Note 2 – REVENUE RECOGNITION

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

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

CODA OCTOPUS GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

July 31, 2026 and October 31, 2025

Note 2 – REVENUE RECOGNITION (Continued)

We have three business segments:

Marine Technology Business (“Products Business”)

The Products Business segment earns revenue under written contracts with its customers. Revenue in this segment is generated through the following activities:

All products and services are sold on a stand-alone basis and those market prices are evidence of the value of these products and services. Revenue derived from outright sale is recognized when its performance obligations are met. This is typically upon delivery and passing of risks in the goods in accordance with the contract terms. For rentals we supply our rental equipment on a door-to-door basis and the rental period typically commences when the equipment is under the control of the customer and revenue derived from these contracts is recognized on a daily basis during the rental period. Revenue derived from services is recognized when our performance obligations are met under the terms of the contract. For contracts with multiple performance obligations, we recognize product revenue by allocating the transaction price to each performance obligation based on a relative standalone selling price basis and recognize revenue when performance obligations are met. For software license arrangements in which any related services are not distinct from the software functionality, the Company recognizes revenue when control of the software is transferred to the customer, generally upon delivery of the software installers and activation codes.

Our contracts sometimes require customer payments in advance of revenue recognition. These are recognized as revenue when we have fulfilled our obligations under the respective contracts. Until our performance obligations are met, we recognize these prepayments as deferred revenue.

Our contracts do not give the customer the right of return. Where there are contractual failures giving rise to post-sale obligations these are addressed under our warranty or through life support provisions. The Company calculates its warranty expense provision based on its historical warranty experience and adjustments are made periodically to reflect actual warranty expenses.

Acoustics Sensors and Materials Business (“PAL”)

PAL Business segment earns revenue under written contracts with its customers. Revenue in this segment is generated through the following activities:

All products and services are sold on a stand-alone basis, and those market prices are evidence of the value of these products and services. Revenue derived from outright sale is recognized when its performance obligations are met. This is typically upon delivery and passing of risks in accordance with the contract terms. For contracts with multiple performance obligations, we recognize product revenue by allocating the transaction price to each performance obligation based on a relative standalone selling price basis and recognize revenue when performance obligations are met. Software license sales for which any services rendered are not considered distinct to the functionality of the software, we recognize revenue upon delivery of the software by the provision of the software installers and activation codes to the software.

Our contracts sometimes require customer payments in advance of revenue recognition. These are recognized as revenue when we have fulfilled our obligations under the respective contracts. Until our performance obligations are met, we recognize these prepayments as deferred revenue.

Our contracts do not give the customer the right of return. Where there are contractual failures giving rise to post-sale obligations these are addressed under our warranty or through life support provisions. The Company calculates its warranty expense provision based on its historical warranty experience and adjustments are made periodically to reflect actual warranty expenses.

CODA OCTOPUS GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

July 31, 2026 and October 31, 2025

Note 2 – REVENUE RECOGNITION (Continued)

Defense Engineering Services Business (“Services”)

The Engineering Services Business segment generates revenue pursuant to written contracts with its customers, who are primarily Prime Defense Contractors (“DoD Contractors”). Revenue in this segment is derived from the following activities:

With respect to revenues related to our Defense Engineering Services Business, certain contracts provide for billing at fixed hourly rates, together with reimbursement of material and other allowable costs incurred. Revenue from these contracts is recognized as services are performed and costs are incurred. Revenues from fixed-price contracts are recognized over time as performance obligations are satisfied. Progress toward completion is measured using a cost-to-cost input method based on direct labor and material costs incurred relative to total estimated contract costs for each contract. Management believes this input method properly depicts the transfer of control of goods and services to customers because direct labor and material costs incurred are representative of the Company’s progress toward satisfying its performance obligations.

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

For contracts with multiple performance obligations, we recognize product revenue by allocating the transaction price to each performance obligation based on a relative standalone selling price basis and recognize revenue when performance obligations are met.

Recoverability of Deferred Costs

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

We recognize such costs in accordance with our revenue recognition policies for the related contracts. Revenues from fixed-price contracts are recognized over time as performance obligations are satisfied. Progress toward completion is measured using a cost-to-cost input method based on direct labor and material costs incurred relative to total estimated contract costs. Capitalized contract costs are recognized as expense in a manner consistent with the transfer of the related goods or services to the customer. At each quarterly balance sheet date, we evaluate deferred costs for recoverability and recognize any impairment losses when the carrying amount is not expected to be recovered.

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

Other Revenue Disclosures

See Notes 15 and 16 – Segment Analysis and Disaggregation of Net Revenues. These Notes, respectively, provide disclosure of our revenues by segment; revenues from external customers and cost of those revenues; and the split of revenues by geography including within and outside the USA.