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, 20212023

☐ 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)

3300 S Hiawassee Rd, Suite 104-105, Orlando, Florida, 32835

(Address, Including Zip Code of Principal Executive Offices)

407735 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 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 has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive offers during the relevant recovery period pursuant to §240.10D-1(b).  ☐

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

TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS

This annual report on Form 10-K includes(this “Annual Report”) contains forward-looking statements, withinwhich are subject to the meaning of Section 27A ofsafe harbor provisions created by the Private Securities Litigation Reform 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.1995. 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 or variations of such words are intended to identify forward-looking statements but are not the exclusive means of identifying forward-looking statements in this Annual Report. The identification of certain statements as they“forward-looking” is not intended to mean that other statements not specifically identified are not forward-looking. All statements other than statements about historical facts are statements that could be deemed forward-looking statements, including, but not limited to, statements that relate to usour future revenue, product development, customer demand, market share, growth rate, competitiveness, gross margins, levels of research, development and other related costs, expenditures, tax expenses, cash flows, our management’s plans and objectives for our current and future operations, the levels of customer spending or our management. research and development activities, and related events, general economic conditions, and the sufficiency of financial resources to support future operations and capital expenditures.

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.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 reportAnnual 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,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 reportAnnual Report or to conform these statements to actual results.

PART I

ITEM 1. BUSINESS

Corporate Information

Our principal executive offices are located at 3300 S. Hiawassee Rd, Orlando, FL 32835. Our telephone number is +1 (407) 735-2406. We maintain a corporate website at www.codaoctopusgroup.com. (the Company’s website). The reference to the Company’s website address does not constitute incorporation by reference in this Form 10-K of the information contained on the Company’s website.

Overview

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

An overview organization chart showing the subsidiaries within each operating segment is set out in this Item 1 (Business) of the Form 10-K.

Throughout this Form10-K we use certain terminologies in the context of our Echoscope® underwater imaging technology such as 2D, 3D, 4D, 5D and 6D which have particular meaning. In this Form 10-K the meanings of these terminologies are set out below.

Our Marine Technology Business is a technology solution provider to the subsea and underwater market. It owns key proprietary technology includingcomprising its real time volumetric imaging sonar technology (Echoscope® technology) and diving technology (“DAVD” or Diver Augmented Vision Display), both of which are applicable to the underwater defense and commercial markets. All innovations, design, development and manufacturing of our technology and solutions are performed within the Company.Company with the exception of sub-component assemblies. We endeavor to actively protect our innovations by seeking patent protection. This is a part of our strategy to maintain our competitive lead in the areas in which we specialize.

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),renewables, and offshore oil and gas, complex underwater mapping, salvage operations, dredging, bridge inspection, navigation of underwater hazard, detection, port and harbor security, mining, fisheries, commercial and defense diving, and marine sciences sectors.sectors and more broadly applications for real time 3D monitoring, inspection and visualization underwater. Uniquely, the Echoscope® technology is a single sensor for multiple underwater applications (which sets it apart from competing technologies). Our diving technology marketed under the name “CodaOctopus^® DAVD” (Diver Augmented Vision Display) addresses the global defense and commercial diving markets andmarkets. It has the potential to radically change how diving operations are performed globally because it delivers a real time information platform for divingsimultaneously to the divers underwater and their surface-based dive supervisors. It also allows diving operations to be performed in zero visibility water conditions and provides real time mapwhich is a safety challenge for many diving operations. DAVD’s concept of using a pair of glasses inside the dive area.face mask, helmet or other diving suits is protected by patent. The Company has an exclusive license to exploit this utility patent.

The Marine Technology Business operates thorough our wholly owned subsidiaries Coda Octopus Products, Inc (Orlando), Coda Octopus Products Ltd (UK), Coda Octopus Products A/S (Denmark and branch office Coda Octopus Products A/S in The Netherlands), and Coda Octopus Products (India) Private Limited (India).

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).systems. The Services Segment established its business in 1977 and has been supporting a number of significant defense programs of record 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 prototypeprototypes contracts typically lead to contracts for the manufacture, repair and upgrade of these sub-assemblies.sub-assemblies for the life of the program. We are theenjoy sole source status 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 these parts, typically for the life of the program, which can span decades. Coda Octopus Colmek, Inc. and Coda Octopus Martech Ltd, each qualifiesqualify as a small business.businesses. This opens opportunityopportunities under state requirements to collaborate with Prime Defense Contractors on these programs.

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

The Services Segment operates through our wholly owned subsidiaries, Coda Octopus Colmek, Inc (“Colmek”) which we acquired by the Company in 2007, based in Salt Lake City, Utah, and Coda Octopus Martech Limited (“Martech”) which was acquired by the Company in 2006, based in Dorset,Portland, 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.responding to invitations to tender for new projects with broader scope. We believe the Services Business is important to our overall growth strategy as it brings significant engineering depth for the onward development of ourthe technology solutions.solutions offered by the Marine Technology Business. This also ensures more tighttighter control over our intellectual property rights, which are important for our market position in the space we operate.position.

Key Pillars for our Growth Plans

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

OurWe believe that our real time 3D/4D/5D/6D Imagingimaging sonars are the only underwateracoustic imaging sonars which are capable of providing real time 3D/4D/5D/6D imaging of moving objects in zero visibility water conditions and also providing users with the capability to make real time 3D physical measurements of objects underwater. Competing acoustic imaging sonars such as the multibeam sonars are primarily seabed mapping tools which are not onlydesigned to perform complex seabed mapping but inspectingor imaging of moving objects in 3D underwater. The Echoscope^® technology therefore is a key sensor for underwater inspection 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.3D. We also believe that our new generation of Echoscope PIPE^®is the only technologysonar that can generate multiple real time 3D/4D/5D and 5D/6D acoustic images using different acoustic parameters in real time such as frequency, field of view, pulse length, filters.filters, beam density and various beamforming modes. This has the potential to reduce the number of underwater sensors that are required on a project at any one time.

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. WeIn our industry we are widely considered the leading solution providers for underwater real time 3D visualization underwater.visualization.

We also believe that the DAVD tethered system is poised to radically change the way commercial and diving operations are performed globally by advancingproviding a fully integrated suite of sensor data shared in real time by the methodsdive supervisor on the surface and the diver. Current diving is done largely by poor analog voice command missions from the topside using a disparate suite of communication, abilitysystems for video data, communications, and positioning. Furthermore, by combining the DAVD with our real time 3D sonars it allows diving to consumebe performed in difficult water conditions (turbidity or zero visibility issues) and use digitalthus addresses the common problem of underwater operations having to be aborted due to visibility issues.

The DAVD tethered version is now in early-stage adoption by different teams within the US Navy, such as the underwater construction and salvage teams and has been moved from the customer’s R&D phase to their operational phase. This means that the DAVD tethered version is now a standard item available for purchase and for which budget lines are established within the various user commands within the Navy. To support the continued transfer of the DAVD system to field operations, we are involved in training the users.

In the Current FY we continued our global marketing campaigns for the adoption of the DAVD tethered system outside of the US Navy. We believe we have made significant progress with these campaigns. For example, we completed successful field trials of the DAVD and our Echoscope® with a major European Offshore Service Provider, who is a part of the “Big Four” Dredging companies (these four account for approximately 80% of the global dredging capacity).

The major European Offshore Provider conclusion from their final trial assessment report provided to the Company is that:

“The advantage of the DAVD alone (compass, depth, taking snapshots and presenting graphical information for diver and supervisor) or combined with a 3D live sonar video stream is clear and increases safety and efficiency. The 3D sonar fits well within our scope of work and our survey division is aware of this. We think that the combination of DAVD and 3D sonar has potential within our organization….”.

We also completed successful trials with the Spanish Navy and a number of Japanese Offshore Service Providers.

We believe there is momentum around the DAVD solution, and we continue to work with our customer base on adoption plans, including models for adoption. Adoption is a process because it requires customers intending to take on the DAVD technology, to change their current method and workflow. These and other considerations will impact the pace at which the transition to the DAVD technology occurs.

The DAVD untethered prototype variant (“DUS)” was delivered to our Navy customer for evaluation during fiscal 2023. In the third quarter we received joint funding of $750,000 for the delivery of 8 DUS evaluation systems and further customization work for their application and workflow. We have delivered the 8 systems which will facilitate early customer trials. The total funding for this scope is expected to be $2m. This is the first time we have had firm commitment concerning an adoption path by a foreign NATO country. We believe the DUS variant represents the biggest market opportunity for the DAVD technology in the USA addressing the defense, law-enforcement, and first-responders market.

The concept of utilizing a pair of transparent glasses in the Head Up Display (HUD) underwater for this purpose, is protected by patent. All component parts of the DAVD system are proprietary to the Company and include software (4G USE^® DAVD Edition), Diver Processing Pack – telemetry system (DPP), topside Supervisor Console Controller and real time imaging sonar data, thereby improving safety and reducing3D Sonar. The Company benefits from the costs of these operations. The DAVD HUD (Head Up Display) concept is protected by patent and is manufactured and distributed under Licenseexclusive license from United Statesthe U.S. Department of the Navy at Naval Surface Warfare Center Panama City Division to utilize the Company.utility patent covering the concept of using the pair of transparent glasses as a data hub underwater. The DAVD tethered variant is an “Approved Navy Use” item. The untethered variant is currently going through validation process.

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).

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,corporation, 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 theour visualization software (Underwater Survey Explorer) 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(Martech is UK focused and the otherColmek 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 ofThese activities were interrupted by the Coronavirus Pandemic.

Pandemic in 2020 and since then has been slow to regain momentum.

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 DiscussionUnion.

In November 2021 Coda Octopus Products Limited established a subsidiary Coda Octopus Products (India) Private Limited intended to gain access to this market and Analysis…”).to recruit critical resources for software development.

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, The Netherlands, 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.

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:

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

1. Geophysical Range of Products

Our geophysical systems (“GEO”)

Geophysical Hardware and Software

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 and has been for many years the workhorse for processing data for Oil & Gas companies.

The Geophysical range of products include geophysical data acquisition systems, processingmarketed under the brands DA4G and analysis softwareGeoSurvey^® 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 used primarily by survey companies, offshore renewable companies, research institutions, salvage companies. The Company’s GEOstrong brands in these markets and consists of a range of hardware and software products are used in conjunctionfor acquisition and post-processing of sidescan sonar and sub-bottom profiler data, which includes analog and digital interfaces compatible with all geophysical survey systems.

Our Survey Engine^® software product offers a more advanced post-processing solution for sidescan sonarssonar and sub-bottom profiler data. Designed to surveystreamline processing of very large areasdata it offers comprehensive processing, interpretation, visualization, reporting 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 withexporting functionality.

We continue to advance this range of products and in fact was2018 we launched our first product based on Artificial Intelligence techniques which allows us to automatically identify boulders on the first companyseabed – SEADP – “Survey Engine Automatic Object Detection”. This new product presents a real opportunity to digitalize sidescanradically change workflow process for post-processing and analyzing side scan sonar data. The Company GEO range is a strong brand indata to assess, among other things, the geophysical market space.suitability of an area for exploration and construction activities (O&G installations, pipeline and cable laying activities).

2. GPS aided Inertial Positioning and Attitude Measurement Systems (“Motion Products”)

These

Our Motion Products are referredGlobal Navigational Satellite System (referred to in the industry as our MOTION range of products and offer high accuracy GPS aided inertial positioning“GNSS” Aided Inertial Measurement Units) that provide measurement data on the position and attitude of a vessel (heading, pitch, roll and yaw of the vessel). This device provides real-time data essentialon these measurements which are applied to compensate for all marine survey applications.vessel movement in order to align sonar data and remove motion blur. We have had our F180^® series on the market for over 15 years and due to the 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^®.

We have now completed the ground up development of our new generation of Motion Products F280 Series^® for accurate position, heading, pitch, roll and yaw at sea. The products are commonly bundled withnew F280 Series^® is based on more advanced technology and is more accurate than our GEO andprevious generation of F180^® products. The new technology is much more scalable towards future development of new product variants. The F280 Series^® is highly complementary to our real time Echoscope^®sonar solutions offeringseries and they are packaged together to provide a more comprehensive solution. The F280^® can be sold with or without our customers a seamless integration and support experience.Echoscope^®.

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)5D and 6-Dimensional (6D)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.mapping and real time 3D navigation in zero visibility conditions. Uniquely also, using a single sensor (our Echoscope PIPE®) range we can provide different outputs to the various parts of the survey team, thus reducing the number of different sensors required on these underwater projects and thus the costs associated with these underwater operations.

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

5D and 6D imaging sonars are new to the subsea market and constitute an innovation by the Marine Technology Business of the Company. We have several patentspatent applications 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, dueDue 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.our antecedent sonars. 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 per beam (Full Time Series (“FTS”)) per beam.data). 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).patents.

6D Sonars (Echoscope PIPE^®)

The Company’s 6D Sonars processesprocess and utilizesutilize 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,sonar, we could image and display one 3D Image in real time. Our PIPE technology generates multiple 3D Imagesimages simultaneously in real time using different sonar/acoustic parameters (such as different beamforming methods, frequency, range, field of view, pulse length and other acoustic filters or shading). Our new technology enables one sensor to provideThis allows for different 3D/4D/5D/6D data sets (through multiple parallel processing capability)to be provided 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.4D thus providing significantly more benefits to our customers.

Echoscope® 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 DifferencesA summary of some of the differences between our standard Echoscope^®Echoscope® sonar series and our newly launched Echoscope PIPE^®PIPE® series of sonars isare set out below:

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.imaging, that is to generate a 3D image underwater of moving objects. The competing 3D technology, the multibeam, which is the current standard bearer for imaging sonars in the market is a sonar for mapping only.of the seabed. The Echoscope^® technology can not onlyalso map the seabed (and is superior to the multibeam for complex mapping and inspection of complex underwater structures) but can also image in real time 3D moving objects underwater andunderwater. The Echoscope^® is therefore is the primary tool of choice for inspecting and monitoring in real time 3D all types of underwater operations and is the only choice in poor visibility conditions. In addition, the Echoscope^® can also in many instances enableenables the user to monitor underwater operations from a surface vessel and in this way replacereplacing the 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 it removed several barriers to market adoption. Since its introduction haswe have seen an 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/underwater 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 theour 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.market, thus opening potentially new market opportunities for the Company’s technology. For example, we are now able to integrate on the Videoray Defender which is the US Navy selected platform for small manned portable vehicles. Our antecedent sonars due to their form factors would not be able to operate on this class of vehicles. The 4G sonar series development is therefore this is a very significant milestone in the Company’s progress and opens the potential to grow its market share of imaging sonars.

The 4G sonar series developments were largely form factor driven as opposed to being based on performance and capability advancements. In the fiscal years 2019 and 2020 we continued to build on our innovation of our sonar technology toinitial 4G innovations with a renewed focus on performance and capability advancements, particularly on the beamforming and the data processing capability of our sonar series. In the previousantecedent 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 sonarssonar 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 awhich cover “a method of compressing beamforming sonar datadata” and a“a method of compressing sonar data.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®PIPE^® technology in the market especially with OEM underwater vehicle manufacturers.manufacturers from the defense space.

The release of the Echoscope PIPE^® hardware is a further significant milestone.milestone for the Company. We are now focused on thedelivering additional competitive value add to theour imaging sonar 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 lowpoor 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 high structural and technologytechnological 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.

share and we continue to see significant interest in the Defense/Naval market for our Echoscope PIPE^® technology.

Echoscope^® Software

The Echoscope® technology works in conjunction with our internally developed software (USE, Construction Monitoring System (CMS), 4G US^® and 4G USE^® DAVD Edition). The software is a critical component of the capabilities and features of our sonar series.

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. It also allows us to be responsive to our customers’ requirements for new features and capabilities around our solutions.

We have now launched our fourth-generation multi-sensor software platform which is marketed under the name “4G USE^®”. We have also filed several provisional patents around our 4G USE^® which 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 module is marketed under the brand 4G USE^® DAVD Edition.

Diver Augmented Vision Display (DAVD) System – Diving Technology

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). or diving suits. 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 “AGA”, OTS Guardian and OTSthe Divator and Dräger Panorama Nova Dive full-face masks. TheHowever, the DAVD HUD and system technology is not however limited to these products andand/or 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’.

Problem In Context

The concept of using a pair of transparent glasses in the HUD to render real time information for underwater applications is protected by patent and Coda Octopus has an exclusive license from United States Department of the Navy at NSWC PCD to exploit this patent for all underwater diving activities.

The US Government as represented by Secretary of the Navy (Arlington, VA), describes the challenge for divers in their patent application as follows:

“By their very nature, underwater dive missions are difficult and Commercial diving share common issues and challenges with location, visibility, communication, safety andinherently dangerous. Furthermore, the complexity of underwater missions can make it difficult or impossible for a diver to retain all pre-mission briefing information. For these reasons, it is critical for underwater divers to have access to environmental 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 workmission data while in the water. However, in low visibility water column, around complex structureenvironments, divers can rarely see handheld displays or gauges. Accordingly, divers are generally supplied with audio-communicated information from a topside location. The topside-supplied information can include descriptions of sonar images, blueprints, maps, pictures, etc. Unfortunately, it can be very difficult and on the cluttered sea bottoms which is neither safe nor efficient. They, and theconfusing for a 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. Complexityinterpret a topside personnel’s audio description of the tasktopside personnel’s visual interpretation. Combining this with unreliable audio communication can lead to mission failures or disasters.”

It further describes the objective of the Invention as:

“Accordingly, it is an object of the present invention to provide an underwater diver with real-time visual information available to topside personnel.

Another object of the present invention is to provide real-time visual information to an underwater diver for viewing in water environments irrespective of water visibility levels.

Other objects and this challenging environment directly increases risk, stress,advantages of the present invention will become more obvious hereinafter in the specification and inefficiency for the entire team.

drawings.”

How does DAVD Change this?

The DAVD system addresses all the challenges described above.above including removing the interpretation of the underwater scene to the topside by providing the diver with real time data and first-person interpretation. The DAVD technology benefits not only the diver and direct supervisor on the surface, but also engineers, end-clients, rescue workers and support personnel whomwho 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. visibilityVisibility for Diverdiver and team is dramaticallysignificantly enhanced with both real-time camera and 3D sonar data (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 developmentdevelopments and products have been designed and developedperformed 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. DAVD also is certified for CE markings for compliance with the European Union and the United Kingdom health and environmental requirements.

We have also startedare marketing the DAVD (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.

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.

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 internal sales team, website, industry events such as trade shows, webinars, industry relationships and industry relationships. We also have a small internal salesagents in foreign countries such as Japan, China and marketing team which is engaged in marketing and selling our products.Korea. 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.

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 entitiesThey supply engineered sub-assembly solutions which typically form part of broader mission critical integrated defense systems, test equipment, instrumentation, and the like. They largely operate as sub-contractors to prime defense contractors, and their engineering solutions are typically withindesigned for integration into broader defense programs of record where high levels of reliability and quality are essential pre-requisites for securing and maintaining these agreements with their customers. Typically, wethey prototype productssubassemblies for thesetheir customers and after going through various acceptance tests, including first article inspection approvals, wethey are giventhen awarded the productionmanufacturing contracts. Many of these productionmanufacturing contracts have a repeat orders profile which typically follows the life cycle of the defense program that is using the production part.subassembly.

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

This businessIn order to grow, the Marine Engineering 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.technologies.

Coda Octopus Martech Limited (“Martech”)

Martech which is UK-based, 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-contractsubcontract basis where high quality and high integrity devices are required in small quantities. Their skills set includes both hardware and software design.

The CompanyMartech 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.Martech has the requisite accreditations for its business including being Lloyds Register accredited to ISO 9001:2015 and Cyber Essentials certification.

Coda Octopus Colmek, Inc. (“Colmek”)

Colmek, which is USA-based, 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.Program (AQS-24). 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. WeColmek are the sole source for the parts that wethey 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.Their skills set includes both hardware and software design.

In order to diversifyColmek has the requisite accreditations for its business opportunity, in June 2014 Colmek completed the acquisition of the Thermite^® which is a rugged visual mission computer lineincluding being Lloyds Register accredited to ISO 9001:2015 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

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.Cyber Essentials certification. 

Competition

In our Products Segment,Marine Technology Business (Products Business), 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.market.

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 fourseveral 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;; Kongsberg Gruppen, 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;Applanix 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.SBG Systems. 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).relatively small. We sell our MOTION range as part of our equipment suite to complement our Echoscope^® real time 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 intellectual property including know how and capabilities we bring to this field include:

TheAny entry into this market is dependentdepends 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 intoin 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 of companies offering imaging sonar solutions (such as multibeam sonars and/or 2D scanning sonars), 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.the Company. 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 in real time 3D/4D/5D and 6D Imaging of moving objects underwater 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 have been awarded US 10,718,865 and US 10,816,652 which concerns a method of compressing beamformed data and method of compressing sonar data, respectively.

We seek to compete on the basis of producing high quality products employing cutting edge technology that is easy to use by the 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.

Diver Augmented Vision Display System (“DAVD”)

There are various diving systems in the market that provide a combination of different aspects of our DAVD system but no systems that directly compete in the form of embedded fully transparent glasses mounted internally within the diver helmet or mask and on which various types of images, data and augmented reality information can be displayed. This concept is protected by US Patent 10,877,282.

The DAVD system provides a unique diver centric system with localized and external sensors to provide increased safety, scene awareness and vital communication in the form of Digital Audio, Ultra-Low-Light Video, Text and technical instruction and access to a complete media hub for effective communication between diver and supervisor. The DAVD system provides the following capabilities:

There are several diver related products and sensors that can be worn by the diver such as telemetry systems, navigational aids, dive computers, video and sonar systems and probes and sensors such as magnetic and thickness. Each of these systems typically have an independent display, typically on the device or wrist worn.

Video systems generally provide no direct benefit to the diver and are intended for top-side visualization. The DAVD provides video data to the diver directly.

More recent advances in technology have introduced head mounted display (HMD) as either replacement or as additional display close to the divers’ eyes. These are typically presented in the form of a monocular display mounted externally to the divers’ mask in which the diver must look at this display through a single eye. These are not intended for long term use and more for occasional glance at data for reference. Dual HMDs are also provided in certain products to replace what the diver can see through the mask with a computer display.

The drawback of such HMD is that the diver loses all sense of the natural surrounding and the real environment is placed using the computer display. Examples of monocular and dual lens HMD include Shearwater Nerd 2, Tritech DMD (Diver Mounted Display) and Blueprint Subsea Artemis HMD.

Furthermore, a significant challenge for diving is the operating environment where zero visibility conditions typically prevail. Combining our DAVD with our Echoscope® removes this barrier for diving operations.

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.Kingdom and are dependent on subcontract from the major prime contractors. Martech and Colmek compete with larger contractors, such as the primes, in the defense industry. Typical among these are Ultra Electronics, BAE Systems, Thales, Raytheon and Thales,Northrop Grumman, all of whom are also partners on various projects. In addition, theThe strongest competitors are often the clients themselves. Because of their size,prime contractors themselves as they oftenpredominantly have the option to proceed with a project under their Prime Defense Contract in-house instead of outsourcingexecute the work package internally as opposed to a sub-contractor like Martech or Colmek.subcontracting these.

Intellectual Property

Our product portfolioWe operate in an industry in which innovation, investment in new ideas and technologies are protected byprotection of our intellectual property rights are critical for our continued success. When we can we protect our innovations and inventions through a variety of means, including, trademarks, copyrightsbut not limited to, applying for patent, copyright, and patents.trademark protection domestically and internationally, and protecting our trade secrets. We incentive our employees to innovate through our Patent Reward Scheme. In the last 23 years we have advanced our existing sonar technology and have filed a number ofseveral 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 the Offshore Renewables Market, (Wind Energy), which as the world makes the energy transition is a rapidly increasing marketset to expand globally. The Offshore Renewables sector and anis important one for our growth.growth strategy. Our Echoscope^® and Echoscope PIPE^® technology is used for real time monitoring of cable installations for some of these offshore windrenewable projects. This Methodrecent patent covers a method which we have patented is used in conjunction with our Echoscope and automates the tracking ofautomatically predicts the cable (thus removingtouchdown point and removes the need for anthe Echoscope^®operator who previously would beto manually clicking on the cable touchdown point). This method covered by our recently awarded patent also projectsdetermine and log 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 to contribute to our Patent Portfolio by having in place a competitive Patent Reward Scheme. In the 2023 FY we added four new patents to our portfolio.

Our patent portfolio consists of the following:

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

In addition, we have registered several internet domain names including www.codaoctopus.com; www.codaoctopusgroup.com; www.colmek.com and www.martechsystems.co.uk.

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 reductionThe main costs that are incurred in this area of expenditures by 6.5%. With theare wages and salaries and prototyping. The recent crystallization of several significant hardware development projects by the Company, we would expecthas seen R&D expenditures to remain materially unchanged in 2022 financial year.decreasing.

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 the launch of any product we may not succeed. Moreover, we may incur significant research and development expenditures without realizing viable products.

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 900 accreditation, cyber security certifications including Cyber Essentials and NIST, 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”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. In addition, the costs of complying with some of the regulations including DFARS may be prohibitive.

Employees

As of the date hereof, we employ approximately 9583 employees worldwide, of which 1210 hold management positions. A large majority of our employees have a background in science, technology, software and hardware engineering, with a substantial part being educated to a 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.

Available Information

Our internet address is www.codaoctopusgroup.com, where we make available, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities Exchange Commission (“SEC”). Our SEC reports can be accessed through the investor relations section of our website. With the exception of our annual and periodic reports (Form 10-K and Form 10-Q), the information found on the Company’s website is not intended to be incorporated by reference into this or any other report we file with or furnish to the SEC and are expressly excluded from any such form or reporting.

ITEM 1A. RISK FACTORS

Not required for smaller reporting companies.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 1C. CYBERSECURITY.

Not required.

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, training center and R&Dlight manufacturing 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 12,07021,313 square feet of internal space and includes manufacturing,office space, R&D Facilities, and office space.manufacturing. These premises are owned by Coda Octopus Products Limited.

Copenhagen, Denmark

AsCoda Octopus Products A/S, a Danish Subsidiary was established as as a mitigation strategy in relation to the UK leaving the European Union membership, thus limitingwhich has limited trade relations with EU member states, we have established a Danish subsidiary, Coda Octopus Products A/S and leased businessstates. These premises in Copenhagen, Denmark.are used as our European Offices. The lease is a fixed term lease for the period September 1, 2019subject to September 1, 2023.

six (6) months’ notice to terminate.

Annual rent is DKK 131,625142,893 plus Value Added Tax (being an equivalent of $19,660$20,472) 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 payingrent paid to Coda Octopus Products Limited rent in January 2021, amounting to the equivalent of $56,457is $53,803 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.

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.

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.

As of October 31, 2023, we had no authorized share repurchase programs.

ITEM 6. SELECTED FINANCIAL DATA

Not applicable.

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 statementsfollowing discussion is intended to promote understanding of historical fact made herein are forward looking. In particular, the statements herein regarding industry prospects and future results of operations orand 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 expectationscondition 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 consolidated financial statements included herewith.and notes thereto. This discussion shouldmay contain forward-looking statements that reflect the plans, estimates and beliefs of Coda. The words “plans,” “expects,” “will,” “anticipates,” “believes,” “intends,” “projects,” “estimates” or other words of similar meaning and similar expressions, among others, generally identify “forward-looking statements,” which speak only as of the date the statements were made. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors and we disclaim and do not undertake any obligation to update or revise any forward-looking statement, except as required by applicable law.

This section of this Form 10-K generally discusses fiscal 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be construed to imply thatfound in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Form 10-K, filed with the results discussed herein will necessarily continue intoSEC on January 30, 2023, which is available free of charge on 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 ofSEC’s website at www.sec.gov and our management.Investor Relations website at codaoctopusgroup.com.

General Overview

We operateThe Company operates two distinct business operations.businesses. These are:

Our Marine Technology Business has operations in the USA, UK and Denmark – see organization chart set out in the Section Item 1 (Business). This business is aan established technology solution provider to the subsea and underwater imaging, surveying and diving market. It has been operating as a long-established pedigree insupplier of solutions comprising both hardware and software products for close to 30 years to this market and it innovates, designs, developsowns key proprietary technology including its Echoscope® and manufactures proprietaryDAVD technology, that are used in both the underwater defense and commercial markets. All design, development and manufacturing of our technology and solutions are performed within the Company. We sell our products and solutions globally and have a combination of direct sales and indirect sales (via our agents’ network). In Asia and Africa, we largely sell via agents, in the USA, Europe and the Middle East we sell directly. We also rent our products and solutions, particularly to tier-one offshore service providers who prefer accounting for this market (both for commercial and defense applications) including our range of flagship volumetric real time sonar solutions.offshore equipment as an operating expense rather than capital expense.

TheseOur imaging sonar technology products and solutions marketed under the name of Echoscope^®and productsEchoscope PIPE^® are used primarily in the underwater construction market, offshore renewables, offshore oil and gas, offshore wind energy industry,forward looking obstacle avoidance, complex underwater mapping, salvage operations, dredging, bridge inspection, underwater hazard detection, port and in the complex dredging, portharbor security, mining, mine counter measures, ship hull scanning, real time threat detection, fisheries, commercial and defense diving, and marine sciences sectors. Uniquely the Echoscope® technology is a single sensor for multiple underwater applications which allows the market operators to consolidate their underwater sensor requirements.

Our novel diving technology is distributed under the name “CodaOctopus^® DAVD” to the global defense and commercial diving markets and is relatively new to the market. The DAVD system which embeds a pair of transparent glasses in the Head up Display (HUD) is used as the data hub for displaying comprehensive real time data to the diver underwater. This also allows both the diver and the dive supervisor to visualize in real time the same underwater scene and data. We believe that the DAVD system has the potential to radically transform how diving operations are performed globally because it provides a fully integrated singular system for topside control and a fully connected HUD system for the diver allowing both the topside and diver to share a range of critical information including depth (pressure and temperature), compass and head tracking, real time dive timers and alerts, diver position and navigation, ultra-low light enhanced video system and enhanced digital voice communications. Limitations of current diving operations are that the diver only shares analog voice communications with the topside, is subject to the topside verbally describing information, and there is no real time information including real time navigation, tracking and mapping of the dive area available to the diver. The topside must also manage several independent systems for video, communications, and positioning. The Company’s solution addresses these deficiencies. Another critical part of our solution is that by using the Company’s Echoscope^® technology, diving can be performed in zero visibility conditions, a common problem which besets these operations and can result in significant costs to the offshore service provider.

Although we generate most of our revenues from our real time 3D sonar which includes both proprietary hardware and software and the DAVD, we have a number of other products which we supply to the marine offshore market such as our inertial navigation systems (F280 Series^®) and our geophysical hardware (DA4G) and software solutions (GeoSurvey which is widely used in the Oil & Gas sector and Survey Engine®, which include artificial intelligence based automatic detection systems). Our customers include offshore service providers to major offshore renewable companies, oil and gas (“O&G”)companies, renewable energy companies, underwater construction companies, law enforcement agencies, ports, mining companies, underwater vehicle manufacturers,defense bodies, prime defense contractors, navies, research institutes and universities and diving companies. We also provide customization of services of our technology, particularly in the defense market and around our DAVD solutions where this is tailored for particular applications.

The Services Business has operations in the USA and UK. It is a trusted long-term Department of Defense (DoD) supplier. Its central business model consists of working with Prime Defense Contractors as OEM integrators,to design and manufacture sub-assemblies for utilization into larger defense bodies, fisheriesmission critical integrated systems (“MCIS”). An example of such MCIS is the US Close-In-Weapons Support (CIWS) Program for the Phalanx radar-guided cannon used on combat ships. These proprietary sub-assemblies, once approved within the MCIS program, afford the Services Business the status of preferred supplier. Such status permits it to supply these sub-assemblies and research institutes.

Our Marine Engineering Business is a supplierupgrades in the event of engineering services and embedded solutions (such as mission computers) toobsolescence or advancement of technology for the life of the MCIS program. Customers include 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 systemsBAE Systems. The typical scope of services provided by this business extends to concept, design, prototype, manufacture, and thus requires a high level of reliability, consistency in standardspost-sale support including maintenance and robustness.obsolescence management.

We have long-standing relationships with prime defense contractors, and we use these credentials to secure more business. We support some significant defense programs of record 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.

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 BusinessBusiness.

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

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 impactshas affected our businessBusiness in several important areas:

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.

The Company’s operations are split between the United States, United Kingdom, Denmark, and Australia.the Netherlands. Item 1 (Business) of this Form 10-K sets out an overview of the entities within the Company’s group and their location. A largesignificant proportion of our consolidated revenues (approximately 73%) and costs(51.4% in 2023 FY compared to 53.9% in the 2022 FY) are incurredgenerated outside of the USA with a significant part (68.3% ofUnited States by our total revenues) of thatforeign subsidiaries in the United Kingdom (“UK”). and Denmark. In addition, a significant part of our assets and liabilities (both current and fixed) is held in British Pounds, Danish Kroner and Euros by ourthese foreign subsidiaries. Foreign Currency Translations as they pertain to our assets and liabilities are translated at the prevailing exchange rate at the balance sheet date and related revenue and expenses are translated at weighted average exchange rates in effect during the 12-month reporting period. Significant currency fluctuations (particularly the British Pound and/or the Danish Kroner, Euros, versus the US Dollar) may affect our financial results including our profit and loss account and the value of our assets. Withassets and therefore we are subject to foreign currency fluctuation risks. In the conclusionCurrent 2023 FY, there were less adverse movements of these foreign currencies against the trade agreement betweenUSD and therefore our foreign subsidiaries revenues when translated into USD were only marginally impacted when applying the UK and EU which removed a lot ofConstant Rate (which is the ongoing uncertainty associated with12-month period in 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.previous financial year exchange rate).

General ImpactInflation measured as the Consumer Price Index has since calendar year 2022 been volatile in the countries in which we operate. Recently inflation has been falling in these countries and in the twelve months to October 31, 2023, these were:

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 fromDespite the Pandemic earlydecrease in inflation, the second quartergeopolitical landscape (such as the war in Ukraine which impacts on the price 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, wecommodities including oil) makes it highly probable that inflation will continue to be affectedvolatile in that the Marine Technology Business heavily relies on trade showscountries in which we operate and in-person visitstherefore is likely 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 affectedimpact the pace of adoption and uptakecosts of our productsoperations. Inflation affects our business in several areas including both the Echoscope PIPE^®costs of our operations (such as wages and salaries, which has seen an average increase of 10% in the reporting period) 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 demandcosts of raw materials for our goods and services.

Finally, the Marine Technology offerings are used at sea.products. 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.

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:

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 availabilitybill 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 Pandemicmaterials (“Pandemic”BOM”). 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 costs of our products is the abilitynot easily transferable 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 whichthere is a risk that our margins may be adversely impacted and/or that we can pursue.become less competitive. Furthermore, inflation has a knock-on effect on revenue, since in a high inflation environment our customers are less likely to invest in technology.

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.

We sell our products globally and increasingly to Asia. Asia is the fastest growing economies for our technology and solutions. The recent change in both the US and UK Governments attitude towards trade with China andGovernments’ political stance (and to a lesser extent the European Union member states,Member States) towards trade with China, directly affects the sale of our products to customers based in China. Our real time 3D sonars which are depth 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 alsoChina and therefore requires an export license. Although DAVD is not subject to export control under Export Administration Regulation (EAR) or International Trade in Arms Regulations (ITAR), we are not allowed to promote our DAVD technology in China.

In December 22, 2020On March 2023, the US Government Department of Commerce (Bureau of Industry and Security, Commerce) amended the Export Administration Regulations (EAR) to add seventy-seven (77) Chinesea significant number of 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 whichThis is ananother indication that the US Government policy and disposition towards China is hardeningcontinues to harden 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,has refused to grant export licenses for several of the Company’s 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 depth 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 recent change in the UK Customs areExport Control Regulations vis-à-vis China now indiscriminately seizingencompasses an “all catch” provision under which any item intended for export to China may be seized by UK Border Control “if there is a risk that an item may be intended or diverted for purposes connected with weapons of mass destruction or their means of delivery”. The interpretation of this provision has seen almost all our shipments which are destined for China.

exports to China from the UK being detained by UK Border Control. In 20202023 FY we were unablerealized significantly less in sales to meet demand for $1,300,000China, and we believe a direct result 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.political environment.

The removal of China as a trading partner is likely to have a significant negative impact on our revenues and growth strategy. China has one of the largest planned and funded 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,However, with the ongoing geopolitical climate, we are likelydo not expect to see a declineincreased sale 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.China.

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.

In addition to the disruptionWhile there have been improvements in lead time for supply of raw materials and components in the Supply Chain we are also experiencing veryduring the reporting period, there is significant increase in priceinflation which impacts the costs of raw materials which we are unlikely to be able to pass on to our customers.customers due to the extent of these increases. These increases may make the cost of making our products prohibitive and uncompetitive and couldmay also affect our margins and also the viability of our business.margins.

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.

We are experiencing an extreme shortage of personnel with key skills whichskill shortages in areas that are critical to our business, suchgrowth strategy including experienced sales and marketing personnel, software developers and skilled electronic technicians. The inflationary conditions and shortage of skilled workers in the countries in which we operate (US, the UK, Denmark, and India) make it difficult for us to compete for these skills as electronic. software development skills, technical support engineers, field support engineers and business development skills. Recently, itthere is extreme pressure on wages. It was widely reported in both the UK press recently that “annual average total pay growth for the private sector was 7.9% in April to June 2023, the largest annual total growth rate since comparable records began in 2001 [The Economist August 19^th-25^th 2023 Edition]”. Furthermore, as a small business, we do not have resilience built into our workforce. As a result, there is a risk in the face of global skills shortages coupled with a higher demand for skills that we could lose skills that are essential for our business including the manufacture of our products or continuation of our engineering services. For our engineering business, it is crucial that they can offer competitive pricing to their Prime Defense Contractors who generally have the option to retain the subcontract inhouse with their engineering teams and US media that there were over 1,000,000 unfilled vacancies.

This situationtherefore pricing is further compoundedan important deciding factor for being awarded a subcontract by significant global increases in salaries. In addition, with the UK withdrawing from EU membership, this exacerbates an already critical situation for businesses.

these customers.

Since we areAs a small business, we are hindered in our ability to compete for certain specialized electronic engineering skills or technology 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.

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.

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, during calendar year 2024, 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. Currently with the US Election season almost open, the Federal Government is using continuing resolutions to fund existing programs as there is no agreement on budget. This is likely to further postpone approval of budgets and apportionments of funds, which is likely to affect our business.

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.

A significant part of our growth strategy is predicated on our flagship real time volumetric imaging sonar technology, the Echoscope® 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.

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

Critical Accounting Policies and Estimates

This

The Management’s discussion and analysis of our financial condition and results of operations isare based onupon our consolidated financial statements. These financial statements that have been prepared in accordanceconformity with accounting principles generally acceptedGAAP in the United States of America (“US GAAP”). The preparation of financial statements in conformity with US GAAPwhich requires our managementus to make estimates and assumptionsjudgments that affect the reported valuesamounts of assets, liabilities, revenue and liabilitiesexpenses, and therelated disclosure of contingent assets and liabilities. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty. We evaluate our estimates based on our historical experience and various other assumptions that are believed to be reasonable under the circumstances. These estimates relate to revenue recognition, the assessment of recoverability of goodwill and intangible assets, recognition and measurement of deferred income tax assets and liabilities, at the dateassessment of the financial statementsunrecognized tax benefits, and the reported levels of revenue and expenses during the reporting period.others. Actual results could materially differ from those estimates.

Below is a discussion of accounting policies that we consider critical to an understanding ofestimates, and material effects on our financial condition and operating results and thatfinancial position may require complex judgment in their application or requireresult.

We believe the following accounting estimates about matters which are inherently uncertain. A discussionmost critical to understanding our consolidated financial statements. See “Note 2 - Summary of our significant accounting policies, including further discussion of the accounting policies described below, can be found in Note 2, “Summary ofSignificant Accounting Policies” of ourthe Notes to Consolidated Financial Statements.Statements for a full description of our accounting policies.

Revenue Recognition

All of our revenuesRevenues 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, diving technology 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.exists.

For further discussion of our revenue recognition accounting policies, refer to Note 2, paragraph h – “Revenue“Note 4 Revenue Recognition” in the financial statements.our Consolidated Financial Statements.

Stock basedStock-based Compensation

We recognize the expense related to the fair value of stock basedstock-based compensation awards within the consolidated statements of income and comprehensive income. The stock based fair value of stock-based 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“Note 10 Income Taxes” 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.

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 periodicallyannually 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 itsits’ 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 the 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 20212023 Consolidated Results of Operations

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

AlthoughIn the Current FY our overall consolidated financial results were down when compared to the Previous FY. Our consolidated results include the results of the Company’s foreign subsidiaries. Our Foreign subsidiaries’ results are translated from their respective functional currencies into United States Dollar (USD) for reporting purposes. Currency fluctuations can therefore impact on our consolidated results including revenue and our profitability. In the Current FY our consolidated revenue was $19,352,088 compared to $22,225,803 in the 2021Previous FY, our financial results have improved over the 2020 FY, this should be contextualized by the fact that startingrepresenting a decrease of 12.9%. The foreign currency impact in the second quarter ofCurrent FY was immaterial and when applying the 2020Constant Rate (Previous FY exchange rate), our businessrevenue would have been marginally higher in the Current FY by 0.4% or $84,901. During the Current FY Gross Profit Margins moderately decreased by 1.0%. Total operating expenses increased by 1.0% and were $10,291,503 compared to $10,186,624 in the Previous FY. Income from operations decreased by 45.3% and was severely curtailed$2,739,552 compared to $5,004,064 in the 2022 FY. Net income before taxes decreased by 33.3% and was $3,421,228 compared to $5,132,335 in the Pandemic resulting in a steep decline in our financial performance in 2020Previous FY.

Even thoughThe main factors for the decrease in our overall financial results are global economic factors including inflation which has directly resulted in some significant offshore projects stalling in the 2021Current FY. Many offshore operators (which constitute our customers) have existing fixed priced contracts that were entered into several years prior and which are now substantially “out-of-the-money” due to inflation. Some reports indicate that some of these offshore projects saw costs rising in excess of 40% against a backdrop of fixed price contracts previously agreed. Consequently, many of these projects were not executed in the Current FY. Many of the prime contractors (Orsted, Vattenfall, Siemens) have announced either project costs write down or shelving of projects until further notice. These factors have affected our Marine Technology Business and was further compounded by slower order-take in the 2023 FY from key strategic markets in Asia due to macro-economic factors. The UK Engineering Operations have also been affected by slow order take as during the 2023 FY their defense customers prioritize land-based applications relating to supporting the Ukraine efforts over naval-based solutions, relevant for this business.

Segment Summary

Marine Technology Business

In the 2023 FY, the Marine Technology Business generated $12,119,066 or 62.6% of our consolidated revenues compared to $14,724,688 or 66.3% in the 2022 FY, representing a decrease of 17.7%. Gross Profit Margin was lower at 76.7% in the 2023 FY compared to 80.0% in the 2022 FY, representing a decrease of 3.3%. The decrease in gross profit margin is attributed to a combination of factors including higher agents’ commission costs of $794,427 compared to $596,426, in the 2022 FY, representing an increase of 33.2%, and less units of rentals, software and customization services sold, all of which yield a higher gross profit margin. Total operating expenses increased in the Marine Technology Business by 8.0% and were $5,153,456, compared to $4,771,054 in the 2022 FY. This is largely due to exchange rate variance (a non-cash item within SG&A). Income from operations in the Marine Technology Business was $4,145,814.

The overall decrease in the Marine Technology Business financial results have improved overis due to the 2020 FY, we are still not back to pre-Pandemic conditions,decrease in revenue caused by weak demand from key strategic markets such as offshore renewables and we continue to be affected by constraints associated with the ongoing Pandemic. Thisconstruction projects in turn affects ourAsia.

The business opportunities including limiting the sales and marketing effort that we can perform since our markets are global with a significant emphasis on Asiamodel for our Marine Technology Business. It also reduces demandBusiness includes both outright sales of our technology and rentals with associated services. Rentals requirements and usage emanate mainly from Europe and are largely used by Tier One Offshore Service Providers. Rentals and associated services are a significant part of our business model and growth strategy, since these Tier One Service Providers generally rent equipment as opposed to purchase. In addition, a significant part of these revenues comprises associated services which encompass our field engineers providing support in the mobilization of the equipment and providing training to users.

During the Current FY we saw a sharp fall in our rental and associated services revenues and contrary to our business plan for the Current FY, a lack of growth in rentals revenues. In the Current FY rental revenue was $1,264,804 compared to $1,844,755 in the Previous FY, representing a decrease of 31.4%. We believe this is largely due to the offshore renewable industry experiencing rising costs, interest rates hikes and supply chain issues, which have seen the major operators in this market shelving development projects and seeking to reset contract prices. The offshore renewable energy market is an important sector for our productstechnology and services and impacts onsuccess in this market is important for our growth strategy. It is reported that the pipeline we can build for future business.slowdown in Europe in the offshore renewable market is attributable to the factors below:

However,

Asia is a key strategic market for our growth. During the Business is still impacted by the constraints placed upon the global business environmentCurrent FY we also saw a sharp fall in outright sales (as opposed to rentals) of equipment from the ongoing Pandemic andAsia-region. In the various measures taken by respective governments such as limitations on openingCurrent FY we had sales from Asia of business, quarantining rules or restrictions on travel (both domestic and abroad) and excluding foreigners$4,607,786 compared to $5,723,970 in the Previous FY. This is attributed to the slow pace of conversion of our proposals into orders from entering into the country (Japan, Singapore, China andAsia including Japan, South Korea whichand China. We continue to believe that these are important markets for us). In addition, the Services Business financial performanceour technology and, although in the 2021Current FY was significantly belowsales from that region fell, we do not believe this relates to any systemic problems with our business plan goals and this was largely duetechnology or solutions offered but relate to delays in securing defense orders and to conduct meaningful business development activities, all ofbroader macro-economic factors which impactedimpacts on the performance of the investment decisions.

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 20212023 FY, the ProductsServices Business generated 74.1%$7,233,022 or 37.4% of our consolidated revenues compared to $7,501,115 or 33.7% in the 2022 FY, representing a decrease of 3.6%. Gross Profit Margin was higher at 51.6% in the 2023 FY compared to 45.4% in the Previous FY, representing an increase of 6.2%. This increase reflects the mix of engineering work during the 2023 FY (more units of manufacturing compared to design work). Total operating expenses fell in the Services Business by 6.3% and were $2,515,664 compared to $2,684,985 in the Previous FY. This is largely related to the reduction in staff headcount. Income from operations was $1,216,121 compared to $722,584 in the 2022 FY. Our Services Segment is comprised of the UK Operations (Martech) and the US Operations (Colmek). During the 2023 FY, the UK Operations has experienced significant delays in securing orders from its UK customers. While we still expect to receive these orders, this delay has impacted significantly on the revenue from the UK Operations of our Services Segment generated 25.9%Business and has contributed to the overall fall in our consolidated financial results in the Current FY. We believe the reason for this delay is that some of our consolidated revenues. In the 2020 FY the Products Business generated 56.3% of our consolidated revenuescustomers’ priorities have temporarily shifted to supporting requirements for Ukraine which are land-based solutions and our Services Segment generated 43.7% of our consolidated revenues.are not, for example, mine-hunting or other naval applications. We do not believe these opportunities have gone away but have, instead, been postponed.

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, 20212023, to fiscal year ended October 31, 20202022

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 (““Note 14 Segment Analysis”) and “Note 15 Disaggregation of Revenue” of our audited Consolidated Financial Statements as of October 31, 20212023, and 2020.2022.

Revenue:

We realized an increasea decrease in our consolidated revenues of 12.9% in the 20212023 FY compared to the 20202022 FY.

In the 2023 FY revenue decreased in both business segments which did not meet their respective revenue plans. In the 2023 FY the main factors affecting the Marine Technology Business revenue plan are global economic factors such as inflation which has upended growth projections in a number of sectors including Offshore Renewables. In the 2023 FY we realized significantly less units of rentals than our business plan projections due to a number of significant projects being either postponed or shelved because inflation has made these unviable, thus requiring pricing renegotiations between the prime contractors and offshore service providers (the latter being our customers). This is largelydiscussed more fully above. This Business segment also realized less sales in key strategic markets such as Asia due to an increasethe slow pace of conversion of orders reflecting economic factors in that region. In the Current FY sales in Asia fell by 19.5% and were $4,607,786 compared to $5,723,970 in the revenues2022 FY. The UK Operations of the Products Business.

The Products Business revenues increased by 40.1% in the 2021 FY over the 2020 FY and the Services Business revenues declinedalso had reduced order take caused by 36.9% over that same period. Notably, equipment sales and rental revenues generated byits defense customers priorities temporarily shifting to land-based assets applications (as opposed to Naval assets-applications) to support 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.Ukrainian efforts.

Gross Margin:

Gross Profit MarginsOur consolidated gross profit margins reported in our financial results may vary according to several factors. These include:

In the 20212023 FY Gross Profit Marginsgross profit margins for the Marine Technology Business were 79.9%76.7% compared to 80.0% in the 20202022 FY. For the Services OperationEngineering Business, these were 38.6%51.6% in the 20212023 FY compared to 42.3%45.4% in the 20202022 FY.

The main factor for the fall in the gross profit margin for the Marine Technology Business is the mix of sales. In particular, there were less units of rentals and customization of technology services work compounded by higher commissions paid in the 2023 FY. The Marine Technology Business incurred commission costs of $794,427 compared to $596,426 in the 2022 FY, representing an increase of 33.2%.

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 20212023 FY compared to the 20202022 FY is set out below:

* 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 (““Note 15 Disaggregation of Revenue”) of our audited Consolidated Financial Statements of October 31, 20212023, and 2020.2022.

Research and Development (R&D):

Research and Development costs are, in general, an inherent 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 and its core technology to keep them competitive (both in price and performance) and to expand the product offerings which we have in the market.

In this connection,

Accordingly, 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 supplierour new-to-market diving technology (DAVD).

In addition, the Services Business incurs research and development expenses on advancing its Thermite^® Octal range of mission computers through re-engineering our Thermite^® (now Thermite^® Octal) via our Services Businesscomputer products with the strategic goals of increasing 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 computersdiversifying its revenues and in general, do not offer customize solutions. This is the business opportunity for our Thermite technology.improving gross profit margins.

In the 20212023 FY this category of expenditure decreased by 6.5%6.3%. The decreaseThis is largely due to reduced spending in this area in the Marine EngineeringTechnology Business (expenditures fell by 54.6%shifting its focus from R&D to other business goals such as marketing, brand building 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.business development.

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.

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:

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

The increase in SG&A is largely due to the increase in the 2021category of Legal and Professional fees resulting from an increase in costs incurred for tax specialists’ fees, increase in board of directors’ fees, increase in our marketing expenses and exchange rate variances.

Notable factors in our SG&A 2023 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:

Stock Based Compensation Expenses (Non-Cash Item). In the 2023 FY we expensed $645,196 for stock-based compensation as compared to $1,130,917 in the corresponding 2022 FY, representing a decrease of 42.9%.

Exchange Rate Variance (Non-Cash Item) We expensed $190,073 in the 2023 FY compared to recording a gain of ($431,314) in the 2022 FY.

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

Key Areas of SG&A Expenditure across the Group for the year ended October 31, 20212023, compared to the year ended October 31, 20202022

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 20212023 FY expenditures relatingcompared to the 2022 FY:

Wages and Salaries decreased by 6.7%. This decrease reflects a reduction in staff count. This category of “Rent” reducedexpenditure is susceptible to significant increases due to inflationary pressures in this area. Post-Pandemic it is widely reported that the workforce has changed with a significant percentage of employees in a certain age bracket have left the workforce. In the countries in which we operate, USA, UK and Denmark there is a high percentage of skills shortage. This makes competition for employees very fierce – causing high mobility within workforces and wage pressures. In the financial year 2024, we anticipate that this area will increase to reflect inflationary pressure and also new hires for replacement staff and the creation of new strategic positions in the area of business development and marketing. We also will have our new Chief Financial Officer in place in the first quarter of the 2024 financial year and would therefore expect that this area will be significantly higher in the 2024 financial year.

Legal and Professional Fees increased by 7.4%27.5% which reflects the increase in fees associated with tax specialists’ services and increased board fees. We recorded $130,767 for tax specialists’ services in the Current FY compared to zero in the Previous FY.

Rent expenditures decreased by 21.5% compared to FY 2020.2022. Rent is not a material expenditure in the Group as most premises which we now use forof our business operationspremises 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.Denmark.

In 2021 FY expenditures relatingMarketing increased by 9.7%. This is in keeping with our strategy to shift our focus to business development, marketing, and brand building. Expenditures in this area are spent on industry-related trade shows and events, demonstrations particularly on the DAVD market adoption and technology awareness campaigns, marketing events and customer visits. As part of our Brand building endeavors, we have also established a “Digitalization Team” whose focus is on digitalizing the Company’s media content etc. As we continue to ramp up our marketing campaign around the DAVD and our newly developed standalone Digital Audio Communications system (Voice_HUB-4) a derivative from the DAVD technology, we anticipate this 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.financial year.

InOverhead related costs as a percentage of revenue for the 2021 FY we had expenses of $1,050,821 for stock based compensation (a non-cash item) asyear ended October 31, 2023, compared to $610,780the year ended October 31, 2022

Our overhead SG&A expenditures are constituted of general corporate administrative costs.

Overhead SG&A as a percentage of revenue increased 1.2% largely due to the increase in the corresponding 2020 FY.professional fees resulting from an increase in costs incurred for tax specialists’ fees, accounting and audit-related expenses and other public company-related costs.

Operating Income:

In the 20212023 FY Operating Income increaseddecreased by 40.0%, although Total Operating Expenses increased by 9.2%45.3%. The increase in Operating IncomeThis is largely due to the increasedecrease in Revenue by 6.4% overour consolidated revenue and gross profit for the 2020FY coupledreasons earlier discussed combined with ana modest increase in our Gross Profit Margins.total operating expenses.

Other Income:

In the 2023 FY, we had “Other Income” of $681,676 compared to $128,271, representing an increase of 431.4% from the 2022 FY. In the 2023 FY $642,530 of this amount represents interest income earned on our certified deposit accounts. In February 2023, the Company established certified deposit accounts with its existing bankers. These accounts are for fixed 3-month rolling periods and constitute “cash equivalents” in our current audited Consolidated Financial Year Other Income increased by 114.8%.

The makeupStatements for period ended October 31, 2023. We anticipate that the interest earned on these certified deposit accounts will be material in the future if interest rates remain the same or continue to rise. See “Note 6 - Composition of Other Income is as follows:

In bothCertain 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 additionStatement Captions” (Other Income) to the amounts received pursuant to the PPP and ERC schemes described above, we have in the 2021 FY recorded an amount of $84,942audited Consolidated Financial Statements for Other Income in our Financial Statements.period ended October 31, 2023, where this is discussed further.

Interest Expense: