10-Q

UNITED

STATES

SECURITIES

AND EXCHANGE COMMISSION

Washington,

D.C. 20549

FORM

10-Q

(Mark One)

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

For the quarterly period ended

January 31, 2022

OR

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

For

the transition period from ______________ to ______________

Commission

File Number 001-38154

CODA

OCTOPUS GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware	34-2008348
(State<br> or other jurisdiction of<br><br> <br>Incorporation<br> or organization)	(I.R.S.<br> Employer<br><br> <br>Identification<br> Number)
3300<br> S Hiawassee Rd,<br> Suite<br> 104-105,<br><br> <br>Orlando,<br> Florida	32835
---	---
(Address<br> of principal executive offices)	(Zip<br> Code)
Registrant’s<br> telephone number, including area code:	(863)<br> 937 8985

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

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

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

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

Large<br> accelerated filer ☐	Accelerated<br> filer ☐	Non-accelerated<br> filer ☐	Smaller<br> reporting company ☒

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

The

number of shares outstanding of issuer’s common stock, $0.001 par value as of March 15, 2022 is 10,857,195 .

INDEX

	Page
PART I - Financial Information
Item 1: Financial Statements	3
Consolidated<br> Balance Sheets as of January 31, 2022 (Unaudited) and October 31, 2021	3
Consolidated<br> Statements of Income and Comprehensive Income for the Three Months Ended January 31, 2022 and 2021 (Unaudited)	5
Consolidated<br> Statements of Stockholders’ Equity for the Three Months Ended January 31, 2022 and 2021 (Unaudited)	6
Consolidated<br> Statements of Cash Flows for the Three Months Ended January 31, 2022 and 2021 (Unaudited)	7
Notes<br> to Unaudited Consolidated Financial Statements	8
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3: Quantitative and Qualitative Disclosures about Market Risks	28
Item 4: Controls and Procedures	28
PART II - Other Information	29
Item 1: Legal Proceedings	29
Item 1A: Risk Factors	29
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3: Default Upon Senior Securities	29
Item 4: Mine Safety Disclosures	29
Item 5: Other Information	29
Item 6: Exhibits	29
Signatures	30

| 2 |

| --- |

PART

I. FINANCIAL INFORMATION

CODA

OCTOPUS GROUP, INC.

ConsolidatedBalance Sheets

January

31, 2022 and October 31, 2021

	2022		2021
	Unaudited
ASSETS
CURRENT<br> ASSETS
Cash	$	20,711,228	$	17,747,656
Accounts<br> Receivable, net		1,535,682		4,207,996
Inventory		11,159,798		10,691,177
Unbilled<br> Receivables		401,661		1,080,384
Prepaid<br> Expenses		313,945		1,202,327
Other<br> Current Assets		651,724		627,619
Total<br> Current Assets		34,774,038		35,557,159
FIXED<br> ASSETS
Property<br> and Equipment, net		6,743,670		6,037,101
OTHER<br> ASSETS
Goodwill<br> and Other Intangibles, net		3,794,880		3,794,383
Deferred<br> Tax Asset		86,643		76,776
Total<br> Other Assets		3,881,523		3,871,159
Total<br> Assets	$	45,399,231	$	45,465,419

The

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

| 3 |

| --- |

CODA

OCTOPUS GROUP, INC.

Consolidated

Balance Sheets (Continued)

January

31, 2022 and October 31, 2021

			2021
LIABILITIES<br> AND STOCKHOLDERS’ EQUITY
CURRENT<br> LIABILITIES
Accounts<br> Payable	319,605		$	1,454,611
Accrued<br> Expenses and Other Current Liabilities	805,573			740,449
Note<br> Payable	-			63,559
Deferred<br> Revenue	1,288,231			1,999,841
Total<br> Current Liabilities	2,413,409			4,258,460
LONG<br> TERM LIABILITIES
Deferred<br> Revenue, less current portion	153,176			157,886
Total<br> Long Term Liabilities	153,176			157,886
Total<br> Liabilities	2,566,585			4,416,346
STOCKHOLDERS’<br> EQUITY
Common<br> Stock, .001 par<br> value; 150,000,000 shares<br> authorized, 10,857,195 shares<br> issued and outstanding as of January 31, 2022 and October 31, 2021, respectively	10,858			10,858
Additional<br> Paid-in Capital	61,508,306			61,183,131
Accumulated<br> Other Comprehensive Loss	(1,425,909	)		(1,667,059	)
Accumulated<br> Deficit	(17,260,609	)		(18,477,857	)
Total<br> Stockholders’ Equity	42,832,646			41,049,073
Total<br> Liabilities and Stockholders’ Equity	45,399,231		$	45,465,419

All values are in US Dollars.

The

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

| 4 |

| --- |

CODA

OCTOPUS GROUP, INC.

ConsolidatedStatements of Income and Comprehensive Income

For

the Periods Indicated

(Unaudited)

	2022			2021
	Three<br> Months Ended January 31,
	2022			2021
Net<br> Revenues	$	5,838,208		$	5,050,459
Cost<br> of Revenues		1,678,274			1,735,537
Gross<br> Profit		4,159,934			3,314,922
OPERATING<br> EXPENSES
Research<br> & Development		672,890			583,139
Selling,<br> General & Administrative		2,111,112			1,813,366
Total<br> Operating Expenses		2,784,002			2,396,505
INCOME<br> FROM OPERATIONS		1,375,932			918,417
OTHER<br> INCOME (EXPENSE)
Other<br> Income		79,994			92,025
Interest<br> Expense		(11,278	)		(14,514	)
Total<br> Other Income		68,716			77,511
INCOME<br> BEFORE INCOME TAX EXPENSE		1,444,648			995,928
INCOME<br> TAX (EXPENSE) BENEFIT
Current<br> Tax (Expense) Benefit		(285,609	)		24,725
Deferred<br> Tax Benefit		58,209			108,191
Total<br> Income Tax (Expense) Benefit		(227,400	)		132,916
NET<br> INCOME	$	1,217,248		$	1,128,844
NET INCOME PER SHARE:
Basic	$	0.11		$	0.10
Diluted	$	0.11		$	0.10
WEIGHTED AVERAGE<br> SHARES:
Basic		10,857,195			10,751,881
Diluted		11,396,861			11,308,881
NET<br> INCOME	$	1,217,248		$	1,128,844
Foreign<br> Currency Translation Adjustment		241,150			925,613
Total<br> Other Comprehensive Income	$	241,150		$	925,613
COMPREHENSIVE<br> INCOME	$	1,458,398		$	2,054,457

The

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

| 5 |

| --- |

CODA

OCTOPUS GROUP, INC.

ConsolidatedStatements of Changes in Stockholders’ Equity

For

the Three Months Ended January 31, 2022 and 2021

(Unaudited)

	Shares		Amount		Capital		Income<br> (Loss)			Deficit			Total
							Accumulated
					Additional		Other
	Common<br> Stock				Paid-in		Comprehensive			Accumulated
	Shares		Amount		Capital		Income<br> (Loss)			Deficit			Total
Balance,<br> October 31, 2020		10,751,881	$	10,753	$	60,132,415	$	(2,321,278	)	$	(23,425,622	)	$	34,396,268
Employee<br> stock based compensation		-		-		174,447		-			-			174,447
Foreign<br> currency translation adjustment		-		-		-		925,613			-			925,613
Net<br> Income		-		-		-		-			1,128,844			1,128,844
Balance,<br> January 31, 2021		10,751,881	$	10,753	$	60,306,862	$	(1,395,665	)	$	(22,296,778	)	$	36,625,172
Balance, October<br> 31, 2021		10,857,195	$	10,858	$	61,183,131	$	(1,667,059	)	$	(18,477,857	)	$	41,049,073
Employee<br> stock based compensation		-		-		325,175		-			-			325,175
Foreign<br> currency translation adjustment		-		-		-		241,150			-			241,150
Net<br> Income		-		-		-		-			1,217,248			1,217,248
Balance,<br> January 31, 2022		10,857,195	$	10,858	$	61,508,306	$	(1,425,909	)	$	(17,260,609	)	$	42,832,646

The

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

| 6 |

| --- |

CODA

OCTOPUS GROUP, INC.

ConsolidatedStatements of Cash Flows

(Unaudited)

	2022			2021
	Three<br> Months Ended January 31,
	2022			2021
CASH<br> FLOWS FROM OPERATING ACTIVITIES
Net<br> income	$	1,217,248		$	1,128,844
Adjustments<br> to reconcile net income to net cash provided by operating activities:
Depreciation<br> and amortization		161,466			366,183
Stock<br> based compensation		325,175			174,447
Deferred<br> income taxes		(9,750	)		(108,191	)
Funding<br> from Paycheck Protection Program recognized as income		-			(89,971	)
(Increase)<br> decrease in operating assets:
Accounts<br> receivable		2,608,920			144,023
Inventory		(613,670	)		(853,446	)
Unbilled<br> receivables		675,179			(450,180	)
Prepaid<br> expenses		863,618			(10,805	)
Other<br> current assets		(26,093	)		(47,225	)
Increase<br> (decrease) in operating liabilities:
Accounts<br> payable and other current liabilities		(1,047,139	)		(540,604	)
Deferred<br> revenue		(693,455	)		316,639
Net<br> Cash Provided by Operating Activities		3,461,499			29,714
CASH<br> FLOWS FROM INVESTING ACTIVITIES
Purchases<br> of property and equipment		(987,093	)		(406,083	)
Purchases<br> of other intangible assets		(14,871	)		(3,061	)
Net<br> Cash Used in by Investing Activities		(1,001,964	)		(409,144	)
CASH<br> FLOWS FROM FINANCING ACTIVITIES
Repayment<br> of note		(63,559	)		(125,142	)
Proceeds<br> from Paycheck Protection Program		-			526,545
Net<br> Cash (Used in) Provided by Financing Activities		(63,559	)		401,403
EFFECT<br> OF CURRENCY TRANSLATION ON CHANGES IN CASH		567,596			925,613
NET<br> INCREASE IN CASH		2,963,572			947,586
CASH<br> AT THE BEGINNING OF THE PERIOD		17,747,656			15,134,289
CASH<br> AT THE END OF THE PERIOD	$	20,711,228		$	16,081,875
SUPPLEMENTAL<br> CASH FLOW INFORMATION
Cash<br> paid for interest	$	11,278		$	14,514
Cash<br> paid for taxes	$	51,264		$	-

The

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

| 7 |

| --- |

CODA

OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

January

31, 2022 and October 31, 2021

NOTE

1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

Coda Octopus Group, Inc. (“Coda,” “the Company,” or “we”) operates two distinct operating business units. These are the Marine Technology Business (“Products Business”, “Products Operations” or “Products Segment”) and the Marine Engineering Business (“Services Business”, “Engineering Business” 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^®^ and Echoscope PIPE® - PIPE is an acronym for Parallel Intelligent Processing Engine. It also recently launched a new diver management system (Diver Augmented Vision Display (DAVD)) system addressing the global defense and commercial diving market and which it believes is a significant part of its growth pillars. The requirements for the DAVD system emanated from Office of Naval Research and the concept of using a pair of transparent glasses in the Head up Display (HUD) is patented and licensed to the Company by United States Department of the Navy at Naval Surface Warfare Center Panama City Division. The Marine Engineering Business are sub-contractors to Prime Defense Contractor and generally supplies proprietary sub-assemblies to these Primes for incorporation into broader mission critical defense systems. These parts typically are supplied for the life of the program to which they pertain.

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

NOTE

2 – REVENUE RECOGNITION

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

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

●	Determine<br> if we have a contract with a customer;
●	Determine<br> the performance obligations in that contract;
●	Determine<br> the transaction price;
●	Allocate<br> the transaction price to the performance obligations; and
●	Determine<br> 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.

| 8 |

| --- |

CODA

OCTOPUS GROUP, INC.

Notes

to the Consolidated Financial Statements

January

31, 2022 and October 31, 2021

NOTE 2 – REVENUE RECOGNITION (Continued)

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

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

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

Our contracts sometimes require customer payments in advance of revenue recognition 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.

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.

Recoverabilityof 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.

| 9 |

| --- |

CODA

OCTOPUS GROUP, INC.

Notes

to the Consolidated Financial Statements

January

31, 2022 and October 31, 2021

NOTE 2 – REVENUE RECOGNITION (Continued)

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

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

DeferredCommissions

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

and $3,884

in the three months years ended January 31, 2022, and 2021, respectively.

OtherRevenue Disclosures

See Note 15 – 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.

NOTE

3 – FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

NOTE

4 – FOREIGN CURRENCY TRANSLATION

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

| 10 |

| --- |

CODA

OCTOPUS GROUP, INC.

Notes

to the Consolidated Financial Statements

January

31, 2022 and October 31, 2021

NOTE

5 – INVENTORY

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

SCHEDULE

OF COMPONENTS OF INVENTORY

	January<br> 31,		October<br> 31,
	2022		2021
Raw<br> materials and parts	$	7,926,535	$	7,525,419
Work<br> in progress		793,246		919,619
Finished<br> goods		2,440,017		2,246,139
Total<br> Inventory	$	11,159,798	$	10,691,177

NOTE

6 – FIXED ASSETS

Property and equipment consisted of the following as of:

SCHEDULE

OF PROPERTY AND EQUIPMENT

	January<br> 31,			October<br> 31,
	2022			2021
Buildings	$	6,019,236		$	5,298,028
Land		200,000			200,000
Office<br> machinery and equipment		1,666,436			1,622,871
Rental<br> assets		2,427,189			2,326,486
Furniture,<br> fixtures and improvements		1,206,402			1,218,217
Totals		11,519,263			10,665,602
Less:<br> accumulated depreciation		(4,775,593	)		(4,628,501	)
Total<br> Property and Equipment, net	$	6,743,670		$	6,037,101

NOTE

7 – OTHER CURRENT ASSETS

Other current assets consisted of the following as of:

SUMMARY

OF OTHER CURRENT ASSETS

	January<br> 31,		October<br> 31,
	2022		2021
Deposits	$	32,280	$	63,992
Other Tax Receivables		43,156		-
Employee<br> Retention Credit Receivables		576,288		563,627
Total<br> Other Current Assets	$	651,724	$	627,619

| 11 |

| --- |

CODA

OCTOPUS GROUP, INC.

Notes

to the Consolidated Financial Statements

January

31, 2022 and October 31, 2021

NOTE

8 – ESTIMATES

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues including unbilled and deferred revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include estimates related to the percentage of completion method used to account for contracts including costs and earnings in excess of billings, billings in excess of costs and estimated earnings and the valuation of goodwill.

NOTE

9 – CONTRACTS IN PROGESS

Costs

and estimated earnings in excess of billings on uncompleted contracts represent accumulated project expenses and fees which have not been invoiced to customers as of the date of the balance sheet. These amounts are stated on the consolidated balance sheets as Unbilled Receivables of $401,661

and $1,080,384

as of January 31, 2022, and October 31, 2021, respectively.

Our

Deferred Revenue of $1,151,451

and $1,879,790

as of January 31, 2022, and October 31, 2021, respectively, consists of billings in excess of costs and revenues received as part of our warranty obligations upon completing a sale, as elaborated further in the last paragraph of this note.

Sales of equipment include a separate performance obligation for warranty, which is treated as deferred revenue,

along with extended warranty sales, which may be purchased by customers. These amounts are amortized over the relevant warranty period

(12 months is our standard warranty or 24, 36 or 60 months for extended warranty, sold as Through Life Support (TLS) Package) from the date of sale. These amounts are stated on the consolidated balance sheets as a component of Deferred Revenue and were $289,956

and $277,937

as of January 31, 2022 and October 31, 2021, respectively.

NOTE

10 – CONCENTRATIONS

Significant Customers

During

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

During

the three months ended January 31, 2021, the Company had two customers from whom it generated sales greater than 10% of net revenues. Revenues from these customers was $1,303,807 , or 26%

of net revenues during the year. Total accounts

receivable from these customers as of January 31, 2021 was $862,850 or 46% of accounts receivable.

| 12 |

| --- |

CODA

                                        OCTOPUS GROUP, INC.

Notes

to the Consolidated Financial Statements

January

31, 2022 and October 31, 2021

NOTE

11 – NOTE PAYABLE

SCHEDULE

OF NOTE PAYABLE

	January<br> 31,		October<br> 31,
	2022		2021
Secured<br> note payable to HSBC NA with interest payable on the 28^th^ day of each month at 4.56%<br> per annum. Our monthly repayment obligation under this loan is $43,777<br> (comprising both principal and interest repayment).<br> The maturity of this Loan was December<br> 28, 2021	$	-	$	63,559
Total		-		63,559
Less:<br> current portion		-		(63,559	)
Total<br> Long Term Note Payable	$	-	$	-

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

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 January 31, 2022 and October 31, 2021.

NOTE

12 – RECENT ACCOUNTING PRONOUNCEMENTS

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

NOTE

13 – EARNINGS PER SHARE

SCHEDULE

OF EARNINGS PER SHARE BASIC AND DILUTED

	Three<br> Months		Three<br> Months
	Ended		Ended
	January<br> 31,		January<br> 31,
Fiscal<br> Period	2022		2021
Numerator:
Net<br> Income	$	1,217,248	$	1,128,844
Denominator:
Basic<br> weighted average common shares outstanding		10,857,195		10,751,881
Unvested<br> portion of options and restricted stock awards		539,666		557,000
Diluted<br> outstanding shares		11,396,861		11,308,881
Net Income per share
Basic	$	0.11	$	0.10
Diluted	$	0.11	$	0.10

| 13 |

| --- |

CODA

OCTOPUS GROUP, INC.

Notes

to the Consolidated Financial Statements

January

31, 2022 and October 31, 2021

NOTE

14 -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; diver management system; and rental of solutions and products to the underwater market. Coda Octopus Martech and Coda Octopus Colmek (“Marine Engineering Business” or “Services Segment”) provides engineering services primarily as sub-contractors to prime defense contractors.

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

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

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 three months ended January 31, 2022, and 2021, respectively.

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

●	Americas
●	Europe
●	Australia/Asia
●	Middle<br> East/Africa

| 14 |

| --- |

CODA

OCTOPUS GROUP, INC.

Notes

to the Consolidated Financial Statements

January

31, 2022 and October 31, 2021

NOTE 14 -SEGMENT ANALYSIS (Continued)

SCHEDULE

OF SEGMENT REPORTING INFORMATION

	Marine<br><br> Technology<br><br> Business<br><br> (Products)			Marine<br><br> Engineering<br><br> Business<br><br> (Services)			Overhead			Total
Three<br> Months Ended January 31, 2022
Net<br> Revenues	$	3,823,748		$	2,014,460		$	-		$	5,838,208
Cost<br> of Revenues		572,292			1,105,982			-			1,678,274
Gross<br> Profit		3,251,456			908,478			-			4,159,934
Research<br> & Development		529,375			143,515			-			672,890
Selling,<br> General & Administrative		753,614			651,149			706,349			2,111,112
Total<br> Operating Expenses		1,282,989			794,664			706,349			2,784,002
Income<br> (Loss) from Operations		1,968,467			113,814			(706,349	)		1,375,932
Other<br> Income (Expense)
Other<br> Income		9,049			70,945			-			79,994
Interest<br> Expense		(4,882	)		(5,026	)		(1,370	)		(11,278	)
Total<br> Other Income (Expense)		4,167			65,919			(1,370	)		68,716
Income<br> (Loss) before Income Taxes		1,972,634			179,733			(707,719	)		1,444,648
Income<br> Tax (Expense) Benefit
Current<br> Tax (Expense) Benefit		(266,520	)		24,036			(43,125	)		(285,609	)
Deferred<br> Tax Benefit		6,708			204			51,297			58,209
Total<br> Income Tax (Expense) Benefit		(259,812	)		24,240			8,172			(227,400	)
Net<br> Income (Loss)	$	1,712,822		$	203,973		$	(699,547	)	$	1,217,248
Supplemental<br> Disclosures
Total<br> Assets	$	30,847,114		$	13,893,382		$	658,735		$	45,399,231
Total<br> Liabilities	$	1,635,666		$	501,339		$	429,580		$	2,566,585
Revenues<br> from Intercompany Sales - eliminated from sales above	$	389,395		$	115,823		$	600,000		$	1,105,218
Depreciation<br> and Amortization	$	135,658		$	16,657		$	9,151		$	161,466
Purchases<br> of Long-lived Assets	$	986,093		$	1,000		$	14,871		$	1,001,964

| 15 |

| --- |

CODA

OCTOPUS GROUP, INC.

Notes

to the Consolidated Financial Statements

January

31, 2022 and October 31, 2021

NOTE 14 -SEGMENT ANALYSIS (Continued)

	Marine<br><br> Technology<br><br> Business<br><br> (Products)			Marine<br><br> Engineering<br><br> Business<br><br> (Services)			Overhead			Total
Three<br> Months Ended January 31, 2021
Net<br> Revenues	$	3,748,279		$	1,302,180		$	-		$	5,050,459
Cost<br> of Revenues		894,275			841,262			-			1,735,537
Gross<br> Profit		2,854,004			460,918			-			3,314,922
Research<br> & Development		441,744			141,395			-			583,139
Selling,<br> General & Administrative		733,825			567,559			511,982			1,813,366
Total<br> Operating Expenses		1,175,569			708,954			511,982			2,396,505
Income<br> (Loss) from Operations		1,678,435			(248,036	)		(511,982	)		918,417
Other<br> Income (Expense)
Other<br> Income		2,036			18			-			92,025
Interest<br> Expense		(2,253	)		(5,151	)		(7,110	)		(14,514	)
Total<br> Other Income (Expense)		(217	)		(5,133	)		(7,110	)		77,511
Income<br> (Loss) before Income Taxes		1,678,218			(253,169	)		(519,092	)		995,928
Income<br> Tax (Expense) Benefit
Current<br> Tax (Expense) Benefit		12,653			-			12,072			24,725
Deferred<br> Tax (Expense) Benefit		(11,155	)		152,086			(32,740	)		108,191
Total<br> Income Tax (Expense) Benefit		1,498			152,086			(20,668	)		132,916
Net<br> Income (Loss)	$	1,679,716		$	(101,083	)	$	(539,760	)	$	1,128,844
Supplemental<br> Disclosures
Total<br> Assets	$	24,767,757		$	14,362,811		$	1,224,954		$	40,355,522
Total<br> Liabilities	$	1,573,260		$	1,436,624		$	720,466		$	3,730,350
Revenues<br> from Intercompany Sales - eliminated from sales above	$	370,629		$	49,201		$	675,000		$	1,094,830
Depreciation<br> and Amortization	$	312,122		$	47,645		$	6,416		$	366,183
Purchases<br> of Long-lived Assets	$	399,975		$	4,177		$	4,992		$	409,144

| 16 |

| --- |

CODA

OCTOPUS GROUP, INC.

Notes

to the Consolidated Financial Statements

January

31, 2022 and October 31, 2021

NOTE

15 –DISAGGREGATION OF REVENUE

SCHEDULE

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

	For<br> the Three Months Ended January 31, 2022
	Marine		Marine
	Technology		Engineering		Grand
	Business		Business		Total
Disaggregation<br> of Total Net Sales
Revenues
Primary<br> Geographical Markets
Americas	$	2,057,668	$	1,204,282	$	3,261,950
Europe		491,016		810,178		1,301,194
Australia/Asia		815,084		-		815,084
Middle<br> East/Africa		459,980		-		459,980
Total<br> Revenues	$	3,823,748	$	2,014,460	$	5,838,208
Major<br> Goods/Service Lines
Equipment<br> Sales	$	1,958,845	$	436,864	$	2,395,709
Equipment<br> Rentals		630,468		-		630,468
Software<br> Sales		304,796		-		304,796
Engineering<br> Parts		-		1,300,618		1,300,618
Services		929,639		276,978		1,206,617
Total<br> Revenues	$	3,823,748	$	2,014,460	$	5,838,208
Goods<br> transferred at a point in time	$	2,263,641	$	436,866	$	2,724,343
Services<br> transferred over time		1,560,107		1,577,594		3,113,865
Total<br> Revenues	$	3,823,748	$	2,014,460	$	5,838,208

| 17 |

| --- |

CODA

OCTOPUS GROUP, INC.

Notes

to the Consolidated Financial Statements

January

31, 2022 and October 31, 2021

NOTE 15 –DISAGGREGATION OF REVENUE (Continued)

	For<br> the Three Months Ended January 31, 2021
	Marine		Marine
	Technology		Engineering		Grand
	Business		Business		Total
Disaggregation<br> of Total Net Sales
Revenues
Primary<br> Geographical Markets
Americas	$	549,278	$	516,441	$	1,065,719
Europe		1,125,112		785,739		1,910,851
Australia/Asia		2,008,210		-		2,008,210
Middle<br> East/Africa		65,679		-		65,679
Total<br> Revenues	$	3,748,279	$	1,302,180	$	5,050,459
Major<br> Goods/Service Lines
Equipment<br> Sales	$	2,793,487	$	220,957	$	3,014,444
Equipment<br> Rentals		334,363		-		334,363
Software<br> Sales		225,222		-		225,222
Engineering<br> Parts		-		856,347		856,347
Services		395,207		224,876		620,083
Total<br> Revenues	$	3,748,279	$	1,302,180	$	5,050,459
Goods<br> transferred at a point in time	$	3,056,037	$	220,957	$	3,276,994
Services<br> transferred over time		692,242		1,081,223		1,773,465
Total<br> Revenues	$	3,748,279	$	1,302,180	$	5,050,459

| 18 |

| --- |

CODA

OCTOPUS GROUP, INC.

Notes

to the Consolidated Financial Statements

January

31, 2022 and October 31, 2021

NOTE

16 – COVID-19

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

The Engineering Services Business is dependent on its workforce to deliver its products and services primarily to the U.S. and U.K. Governments. If significant portions of the Engineering Services Business’s workforce are unable to work effectively, or if the U.S. or 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 continue to impact the business. Particularly, its ability to perform sustained and meaningful business development and marketing activities, which require demonstrations at sea at customer locations. Asia which is a significant region for our solutions and products, still has strict restrictions as they relate to foreigners entering these countries. These restrictions cumulatively affect demand for our goods and services.

NOTE

17 – INCOME TAXES

The

Company’s effective tax rate for the three months ended January 31, 2022, and 2021, was 16.0

%

and (11.8 %) respectively. The increase in the effective tax rate for the three months ended January 31, 2022, as compared to January 31, 2021, resulted from the US companies becoming tax paying entities having used up their net operating loss carry-forwards.

| 19 |

| --- |

ITEM

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

Forward-LookingStatements

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

The following discussion and analysis should be read in conjunction with our financial statements, included herewith and the audited financial statements included in our annual report on Form 10-K filed with the Securities and Exchange Commission on February 14, 2022. This discussion should not be construed to imply that the results discussed herein will necessarily 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.

GeneralOverview

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

“CurrentQuarter”: Three-month period ended January 31, 2022

“PreviousQuarter”: Three-month period ended January 31, 2021

We operate two distinct business operations. These are:

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

| 20 |

| --- |

We generate most of our revenues from our real time 3D sonar which includes both hardware and proprietary software. Our customers include service providers to major oil and gas companies, renewable energy companies, law enforcement agencies, ports, mining companies, defense bodies, research institutes and universities.

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

KeyPillars for our Growth Plans

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

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

We are widely considered the leading solution providers for real time 3D visualization underwater.

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

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

FactorsAffecting our Business

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

| 21 |

| --- |

GeneralImpact

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

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

We are also experiencing skills shortage in areas that are critical to our growth strategy including in experienced sales and marketing personnel. In addition, the competition is very fierce for skills and we are seeing significant increase in costs associated with wages and salaries and demands from potential candidates to work from home as a precondition to joining our team. This is further exacerbated by the United Kingdom leaving the European Union, which complicates hiring qualified candidates from EU member states.

The Services Business continues to experience difficulties in closing orders due to a combination of factors including delays in Defense Prime Contractors securing their orders. This means that sub-contracting is slow.

Impacton Revenues and Earnings

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

Impacton Liquidity, Balance Sheet and Assets

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

CriticalAccounting Policies

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

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

| 22 |

| --- |

RevenueRecognition

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

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

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

Recoverabilityof Deferred Costs

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

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

| 23 |

| --- |

IncomeTaxes

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

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

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

IntangibleAssets

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

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

ConsolidatedResults of Operations

Summary

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

●	The<br> ongoing Pandemic continues to affect our business development activities as in-person meeting and demonstrations with<br> our customers are required due to the nature of our offerings.
●	Weaker<br> than expected backlog of orders in the Services Segment.
●	Sustained<br> increases in component prices.
●	Significant<br> lead times for routine components for our products.

SegmentSummary

In the Current Quarter the Products Business generated 65.5% of our consolidated revenues compared to 74% in the Previous Quarter. In the Current Quarter the Products Business realized an increase in net income before taxes of 17.5%. This was $1,972,634 in the Current Quarter compared to $1,678,218 in the Previous Quarter. Revenues generated in the Current Quarter increased by 2% and was $3,823,748 compared to $3,748,279. Gross Profit Margin increased and was 85% in the Current Quarter compared to 76.1% in the Previous Quarter. Total Operating Expenses increased by 9.1%. In the Current Quarter the Products Business completed significant milestone deliverables for our DAVD GEN 3.0 funded Program including expanding the capability to the Full Face Mask (FFM). Previously the DAVD was compatible with the Kirby Morgan Helmets. We also completed the introduction of the capability to support multiple divers and automating a number of key functions for the DAVD system.

In the Current Quarter the Services Business generated 34.5% of our consolidated revenues compared to 26% in the Previous Quarter. In the Current Quarter the Services Business’s recorded net income before taxes of $179,733 compared to loss before income taxes of $253,169 in the Previous Quarter. Revenues generated in the Current Quarter increased by 54.7% and was $2,014,460 compared to $1,302,180 in the Previous Quarter. Gross Profit Margin was 45.1% in the Current Quarter compared to 35.4% in Previous Quarter. Total Operating Expenses increased by 12.1% in the Current Quarter.

| 24 |

| --- |

Resultsof Operations for the Current Quarter compared to the Previous Quarter

Revenue: Total consolidated revenues for the Current Quarter and the Previous Quarter were $5,838,208 and $5,050,459 respectively, representing an increase of 15.6%. Revenue in both the Products and Services Businesses increased over the Previous Quarter. Revenue in the Products Business increased by 2% and Services Business by 54.7%.

GrossProfit Margins*:* Margin percentage was stronger in the Current Quarter at 71.3% (gross profit of $4,159,934) compared to 65.6% (gross profit of $3,314,922) in the Previous Quarter.

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

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

In the Current Quarter Gross Profit Margins for the Products operations were 85.0% compared to 76.1% in the Previous Quarter. For the Services operation these were 45.1% in the Current Quarter compared to 35.4% % in the Previous Quarter.

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

	Current<br> Quarter <br> Products		Previous<br> Quarter <br> Products		Percentage<br><br> Change
Equipment<br> Sales	$	1,958,845	$	2,793,487		(29.88	)%
Equipment<br> Rentals		630,468		334,363		88.56	%
Software<br> Sales		304,796		225,222		35.33	%
Services		929,639		395,207		135.23	%
Total<br> Net Sales	$	3,823,748	$	3,748,279		2.01	%

In the Current Quarter the Products Business incurred Commission costs of $138,372 compared to $281,105, representing a 50.8% fall, resulting in Gross Profit Margins being higher.

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

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

Researchand Development (R&D): R&D expenditures in the Current Quarter were $672,890 compared to $583,139 in the Previous Quarter, representing an increase of 15.4%.

Segment	January 31,<br> <br>2022		January 31,<br> <br>2021		Percentage<br><br> Change
Services<br> Segment R&D Expenditures	$	143,515	$	141,395	Increase<br> of 1.50%
Products<br> Segment R&D Expenditures	$	529,375	$	441,744	Increase<br> of 19.84%

| 25 |

| --- |

Selling,General and Administrative Expenses (SG&A): SG&A expenses for the Current Quarter increased by 16.4% to $2,111,112 from $1,813,366 in the Previous Quarter. In the Previous Quarter SG&A was reduced by $83,500 representing payroll assistance received under the UK Coronavirus Job Retention Scheme (CJRS) for UK staff who were furloughed during the Current Quarter. SG&A also includes non-cash item relating to charges for stock-based compensation which in the Current Quarter was $325,175 compared to $174,447, representing an 86.4% increase. The main variances in SG&A therefore relates to these two items discussed here.

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

Expenditure	January 31,<br> <br>2022		January 31,<br> <br>2021		Percentage<br><br> Change
Wages<br> and Salaries	$	903,162	$	838,306	Increase<br> of 7.74%
Legal<br> and Professional Fees (including accounting and audit)	$	359,018	$	336,109	Increase<br> of 6.82%
Rent<br> for our various locations	$	15,745	$	9,765	Increase<br> of 61.24%
Marketing	$	13,766	$	11,330	Increase<br> of 21.5%

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

The increase in “Legal and Professional” reflects additional costs associated with increasing our accounting functions.

The increase in Marketing is anticipated within our plans and reflects an increase in marketing activities. This is an area of expenditures which we anticipate will increase materially in this fiscal year and subsequent years. As we shift our focus from R&D to business development and marketing, including undertaking efforts to build our brands, we anticipate a significant increase in this area of expenditure.

OperatingIncome: In the Current Quarter Operating Income increased by 49.8% and was $1,375,932 as compared to $918,417 in the Previous Quarter. The increase in Operating Income is due to the increase in consolidated revenues realized in the Current Quarter.

InterestExpense: Interest expense in the Current Quarter was $11,278 compared to $14,514 in the Previous Quarter, representing a fall of 22.3%. In the Current Quarter we paid the last interest payable on the HSBC NA debentures. All indebtedness under the debentures have been satisfied in full and therefore there will be no further interest payments in the foreseeable future. Please refer to Note 11 – Note Payable to the Unaudited Consolidated Financial Statements for further details pertaining to this HSBC Loan for more information on this.

OtherIncome: In the Current Quarter, we had Other Income of $79,994 compared to $92,025, representing a fall of 13.1% from the Previous Quarter. In the Previous Quarter we had contributions under the Paycheck Protection Program of $89,971 compared to $0 in the Current Quarter. Similarly in the Previous Quarter we had $0 for Employee Retention Credit, compared to $68,917 in the Current Quarter.

Incomebefore income taxes: In the Current Quarter, we had income before income taxes of $1,444,648 as compared to $995,928 in the Previous Quarter, representing an increase of 45.1%. Income before income tax increased largely due to the increase in the Current Quarter of our consolidated revenues.

| 26 |

| --- |

NetIncome: In the Current Quarter we had Net Income of $1,217,248 compared to $1,128,844 in the Previous Quarter, representing an increase of 7.8%. In the Previous Quarter we recorded Current Tax Benefit of $24,725 and in the Current Quarter we recorded Current Tax Expense of $285,609 and similarly we recorded Deferred Tax Benefit in the Current Quarter of $58,209 compared to $108,191 in the Previous Quarter. The Company has now utilized its net operating loss carry forwards and therefore it is expected that the US companies will become tax paying entities.

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

Liquidityand Capital Resources

At January 31, 2022, the Company had an accumulated deficit of $17,260,609, working capital of $32,360,629, cash of $20,711,228 and stockholders’ equity of $42,832,646. For the Current Quarter, the Company’s operating activities provided cash of $3,461,499.

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

FinancingActivities

Secured Promissory Note

On April 28, 2017, the Company and its US based subsidiaries entered into a loan agreement with HSBC Bank NA (the “Lender”) for a loan in the principal amount of $8,000,000 (the “Loan”). The annual interest rate was fixed at 4.56%. The obligations in connection with the repayment of the Loan were secured by all assets of Coda Octopus Group, Inc., and its US subsidiaries. Our foreign subsidiaries were joint and several guarantors of the obligations. This loan was paid in full in December 2021 and all obligations under the HSBC Loan have now been satisfied.

| 27 |

| --- |

Inflationand Foreign Currency

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

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

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

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

Since the United Kingdom’s decision to withdraw from the European Union in 2016, the British Pound has been extremely volatile and because a significant part of our operations is based in the United Kingdom we suffered, since then, significant adverse exchange rate movements. However, since the final withdrawal from the EU by the United Kingdom in December 2020, the British Pound has been regaining its strength and we anticipate that the volatility that we experienced during the lead up to UK leaving the European Union will abate.

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

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

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

Off-BalanceSheet Arrangements

We do not have any off-balance sheet arrangements.

Item3. Quantitative and Qualitative Disclosures About Market Risk

Not required for smaller reporting companies.

Item4. Controls and Procedures

a) Evaluation of Disclosure Controls and Procedures

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

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

| 28 |

| --- |

(b) Changes in Internal Controls.

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

PART

II - OTHER INFORMATION

Item1. 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.

Item1A. Risks Factors

Not required for smaller reporting companies

Item2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item3. Defaults Upon Senior Securities

None.

Item4. Mine Safety Disclosures

Not Applicable.

Item5. Other Information

Item6. Exhibits

31	Certifications<br> of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a)
32	Certifications<br> of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of<br> the Sarbanes-Oxley Act of 2002
101.INS	Inline<br> XBRL Instance Document.
---	---
101.SCH	Inline<br> XBRL Taxonomy Extension Schema Document
101.CAL	Inline<br> XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline<br> XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline<br> XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline<br> XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover<br> Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

| 29 |

| --- |

SIGNATURES

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

	Coda Octopus Group, Inc. (Registrant)
Date:<br> March 16, 2022	/s/ Annmarie Gayle
	Annmarie<br> Gayle
	Chief<br> Executive Officer
Date:<br> March 16, 2022	/s/ Michael Midgley
	Michael<br> Midgley
	Chief<br> Financial Officer

| 30 |

| --- |

Exhibit31

CERTIFICATIONOF PRINCIPAL EXECUTIVE OFFICER

Pursuantto Rule 13a-14(a) adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I,Annmarie Gayle, certify that:

1.	I<br> have reviewed this Quarterly Report on Form 10-Q of Coda Octopus Group, Inc. for the quarter ended January 31, 2022;
2.	Based<br> on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary<br> to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to<br> the period covered by this report;
3.	Based<br> on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material<br> respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in<br> this report;
4.	The<br> registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures<br> (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange<br> Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)	Designed<br> such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,<br> to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others<br> within those entities, particularly during the period in which this report is being prepared;
---	---
(b)	Designed<br> such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our<br> supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements<br> for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated<br> the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about<br> the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;<br> and
(d)	Disclosed<br> in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s<br> most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,<br> or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The<br> registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial<br> reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing<br> the equivalent functions):
---	---
(a)	All<br> significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are<br> reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;<br> and
---	---
(b)	Any<br> fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s<br> internal control over financial reporting.
Date:<br> March 16, 2022	By:	/s/ Annmarie Gayle
---	---	---
		Annmarie<br> Gayle
		Chairman<br> and Chief Executive Officer
		(Principal<br> Executive Officer)

CERTIFICATIONOF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER

Pursuantto Rule 13a-14(a) adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I,Michael Midgley, certify that:

1.	I<br> have reviewed this Quarterly Report on Form 10-Q of Coda Octopus Group, Inc. for the quarter ended January 31, 2022;
2.	Based<br> on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary<br> to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to<br> the period covered by this report;
3.	Based<br> on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material<br> respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in<br> this report;
4.	The<br> registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures<br> (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange<br> Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)	Designed<br> such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,<br> to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others<br> within those entities, particularly during the period in which this report is being prepared;
---	---
(b)	Designed<br> such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our<br> supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements<br> for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated<br> the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about<br> the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;<br> and
(d)	Disclosed<br> in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s<br> most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,<br> or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The<br> registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial<br> reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing<br> the equivalent functions):
---	---
(a)	All<br> significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are<br> reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;<br> and
---	---
(b)	Any<br> fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s<br> internal control over financial reporting.
Date:<br> March 16, 2022	/s/ Michael Midgley
---	---
	Michael<br> Midgley
	Chief<br> Financial Officer
	(Principal<br> Financial and Accounting Officer)

Exhibit32

CERTIFICATIONPURSUANT TO

18U.S.C. SECTION 1350,

ASADOPTED PURSUANT TO

SECTION906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Coda Octopus Group, Inc., a Delaware corporation (the “Company”), for the period ended January 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Annmarie Gayle, Chief Executive Officer of the Company, and Michael Midgley, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The<br> Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The<br> information contained in the Report fairly presents, in all material respects, the financial condition and results of operations<br> of the Company.

Dated: March 16, 2022

/s/ Annmarie Gayle
Annmarie<br> Gayle<br><br> <br>Chairman<br> and Chief Executive Officer<br><br> <br>(Principal<br> Executive Officer)
/s/ Michael Midgley
Michael<br> Midgley<br><br> <br>Chief<br> Financial Officer<br><br> <br>(Principal<br> Financial and Accounting Officer)