Coda Octopus Group Inc (CODA)

[1center]

$CDOC..Inflation and Foreign Currency.
The Company maintains its financial statements in local currency: US Dollars for the parent holding Company in the United States of America and the US operations, Pounds Sterling for UK operations, Australian Dollars for Australian operations, and Norwegian Kroner for Norwegian operations. The Company’s operations are split between the United States, United Kingdom, Australia and Norway through its wholly-owned subsidiaries, with a significant proportion of revenues and costs incurred outside the USA. As a result, fluctuations in currency exchange rates may significantly affect the Company’s sales, profitability and financial position when the foreign currencies of its international operations are translated into U.S Dollars for financial reporting.

We are also subject to currency fluctuation risk with respect to certain foreign currency denominated receivables and payables. A significant part of the Company’s business is conducted in Pound Sterling. With the political uncertainty on the UK’s continued membership of the European Union (EU), we anticipate that we may realize significant adverse currency movement affecting our UK businesses. Although the Company cannot predict the extent to which currency fluctuations may, or will, affect the Company’s business and financial position, there is a risk that such fluctuations will have an adverse impact on the Company’s sales, profits and financial position. As differing portions of our revenues and costs are denominated in foreign currency, movements could impact our margins, for example, decreasing our foreign revenues when the US Dollar strengthens and not correspondingly decreasing our expenditures. The Company does not currently hedge its currency exposure. A large part of the Company’s revenues and direct costs of sales are in Pounds Sterling. We may, in the future, engage in hedging transactions to mitigate foreign exchange risks. Due to a significant proportion of our revenues are being generated in the United Kingdom in GBP, the Company’s results are affected by the current uncertainty relating to United Kingdom’s future membership of the European Union. We have recently seen a significant weakening of the British Pound (GBP) from around approximately $1.60 to the GBP during the summer of 2015 to approximately $1.40 - $1.45 recently. This has a significant adverse effect on our revenues as reported in USD. In addition to the volatile exchange rates, the uncertainty has spread to the business community with businesses postponing investment decisions until the issue of EU membership has been decided with the referendum on June 23, 2016. If the UK decides to leave the EU, the uncertainties will continue until the UK’s future relationship to the EU in terms of trade arrangements etc. have been settled. This could take years. During the six months ended April 30, 2016, a summary of our material foreign currency transactions includes: GBP £ N orwegian Total Kr Revenues from foreign subsidiary £ 3,272,741 oner ( NOK ) Australian Dollar ( AUD ) USD $Direct Costs of foreign subsidiaries £ 1,594,887 AUD 1,091,401 $ 5,545,317*) This includes inter-company purchases of AUD 438,471 (USD 322,161) AUD 591,088* $ 2,745,881 The above are calculated at the average of the exchange rates at the end of the six months from November 1, 2015 to April 30, 2016. The exchange rates during the six months ended April 30, 2016 were

between $1.3866 and $1.5449 for Pound Sterling; - - - between $0.1117 and $0.1242 for the Norwegian Kroner; and between $0.6859 and $0.7805 for the Australian Dollar.

http://www.codaoctopusgroup.com/wp-content/uploads/2016/06/CodaOctopusGroupInc_QuarterlyReport_Feb2016_Apr2016.pdf