Forward-Looking Statements


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

The following discussion and analysis should be read in conjunction with our
financial statements, included herewith and the audited financial statements
included in our annual report on Form 10-K filed with the Securities and
Exchange Commission on February 14, 2022. This discussion should not be
construed to imply that the results discussed herein will necessarily be
indicative of actual operating results in the future. Such discussion represents
only our management's best present assessment.

General Overview

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



"Current Quarter"           Three-month period ended April 30, 2022

"Previous Quarter" Three-month period ended April 30, 2021 "Current Six-Month Period" The Six-month period ended April 30, 2022 "Previous Six-Month Period" The Six-month period ended April 30, 2021

We operate two distinct business operations. These are:



  ? the Marine Technology Business (also referred to in this Form 10-Q as
    "Products Business", "Products Operations" or "Products Segment"); and

  ? the Marine Engineering Business (also referred to in this Form 10-Q as

"Engineering Business", "Engineering Operations", or "Services Business" or


    "Services Segment").



Our Marine Technology Business is an established technology solution provider to
the subsea and underwater imaging, surveying and diving market. It has been
operating in this sector for over 25 years and it owns key proprietary
technology including real time volumetric 3D Imaging Sonar technology and diving
technology, that are used both in the underwater defense and commercial markets.
All design, development and manufacturing of our technology and solutions are
performed within the Company.

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

27





Although we generate most of our revenues from our real time 3D sonar which
includes both hardware and proprietary software, we have a number of other
products in the subsea market such as our inertial navigation systems (F180
Series® and F280 Series®) and our geophysical hardware and software solutions,
which include machine learning based automatic detection systems. Our customers
include offshore service providers to major oil and gas companies, renewable
energy companies, underwater construction companies, law enforcement agencies,
ports, mining companies, defense bodies, research institutes and universities
and diving companies.

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

Key Pillars for our Growth Plans

Our volumetric real time imaging sonar technology and our DAVD are our most promising products for the Group's near-term growth.



Our real time 3D/4D/5D/6D Imaging sonars are the only underwater imaging sonars
capable of providing not only complex seabed mapping but inspecting and
monitoring in real time 3D/4D/5D and 6D moving objects underwater 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 3D inspection and
monitoring of moving objects underwater. Furthermore, we believe our Echoscope
PIPE® is the only technology that can generate multiple real time 3D/4D/5D and
6D acoustic images of moving objects underwater using different acoustic
parameters such as frequency, field of view, pulse length and acoustic filters.

In the industry in which we operate, we are widely considered the leading solution providers for underwater real time 3D visualization.


We also believe that the DAVD system is poised to radically change the way
diving operations are performed globally by advancing the methods of
communication, ability to consume and use digital information and real time
imaging sonar data, thereby improving safety and reducing the costs of these
operations. The DAVD HUD (Head Up Display) concept of utilizing a pair of
transparent glasses in the HUD underwater, is protected by patent. The DAVD HUD
is manufactured and distributed under license from the United States Department
of the Navy at Naval Surface Warfare Center Panama City Division. The other
component parts of the DAVD system are proprietary to the Company and include
software (4G USE®), Diver Processing Pack, Top Side Controller and real time 3D
Sonar. The successful adoption of the DAVD is dependent on the Company's ability
to have on-site demonstrations with existing and prospective customers. The DAVD
system does not lend itself to adoption without such demonstration and training.

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

Factors Affecting our Business in the Current Quarter

Our Form 10-K for the fiscal year ended October 31, 2021, covers factors affecting our business and are incorporated by reference herein. Set out immediately below are additional factors that affect our business in the Current Quarter:



28





Cumulative Supply Chain Issues including Ripple Effect On Orders


The biggest challenge for the Company in the Current Quarter is the ongoing
shortage of components in the market. We are experiencing a very high percentage
of routine items required for the manufacture of our products and solutions or
performing custom upgrades for customers that are unavailable for purchase in
the market with crippling lead times being quoted from anywhere between six
months to a year. In addition, suppliers are now charging on an hourly basis for
time spent on seeking alternative parts. Since the beginning of the Coronavirus
outbreak in March 2020, the Company has been ramping up its investment in
inventory items that were typically on long lead time. We believe that in the
current year we have built sufficient inventory for these high value long lead
items. However, our systems are complex, and it is the low value inventory items
that have traditionally been readily available that have unexpectedly become
unavailable. To complete a system or perform customer upgrades, we need all
parts and not just a high percentage of parts and it is these previously readily
available items that have now become extremely challenging.


Our suppliers of certain subassemblies are also receiving decommits (i.e., cancellation) on orders that have been under contract with their suppliers for a long time. Therefore, even if there is a supply contract in place, firm or expected delivery dates are increasingly no longer met by suppliers.




We are also experiencing significant price increases for all our raw materials
and components. Price increases sometimes exceed 100%. The significant price
increases also means that unless these increased prices are fully absorbed by
customers, margins and net income may be adversely affected.


The general shortage of components in the market impacts our Services Business
even more acutely given the prototyping nature of its business which does not
enable pre-emptive forward buying. The very nature of prototyping means that any
requisite components are unknown until the prototype requirements are finalized
and order is placed by the customer. Therefore, these components cannot be
pre-emptively purchased until contract award or letter of intent received.


Additionally, our customers are also experiencing supply chain problems. This
impacts on their ability to progress to the point of placing orders for the
sub-assemblies that we typically design and manufacture for them. Consequently,
this delays orders and impacts the level of order take by the Business.


Pandemic


Our operations continue to be impacted by the ongoing Coronavirus outbreak with
its various mutations ("Pandemic"), which in turn continues to impact the demand
for our goods and services. We rely on the ability to sell our solutions offered
by the Marine Technology Business globally. Asia is a very significant market
for our technology solutions including Japan, China and South Korea. During the
Current Quarter, all of these countries had various degrees of entry
restrictions which continue to prevent in-person visits with existing and
prospective customers to demonstrate our new offerings which underpin our growth
strategy. Our products and solutions, including the top end software which
controls the sonar and DAVD are complex and, as a pre-requisite for adoption, do
require in-person demonstration and training for customers. It is therefore not
feasible to do these virtually.



Furthermore, in the Current Quarter our business experienced critical shortage
of staff due to a high infection rate. This has resulted in increased project
costs for various ongoing internal and external projects and significantly
reduced productivity which will have a negative impact on our overall
performance during the current financial year.


Inflation



Due to the global supply chain issues and after-shock of the Pandemic, inflation
measured as the Consumer Price Index is significant in the countries in which we
operate. In the twelve months to April 2022, these were:

  - Denmark 6.7%,
  - UK 9.0% and
  - USA 8.3%.



Inflation affects our business in a number of areas including increasing the
costs of our operations and therefore our overall financial results. See section
of this report "Inflation and Foreign Currency".


Currency Fluctuations



The Company has operations in the UK, USA, Denmark, Australia and India.  In the
Current Quarter the USD has strengthened against major currencies including the
British Pound, Euro and Danish Kroner (the functional currencies of the
Company's foreign subsidiaries). A significant part of our consolidated results
is transacted in Pounds and translated into USD, our reporting currency. In the
Current Quarter, for the purposes of reporting revenues and expenses the value
of the Pound fell 5.8% when compared to the Previous Quarter and for assets and
liabilities the Pound fell 9.1% when compared to the Previous Quarter. The
impact of currency fluctuations, including the impact of the Pound falling, is
discussed more fully below in the section "Inflation and Foreign Currency". See
also Note 4 (Foreign Currency Translation) and section of this report "Inflation
and Foreign Currency".


Skills/Resource Shortages and Pressure on Salaries and Wages

We are experiencing skills shortage in areas that are critical to our growth strategy including experienced sales and marketing personnel and software developers.



Due to the inflationary conditions in the countries in which we operate (US, the
UK and Denmark), there are significant pressures on wages making it difficult to
attract staff and also risking retention of skills.

Impact on Revenues and Earnings




We are uncertain as to the extent that these factors reported immediately above
including the global supply chain issues will have on our future financial
results. In the Current Quarter, we continue to be negatively impacted by the
reduction in customer orders and the resulting drop in our revenues and
earnings. The supply chain issues further exacerbate this problem as our
customers are unable to sub-contract to us, due to problems with availability of
components and raw materials under the main part of the programs. Furthermore,
with the significant increase in the costs of components and raw materials, this
may affect our earnings, as we may not be able to sustainably pass on these
dramatic increases onto our customers which may result in reduce demand for our
products or services or the erosion of our gross profit margins.


Impact on Liquidity, Balance Sheet and Assets



Failure to curb the Pandemic in the near future, address the supply chain issues
and inflation may adversely impact on our availability of our free cash flow,
working capital, earnings and business prospects. As of April 30, 2022, we had
cash and cash equivalents of approximately $20,658,119. Based on our outstanding
obligations and our cash balances, we believe we have sufficient working capital
to effectively continue our business operations for the foreseeable future.

Critical Accounting Policies



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

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

29





Revenue Recognition

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

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

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

Recoverability of Deferred Costs



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

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

30





Income Taxes

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

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

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

Intangible Assets



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

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

Summary of Consolidated Results of Operations



Our consolidated financial results in the Current Quarter were down compared to
the Previous Quarter. This is attributed to reduced order bookings in both the
Products and Services businesses during the Current Quarter. The Products
Business experienced delays in several anticipated rental projects which were
included in our pipeline of opportunities in both the first quarter and the
second quarter of the financial year. This was further exacerbated by Oceanology
2022 (one of the main industry trade events) being held in March 2022.
Typically, customers postpone capital expenditure investment decisions until
after this trade event. Furthermore, many key customers from Asia were not in
attendance of Oceanology 2022 due to the Pandemic-related restrictions in these
countries. This has resulted in reduced order by the Marine Technology Product
in the first two quarters of this financial year. Although we have experienced
reduced demand, we believe this relates to the current environment and not a
broader issue with our offerings.

The Services Business order take continues to be slower than anticipated and is
compounded by their customers projects being affected by the ongoing supply
chain shortages and inflationary prices and therefore impacting the timing of
the placement of sub-contracts for sub-assemblies that would typically be
awarded to the Services Business.

Furthermore, during the Current Quarter we continued to be materially impacted
by the Pandemic-related constraints placed upon the business environment which
limited the extent of the business development activities the Products Business
could undertake in Asia. Our UK operations were also significantly impacted by a
high level of infection of the coronavirus amongst staff which impacted
productively and hampered our progress.



Segment Summary

Products Business

In the Current Quarter the Products Business generated $3,491,009 or 70% of our
consolidated revenues compared to $4,184,409 or 77.9% in the Previous Quarter,
representing a fall of 16.6%. Revenues generated from Europe fell by 86.7% and
were $221,334 compared to $1,665,443 in the Previous Quarter. We believe that
this is due to the Pandemic which surged in Europe in the first half of our
financial year affecting demand in Europe for our products. Gross Profit Margin
increased slightly by 1% and was 76.6% in the Current Quarter compared to 75.6%
in the Previous Quarter. In the Current Quarter more units of revenues in the
Products Business emanated from sales through agents, resulting in an increase
in commissions on sales which were 165.2% higher at $266,300 in the Current
Quarter compared to $100,400, thus negatively affecting margins. In the Current
Quarter Total Operating Expenses fell in the Products Business by 11.6%,
compared to the Previous Quarter and Net Income Before Taxes fell by 20.8% and
was $1,494,832 compared to $2,009,600 in the Previous Quarter.

Services Business


In the Current Quarter the Services Business generated $1,493,829 or 30% of our
consolidated revenues compared to $1,188,667 or 22.1% in the Previous Quarter
representing an increase of 25.7%. Gross Profit Margin was 23.9% representing a
fall of 25.6%. The fall in Gross Profit Margin in the Services Business is
largely due to the mix of engineering projects executed in the Current Quarter.
Revenues generated by the Services Business includes equipment sales in the
amount of $534,134 which carry a lower than typical Gross Profit Margin profile
for the Services Business. This project afforded the Company an opportunity to
serve a new market sector with a prestigious customer which we believe will open
other opportunities with this customer in the new sector. Total Operating
Expenses decreased by 12.0%, largely due to a decrease in R&D expenditures in
the amount of $206,271, which resulted from R&D costs incurred being
subsequently applied to a contracted engineering project and moved from
Operating expenses to Direct Costs. In the Current Quarter the Services Business
realized a loss before income taxes of $222,916 compared to an income of
$361,472 in the Previous Quarter. Although the Services Business realized a loss
in the Current Quarter, we do anticipate that on an annualized basis the
Services Business operations will generate a net income, as we are expecting the
third and fourth quarters to be more solid for this operating segment.


31




Results of Operations for the Current Quarter compared to the Previous Quarter




Revenue: Total consolidated revenues for the Current Quarter and the Previous
Quarter were $4,984,838 and $5,373,076 respectively, representing a fall of
7.8%. The Products Business revenues fell from $4,184,409 in the Previous
Quarter to $3,491,009 in the Current Quarter, representing a fall of 16.6%. This
is largely due to slower than anticipated closure of orders in the first two
quarters of this financial year, where we are seeing customer projects being
postponed, thus impacting order take. In the Current Quarter, the Services
Business revenues increased by 25.7% and was $1,493,829 compared to $1,188,667
in the Previous Quarter. Although the Services Business is quoting more projects
in this financial year, the pace of progress for closing these opportunities has
slowed. We believe this is largely due to supply chain issues under the prime
contract causing delay in the sub-contracting process.


Gross Profit Margins: Margin percentage was weaker in the Current Quarter at
60.8% (gross profit of $3,031,706 compared to 69.8% (gross profit of $3,749,604)
in the Previous Quarter.

Gross Profit Margins in the reporting period may vary according to a number of factors. These include:

? The percentage of consolidated sales attributed to the Products Business.

The Gross Profit Margin yielded by the Products Business is generally

higher than that of the Services Business.

? The percentage of consolidated sales attributed to the Services Business.

The Services Business yields a lower gross profit margin on generated


        sales which are largely based on time and materials contracts.
    ?   The mix of sales generated by the Products Business:



    ? Outright sales versus rentals.
    ? Hardware related sales versus Software related sales.

? Extent of Offshore Engineering Support Services provided in the period.


    ? Extent of paid customer engineering work relating to customizing our
      technology for their purpose.


? Level of commissions on sales (both the Services and Products businesses work

with a global network of sales agents). Most sales by the Products Business

from Asia attract commission as those are typically sales via our

agents/distributors Network.

? Level of assets in rental pool and cost of sales associated with these Assets

(and which are subject to depreciation).





Services Business


In the Current Quarter Gross Profit Margins for the Services Business were 23.9%
compared to 49.5% in the Previous Quarter. This significant fall is due to the
fact that 36.4% of the total revenues generated in the Current Quarter by this
segment relates to a particular work package which has a much lower than typical
Gross Profit Margin, due to the type of project it involves. This project
afforded the Company an opportunity to serve a new market sector with a
prestigious customer which we believe will open other opportunities for the
Company with this customer and in this sector. This has impacted the Gross
Profit Margin of the Services Business in the Current Quarter and overall
consolidated Gross Profit Margin.


Products Business

In the Current Quarter Gross Profit Margins for the Products operations were 76.6% compared to 75.6% in the Previous Quarter.


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

                     Current Quarter       Previous Quarter         Percentage
                        Products               Products               Change
Equipment Sales     $       2,058,137     $        3,090,462        Decrease 33.4 %
Equipment Rentals             715,308                598,190        Increase 19.6 %
Software Sales                134,422                221,053        Decrease 39.2 %
Services                      583,142                274,704       Increase 112.3 %

Total Net Sales     $       3,491,009     $        4,184,409        Decrease 16.6 %


In the Current Quarter the Products Business incurred commission costs of $262,632 compared to $76,631 in the Previous Quarter, representing a 242.7% increase, resulting in Gross Profit Margins being lower.



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

Research and Development (R&D): Total consolidated Research and Development expenditures in the Current Quarter were $517,378 compared to $645,281, representing a decrease of 19.8%. The reduction is largely due to a fall in R&D expenditures in the Services Segment.



  ? Services Segment.




During the Current Quarter the Services Business R&D expenditures were ($99,868)
in the Current Quarter compared to $106,403 in the Previous Quarter. This amount
concerns an initial investment made by the Company in R&D that can now be
attributed to subsequently awarded customer contract. The fall in R&D
expenditures in this business unit is a reflection of reduction in expenditures
relating to the Thermite® product line development which has been on hold due to
many trials which we had commenced prior to the Pandemic being stalled. Until we
can get the outcome of these trials, and therefore the customer requirements for
the product, we are postponing expenditures in this area. One such trial which
had hitherto been stalled has re-started and we have received the order for a
small quantity of prototypes. This is an important opportunity for the success
of the Thermite® range since it is for a US Navy shipboard application and if we
are successful would lead to downstream follow-on production order for multiple
units. This would also be a new program and customer for the Services Segment.


  ? Products Segment



R&D expenditures in the Products Business increased from $538,878 in the
Previous Quarter to $617,246 in the Current Quarter, representing an increase of
14.54%. The real increase in R&D Expenditures is relatively modest given that in
the Current Quarter this amount includes an exceptional item of expenditures of
$66,000 which represents a sub-contractor's costs for development of a new
generation of an ASIC (Application-Specific Integrated Circuit) device for our
sonar technology, which will replace the previous generation of this device
which we utilize.

             Segment                 April 30, 2022       April 30, 2021       Percentage Change
Services Segment R&D Expenditures   $        (99,868 )   $        106,403          Decrease 193.9 %
Products Segment R&D Expenditures   $        617,246     $        538,878
       Increase 14.54 %



32




Selling, General and Administrative Expenses (SG&A): SG&A expenses for the Current Quarter was $2,033,116 compared to $1,788,534 in the Previous Quarter, representing an increase in this area of expenditures of 13.7%.



The increase in SG&A in the Current Quarter is due to several factors. These
include increase in wages and salaries and increase in Legal and Professional
Fees. In addition, in the Previous Quarter we recorded contributions of $48,288
under the UK Government's Pandemic Relief Program, the Coronavirus Job Retention
Scheme (CJRS) which reduced payroll expenditures in the Previous Quarter and
therefore SG&A. In the Current Quarter, we recorded no such contributions. In
addition, in the Current Quarter, we recorded an increase of 170.48% relating to
stock compensation expenditures (a non-cash charge) and which was $365,568
compared to $135,157 in the Previous Quarter. We also incurred costs related to
the establishment of Coda Octopus Products (India) Private Ltd which did not
exist in the Previous Quarter. This entity has been established to mitigate the
acute engineering and software skills shortage that we are experiencing in both
the UK and USA.

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



           Expenditure               April 30, 2022       April 30, 2021        Percentage Change
Wages and Salaries                  $        940,460     $        791,759         Increase of 18.78 %
Legal and Professional Fees
(including accounting and audit)    $        390,218     $        258,736         Increase of 50.82 %
Rent for our various locations      $         14,742     $          8,158  

      Increase of 80.71 %
Marketing                           $        108,569     $         32,116        Increase of 238.05 %



The increase in "Wages and Salaries" is a reflection of the increased costs
associated with the market conditions for employment. With inflationary
pressures currently at unprecedented levels in the countries in which we operate
including USA and UK, we expect this area is likely to continue to increase to
remain competitive in attracting and retaining staff.

The increase in the Current Quarter of "Legal and Professional" category of expenditures is a reflection of increased fees associated with the performance of the Group's audit services.




In general, the category of "Rent" is not material for the Business as we own
most of our premises and facilities. The current category of rent largely
reflects the premises we are using in Copenhagen which has been established to
mitigate as far as possible the impact of the United Kingdom withdrawing from
the European Union.


The Marketing Expenditures in both the Current Quarter and Previous Quarter are
atypical of our projected Marketing Expenditures. Typically, our Marketing
Expenditures reflect a range of marketing events such as participation of trade
shows in different parts of the world, particularly in Europe, North America,
Asia and the Middle East. Since the outset of the Pandemic in 2020, our
marketing activities have been severely constrained due to the various
government restrictions on travel and gatherings. This has depressed this area
of expenditure. However, we are beginning to participate in more marketing
events, and this has resulted in an increase of Marketing expenditures in the
Current Quarter. We expect this area to materially increase over the fiscal year
and be more in line with our pre-Pandemic Marketing expenditures.

Operating Income: In the Current Quarter we realized an operating profit of
$481,212 compared to $1,315,789 in the Previous Quarter, representing a fall in
Operating Income of 63.4%. The reduction in Operating Income is a result of a
fall in our consolidated revenues in the Current Quarter by 7.2% compared to the
Previous Quarter along with weaker Gross Profit Margins and an increase in Total
Operating Expenses of 4.8% compared to the Previous Quarter.



Interest Expense: Interest expense fell by 51.0% in the Current Quarter to
$2,502 from $5,108 in the Previous Quarter. We do not expect this category to be
material since we do not have any significant loans. This category reflects
interest and charges on banking facilities we have in place, such as business
credit cards.

Other Income: In the Current Quarter we had $11,995 as "Other Income" compared
to $623,238 in the Previous Quarter. In the Previous Quarter, as part of the US
Government Pandemic Relief Program, the Company recognized $558,901 as "Other
Income", which was received under the second round of the Payroll Protection
Program for payroll assistance ("PPP"). In the Current Quarter, no PPP
assistance was recorded. Except for amounts received for PPP, "Other Income"
category is typically not material.

Net Income before income taxes: In the Current Quarter, we realized Net Income
before income taxes of $493,208 as compared to $1,939,027 in the Previous
Quarter, representing a fall of 74.6%. The fall in Net Income before taxes is
due to a fall in our consolidated revenues in the Current Quarter of 7.2% with
Gross Profit Margins being weaker, in conjunction with an increase in Total
Operating Expenses by 4.8% over the Previous Quarter. In addition, in the
Previous Quarter Net Income before taxes increased by the inclusion of $558,901
in "Other Income" which represented assistance received under the PPP. Without
this PPP contribution in the Previous Quarter, the fall in Net Income before
income taxes in the Current Quarter would be 64.3%.

33





Net Income: In the Current Quarter the Company realized a net income of $611,303
as compared to $2,207,933 in the Previous Quarter, representing a fall of 72.3%.
The fall in Net Income in the Current Quarter is a result of a fall in our
consolidated revenues in conjunction with an increase in Total Operating
Expenses. In addition, in the Previous Quarter Net Income increased by the
inclusion of $558,901 in "Other Income" which represented assistance received
under PPP. Without this PPP contribution in the Previous Quarter, the fall in
Net Income in the Current Quarter would be 62.9%. In the Current Quarter the
Company's effective tax rate decreased as a result of the Services Business
having a taxable loss in the Current Quarter. In the Current Quarter the
effective tax rate was (23.9)% compared to (13.9)% in the Previous Quarter.


Comprehensive Income (loss). In the Current Quarter Comprehensive loss was
($1,655,448) compared to a comprehensive income of $2,506,645 for the Previous
Quarter. This category is affected by fluctuations in foreign currency exchange
transactions. In the Previous Quarter we realized a gain on foreign currency
translation adjustments relating to certain transactions of $298,712 compared to
a loss on these transactions of $2,266,751 in the Current Quarter. In the
Current Quarter the USD has strengthened against major currencies including the
British Pound, Euro and Danish Kroner (the functional currencies of our foreign
operations). A significant part of the Company's operations is based in the UK,
and therefore a significant part of our financial transactions is performed in
Pounds which are translated into USD for reporting purposes. In the Current
Quarter, the Pound has fallen significantly against the USD. This is a key
factor in the loss relating to foreign currency translations transactions in the
Current Quarter. See Table 1 under section "Inflation & Foreign Currency" which
shows the impact of the currency adjustments on our Profit & Loss Account
activities and Balance Sheet


Results of Operations for the Current Six Month Period compared to the Previous Six Month Period



Revenue: Total consolidated revenues for the Current Six Month Period and the
Previous Six Month Period were $10,823,046 and $10,423,535 respectively,
representing an increase of 3.8%. In the Current Six Month Period, the Products
Business revenues fell by 7.8%. The Products Business revenue in the Current Six
Month Period was $7,314,757 compared to $7,932,688. The Services Business
revenues increased in the Current Six Month Period and was $3,508,289 compared
to $2,490,847, representing an increase of 40.8%. In the Current Six Month
Period both the Products and Services Businesses have experienced a slow pace of
converting opportunities to firm orders and we have during the period booked
less orders than anticipated in our business plan. In the Current Quarter our
overall quotation percentage rate was higher than the Previous Quarter. However,
we are experiencing a much slower rate of closure including projects moving out
in time. We believe this is reflective of the challenging environment
particularly the supply chain issues that persists globally and also the ongoing
constraints caused by the Pandemic, particularly in Asia which is an important
market for our solutions.

Gross Profit Margins: Margin percentage was lower in the Current Six Month Period at 66.4% (gross profit of $7,191,640) compared to 67.8% (gross profit of $7,064,526).

Gross Profit Margins in the reporting period vary according to several factors, including:

? The percentage of consolidated sales attributed to the Products Business. The

Gross Profit Margin yielded by the Products Business is generally higher than

that of the Services Business.

? The percentage of consolidated sales attributed to the Services Business. The

Services Business yields a lower gross profit margin on generated sales which


    are largely based on time and materials contracts.
  ? The mix of sales generated by the Products Business:



    ? Outright sales versus rentals.
    ? Hardware related sales versus Software related sales.

? Extent of Offshore Engineering Support Services provided in the period.


    ? Extent of paid customer engineering work relating to customizing our
      technology for their purpose.


? Level of commissions on sales (both the Services and Products businesses work

with a global network sales agents). Most sales from Asia attract commission

as those are typically sales via our agents/distributors Network.

? Level of assets in rental pool and cost of the sales associated these Assets

(and which are subject to depreciation).

Services Business



Gross Profit Margins for the Services Business were lower at 36.1% in the
Current Six Month Period compared to 42.1% in the Previous Six Month Period. In
the Current Six Month Period 27.9% of the Services Business revenues ($979,998)
is attributable to an engineering project which carries a lower than typical
Gross Profit Margin. This project afforded the Company an opportunity to serve a
new market sector with a prestigious customer which we believe will open other
opportunities with this customer and in this sector. This mix has impacted on
the overall Gross Profit Margins of the Services Business.

Products Business



In the Current Six Month Period Gross Profit Margins for the Products Business
were 81.0% compared to 75.8% in the Previous Six Month Period. Even though we
paid increased agents commission on sales generated in the Current Six Month
Period ($401,004 compared to $357,736, 12.1% higher) Gross Profit Margins were
stronger in the Products Business due to increased units of equipment rentals
(44.3% over the Previous Six Month Period) and service (125.8% increase over the
Previous Six Month Period) both categories attracting a higher Gross Profit
Margin than hardware product sales.

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

                                         Six Month           Six Month           Percentage
                                        Period 2022         Period 2021            Change
Equipment Sales                       $     4,016,982     $     5,883,949         Decrease 31.7 %
Equipment Rentals                           1,345,776             932,553         Increase 44.3 %
Software Sales                                439,218             446,275          Decrease 1.6 %
Services                                    1,512,781             669,911        Increase 125.8 %
Total Net Sales                       $     7,314,757     $     7,932,688          Decrease 7.8 %



In the Current Six Month Period the Products Business incurred Commission costs
of $401,400 compared to $357,736, representing a 12.1% increase, resulting in
Gross Profit Margins being lower.

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



34





Research and Development (R&D): R&D expenditures in the Current Six Month Period
were $1,190,268 compared to the $1,228,420 in the Previous Six Month Period,
representing a decrease of 3.1%.

  ? Services Segment.




During the Current Six Month Period the Services Business R&D expenditures
decreased by 82.4%. The fall in R&D expenditures in this business unit is a
reflection of reduction in expenditures relating to the development of the
Thermite® product line. Since the start of the Pandemic Thermite® trials have
stalled. Until we can get the outcome of these trials, and therefore the
customer requirements for the product, we are postponing expenditures in this
area. One such trial which had hitherto been stalled has re-started and we have
received the order for a small quantity of prototypes. This is an important
opportunity as it is intended for a US Navy shipboard application. If we are
successful, we would expect it to result in downstream follow-on production
order for multiple units. This would also be a new program and customer for

the
Services Segment.


  ? Products Segment



During the Current Six Month Period R&D expenditures in the Products Segment
increased by 16.9% from $980,622 in the Previous Six Month Period to $1,146,621.
R&D expenditures are incurred by this business in connection with investments it
makes in developing its products and solutions. In the Current Six Month Period,
Products Business R&D expenditures include an exceptional item of expenditure of
$66,000 which represents accruals for sub-contractor's costs for development of
a new generation of an ASIC (Application-Specific Integrated Circuit) device for
our sonar technology.

              Segment                  April 30, 2022       April 30, 2021       Percentage Change

Services Segment R&D Expenditures     $         43,647     $        247,798        Decrease of 82.4 %
Products Segment R&D Expenditures     $      1,146,621     $        980,622

       Increase of 16.9 %



35




Selling, General and Administrative Expenses (SG&A): SG&A expenses for the Current Six Month Period increased to $4,155,106 from $3,610,225 in the Previous Six Month Period representing an increase of 15.1%.



The increase in SG&A in the Current Six Month Period is due to several factors.
These include increase in wages and salaries and increase in Legal and
Professional Fees. In addition, in the Previous Six Month Period we recorded
contributions of $131,788 under the UK Government's Pandemic Relief Program, the
Coronavirus Job Retention Scheme (CJRS) which reduced payroll expenditures in
the Previous Six Month Period and therefore SG&A. In the Current Six Month
Period, we recorded no such contributions. In the Current Six-Month Period, we
recorded a significant increase of 123.1% relating to stock compensation
expenditures (a non-cash charge) and which were $690,743 compared to $309,604 in
the Previous Six Month Period. We also incurred costs related to the
establishment of Coda Octopus Products (India) Private Ltd, which did not exist
in the Previous Six Month Period.

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



           Expenditure               April 30, 2022       April 30, 2021      Percentage Change
Wages and Salaries                  $      1,843,622     $      1,630,065         Increase 13.10 %
Legal and Professional Fees
(including accounting and audit)    $        749,235     $        594,085         Increase 26.12 %
Rent for our various locations      $         30,487     $         18,283  

      Increase 66.75 %
Marketing                           $        122,335     $         43,446        Increase 181.58 %



The increase in the "Wages and Salaries" category of expenditure in the Current
Six Month Period, is a reflection of tightness in the labor market resulting in
competitive conditions causing increase in the costs of labor in the countries
in which we operate including in US, UK, Denmark and India. The increase is a
reflection of increases to salaries for existing staff and new hires.

The increase in the "Legal and Professional" category of expenditures in the
Current Six Month Period is a reflection of increase in the costs of our audit
services fees.


In general, the category of "Rent" is not material for the Business as we own
most of premises and facilities. The current category of rent largely reflects
the premises we use in Copenhagen.


The Marketing Expenditures in both the Previous Six Month Period and Current Six
Month Period are atypical of our Marketing Expenditures. Our marketing comprises
of a raft of activities which include trade shows in different parts of the
world, particularly in Europe, North America, Asia and the Middle East. In the
Previous Six Month Period our marketing activities have been severely
constrained due to the Pandemic which prevented activities such as travel to
customer or attending trade shows. We are now participating in more marketing
related events. However, we are still significantly constrained and not back to
pre-Pandemic levels of marketing activities due to the ongoing Pandemic, which
restricts marketing activities in key countries such as those in Asia where
there are still significant restrictions on foreigners entering these countries.
The nature of our offerings, particularly our technology solutions require us to
be in close proximity with our customers including being able to physically
demonstrate the performance of our solutions. Therefore, virtual meetings cannot
substitute for the key requirements to be physically able to demonstrate our
capabilities on water in the customer's place of operation. As these barriers
are removed including entry restrictions, we anticipate that this area of
expenditures will materially increase and be more in line with our pre-Pandemic
expenditures.

Operating Income: Our income from our operating activities in the Current Six
Month Period was $1,846,266 as compared to $2,225,881 in the Previous Six Month
Period which represents a fall of 17.1%. This fall is a reflection of weaker
Gross Profit Margins combined with an increase in Total Operating Expenses by
10.5%, as a result of a significant increase in our SG&A Expenditures in the
Current Six Month Period.

Interest Expense: Interest expense in the Current Six Month Period was $2,902
compared to $11,297 in the Previous Six Month Period, representing a reduction
of 74.3%. We do not expect Interest Expense to be material for our business
since we currently do not have any significant loans. This category typically
reflects charges on our banking facilities such as Business credit cards.

Other Income: In the Current Six Month Period, we had Other Income of $91,589 as
compared to $709,074 in the Previous Six Month Period. In the Previous Six Month
Period Other Income included $648,872 reflecting Pandemic-related contributions
under the PPP. In the Current Six Month Period, there are no such contributions.
Without such contributions, this category is generally not material.

Net Income before income taxes: In the Current Six Month Period, we had a net
income before income taxes of $1,937,856 as compared to $2,934,955 in the
Previous Six Month Period, representing a fall of 34.0%. This is due to the fall
in our consolidated revenues in the Current Quarter impacting our year-to-date
consolidated revenues along with weaker gross profit margins in conjunction with
an increase in Total Operating Expenses by 10.5%. In addition, in the Previous
Six Month Period Net Income before income taxes increased by the inclusion of
$648,872 in "Other Income" which represented assistance received under the PPP.
Without this PPP contribution in the Previous Six Month Period, the fall in Net
Income before income taxes in the Current Six Month Period would be 15.2%.


36





Net Income: In the Current Six Month Period net income fell by 45.2 % to
$1,828,552 from $3,336,777 in the Previous Six Month Period. This is due to the
fall in our consolidated revenues along with weaker gross profit margins in
conjunction with an increase in Total Operating Expenses. In addition, in the
Previous Six Month Period Net Income increased by the inclusion of $648,872 in
"Other Income" which represented assistance received under the PPP. Without this
PPP contribution in the Previous Six Month Period, the fall in Net Income in the
Current Six Month Period would be 31.9%. In the Current Six Month Period the
Company's effective tax rate increased and was 5.5% compared to (13.9)% in the
Previous Six Month Period. The increase in the effective tax rate in the Current
Six Month Period results from the exhaustion of the Company's net operating
losses in the United States. Furthermore, the effective tax rate in the Current
Six Month Period is a lower rate because one of our subsidiaries in the United
States incurred a loss in the Current Quarter.

Comprehensive Income (loss). In the Current Six Month Period Comprehensive loss
was $197,050 compared to Comprehensive gain of $4,561,102 for the Previous Six
Month Period. This category is affected by fluctuations in foreign currency
exchange transactions. In the Previous Six Month Period we had a gain of
$1,224,325 on foreign currency translation adjustment transactions compared to a
loss on these transactions of $2,025,601 in the Current Six Month Period. In the
Current Six Month Period, the USD has strengthened against most major currencies
including the British Pound, Euro and Danish Kroner, the functional currencies
of our foreign subsidiaries. A significant part of the Company's operations is
based in the UK, and therefore a significant part of our financial transactions
is performed in Pounds which are translated into USD for reporting purposes. In
the Current Six Month Period, the Pound has fallen significantly against the
USD. This is a key factor in the loss relating to foreign currency translations
transactions in the Current Six Month Period. See Table 2 under section
"Inflation & Foreign Currency" which shows the impact of the currency
adjustments on our Profit & Loss Account activities and Balance Sheet.

Liquidity and Capital Resources



At April 30, 2022, the Company had an accumulated deficit of $16,649,306,
working capital of $31,336,268 and stockholders' equity of $41,542,766. For the
Six Months Ended April 30, 2022, the Company's operating activities provided
cash of $4,707,661.

Financing Activities

Secured Promissory Note


On April 28, 2017, the Company and its wholly-owned US based subsidiaries, Coda
Octopus Products, Inc. and Coda Octopus Colmek, Inc. (together, the
"Subsidiaries"), entered into a loan agreement with HSBC Bank NA (the "Lender")
for a loan in the principal amount of $8,000,000 (the "Loan"). The Loan was
satisfied in full on December 28, 2021.


Revolving Credit Line



The Company entered into a $4,000,000 revolving line of credit with HSBC Bank NA
on November 27, 2019 (renewed up to November 2022), with interest at the prime
rate. The outstanding balance on the line of credit was $0 as of April 30,

2022.

37




Inflation and Foreign Currency

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



  ? US Dollars for US Operations;
  ? British Pound for United Kingdom Operations;
  ? Danish Kroner for our Danish Operations;
  ? Australian Dollars for our Australian Operations
  ? Indian Rupees for our Indian Operations



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

The impact of currency fluctuations on the three months and six months ended April 30, 2022, is shown in Table 1 and Table 2 below.

For the purpose of Table 1 "Constant Rates" is defined as the prevailing exchange rate for balance sheet transactions in the Previous Quarter and weighted average exchange rate prevailing in the Previous Quarter for related revenues and expenses.

Table 1: Three Months ended April 30, 2022



                                            British Pounds                Australian Dollar               Danish Kroner                  Indian Rupee                      US Dollar
                                        Actual          Constant        Actual       Constant        Actual         Constant        Actual         Constant         Actual          Constant          Total
                                       Results           Rates          Results        Rates         Results          Rates         Results         Rates          Results           Rates            Effect
Revenues                                3,280,837        3,412,590             -             -         700,819         751,162             -           

- 3,981,656 4,163,752 (182,096 ) Costs and Other (Income) Expense 2,529,514 2,631,095

           319           333          38,881          41,674       (25,077 )      

(25,861) 2,543,637 2,647,241 (103,604 ) Net profit (losses)

                       751,323          781,495          (319 )        (333 )       661,938         709,488        25,077          25,861        1,438,019        1,516,511          (78,492 )
Assets                                 21,722,299       23,651,516        32,203        34,323       2,687,985       2,947,397        18,822          18,429       24,461,309       26,651,665       (2,190,356 )
Liabilities                            (1,675,791 )     (1,824,623 )      (2,415 )      (2,574 )       (58,317 )       (63,945 )     (67,054 )       (65,652 )     (1,803,577 )     (1,956,794 )        153,217
Net assets                             20,046,508       21,826,893        29,788        31,749       2,629,668       2,883,452       (48,232 )       (47,223 )     22,657,732       24,694,871       (2,037,139 )


This table shows that the effect of constant exchange rates, versus the actual exchange rate fluctuations, decreased our net income on activities in the Current Quarter by $78,492 and decreased net assets by $2,037,139.

Table 2: Six Months ended April 30, 2022


The impact of currency fluctuations on the six months ended April 30, 2022, is
shown below. In this context "Constant Rates" is defined as the prevailing
exchange rate for balance sheet transactions in the Previous Six Month Period
and weighted average exchange rate prevailing in the Previous Six Month Period
for related revenues and expenses.

                                            British Pounds                Australian Dollar               Danish Kroner                  Indian Rupee

                     US Dollar
                                        Actual          Constant        Actual       Constant        Actual         Constant        Actual         Constant         Actual          Constant          Total
                                       Results           Rates          Results        Rates         Results          Rates         Results         Rates          Results           Rates            Effect
Revenues                                5,816,119        6,049,685             -             -       1,089,562       1,167,830             -               -        6,905,681        7,217,515         (311,834 )
Costs & Other (Income) Expense          4,791,775        4,984,205        24,573        25,677         109,026         116,858       (25,077 )      (25,861)        4,900,297        5,100,879         (200,582 )
Net profit (losses)                     1,024,344        1,065,480       (24,573 )     (25,677 )       980,536       1,050,972        25,077          25,861        2,005,384        2,116,636         (111,252 )
Assets                                 21,722,299       23,651,516        32,203        34,323       2,687,985       2,947,397        18,822          18,429       24,461,309       26,651,665       (2,190,356 )
Liabilities                            (1,675,791 )     (1,824,623 )      (2,415 )      (2,574 )       (58,317 )       (63,945 )     (67,054 )       (65,652 )     (1,803,577 )     (1,956,794 )        153,217
Net assets                             20,046,508       21,826,893        29,788        31,749       2,629,668       2,883,452       (48,232 )       (47,223 )     22,657,732       24,694,871       (2,037,139 )


This table shows that the effect of constant exchange rates, versus the actual exchange rate fluctuations, decreased our net income on activities in the Current Six Months Period by $111,252 and decreased net assets by $2,037,139.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

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