 
    
 
    
 
 
 
    
 
    
 
    
 
 
    
 
 
 
    
 
    
 
    
 
    
 
 
 
 
 
CODA OCTOPUS GROUP, INC.
Consolidated Statements of Cash Flows

CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization
Stock based compensation
Deferred income taxes
Funding from Paycheck Protection Program recognized as income

(Increase) decrease in operating assets:

Accounts receivable
Inventory
Unbilled receivables
Other current assets
Prepaid expenses

Increase (decrease) in operating liabilities:

Accounts payable and other current liabilities
Deferred revenue

Net Cash Provided by Operating Activities

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of property and equipment
Purchases of other intangible assets
Net Cash Used in Investing Activities

CASH FLOWS FROM FINANCING ACTIVITIES

Repayment of note payable
Proceeds from Paycheck Protection Program

Net Cash Provided by Financing Activities

EFFECT OF CURRENCY TRANSLATION ON CHANGES IN CASH

NET INCREASE IN CASH

CASH AT THE BEGINNING OF THE PERIOD

CASH AT THE END OF THE PERIOD

SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for interest
Cash paid for taxes

Year Ended October 31,

2021

2020

$

4,947,765 

$

3,343,585 

924,073 
1,050,821 
485,126 
(648,872)  

(2,193,336)  
(1,063,163)  
(219,084)  
(383,449)  
(913,123)  

326,761 
956,251 
3,269,770 

(850,894)  
(113,310)  
(964,204)  

(509,549)  
648,872 
139,323 
168,478 

2,613,367 

15,134,289 

17,747,656 

53,605 
- 

$

$
$

806,686 
610,780 
69,782 
(648,871)

2,417,311 
(3,791,759)
1,418,062 
54,016 
(91,064)

18,137 
227,741 
4,434,406 

(835,132)
(163,203)
(998,335)

(486,466)
648,871 
162,405 
(185,870)

3,412,606 

11,721,683 

15,134,289 

70,202 
- 

$

$
$

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

F-6

 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
  
 
 
  
 
 
 
 
 
 
CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
October 31, 2021 and 2020

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

Coda Octopus Group, Inc. (“Coda,” “the Company,” or “we”) operates two distinct operating business units. These are the Marine Technology Business (“Products Business”,
“Products Operations” or “Products Segment”) and the Marine Engineering Business (“Services Business”, “Engineering Business” or “Engineering Operations”). The Marine
Technology Business sells technology solutions to the subsea and underwater markets. These are designed, developed, manufactured and supported by the Business. Among the
solutions it designs and develops, and which currently is its main revenue generating product, is its real time 3D volumetric imaging sonar which is a patented unique and
leading  product  in  the  subsea/underwater  market  and  marketed  under  the  name  Echoscope®.  It  also  recently  launched  a  new  diver  management  system  (Diver  Augmented
Vision  Display  (DAVD))  system  addressing  the  global  defense  and  commercial  diving  market  and  which  it  believes  is  a  significant  part  of  its  growth  pillars.  The  Marine
Engineering Business supplies proprietary sub-assemblies for incorporation into broader mission critical defense systems. These parts typically are supplied for the life of the
program to which they pertain.

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

NOTE 2 - SUMMARY OF ACCOUNTING POLICIES

a. Basis of Presentation

The  Company  has  adopted  the  Financial  Accounting  Standards  Board  (FASB)  Codification  (Codification).  The  Codification  is  the  single  official  source  of  authoritative
accounting  principles  generally  accepted  in  the  United  States  of  America  (U.S.  GAAP)  recognized  by  the  FASB  to  be  applied  by  nongovernmental  entities,  and  all  of  the
Codification’s content carries the same level of authority.

b. Cash

The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. At times such investments may be
in excess of federal deposit insurance limits.

c. Trade Accounts Receivable

Trade accounts receivable are recorded net of the allowance for doubtful accounts. The Company provides for an allowance for doubtful collections that is based upon a review
of  outstanding  receivables,  historical  collection  information,  and  existing  economic  conditions.  Balances  still  outstanding  after  the  Company  has  used  reasonable  collection
efforts are written off though a charge to the valuation allowance and a credit to trade accounts receivable. The allowance for doubtful accounts was $0 and $47,807  as  of
October 31, 2021 and 2020, respectively.

F-7

 
 
 
 
 
 
 
 
 
 
 
 
 
CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
October 31, 2021 and 2020

NOTE 2 – SUMMARY OF ACCOUNTING POLICIES (Continued)

d. Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Expenditures for minor replacements, maintenance and repairs which do not increase the useful lives
of the property and equipment are charged to operations as incurred. Major additions and improvements are capitalized. Depreciation and amortization are computed using the
straight-line method over their estimated useful lives which is typically three to five years for equipment and 50 years for buildings. In the year ended October 31, 2021, we
have made an accounting policy change to allocation 70% of the Products depreciation to Cost of Goods Sold that is related to the rental assets.

We own substantially all of our facilities and believe that the effect of adopting Accounting Standards Codification 842, “Leases”, has been immaterial.

e. Advertising

Coda  follows  the  policy  of  charging  the  costs  of  advertising  to  expense  as  incurred,  which  aggregated  $5,042 and $4,884 for  the  years  ended  October,  31  2021  and  2020,
respectively.

f. Inventory

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

Raw materials and parts
Work in progress
Finished goods
Total Inventory

g. Estimates

October 31,
2021

October 31,
2020

$

$

7,525,419 
919,619 
2,246,139 
10,691,177 

$

$

7,322,688 
698,756 
1,120,829 
9,142,273 

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.

h. Revenue Recognition

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

F-8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
October 31, 2021 and 2020

NOTE 2 – SUMMARY OF ACCOUNTING POLICIES (Continued)

h. Revenue Recognition (Continued)

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

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

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

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

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

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

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

For software license sales for which any services rendered are not considered distinct to the functionality of the software, we recognize revenue upon delivery of the software.

F-9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
October 31, 2021 and 2020

NOTE 2 – SUMMARY OF ACCOUNTING POLICIES (Continued)

h. Revenue Recognition (Continued)

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

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

Recoverability of Deferred Costs

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

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 October 31, 2021 and 2020, we had
deferred commissions of $0 and $3,884, respectively. Amortization expense related to deferred commissions was $3,884 and $125,284 in the years ended October 31, 2021 and
2020, respectively.

F-10

 
 
 
 
 
 
 
 
 
 
 
 
 
CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
October 31, 2021 and 2020

NOTE 2 – SUMMARY OF ACCOUNTING POLICIES (Continued)

h. Revenue Recognition (Continued)

Other Revenue Disclosures

See  Note  13  –  Disaggregation  of  Revenue  for  a  breakdown  of  revenues  from  external  customers  and  cost  of  those  revenues  between  our  Product  Segment  and  Services
Segment including information on the split of revenues by geography.

i. Concentrations of Risk

Credit losses, if any, have been provided for in the consolidated financial statements and are based on management’s expectations. The Company’s accounts receivables are
subject  to  potential  concentrations  of  credit  risk,  since  a  significant  part  of  the  Company’s  sales  are  to  a  small  number  of  companies  and,  even  though  these  are  generally
established businesses, market fluctuations such as the price of oil may affect our customers’ ability to meet their obligations to us. Furthermore, Trade disputes may result in
impairment or delays in receivables.

The Company’s bank deposits are held with financial institutions both in and outside the USA. At times, such amounts may be in excess of applicable government mandated
insurance limits. The Company has not experienced any losses in such accounts or lack of access to its cash, and believes it is not exposed to significant risk of loss with respect
to cash.

j. Contracts in Progress (Unbilled Receivables and Deferred Revenue)

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

Our Deferred Revenue of $1,879,790 and $989,588 as of October 31, 2021 and 2020, respectively, consists of billings in excess of costs and revenues received as part of our
warranty obligations upon completing a sale, as elaborated further in the last paragraph of this note.

Revenue received as part of sales of equipment includes a provision for warranty or through life support (TLS) and is treated as deferred revenue, along with extended warranty
sales or TLS, which may be purchased by customers. These amounts are amortized over the relevant warranty or TLS period (12 months is our standard warranty or 24, 36 or
60 months for TLS) from the date of sale. These amounts are stated on the consolidated balance sheets as a component of Deferred Revenue and were $277,937 and $211,888
as of October 31, 2021 and 2020, respectively.

F-11

 
 
 
 
 
 
 
 
 
 
 
 
 
 
CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
October 31, 2021 and 2020

NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

k. Income Taxes

The Company accounts for income taxes in accordance with Accounting Standards Codification 740, Income Taxes (ASC 740). Under ASC 740, deferred income tax assets and
liabilities  are  recorded  for  the  income  tax  effects  of  differences  between  the  bases  of  assets  and  liabilities  for  financial  reporting  purposes  and  their  bases  for  income  tax
reporting.  The  Company’s  differences  arise  principally  from  the  use  of  various  accelerated  and  modified  accelerated  cost  recovery  systems  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. Note 7 below discusses the amounts of deferred tax assets and liabilities, and also presents the impact of significant
differences between financial reporting income and taxable income.

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

l. Goodwill and Intangible Assets

Goodwill and 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 intangible assets using the straight-line method over their estimated period of benefit. We periodically evaluate
the recoverability of goodwill and intangible assets and take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment
exists.

Step 1 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.  The  Company  has  adopted  Accounting  Standards
Codification 2017 – 04, simplifying the Test for Goodwill Impairment, which permits the Company to impair the difference between carrying amounts in excess of the fair
value of the reporting unit as the reduction in goodwill.

F-12

 
 
 
 
 
 
 
 
 
 
 
CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
October 31, 2021 and 2020

NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (Continued)

l. Goodwill and Intangible Assets (Continued)

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 reporting unit over the fair value of the reporting unit.

There were no impairment charges recognized during the years ended October 31, 2021 and 2020.

m. Fair Value of Financial Instruments

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

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

n. 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 period. Stockholders’ equity, fixed assets and long-term investments are recorded at historical exchange rates. Resulting translation adjustments are recorded
as a separate component in stockholders’ equity as part of accumulated other comprehensive income or (loss) as may be appropriate. Foreign currency transaction gains and
losses are included in the consolidated statements of income and comprehensive income.

o. Long-Lived Assets

Long-lived  assets  to  be  held  and  used  are  reviewed  for  impairment  whenever  events  or  changes  in  circumstances  indicate  that  the  carrying  amount  of  an  asset  may  not  be
recoverable. The carrying amount of a long-lived asset is not recoverable if its carrying amount exceeds the sum of the undiscounted cash flows expected to result from the use
and  eventual  disposal  of  the  asset.  Long-lived  assets  to  be  disposed  of  are  reported  at  the  lower  of  carrying  amount  or  fair  value  less  cost  to  sell.  No impairment  loss  was
recognized during the years ended October 31, 2021 and 2020, respectively.

p. Research and Development

Research  and  development  costs  consist  of  expenditures  for  the  development  of  present  and  future  patents  and  technology,  which  are  not  capitalizable.  Under  current
legislation, we are eligible for UK tax credits related to our qualified research and development expenditures.

F-13

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
October 31, 2021 and 2020

NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (Continued)

p. Research and Development (Continued)

Tax credits are classified as a reduction of research and development expense. During the years ended October 31, 2021 and 2020, we had $0 and $0, tax credits, respectively.

q. Stock Based Compensation

In accordance with the accounting rules for stock compensation, for time based awards, the Company is accruing a stock compensation expense and increase to additional paid
in capital based on the market value of the common stock as of the grant date throughout the vesting period. The vesting period for the options is between 5 and 17 months and
is based on the employee’s continuous service to the Company. In addition, the Company has issued Restricted Stock Awards (RSA) The vesting period is 11 months and is
based  on  the  employee’s/consultant’s  continued  service  for  the  vesting  period.  Prior  to  vesting,  the  awards  are  subject  to  forfeiture  in  the  whole  or  in  part  under  certain
circumstances. We use the Black-Scholes option pricing model to determine the fair value for equity instruments granted to employees.

r. Comprehensive Income

Comprehensive  income  is  defined  to  include  all  changes  in  equity  except  those  resulting  from  investments  by  owners  and  distributions  to  owners.  Comprehensive  income
includes gains and losses on foreign currency translation adjustments and is included as a component of stockholders’ equity.

s. Earnings per Share

We  compute  basic  earnings  per  share  by  dividing  the  income  attributable  to  common  shareholders  by  the  weighted  average  number  of  common  shares  outstanding  in  the
reporting period.

Following is a reconciliation of earnings from continuing operations and weighted average common shares outstanding for purposes of calculating basic and diluted earnings
per share:

Fiscal Period
Numerator:

Net Income

Denominator:

Year
Ended
October 31,
2021

Year
Ended
October 31,
2020

  $

4,947,765    $

3,343,585 

Basic weighted average common shares outstanding
Unused portion of options and restricted stock awards
Diluted outstanding shares

10,804,074   
505,666   
11,309,740   

10,733,799 
561,000 
11,294,799 

Net income per share

Basic
Diluted

  $
  $

0.46    $
0.44    $

0.31 
0.30 

F-14

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
   
 
 
 
   
 
 
   
 
 
 
    
 
  
 
 
 
    
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
 
 
 
    
 
  
 
 
    
 
  
 
 
 
    
 
  
 
CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
October 31, 2021 and 2020

NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (Continued)

t. Reclassification of Prior Year Presentation

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

u. Recent Accounting Pronouncements

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

v. Other Income

Other Income consisted of the following components:

PPP Loans
Employee Retention Credits payroll tax credits
Other income

Total Other Income, net

NOTE 3 – GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangibles consisted of the following as of:

Customer relationships (weighted average life of 10 years)
Non-compete agreements (weighted average life of 3 years)
Patents and other (weighted average life of 10 years)

Total identifiable intangible assets - gross carrying value

Less: accumulated amortization

Total intangible assets, net

October 31,
2021

October 31,
2020

$

$

$

648,872 
701,568 
84,942 

1,435,382 

October 31,
2021

720,592 
198,911 
585,483 

1,504,986 

(1,092,711)  

412,275 

$

648,871 
- 
19,374 

668,245 

October 31,
2020

720,592 
198,911 
472,173 

1,391,676 

(1,042,332)

349,344 

$

$

$

$

F-15

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
  
 
 
  
 
 
 
CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
October 31, 2021 and 2020

NOTE 3 – GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)

Amortization of patents, customer relationships, non-compete agreements and licenses included as a charge to income amounted to $50,379 and $44,642 for the years ended
October 31, 2021 and 2020.

Future estimated annual amortization expenses as of October 31, 2021 is as follows:

Years Ending October 31,
2022
2023
2024
2025
2026
Thereafter

Totals

Goodwill consisted of the following as of:

Coda Octopus Colmek, Inc.
Coda Octopus Products Ltd
Coda Octopus Martech Ltd

Total Goodwill

Amount

54,429 
52,089 
42,877 
27,533 
24,442 
210,905 

412,275 

October 31,
2020

2,038,669 
62,315 
1,281,124 

3,382,108 

$

$

$

October 31,
2021

2,038,669 
62,315 
1,281,124 

3,382,108 

$

$

Considerable management judgment is necessary to estimate the fair value of goodwill. Based on various market factors and projections used by management, actual results
could vary significantly from management’s estimates.

The Company’s policy is to test its goodwill balances for impairment on an annual basis, as of October 31st, or more frequently if events or changes in circumstances indicate
that the asset might be impaired.

Based on these evaluations, the fair value of reporting unit exceeds its carrying value. As such no impairment was recorded by management.

F-16

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
October 31, 2021 and 2020

NOTE 4 – PROPERTY AND EQUIPMENT

Property and equipment consisted of the following as of:

Buildings
Land
Office machinery and equipment
Rental assets
Furniture, fixtures and improvements
Totals
Less: accumulated depreciation

Total Property and Equipment, net

October 31,
2021

October 31,
2020

$

$

$

5,298,028 
200,000 
1,622,871 
2,326,486 
1,218,217 
10,665,602 
(4,628,501)  

6,037,101 

$

5,103,324 
200,000 
2,044,405 
1,531,351 
1,187,927 
10,067,007 
(4,007,107)

6,059,900 

Depreciation expense for the years ended October 31, 2021 and 2020 was $873,694 and $758,297 respectively.

NOTE 5 - OTHER CURRENT ASSETS

Other current assets consisted of the following at:

Deposits
Tax Receivables
Employee Retention Credit receivables
Total Other Current Assets

October 31,
2021

October 31,
2020

$

$

63,992 
- 
563,627 
627,619 

$

$

112,984 
131,187 
- 
244,171 

F-17

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
October 31, 2021 and 2020

NOTE 6 – CAPITAL STOCK

Common Stock

On June 9, 2020, the Company issued 30,000 shares of common stock to consultants for services rendered. These shares had an aggregate fair value of $169,500.

During the fiscal year ended October 31, 2020, the Company granted options to purchase an aggregate of 564,000 shares of common stock pursuant to the terms of the 2017
Stock Incentive Plan (“2017 Plan”) to various eligible individuals. As a result, as of October 31, 2020, there were 352,612 shares available under the Plan.

During  the  fiscal  year  ended  October  31,  2021,  the  Company  issued  80,314  shares  of  common  stock  for  the  exercise  of  169,332  Options  which  were  issued  under  the
Company’s 2017 Plan.

On July 20, 2021, the Company issued 25,000 shares of common stock to consultants for services rendered. These shares had a fair value of $220,750.

During the fiscal year ended October 31, 2021, the Company granted under its 2017 Plan restricted stock awards to purchase an aggregate of 127,500 shares of common stock
pursuant to the terms of the Plan to various eligible individuals. As a result, as of October 31, 2021, there were 238,612 shares  available  under  the  2017  Plan. There  were
forfeitures of 8,000 and 3,000 options during the years ended October 31, 2021 and 2020, respectively.

The following table presents stock option activity for the years ended October 31, 2021 and 2020.

The intrinsic value of the outstanding options as of October 31, 2021 was $1,446,835 and $491,280 for October 31, 2020.

Stock Options

Outstanding at October 31, 2019

Granted
Vested
Exercises
Forfeited or cancelled

Outstanding at October 31, 2020

Granted
Vested
Exercises
Forfeited or cancelled

$

Total

- 
564,000 
- 
- 

(3,000)  

561,000 

- 
- 

(169,332)  
(8,000)  

Outstanding at October 31, 2021

383,668 

$

- 
4.65 
- 
- 
4.65 

4.65 

4.65 
4.65 
4.65 

4.65 

Weighted
Average
Exercise
Price

  Exercisable  

Weighted
Average
Exercise
Price

  Non-Vested  

Weighted
Average
Exercise
Price

$

-   
-   
-   
-   
-   

-   

- 
- 
- 
- 
- 

- 

- 
185,667 
(169,332)  

- 

-   
4.65   
4.65   
-   

$

-   
564,000   
-   
-   
(3,000)  

561,000   

-   
(185,667)  
-   
(8,000)  

- 
4.65 
- 
- 
4.65 

4.65 

4.65 
4.65 
4.65 

4.65 

16,335 

$

4.65   

367,333   

$

Aggregate Intrinsic Value

October 31, 2020

Aggregate Intrinsic Value

October 31, 2021

$

491,280 

$ 1,446,835 

$

$

- 

$

491,280   

61,746 

$ 1,385,089   

The  total  expense  recognized  by  the  Company  relating  to  stock  options  during  the  years  ended  October  31,  2021  and  2020,  respectively,  was  $482,595  and  $441,280.
Unamortized compensation expense in future years is $311,228.

Restricted Stock Awards

Weighted
Average
Exercise
Price

Total

Weighted
Average
Exercise
Price

  Exercisable  

Outstanding at October 31, 2020

- 

$

 $

Granted
Vested
Exercises
Forfeited or cancelled

Outstanding at October 31, 2021

127,500 
- 
- 

(5,500)  

122,000 

$

8.80 
8.80 
8.80 
8.80 

8.80 

$

$
$
$

 -   

-   

-   

-   

Weighted
Average
Exercise
Price

- 

8.80 
- 
- 
8.80 

8.80 

  Non-Vested  

-   

 $

-   

-   
-   
-   
-   

-   

127,500   
-   
-   
(5,500)  

122,000   

$

$
$
$
$

$

The  total  expense  recognized  by  the  Company  relating  to  restricted  stock  awards  during  the  year  ended  October  31,  2021  was  $347,476.  The  expense  in  future  years  is
$726,124.

All Stock Options and grants have been issued pursuant to the 2017 Plan.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
  
 
 
    
 
    
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
  
 
 
    
 
    
 
  
 
 
 
 
  
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
  
 
 
    
 
    
 
  
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
  
 
 
    
 
    
 
  
 
 
  
 
 
  
 
 
  
 
 
    
 
    
 
  
 
 
 
  
 
 
 
    
 
  
 
 
 
  
 
 
  
 
 
  
 
 
    
 
    
 
  
 
 
  
 
 
  
 
 
  
 
 
    
 
    
 
  
 
 
 
  
 
 
 
    
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
   
 
   
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
    
 
    
 
    
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
    
 
 
 
 
 
 
 
    
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
    
 
    
 
    
 
  
 
 
 
 
 
 
 
 
 
Total stock compensation expense from issued shares, stock options and restricted stock awards is $1,050,821.

Preferred Stock

Series A and Series C Preferred Stock

The Company is authorized to issue 5,000,000 shares of preferred stock with a par value of $0.001 per share. We had previously designated 50,000 preferred shares as Series A
preferred stock and 50,000 preferred shares as Series C preferred stock. Both series have since been eliminated and as of October 31, 2021 there were no shares Preferred Stock
issued or outstanding.

F-18

 
 
 
 
 
CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
October 31, 2021 and 2020

NOTE 7 - INCOME TAXES

The Company provides for income taxes and the related accounts under the asset and liability method. Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using enacted tax rates expected to be in effect during the year in which the basis differences reverse.
Valuation allowances are established when management determines it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. As part of
the US government’s response to the Pandemic, we have received $701,568 in Employee Retention Credits, which provided funding to keep our employees. This has been
recorded as other income for the year ended October 31, 2021.

The provision (benefit) for income taxes comprises:

Current federal benefit
Foreign tax expense (benefit)

Total current tax expense (benefit)

Deferred federal expense
Deferred foreign benefit

Deferred Tax Expense

Total Income Tax Expense

October 31,
2021

October 31,
2020

(25,429)  
42,021  

$

16,592  

288,887 
- 

288,887 

305,479 

$

(12,502)
(38,161)

(50,663)

305,125 
(196,240)

108,885 

58,222 

$

$

F-19

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
  
 
 
  
 
 
 
CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
October 31, 2021 and 2020

NOTE 7 - INCOME TAXES (Continued)

The expense for income taxes differed from the U.S. statutory rate due to the following:

Statutory tax rate
Change in deferred taxes
Alternative Minimum Tax (refund)
Foreign tax (benefit) expense

Total

October 31,
2021

October 31,
2020

21.0%   
(18.4)% 
0.0%  
3.2%  

5.8%  

21.0%
(17.1)%
(1.1)%
(1.1)%

1.7%

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes.

Significant components of the Company’s deferred tax assets and liabilities are as follows:

Noncurrent deferred tax assets
Temporary differences

U.S. NOL carryforwards
Stock option compensation
Restricted Stock Awards
Book/Tax Depreciation
Foreign fixed assets
Foreign deferreds
Foreign NOL carryforwards

Total

Valuation allowance

Total Deferred Asset

October 31,
2021

October 31,
2020

$

$

$

$

15,930 
- 
72,970 
(12,124)  
18,168 
- 
148,650 

243,594 

(166,818)  

76,776 

$

272,993 
92,669 
- 
- 
- 
196,240 
143,563 

705,465 

(143,563)

561,902 

As of October 31, 2021, we had U.S. federal net operating loss (NOL) carryforwards of $75,857, which expire in 2029.

F-20

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
  
 
 
  
 
 
 
 
CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
October 31, 2021 and 2020

NOTE 8 - NOTE PAYABLE

Note payable consisted of the following at:

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

Total
Less: current portion
Total Long Term Note Payable

October 31,
2021

October 31,
2020

$

$

63,559 

$

63,559 
(63,559)  

- 

$

573,108 

573,108 
(509,769)
63,339 

The HSBC loan is secured by a blanket lien on all of the Company’s US subsidiaries. The foreign subsidiaries are each guarantors of the obligations undertaken in the loan
agreement. The HSBC Loan is due to be repaid in full by December 2021. After this payment is satisfied the blanket lien and guarantees will be released against the Business
and its assets.

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

F-21

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
October 31, 2021 and 2020

NOTE 9 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Other comprehensive income (loss) consists of foreign currency translation adjustments. Total other comprehensive income (loss) was $654,219 and ($185,870) for the years
ended October 31, 2021 and 2020, respectively.

A reconciliation of the other comprehensive income (loss) in the stockholders’ equity section of the consolidated balance sheets is as follows:

October 31,
2021

October 31,
2020

Balance, beginning of year
Total other comprehensive income (loss) for the year - foreign currency translation adjustment
Balance, end of period

$

$

(2,321,278)  
654,219 
(1,667,059)  

$

$

(2,135,408)
(185,870)
(2,321,278)

NOTE 10 – CONCENTRATIONS

Significant Customers

During the year ended October 31, 2021, the Company had one customer from whom it generated sales greater than 10% of net revenues. Revenue from this customer was
$2,484,173, or 12% of net revenues during the period. Total accounts receivable from this customer at October 31, 2021 was $468,149 or 11% of accounts receivable.

During the year ended October 31, 2020, the Company had one customer from whom it generated sales greater than 10% of net revenues. Revenue from this customer was
$4,273,702, or 21% of net revenues during the year. Total accounts receivable from this customer as of October 31, 2020 was $214,747 or 11% of accounts receivable.

NOTE 11 - EMPLOYEE BENEFIT PLANS

The Company’s U.S. subsidiaries maintain a 401(k) retirement plan. The plan allows the Company to make matching contributions of 4% of employee compensation, subject to
IRS contribution limits. U.S. employees who have at least six months of service with the Company are eligible. In addition, the Company’s UK subsidiaries operate statutory
pension schemes which provide for the payment of certain contribution by the Company and the Employee. These schemes in the UK operate on a defined contribution money
purchase basis and the contributions are charged to operations as they arise. Finally, the Company is obligated to provide pension funding according to the laws in which it
operates including in both Denmark and Australia. The Company has an arrangement that fulfills this requirement. Employee benefit costs for the years ended October 31, 2021
and 2020 were $123,215 and $140,271, respectively.

F-22

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
October 31, 2021 and 2020

NOTE 12 -SEGMENT ANALYSIS

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

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

The Company evaluates performance and allocates resources based upon segment operating income.

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 table summarizes segment asset and operating balances by reportable segment as of and for the years ended October 31, 2021 and 2020, respectively.

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

● Americas
● Europe
● Australia/Asia
● Middle East/Africa

F-23

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NOTE 12 -SEGMENT ANALYSIS (Continued)

Year Ended October 31, 2021

CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
October 31, 2021 and 2020

Marine Technology
Business (Products)  

Marine Engineering
Business (Services)  

Overhead

Total

Revenues from External Customers

$

15,804,222 

$

5,527,305 

$

-   

$

21,331,527 

Cost of Revenues

Gross Profit

Research & Development
Selling, General & Administrative

Total Operating Expenses

Income (Loss) from Operations

Other Income (Expense)
Other Income
Interest Expense

Total Other Income (Expense)

3,169,835 

12,634,387 

2,509,107 
3,220,883 

5,729,990 

6,904,397 

354,373 
(12,588)  

341,785 

3,391,974 

2,135,331 

473,569 
2,284,997 

2,758,566 

-   

-   

-   
2,409,695   

6,561,809 

14,769,718 

2,982,676 
7,915,575 

2,409,695   

10,898,251 

(623,235)  

(2,409,695)  

3,871,467 

1,079,374 

(19,668)  

1,059,706 

1,635   
(21,349)  

(19,714)  

1,435,382 
(53,605)

1,381,777 

Income (Loss) before Income Taxes

7,246,182 

436,471  

(2,429,409)  

5,253,244 

Income Tax (Expense) Benefit
Current Tax Benefit (Expense)
Deferred Tax (Expense) Benefit

Total Income Tax (Expense) Benefit

Net Income (Loss)

Supplemental Disclosures

Total Assets

Total Liabilities

Revenues from Intercompany Sales - eliminated from sales
above

Depreciation and Amortization

Purchases of Long-lived Assets

35,032 
(418,338)  

(383,306)  

6,862,876 

30,631,442 

3,166,999 

2,075,387 

780,434 

793,995 

F-24

$

$

$

$

$

$

$

$

$

$

$

$

(51,624)   
409,205 

357,581 

794,052 

14,117,747 

849,306 

355,608 

114,022 

51,907 

$

$

$

$

$

$

-

(279,754)  

(279,754)  

(16,592)
(288,887)

(305,479)

(2,709,163)  

$

4,947,765 

716,230   

400,041   

3,470,000   

29,617   

118,302   

$

$

$

$

$

45,465,419 

4,416,346 

5,900,995 

924,073 

964,204 

 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
  
 
 
  
 
 
    
 
  
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
NOTE 12 -SEGMENT ANALYSIS (Continued)

Year Ended October 31, 2020

CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
October 31, 2021 and 2020

Marine Technology
Business (Products)  

Marine Engineering
Business (Services)

Overhead

Total

Revenues from External Customers

$

11,278,181 

$

8,765,629 

$

-   

$

20,043,810 

Cost of Revenues

Gross Profit

Research & Development
Selling, General & Administrative

Total Operating Expenses

Income (Loss) from Operations

Other Income (Expense)
Other Income
Interest (Expense)

Total Other Income (Expense)

Income (Loss) before Income Taxes

Income Tax (Expense) Benefit
Current Tax Benefit (Expense)
Deferred Tax (Expense) Benefit

Total Income Tax (Expense) Benefit

Net Income (Loss)

Supplemental Disclosures

Total Assets

Total Liabilities

Revenues from Intercompany Sales - eliminated from sales
above

Depreciation and Amortization

Purchases of Long-lived Assets

5,060,354 

3,705,275 

1,042,243 
2,260,849 

3,303,092 

402,183 

526,734 
(15,672)  

511,062 

913,245 

- 
273,666 

273,666 

$

$

$

$

$

$

1,186,911 

14,347,827 

1,321,011 

354,373 

105,775 

19,660 

$

$

$

$

$

$

2,254,008 

9,024,173 

1,955,364 
2,779,662 

4,735,026 

4,289,147 

141,511 
(10,612)  

130,899 

4,420,046 

63,590 
(196,664)  

(133,074)  

4,286,972 

22,200,123 

1,572,314 

997,150 

678,449 

811,352 

F-25

$

$

$

$

$

$

-   

-   

190,782   
1,696,783   

1,887,565   

(1,887,565)  

-   
(43,919)  

(43,919)  

7,314,362 

12,729,448 

3,188,389 
6,737,294 

9,925,683 

2,803,765 

668,245 
(70,203)

598,042 

(1,931,484)  

3,401,807 

(12,927)  
(185,887)  

(198,814)  

50,663 
(108,885)

(58,222)

(2,130,298)  

$

3,343,585 

1,491,201   

749,558   

2,700,000   

22,462   

167,323   

$

$

$

$

$

38,039,151 

3,642,883 

4,051,523 

806,686 

998,335 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
  
 
 
  
 
 
    
 
  
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
  
 
 
  
 
 
    
 
  
 
 
 
 
NOTE 13 – DISAGGREGATION OF REVENUE

CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
October 31, 2021 and 2020

Disaggregation of Total Net Sales
Revenues
Primary Geographical Markets

Americas
Europe
Australia/Asia
Middle East/Africa

Total Revenues

Major Goods/Service Lines

Equipment Sales
Equipment Rentals
Software Sales
Engineering Parts
Services

Total Revenues

Goods transferred at a point in time
Services transferred over time

Total Revenues

Marine
Technology
Business

For the Year Ended October 31, 2021
Marine
Engineering
Business

Grand
Total

$

$

$

3,434,552 
5,623,227 
5,867,710 
878,733 

15,804,222 

10,914,124 
2,324,773 
669,968 
- 
1,895,357 

15,804,222 

11,588,099 
4,216,123 

15,804,222 

$

$

$

F-26

2,188,812   
3,338,493   
-   
-   

5,623,364 
8,961,720 
5,867,710 
878,733 

5,527,305   

21,331,527 

1,421,614   
-   
-   
3,239,866   
865,825   

5,527,305   

1,421,614   
4,105,691   

5,527,305   

12,335,738 
2,324,773 
669,968 
3,239,866 
2,761,182 

21,331,527 

13,009,713 
8,321,814 

21,331,527 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
    
 
  
 
 
  
 
 
    
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
  
 
 
    
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
    
 
  
 
 
 
 
 
 
NOTE 13 - DISAGGREGATION OF REVENUE (Continued)

CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
October 31, 2021 and 2020

Marine
Technology
Business

For the Year Ended October 31, 2020
Marine
Engineering
Business

Grand
Total

$

$

$

$

$

$

3,001,860 
1,880,458 
6,255,510 
140,353 

11,278,181 

7,183,580 
1,361,151 
453,638 
- 
2,279,812 

11,278,181 

7,484,414 
3,793,767 

11,278,181 

$

$

$

$

$

$

$

5,776,674   
2,988,955   
-   
-   

8,778,534 
4,869,413 
6,255,510 
140,353 

8,765,629   

$

20,043,810 

230,060   
-   
-   
7,299,879   
1,235,690   

8,765,629   

160,537   
8,605,092   

$

$

$

7,413,640 
1,361,151 
453,638 
7,299,879 
3,515,502 

20,043,810 

7,644,951 
12,398,859 

8,765,629   

$

20,043,810 

Disaggregation of Total Net Sales
Revenues
Primary Geographical Markets

Americas
Europe
Australia/Asia
Middle East/Africa

Total Revenues

Major Goods/Service Lines

Equipment Sales
Equipment Rentals
Software Sales
Engineering Parts
Services

Total Revenues

Goods transferred at a point in time
Services transferred over time

Total Revenues

NOTE 14 – COMMITMENTS AND CONTINGENCIES

Employment Agreements

Annmarie Gayle

Pursuant to the terms of an employment agreement dated March 16, 2017, the Company employs Ms. Gayle as its Chief Executive Officer on a full-time basis and a member of
its  Board  of  Directors.  With  effect  from  July  1,  2019,  Ms.  Gayle’s  annual  salary  was  increased  from  $230,000 to $305,000 payable  on  a  monthly  basis.  Ms.  Gayle  is  also
entitled to an annual performance bonus of up to $100,000, upon achieving certain targets that are to be defined on an annual basis. The agreement provides for 30 days of paid
holidays in addition to public holidays observed in Scotland.

The agreement has no definitive term and may be terminated only upon twelve months’ prior written notice by Ms. Gayle. In the event that the Company terminates her at any
time without cause, she is entitled to a payment equal to her annual salary as well as a separation bonus of $150,000. The Company may terminate the agreement for cause,
immediately  and  without  notice.  Among  others,  “for  cause”  includes  gross  misconduct,  a  serious  or  repeated  breach  of  the  agreement  and  negligence  and  incompetence  as
reasonably determined by the Company’s Board. The agreement includes a 12-month non-compete and non-solicitation provision.

F-27

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
    
 
  
 
 
  
 
 
    
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
    
 
  
 
 
 
 
 
  
 
 
    
 
  
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
    
 
  
 
 
 
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
 
 
  
 
 
    
 
  
 
 
 
 
 
 
 
 
CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
October 31, 2021 and 2020

NOTE 14 – COMMITMENTS AND CONTINGENCIES (Continued)

Employment Agreements (Continued)

Blair Cunningham

Under  the  terms  of  an  employment  contract  dated  January  1,  2013,  our  wholly  owned  subsidiary  Coda  Octopus  Products,  Inc.  employs  Blair  Cunningham  as  its  Chief
Executive Officer and President of Technology. He is being paid an annual base salary of $200,000 with effect from January 1, 2020, subject to review by the Company’s Chief
Executive Officer. Mr. Cunningham is entitled to 25 vacation days in addition to any public holiday.

The agreement may be terminated only upon twelve-month prior written notice without cause. The Company may terminate the agreement for cause, immediately and without
notice. Among others, “for cause” includes gross misconduct, a serious or repeated breach of the agreement and negligence and incompetence as reasonably determined by the
Company’s Board. The agreement includes an 18-month non-compete and non-solicitation provision.

Kevin Kane

Pursuant  to  the  terms  of  an  Employment  Agreement  dated  May  7,  2021,  as  amended  and  modified,  Kevin  Kane  was  appointed  the  Chief  Executive  Officer  of  Colmek
commencing July 6, 2021. The Employment Agreement provides for an annual base salary of $200,000. He will also be eligible for an annual performance bonus based on the
Company’s financial performance. Subject to certain performance milestone during the current fiscal year, Mr. Kane will be paid a performance bonus of $12,000. As a further
inducement, he was granted 15,000 restricted stock units out of the Company’s 2017 Stock Incentive Plan that vest in three equal annual instalments commencing on the first
anniversary of grant.

The  agreement  may  be  terminated  by  the  Company  at  any  time.  In  the  event  that  the  Company  terminates  the  employment  agreement  for  whatever  reason,  the  following
severance payments apply:

Year 1 of employment
Year 2 of employment
Year 3 of employment

The agreement includes a 12-month non-compete and non-solicitation provision.

2 Weeks
1 Month
4 Months

F-28

 
 
 
 
 
 
 
 
 
 
 
 
 
CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
October 31, 2021 and 2020

NOTE 14 – COMMITMENTS AND CONTINGENCIES (Continued)

Michael Midgley

Pursuant to the terms of an employment agreement dated June 1, 2011, Mike Midgley was appointed the Chief Executive Officer of our wholly owned subsidiary Coda Octopus
Colmek, Inc. and our Chief Financial Officer. He is being paid an annual salary of $210,000 subject to an annual review by Colmek’s Board of Directors and the Company’s
Chief Executive Officer. Mr. Midgley is entitled to 20 vacation days in addition to any public holiday.

The  agreement  may  be  terminated  at  any  time  upon  4-month  prior  written  notice.  The  Company  may  terminate  the  agreement  for  cause,  immediately  and  without  notice.
Among  others,  “for  cause”  includes  gross  misconduct,  a  serious  or  repeated  breach  of  the  agreement  and  negligence  and  incompetence  as  reasonably  determined  by  the
Company’s Board. The agreement includes a 12-month non-compete and non-solicitation provision. On December 6, 2017, the board of directors of the Company appointed
Mr. Midgley to be the Company’s Chief Financial Officer. In connection with this appointment, all rights and obligations under Mr. Midgley’s employment agreement with
Colmek were transferred to and have been assumed by Coda Octopus Group, Inc.

Amendment to Michael Midgley’s Employment Agreement

The Company and Mr. Midgely entered into an agreement for the Amendment of his Employment Agreement on February 15, 2021.

The following amendments were made:

Role
Reduction in hours
Paid Time Off
Benefits

Now Chief Financial Officer of the Company. Removing the position of Divisional CEO of Coda Octopus Colmek.
Working hours reduced to approximately 60% and his compensation reduced proportionally to $126,000.
Reduced proportionately and is now 12 days
Reduced proportionately

The  agreement  may  be  terminated  at  any  time  upon  4  months  prior  written  notice.  The  Company  may  terminate  the  agreement  for  cause,  immediately  and  without  notice.
Among  others,  “for  cause”  includes  gross  misconduct,  a  serious  or  repeated  breach  of  the  agreement  and  negligence  and  incompetence  as  reasonably  determined  by  the
Company’s Board. The agreement includes a 12-month non-compete and non-solicitation provision.

Litigation

From time to time we may be a party to or be involved with legal proceedings, governmental investigations or inquires, claims or litigation that are related to our business. We
are not presently party to any legal proceedings the resolution of which we believe would have a material adverse effect on our business or its financial condition.

NOTE 15 – PAYROLL PROTECTION PROGRAM

In the year ended October 31, 2021, two of our US companies, received $648,872 under the second round of the US Government Payroll Protection Program (“Second Round
PPP”) for payroll assistance during the Pandemic. The proceeds from the Second Round PPP have been used to pay US employees’ salaries during this period. In the year
ended October 31, 2021 the Company utilized all of the $648,872 of the Second Round PPP to retain employees. These loans were forgiven on June 14 and 22, 2021. This
amount is recorded in our accounts as “Other Income”.

In the 2020 FY our US companies received $648,872 under the US Government Payroll Protection Program (“First Round PPP”). The proceeds from the First Round PPP were
used  to  retain  employees.  The  companies  received  their  First  Round  PPP  loans  in  April  and  May  of  2020.  The  amount  received  under  the  First  Round  PPP  has  now  been
forgiven under the Program. This amount is recorded in our financial statements of 2020FY as “Other Income.”

F-29

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CODA OCTOPUS GROUP, INC.
Notes to the Consolidated Financial Statements
October 31, 2021 and 2020

NOTE 16 – COVID-19

The Company faces various risks related to the global outbreak of coronavirus disease 2019 (“COVID-19”).

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

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

Further, the Pandemic may continue to affect the Company’s results of operation, financial position, and liquidity.

The  Marine  Technology  Business  is  dependent  on  its  workforce  and/or  distributors/resellers  to  sell  and  deliver  its  products  and  services.  Developments  such  as  social
distancing,  shelter  -in-  place  directives  and  travel  restrictions  introduced  by  governments  have  impacted  the  Marine  Products  Business’s  ability  to  deploy  its  workforce
effectively. These same developments may affect the operations of the Company’s suppliers, Customers and distributors/resellers, as their own workforces and operations are
disrupted by efforts to curtail the spread of this virus. The Company, being a manufacturing company, in large part is unable to work remotely. The Company’s activities are
performed in certain international locations that are also impacted by the COVID-19 outbreak. 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 have negatively impacted the Marine Technology Business’s sales, its ongoing development projects,
ability to build meaningful pipeline of opportunities and its results of operations in the 2021 FY.

A new variant of the coronavirus, Omicron, is emerging and governments are considering various forms of restriction including both on domestic and international travel. If
there are further curtailments on our business including restriction on travel and potentially work from home policy (we are a manufacturing business), this will severely impact
on our business and is likely to reduce significantly demand for our goods and services.

NOTE 17 – SUBSEQUENT EVENTS

The Company has evaluated subsequent events occurring through the date that the financial statements were issued, for events requiring, recording or disclosure in the October
31, 2021 consolidated financial statements.

On or around December 1, 2021 COPAS purchased property in Denmark for Danish Kroner 5,200,000 which is equivalent to US$ 808,116 at the Balance Sheet Date. This
property was purchased to support the business activities of COPAS which was established as a mitigation strategy for the impact of the UK withdrawing as a member of the
European Union. COPAS is pivotal for our business if we are to continue to do business in the EU member state countries. The property will be used by staff who are seconded
to COPAS to provide operational capacity to the COPAS operations.

In November 2021 we established a subsidiary in India Coda Octopus Products (India) Private Limited to address some of the skills shortage we are experiencing in key areas
and also to serve as a regional center for support and business development activities for South Asia.

In December 2021 the Company paid off all Principal and Interest due on the HSBC Debentures. All Collateral and Liens over the Company’s assets are, pursuant to the terms
of the Debenture, expected to be removed in due course.

F-30

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exhibit 10.37

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-224408; 333-233524; and No. 333-236029) and Form S-8 (No. 333-
227704 and No. 333-260244) of Coda Octopus Group, Inc. of our report dated February 14, 2022, with respect to the consolidated financial statements as of and for the years
ended October 31 2021 and 2020, of Coda Octopus Group, Inc. which are part of this Annual Report on Form 10-K.

Exhibit 23.1

/s/ Frazier & Deeter, LLC
Frazier & Deeter, LLC
Tampa, Florida
February 14, 2022

 
 
 
 
 
 
 
 
 
 
CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER CERTIFICATION

Exhibit 31.1

I, Annmarie Gayle and Mike Midgley, certify that:

1. We have reviewed this annual report on Form 10-K of Coda Octopus Group, Inc.:

2. Based on our knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light

of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on  our  knowledge,  the  financial  statements,  and  other  financial  information  included  in  this  report,  fairly  present  in  all  material  respects the financial condition,

results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and we are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules

13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information  relating  to  the  registrant,  including  its  consolidated  subsidiaries,  is  made  known  to  us  by  others  within  those  entities,  particularly  during  the  period  in
which this report is being prepared;

b. Designed such  internal  control  over  financial  reporting,  or  caused  such  internal  control  over  financial  reporting  to  be  designed  under  our  supervision,  to  provide
reasonable  assurance  regarding  the  reliability  of  financial  reporting  and  the  preparation  of  financial  statements  for  external  purposes  in  accordance  with  generally
accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure

controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in  this  report  any  change  in  the  registrant’s  internal  control  over  financial  reporting  that  occurred  during  the  registrant’s  most  recent  fiscal  quarter  (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and

5. The registrant’s  other  certifying  officer(s)  and  we  have  disclosed,  based  on  our  most  recent  evaluation  of  internal  control  over  financial  reporting,  to  the  registrant’s

auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely

affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any  fraud,  whether  or  not  material,  that  involves  management  or  other  employees  who  have  a  significant  role  in  the  registrant’s  internal  control  over  financial

reporting.

Date: February 14, 2022

Date: February 14, 2022

/s/ Annmarie Gayle

/s/ Michael Midgley

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

Exhibit 32

In  connection  with  the  annual  report  of  Coda  Octopus  Group,  Inc.  (the  “Company”)  on  Form  10-K  for  the  year  ended  October  31,  2021  as  filed  with  the  Securities  and
Exchange Commission on the date hereof (the “Report”), I, Annmarie Gayle, Chief Executive Officer, and I, Michael Midgley, Chief Financial Officer, certify pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:

(1) This report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Annmarie Gayle
Chief Executive Officer

Date: February 14, 2022

/s/ Michael Midgley
  Chief Financial Officer

  Date: February 14, 2022