Coda Octopus Group, Inc. CODA US Equity☆

ITEM 1A. RISK FACTORS 16

ITEM 1B. UNRESOLVED STAFF COMMENTS 16

ITEM 2. PROPERTIES 17

ITEM 3. LEGAL PROCEEDINGS 17

ITEM 4. MINE SAFETY DISCLOSURES 17

PART II

ITEM 6. SELECTED FINANCIAL DATA 18

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 36

ITEM 9A CONTROLS AND PROCEDURES 36

ITEM 9B OTHER INFORMATION 36

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 37

ITEM 11. EXECUTIVE COMPENSATION 42

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 44

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 45

SIGNATURES 46

FORWARD-LOOKING

STATEMENTS

This

Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, which

we refer to in this annual report as the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, which

we refer to in this annual report as the Exchange Act. Forward-looking statements are not statements of historical fact but rather

reflect our current expectations, estimates and predictions about future results and events. These statements may use words such

as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “predict,”

“project” and similar expressions as they relate to us or our management. When we make forward-looking statements,

we are basing them on our management’s beliefs and assumptions, using information currently available to us. These forward-looking

statements are subject to risks, uncertainties and assumptions, including but not limited to, risks, uncertainties and assumptions

discussed in this annual report. Factors that can cause or contribute to these differences include those described under the heading

“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

If

one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual

results may vary materially from what we projected. Any forward-looking statement you read in this annual report reflects our

current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to

our operations, results of operations, growth strategy and liquidity. All subsequent written and oral forward-looking statements

attributable to us, or individuals acting on our behalf are expressly qualified in their entirety by this paragraph. You should

specifically consider the factors identified in this annual report, which would cause actual results to differ before making an

investment decision. We are under no duty to update any of the forward-looking statements after the date of this annual report

or to conform these statements to actual results.

PART

I

ITEM

1. BUSINESS

Overview

Coda

Octopus Group, Inc. (“Coda” “the Company” or “we”), through its wholly owned subsidiaries,

operates two distinct businesses:

Our

Marine Technology Business is a technology solution provider to the subsea and underwater market. It owns key proprietary

sonar technology used for underwater commercial and defense applications. All design, development and manufacturing

of our technology and solutions are performed within the Company. These products and solutions are used primarily in

the underwater construction market, offshore wind energy industry (offshore renewables), and offshore oil and gas, complex dredging,

port security, mining, fisheries and marine sciences sectors. Our volumetric real time sonar technology is our most promising

product for the Group’s growth due to its unique capabilities including real time 3D visualization of moving objects

underwater including in zero-visibility water conditions. Our customers include service providers to major oil and gas (“O&G”)

companies, renewable companies, underwater construction companies, law enforcement agencies, ports, mining companies, defense

bodies, research institutes and universities. We are widely considered the leading solution providers for real time 3D visualization

underwater.

Our

Marine Engineering Business is a supplier of embedded solutions and sub-assemblies which they design and manufacture and

sell into mission critical integrated defense systems such as the Close-In-Weapons System (CIWS). The Services Segment established

its business in 1977 and has been supporting a number of significant defense programs for over 40 years, including Raytheon’s

CIWS and Northrop Grumman’s Mine Hunting Systems Program. The Services Segment’s business model entails designing

sub-assembly prototypes for defense programs which typically lead to contracts for the manufacture, repair and upgrade

of these sub-assemblies. We are the sole source for the parts that we supply into these programs. This business

model ensures recurring and long tail revenues since we continue to supply parts, typically for the life of the program,

which can span decades. Coda Octopus Colmek, Inc. and Coda Octopus Martech Ltd, each qualifies as a small business.

This opens up opportunity under state requirements to collaborate with Prime Defense Contractors on these programs.

Due

to the above,asignificant part of the revenues generated by the Marine Engineering Business is highly

concentrated and are derived from a small number of prime defense contractors such as Raytheon or Northrop. In any one

year, between 20% to 30% of our consolidated revenues may be derived from these customers either alone or

collectively.

The

Services Segment operates through our wholly owned subsidiaries, Coda Octopus Colmek, Inc. (“Colmek”) based in Salt

Lake City, Utah, and Coda Octopus Martech Limited (“Martech”) based in the United Kingdom.

Our

Products and Services operations have established synergies in terms of customers and specialized engineering skills set

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.

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, 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 and visualization sonar technology capable of producing real time three-dimensional (“3D”)

underwater images for use in subsea activities. Coda Octopus Products Limited (Edinburgh based) then developed the visualization

software to control and display the images from the real time 3D sonar. This patented technology is now marketed by us under the

brand name “Echoscope®”. All activities of this now-defunct Norwegian subsidiary have been

transferred to Coda Octopus Products Limited (Edinburgh).

On

July 13, 2004, the Company effected a reverse merger pursuant to the terms of a share exchange agreement between The Panda Project,

Inc. (“Panda”), a Florida corporation, and a now defunct entity affiliated with Coda Octopus Ltd. (“Coda Parent”).

Panda acquired the shares of Coda Octopus Limited, a UK corporation and a wholly-owned subsidiary of Coda Parent, in consideration

for the issuance of a total of 1,432,143 shares of common stock to Coda Parent and other shareholders of Coda Octopus Limited.

The shares issued represented approximately 90.9% of the issued and outstanding shares of Panda. The share exchange was accounted

for as a reverse acquisition of Panda by Coda. Subsequently, Panda was reincorporated in Delaware and changed its name to Coda

Octopus Group, Inc.

In

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

is an English corporation.

In

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

a Utah corporation.

Both

Martech and Colmek largely have the same business model, provide similar engineering services and sell to a similar customer base

(one is UK focused and the other is US focused).

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 and

Australia. 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:

● Geophysical Systems comprising hardware and software; and

● Motion and Positioning Systems comprising hardware and software; and

● Real Time Volumetric Imaging Sonar comprising hardware and software.

These

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

● Marine geophysical survey

● Underwater construction

● Diving

● Salvage and decommissioning

● Oil and gas

● Commercial fisheries

● Environmental, mammal and habitat monitoring

● Defense

● Marine vehicles and robotics

● Security, law enforcement and first responders

● Research and education

1.

Geophysical Range of Products

Our

geophysical systems (“GEO”) range of products include geophysical data acquisition systems, processing and analysis

software that are used primarily by survey companies, research institutions, salvage companies and, more recently, offshore energy

and renewables operators. These systems are used to survey large areas and create images of the seabed, identify seabed boulders

and objects, mark seabed type boundaries and identify existing subsurface structural features, geological layers, and/or buried

debris.

2.

GPS aided Inertial Positioning Systems

These

are referred to as our MOTION range of products and offer high accuracy GPS aided inertial positioning and attitude data, essential

for all marine survey applications. The products are commonly bundled with our GEO and real time sonar solutions offering our

customers a seamless integration and support experience.

3.

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

We

design, develop and supply what we believe is the world’s most advanced series of real time volumetric imaging sonar. This

is the culmination of over 25 years of research and development. This technology is protected by multiple patents. Furthermore,

we continue to file patents relating to our new and revolutionary sonars, our 5-Dimensional (5D) and 6-Dimensional (6D)

real time volumetric imaging sonars (marketed under the name Echoscope® PIPE (Parallel Intelligent Processing Engine). Our

sonar innovations are multi-tiered and extend to hardware, firmware and software, all of which co-exist and are co-dependent on

each other. In other words, hardware, firmware and software operate as sub-systems to each other. We believe that the highly complex

nature of this new technology will make it extremely difficult to reverse engineer our products. Pioneering this unique technology

gives us a significant advantage over our competitors in the subsea 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 subsea moving objects.

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. We believe our

5D and 6D series of sonars heralds a significant leap forward in real time subsea imaging as this inventive capability allows

a single sonar to provide to different parts of the survey operations multiple real time data sets (as opposed to one 3D dataset)

for each part of the survey teams’ requirements.

We

believe that our real time volumetric imaging sonar products are revolutionizing the sonar market due to the following unique

capabilities:

B. Accurate three-dimensional data unaffected by motion or water visibility.

H. Coherent single sensor delivery for multiple applications.

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 is an important development milestone for the Company. Due to the form

factor of our previous generation of 3G sonar series this limited the types of subsea vessels/vehicles this generation

of sonar could be integrated on (and therefore be used for) due to (i) size; (ii) weight and (iii) power

requirements (“form factor barriers”). With the launch of the 4G sonar series we have removed these form factor barriers

and can now integrate on the majority of underwater vehicles in the market including the new and fast emerging smaller

underwater vehicles such as autonomous surface vehicles (ASVs) and unmanned underwater vehicles (UUVs) which are propelling

growth in the underwater market.

The

4G sonar series developments were largely form factor driven as opposed to being based on performance and capability

advancements. In fiscal years 2019 and 2020 we continued our innovation of our sonar technology to focus on performance

and capability advancements, particularly on the beamforming and the data processing capability of our sonar series. In the previous

generation of our sonars, due to limitations in processing capability technology there were restrictions

on how much of the captured sonar data could be processed. Our previous generations of sonars processed 16,384 pieces of

data per sonar ping (compared to around 256 pieces of data per sonar ping for competing technology such as the multibeam).

Under our new 5D/6D sonars 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. We believe that this advancement 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. Our 5D capability allows customers to collect full time series 4D backscatter data in real time. Our 6D capability

allows customers to use a single sonar for multiple simultaneous real time data sets using different real time capture and processing

parameters (such as range, frequency and field of view).

The

4G sonar series development which we launched in 2018 now combined with the performance and capability advancements (5D and 6D

capability) crystalizes the completion of the main pillars of development plans for our real time volumetric sonar series.

We believe these achievements are critical milestones in the Company’s growth strategy and also distinguishes our sonar

capabilities from all other imaging sonar offerings in the market. This will enable us to refocus a significant

part of our spending from R&D to marketing and business development post-Pandemic.

The

following diagram outlines the capability summary progression as we transition from our current Real-Time 3D (4D) volumetric imaging

sonar system to 5D and then 6D.

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.

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. In this connection, in 2019,

we launched for customer evaluation our 4th Gen of top-end software for our sonars – 4G Underwater Survey Explorer

(“4G USE®”). We have also filed several provisional patents around our 4G USE®.

Our

3G Underwater Survey Explorer software is feature rich and offers advanced processing and application focused capabilities for

various markets. 3G USE has been in the market for over 15 years. While this generation of our software is a mature and feature

rich product, communication and graphics processing technologies have advanced considerably over recent years, allowing (for example)

improved methods for processing larger volumes of data and leveraging new capabilities in recent PC hardware and the GPU.

Our

new 4G USE® software is a ground-up development based on the latest processor capabilities and software architecture.

4G USE® will offer a completely new level of real-time visualization and automation processing to complement our

recent sonar launches including our 5D and 6D sonars. The initial release of 4G USE® allows multiple devices being

utilized simultaneously (example multiple sonars, rotators and inertial and positioning systems) and viewing the real-time data

result in a consolidated image. 4G USE® which is also subject to a number of patent applications, is designed

as an enterprise class platform, allowing many users access and control of data in real-time for better collaboration, tighter

quality control, remote surveying and faster processing.

Our

software packages are feature rich and include techniques which are the subject of patents in a number of our modules. In general,

our software package contains significant capabilities that are designed to enable surveying a dynamic subsea setting (as opposed

to a static mapping of the seabed as is typical for conventional sonar technology). Some of our unique features include:

Feature Description Functionality

Our

Echoscope® PIPE (the first 6-Dimensional Sonar) will also bring significant capabilities to include multiple parallel processing

(enabling different parameters to be set and utilized) in real time mode. We are not aware of any sonars that can offer this capability.

This will allow multiple tasks and users of the real time data simultaneously, thus increasing efficiency and enabling tasks which

were previously impossible.

Geophysical

Products and Solutions

We

started our business in 1994 designing and developing the CodaOctopus® 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, CodaOctopus® GeoSurvey has been purchased by numerous leading survey companies throughout the world.

The

Products Business generates around 5% 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 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 4th 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 mosaicing complex data sets,

thus ensuring faster and more precise results.

Geophysical

Software

Our

CodaOctopus® 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 (“Survey Engine Automatic Object Detection (SEADP)”).

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.

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. These systems are used either alone and then paired

with third parties multibeam sonars or used in conjunction with our volumetric real time sonars. This technology has

been developed for the marine environment and is based on technology originally developed for the extreme world of motor racing.

Modifications and enhancements have resulted in a simple-to-use, off-the-shelf product that brings accurate positioning and motion

data into extreme offshore conditions for precision marine survey applications worldwide. Variants within the F180®

series include the F190, exclusively configured for use ‘near-land’, e.g., within ports and harbors, and the F185,

with enhanced precision positioning to 1cm accuracy (<0.5”). Coda Octopus iHeave, an intelligent software product for

dealing with long period ocean swell compensation, is fully integrated within the F180® series.

New

Generation of Motion Products

We

have now completed the ground up development of our new generation of Motion Products (F280®). The new F280

is based on more advanced technology, more accurate than our F180® series. The new technology is much more scalable towards

future development of new product variants. The F280® series 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.

Sales

and Marketing

We

market our products primarily through our website, industry events, webinars and industry relationships. We

also have an internal sales and marketing team which is engaged in marketing and selling our products. In addition,

we have a network of non-exclusive independent global sales agents.

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 (“Service Segment”)

Our

Marine Engineering Businesses comprise Coda Octopus Colmek, Inc. based in Salt Lake City and Coda Octopus Martech

Limited based in the United Kingdom.

These

two operating entities supply engineered sub-assembly solutions which form part of mission critical integrated defense systems,

test equipment, instrumentation and the like. They operate as sub-contractors to prime defense contractors and their engineering

solutions are typically within broader defense programs where high levels of reliability and quality are essential pre-requisites

for securing and maintaining these agreements with their customers. Typically, we prototype products for these customers and after

going through various acceptance tests, including first article inspection approvals, we are given the production contracts. Many

of these production contracts have a repeat orders profile which typically follows the life cycle of the defense program that

is using the production part.

These arrangements often give us long term

preferred/sole supplier status for the parts we supply, technology refresh and obsolescence management business opportunities

with these customers and we generally use these long-standing relationships to win more contracts with these customers.

This

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

In

addition, we are increasingly combining our engineering capabilities with our product offerings. This enables us to offer systems

which are complete with installation and support to maximize the utilization of our collective expertise to advance our real time

volumetric sonar technology.

Coda

Octopus Martech Limited (“Martech”)

Martech

operates in the specialized niche of bespoke design and manufacturing services mainly to the United Kingdom defense and subsea

industries. Its services are provided on a custom sub-contract basis where high quality and high integrity devices are required

in small quantities.

The

Company enjoys pre-approvals to allow it to be short-listed for certain types of government contracts. Much of the more significant

business secured by Martech is through the formal government or government contractor tendering process. Government contracts

may be terminated at any time at the discretion of the government. If the government does terminate a contract, the Company is

allowed to recover the costs incurred up to the date of termination. During the last few years, only one non-material government

contract was terminated for convenience.

Coda

Octopus Colmek, Inc. (“Colmek”)

Colmek

is a service provider of defense engineering solutions, particularly in the fields of data acquisition, storage, transmission

and display. It has grown and diversified since beginning its operations in 1977 and now provides services and products to a wide

range of defense, research and exploration organizations in the United States.

It

designs, manufactures and supports systems that are reliable and effective in multiple military and commercial applications where

ruggedness and reliability under extreme operational conditions are paramount and where lives depend on accurate and precise information.

Colmek

has long standing relationships with a number of prime defense contractors and has been supporting a number of defense programs

for over 40 years including the Close in Weapons Support Program (CIWS) for which it supplies proprietary parts and services

and technical refresh programs. As a result, Colmek has recurring revenues from these long-standing programs. Colmek continues

to expand the number of established programs into which it supplies proprietary parts.

In

June 2014 Colmek completed the acquisition of the Thermite® which is a rugged visual mission computer line and

the Sentiris® AV1 XMC video card for $1,100,000 in cash. Colmek also acquired hardware, Thermite inventory

and other intellectual property rights (such as software code and trademarks pertaining to these products). Thermite®

was acquired with the goal of updating the technology and expanding the market for this rugged mission computer.

The

Thermite® Product fits within established programs with Department of Defense (“DoD”) prime contractors

and benefits from being a single source product under this program. Customers for this item include the US Army, Benchmark, and

Endeavor Robotics Defense and Security Division.

Thermite

® Rugged Visual Computers

● Lightweight, power efficient and conduction-cooled;

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

We

consider Thermite® to be an important part of our growth strategy and are investing in the new generation of

these mission computers and have expended significant development costs on re-engineering this. To this end, we have now designed

and developed our next generation of the Thermite® “Octal”. The new Octal is in trials with a number

of new customers who fit the profile of large quantity purchasers with repeat and long-term requirements for this product. The

coronavirus Pandemic has interrupted the completion of these trials. The Thermite is one of our key growth catalysts.

Other

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

and rugged LCD displays.

Competition

In

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

Data

Acquisition Products (GEO Products)

The

sonar equipment industry 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.

Inertial

Positioning and Attitude Measurement Systems (“Motion Products”)

In

the field of motion sensing equipment, where our product addresses a small part of the overall market, we believe that we have

four principal competitors: TSS (International) Ltd in Watford, England which is focused on the mid-performance segments with

about 25% of the world market; Ixsea, a French company which covers all segments, with about 20% of the market; Kongsberg Seatex,

a Norwegian company (part of Kongsberg Gruppen) which has products across all segments, with about 15% of the market; and Applanix,

a Canadian company, now part of Trimble which has one major product focused on the high end of the market, with about 20% of the

market. We believe that our market share in the field of motion sensing equipment is only about 5%. This market is fiercely competitive

and with the advancement of technology, there are new entrants to the market such as SBG Systems (a French based manufacturer

of motion sensors). Due to the price pressure in this market, we are selling our products more in conjunction with our real time

3D sonars than on a standalone basis. However, with the development of our new F280®product, this gives us the

opportunity to increase our market share.

Real

Time Volumetric Sonar

In

the field of Real Time 3D/4D/5D imaging, we are unaware of other companies offering a similar product. The entry into this

market is dependent upon specialized marine electronics, acoustic and software development skills. The learning curve, which

has resulted in the advancement of our real time 3D sonar device, is the culmination of two decades of research and

development into this field. Companies such as Tritech International Ltd., United Kingdom, BlueView Technologies Inc., USA

(now a part of Teledyne Technologies Incorporated), and Norbit Group AS Norway are examples, but none of these sonar

offerings are directly comparable or competitors to our real time volumetric sonar solutions. Specifically, we believe that

they do not have the same capabilities as our Echoscope® technology in terms of generating real time 3D,

4D, 5D and 6D images of moving objects underwater including in environments in low or zero visibility

conditions. Nor the ability to use a single sonar for multiple real time 3D 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.

Notwithstanding, we believe that our recent development and introduction of 5D/6D - Echoscope PIPE®) sonar

capability further distinguishes our volumetric sonars and significantly extends our lead over competitors in the subsea

imaging market. We are not aware of any other imaging sonars in the market capable of generating real time 5D and 6D

imagery underwater. The innovations around Echoscope PIPE® are the subject of numerous patent

applications.

We

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

without specialized skills in sonar technology. We intend to continue our research and development activities to continually improve

our products, seek new applications for our existing products, to develop new innovative products and grow the market for our

products and expertise.

In

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

Marine

Engineering Businesses

Through

our marine engineering operations, Coda Octopus Colmek, Inc. and Coda Octopus Martech Limited, we are involved in custom engineering

for the defense industry in the United States and in the United Kingdom. Martech competes with larger contractors in the defense

industry. Typical among these are Ultra Electronics, BAE Systems, and Thales, all of whom are also partners on various projects.

In addition, the strongest competitors are often the clients themselves. Because of their size, they often have the option to

proceed with a project in-house instead of outsourcing to a sub-contractor like Martech or Colmek.

Intellectual

Property

Our

product portfolio and technologies are protected by intellectual property rights including trademarks, copyrights and patents.

In the last 2 years we have advanced our existing sonar technology and have filed a number of significant patents applications

pertaining to these inventions including covering our newly innovated 5D and 6D sonars.

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.

Our

patent portfolio consists of the following:

Patent Number Description Expiration Date

Trademarks

We

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

Coda®,

Octopus®, CodaOctopus®, CodaOctopus & Design®, Octopus & Design®, F180®,

F280®, F280 Series®, Echoscope®, Echoscope 4G®, Echoscope 5D®, 5D Echoscope®,

Echoscope 6D®, 6D Echoscope®, Echoscope PIPE® Ping-Pong Echoscope Sonar®, Ping-Pong

Echoscope®, Ping-Pong Sonar®, 4G Underwater Survey Explorer®, 4G USE®, Survey Engine®, Dimension®,

DAseries®, CodaOctopus® Air, CodaOctopus® 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

Research

and Development is foundational to our business strategy to ensure our growth strategy and maintain our competitiveness.

During the fiscal years ended 2020 and 2019, we spent $3,188,389 and $2,801,331 (a 13.8% increase), respectively, on Research

and Development. With the crystallization of our sonar series

developments and our F280® inertial navigation system, we would expect R&D expenditures in this area to be less

in 2021 fiscal year.

Our

products are complex and therefore we can give no assurance that even with spending a significant part of our resources on

R&D, we will be successful in our development goals. Furthermore, even following 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.

We

are also required to maintain certain accreditations such as ISO accreditation, cyber security certifications, approvals

to hold government items or materials and/or certain personnel or facility clearances.

In

addition, as a provider for the US Government, we may be subject to numerous laws and regulations relating to the award, administration

and performance of US Government contracts, including the False Claims Act. Non-compliance found by any one agency could result

in fines, penalties, debarment, or suspension from receiving additional contracts with all US Government agencies. Given our dependence

on US Government business, suspension or debarment could have a material adverse effect on our business and results of operations.

Employees

As

of the date hereof, we employ approximately 110 employees worldwide, of which 12 hold management positions. A large majority of

our employees have a background in science, technology and engineering, with a substantial part being educated to degree and PhD

level. None of our employees are employed under a collective agreement and we have not experienced any organized labor difficulties

in the past.

ITEM

1A. RISK FACTORS

Not

required for smaller reporting companies.

ITEM

1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM

2. PROPERTIES

Orlando,

Florida

Our

corporate offices are co-located with our subsidiary Coda Octopus Products, Inc. in Orlando. We own these business premises comprising

3,000 square feet that includes office space and R&D facilities.

Salt

Lake City, Utah, USA

Coda

Octopus Colmek operates from its premises which comprises 16,000 square feet and includes production, R&D Facilities and office

space. These premises are owned by Coda Octopus Colmek.

Edinburgh,

Scotland, UK

Coda

Octopus Products Limited (Edinburgh based) operates from its premises comprising 12,070 square feet of internal space and includes

production, R&D Facilities and office space. These premises are owned by Coda Octopus Products Limited.

Copenhagen,

Denmark

As a mitigation strategy in relation to the

UK leaving the European Union membership, thus limiting trade relations with EU member states, we have leased business

premises in Copenhagen, Denmark. The lease runs from September 1, 2019 to September 1, 2023 with a clause allowing us to break

the lease with effect from September 1, 2021 upon 6 months’ notice.

Annual

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

Portland,

Dorset, UK

Martech

uses premises owned by Coda Octopus Products Limited. These premises are located in the Marine Center in Portland, Dorset, United

Kingdom, and comprise 9,890 square feet. The building comprises both office space and manufacturing and testing facilities. The

lease is on a rent-free basis for a period of 2 years expiring December 31, 2020. After this Martech will resume paying

Coda Octopus Products Limited rent amounting to the equivalent of $56,457 per annum.

All

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

ITEM

3. LEGAL PROCEEDINGS.

From

time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business.

However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time

to time that may harm our business. We are currently not aware of any such legal proceedings that we believe will have, individually

or in the aggregate, a material adverse effect on our business, financial condition or operating results.

ITEM

4. MINE SAFETY DISCLOSURES.

Not

Applicable.

PART

II

ITEM

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

Our

common stock has been traded on the Nasdaq Capital Market under the symbol “CODA” since July 19, 2017. Prior thereto,

it had been quoted on the OTCQX since February 8, 2017 under the symbol COGI, and prior thereto, on the OTC Pink Sheets

under the symbol CDOC. The following table sets forth the range of high and low bid prices of our common stock as reported and

summarized on the Nasdaq, for the periods indicated. These prices are based on inter-dealer bid and asked prices, without markup,

markdown, commissions, or adjustments and may not represent actual transactions.

Year Ended October 31, 2020 HIGH LOW

Year Ended October 31, 2019 HIGH LOW

We

have not declared or paid any cash dividends on our common stock, and we currently intend to retain future earnings, if any, to

finance the expansion of our business, and we do not expect to pay any cash dividends in the foreseeable future. The decision

whether to pay cash dividends on our common stock will be made by our board of directors, in their discretion, and will depend

on our financial condition, operating results, capital requirements and other factors that the board of directors considers significant.

ITEM