UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
OR
For the transition period from ______________ to ______________
Commission
File Number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of Incorporation or organization) |
(I.R.S. Employer Identification Number) | |
| (Address of principal executive offices) | (Zip Code) | |
| Registrant’s telephone number, including area code: |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | ||
| Smaller
reporting company |
|||
| Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The number of shares outstanding of issuer’s common stock, $ par value as of September 15, 2025 is .
INDEX
| 2 |
PART I. FINANCIAL INFORMATION
CODA OCTOPUS GROUP, INC.
Consolidated Balance Sheets
July 31, 2025 and October 31, 2024
| 2025 | 2024 | |||||||
| Unaudited | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and Cash Equivalents | $ | $ | ||||||
| Accounts Receivable, net | ||||||||
| Inventory | ||||||||
| Unbilled Receivables | ||||||||
| Prepaid Expenses | ||||||||
| Other Current Assets | ||||||||
| Total Current Assets | ||||||||
| FIXED ASSETS | ||||||||
| Property and Equipment, net | ||||||||
| Right of Use Assets | ||||||||
| OTHER ASSETS | ||||||||
| Goodwill | ||||||||
| Intangible Assets, net | ||||||||
| Total Other Assets | ||||||||
| Total Assets | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 3 |
CODA OCTOPUS GROUP, INC.
Consolidated Balance Sheets (Continued)
July 31, 2025 and October 31, 2024
| 2025 | 2024 | |||||||
| Unaudited | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts Payable | $ | $ | ||||||
| Current portion of operating lease liabilities | ||||||||
| Accrued Expenses and Other Current Liabilities | ||||||||
| Deferred Revenue | ||||||||
| Total Current Liabilities | ||||||||
| LONG TERM LIABILITIES | ||||||||
| Deferred Tax Liability, net | ||||||||
| Non-current operating lease liabilities | ||||||||
| Deferred Revenue, less current portion | ||||||||
| Total Long Term Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Common Stock, $ par value; shares authorized, issued and outstanding as of July 31, 2025 and shares issued and outstanding as of October 31, 2024 | ||||||||
| Preferred Stock $par value; shares authorized, issued and outstanding as of July 31, 2025 and October 31, 2024 | ||||||||
| Treasury Stock | ( | ) | ( | ) | ||||
| Additional Paid-in Capital | ||||||||
| Accumulated Other Comprehensive Loss | ( | ) | ( | ) | ||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 4 |
CODA OCTOPUS GROUP, INC.
Consolidated Statements of Income and Comprehensive Income
(Unaudited)
| Three Months Ended July 31, | Nine Months Ended July 31, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Net Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of Revenues | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Research & Development | ||||||||||||||||
| Selling, General & Administrative | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| INCOME FROM OPERATIONS | ||||||||||||||||
| OTHER INCOME | ||||||||||||||||
| Other Income | ||||||||||||||||
| Interest Income | ||||||||||||||||
| Total Other Income | ||||||||||||||||
| INCOME BEFORE INCOME TAX EXPENSE | ||||||||||||||||
| INCOME TAX (EXPENSE) BENEFIT | ||||||||||||||||
| Current Tax (Expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Deferred Tax Benefit (Expense) | ( | ) | ( | ) | ||||||||||||
| Total Income Tax (Expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| NET INCOME | $ | $ | $ | $ | ||||||||||||
| NET INCOME PER SHARE: | ||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||
| WEIGHTED AVERAGE COMMON SHARES: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
| COMPREHENSIVE INCOME, net of tax | $ | $ | $ | $ | ||||||||||||
| Foreign Currency Translation Adjustment | ||||||||||||||||
| Total Other Comprehensive Income (Loss) | $ | $ | $ | $ | ||||||||||||
| COMPREHENSIVE INCOME | $ | $ | $ | $ | ||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 5 |
CODA OCTOPUS GROUP, INC.
Consolidated Statements of Changes in Stockholders’ Equity
For the Three Months and Nine Months Ended July 31, 2025 and 2024
(Unaudited)
| Additional | Other | |||||||||||||||||||||||||||
| Common Stock | Paid-in | Comprehensive | Accumulated | Treasury | ||||||||||||||||||||||||
| Shares | Amount | Capital | Income (Loss) | Deficit | Stock | Total | ||||||||||||||||||||||
| Balance, October 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
| Employee stock-based compensation | - | |||||||||||||||||||||||||||
| Stock issued for options exercised and stock grants | ( | ) | ||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||
| Treasury Stock | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Net Income | - | |||||||||||||||||||||||||||
| Balance, January 31, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
| Employee stock-based compensation | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Stock issued for options exercised and stock grants | ( | ) | ||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Treasury Stock | - | |||||||||||||||||||||||||||
| Net Income | - | |||||||||||||||||||||||||||
| Balance, April 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
| Employee stock-based compensation | - | |||||||||||||||||||||||||||
| Stock issued for options exercised and stock grants | ( | ) | ||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||
| Treasury Stock | - | |||||||||||||||||||||||||||
| Net Income | - | |||||||||||||||||||||||||||
| Balance, July 31, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
| Balance, October 31, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
| Employee stock-based compensation | - | |||||||||||||||||||||||||||
| Stock issued for options exercised and stock grants | ( | ) | ||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Net Income | - | |||||||||||||||||||||||||||
| Balance, January 31, 2025 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
| Employee stock-based compensation | - | |||||||||||||||||||||||||||
| Stock issued for options exercised and stock grants | ( | ) | ||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||
| Net Income | - | |||||||||||||||||||||||||||
| Balance, April 30, 2025 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
| Employee stock-based compensation | - | |||||||||||||||||||||||||||
| Stock issued for options exercised and stock grants | ( | ) | ||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||
| Net Income | - | |||||||||||||||||||||||||||
| Balance, July 31, 2025 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 6 |
CODA OCTOPUS GROUP, INC.
Consolidated Statements of Cash Flows
(Unaudited)
| Nine Months Ended July 31, | ||||||||
| 2025 | 2024 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | . | |||||||
| Depreciation of property and equipment | ||||||||
| Amortization of intangible assets | ||||||||
| Stock-based compensation | ||||||||
| Deferred income taxes | ( | ) | ||||||
| Gain on sale of asset | ( | ) | ||||||
| Commitment and Contingent Liability | ||||||||
| Recovery of credit loss | ( | ) | ||||||
| Operating Lease expense | ||||||||
| (Increase) decrease in operating assets: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ||||||
| Unbilled receivables | ( | ) | ( | ) | ||||
| Prepaid expenses | ( | ) | ||||||
| Other current assets | ||||||||
| Increase (decrease) in operating liabilities: | ||||||||
| Accounts payable and other current liabilities | ||||||||
| Deferred revenue | ( | ) | ( | ) | ||||
| Net Cash provided by (used in) Operating Activities | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Purchases of other intangible assets | ( | ) | ( | ) | ||||
| Proceeds from the sale of property and equipment | ||||||||
| Net Cash (used in) provided by Investing Activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Purchase of treasury stock | ( | ) | ||||||
| Net Cash Used in Financing Activities | ( | ) | ||||||
| EFFECT OF CURRENCY TRANSLATION ON CHANGES IN CASH AND CASH EQUIVALENTS | ||||||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | ||||||||
| CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD | ||||||||
| CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD | $ | $ | ||||||
| SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||
| Cash paid for taxes | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 7 |
CODA OCTOPUS GROUP, INC.
Notes to the Unaudited Consolidated Financial Statements
July 31, 2025 and October 31, 2024
NOTE 1 – ACCOUNTING POLICIES AND SUPPLEMENTAL DISCLOSURES
We have prepared the accompanying consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. These consolidated financial statements are unaudited and, in our opinion, include all material adjustments consisting of normal recurring adjustments and accruals necessary for a fair presentation of our consolidated cash flows, operating results, and balance sheets for the periods presented. Operating results for the periods presented are not necessarily indicative of the results that may be expected for fiscal year 2025 due to seasonal, world events and other factors. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been omitted in accordance with the rules and regulations of the U.S. Securities Exchange Commission (“SEC”). These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes presented in the Company’s Annual Report on Form 10-K for the year ended October 31, 2024 as filed with the Securities and Exchange Commission on January 29, 2025.
Principles of Consolidation
The consolidated financial statements include the accounts of Coda Octopus Group, Inc. and its wholly owned domestic and foreign subsidiaries (“Group”). All material intercompany transactions and balances have been eliminated in the consolidated financial statements.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The accounting estimates and assumptions that require management’s most significant, challenging, and subjective judgment include estimates related to the percentage of completion method used to account for contracts including costs and earnings in excess of billings, billings in excess of costs and estimated earnings. Actual results realized by the Company may differ from management’s estimates.
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:
| ● | Identify the contract with the customer; | |
| ● | Identify the performance obligations in the contract with customer; | |
| ● | Determine the transaction price; | |
| ● | Allocate the transaction price to performance obligations; and | |
| ● | Recognize revenue when (or as) a performance obligation is satisfied. |
| 8 |
CODA OCTOPUS GROUP, INC.
Notes to the Unaudited Consolidated Financial Statements
July 31, 2025 and October 31, 2024
NOTE 2 – REVENUE RECOGNITION (Continued)
We have three business segments:
| ● | Marine Technology Business | |
| ● | Acoustics Sensors and Materials Business; and | |
| ● | Marine Engineering Business |
Marine Technology Business (“Products Business”)
The Products Business revenues are earned under written contracts with its customers. Its Business Model includes:
| Ø | Outright sale of underwater solutions (including hardware and software) | |
| Ø | Rental of underwater equipment (including hardware and software) | |
| Ø | Support services (including field installation and training) | |
| Ø | Technical Support Services | |
| Ø | Warranty Coverage and Through Life Support (TLS) sales | |
| Ø | Customization of technology services |
All its 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 – typically upon delivery and passing of risks in accordance with the contract terms. For rentals 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. 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 such time, 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.
Acoustic Sensors and Materials Business (“PAL”)
PAL revenues are earned under written contracts with its customers. Its Business Model includes:
| Ø | Outright sale of sensors (including hardware and software) and materials | |
| Ø | Warranty Coverage | |
| Ø | Post Sale Calibration Services | |
| Ø | Customization of technology services |
All its 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 – 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 such time, 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.
Marine Engineering Business (“Engineering Business”)
The Engineering Business revenues are earned under written contracts with its customers. Its Business Model includes:
| Ø | Provision of engineering services | |
| Ø | Supply of various types of proprietary products (such as Thermite® and FireSafe®) | |
| Ø | Warranty Coverage | |
| Ø | Post-Sale Service and Repair |
| 9 |
CODA OCTOPUS GROUP, INC.
Notes to the Unaudited Consolidated Financial Statements
July 31, 2025 and October 31, 2024
NOTE 2 – REVENUE RECOGNITION (Continued)
With respect to revenues related to our Engineering Business, there are contracts in place that specify the fixed hourly rate and other reimbursable costs to be billed based on material and direct labor hours incurred and revenue is recognized on these contracts based on material and the direct labor hours incurred. Revenues from fixed-price contracts are recognized on the percentage of completion method, measured by the percentage of costs incurred (materials and direct labor hours) to date to estimated total cost (materials and direct labor hours) for each contract. This method is used as we consider expenditures for direct materials and labor hours to be the best available measure of progress on these contracts.
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 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 policy by contract. 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 over time, costs are recognized ratably over the term of the contract, commencing on the date of revenue recognition. At each quarterly 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.
Other Revenue Disclosures
See Notes 15 and 16 – Segment Analysis and Disaggregation of Revenue. These Notes respectively provide disclosure of our revenue by segment (Marine Technology Business, Acoustics Sensors and Materials Business and Engineering Business); revenues from external customers and cost of those revenues; and the split of revenue by geography including within and outside the USA.
NOTE 3 – COST OF GOODS SOLD
Our
cost of goods sold includes the cost of materials and related direct costs. With respect to sales made through the Company’s
sales agents distribution network, we include in our costs of goods sold commission paid to agents for the specific sales they make.
Without using agents, we would not be eligible to participate in the Request for Proposals (“RFP”) for these sales on
which we incur commission costs. All other sales-related expenses, including those related to unsuccessful bids, are included in our
selling, general and administrative (“SG&A”) costs. As a component of the cost of goods sold, commission costs
incurred in the three month period ended July 31, 2025 and 2024 were $
NOTE 4 – FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s financial instruments include cash, cash equivalents, accounts receivable, accounts payable, and accrued expenses. The carrying amounts of cash, cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair values because of the short-term nature of these instruments.
NOTE 5 – FOREIGN CURRENCY TRANSLATION
Assets and liabilities are translated at the prevailing exchange rates at the balance sheet dates. Related revenues and expenses are translated at weighted average exchange rates in effect during the reporting period. Stockholders’ equity is recorded at the historical exchange rates. Resulting translation adjustments are recorded as a separate component in stockholders’ equity as part of accumulated other comprehensive income or (loss) as may be appropriate. Foreign currency transaction gains and losses are included in the consolidated statements of income and comprehensive income.
| 10 |
CODA OCTOPUS GROUP, INC.
Notes to the Unaudited Consolidated Financial Statements
July 31, 2025 and October 31, 2024
NOTE 6 – OPERATING LEASES
We are contractually bound by a non-cancellable operating lease relating to PAL which we acquired on October 29, 2024. Lease costs recognized in our consolidated statements of operations are summarized as follows:
| July 31, | October 31, | |||||||
| 2025 | 2024 | |||||||
| Lease Liability | $ | $ | ||||||
| Future minimum lease payments | $ | $ | ||||||
| Remaining life of the lease in years (Expires 31 March 2033) | ||||||||
| Discount Rate | % | % | ||||||
Maturities of lease liabilities as of July 31, 2025 were as follows:
Future Minimum Operating Lease Maturity Analysis
| Years | Total | |||
| 2025 (remaining 3 months) | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Thereafter | ||||
| Imputed Interest | ( | ) | ||
| Total | $ | |||
NOTE 7 – COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
Certified Deposit Interest Bearing Accounts for the nine months ended July 31, 2025 and 2024.
The
Company has certified deposit interest-bearing accounts with its current bankers HSBC NA. These interest-bearing accounts are for rolling
fixed short-term periods not exceeding 3 months and are classified in our financial statements as “cash equivalent”. In addition,
we have an interest-bearing deposit account with HSBC UK which has no access restrictions and tracks at
| 2025 | 2024 | |||||||||||||||
| Interest | Interest | |||||||||||||||
| Deposit | Income | Deposit | Income | |||||||||||||
| July 31, 2025 | July 31, 2025 | July 31, 2024 | July 31, 2024 | |||||||||||||
| USA | $ | $ | $ | $ | ||||||||||||
| UK | ||||||||||||||||
| Denmark | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
Inventory consisted of the following as of:
| July 31, | October 31, | |||||||
| 2025 | 2024 | |||||||
| Raw materials and other sub-components | $ | $ | ||||||
| Work in progress | ||||||||
| Finished goods | ||||||||
| Stock in transit | ||||||||
| Total Inventory | $ | $ | ||||||
Other current assets consisted of the following as of:
| July 31, | October 31, | |||||||
| 2025 | 2024 | |||||||
| Deposits | $ | $ | ||||||
| Other Tax Receivables | ||||||||
| Employee Retention Credit Receivables | ||||||||
| Other Receivables | ||||||||
| Total Other Current Assets | $ | $ | ||||||
| 11 |
CODA OCTOPUS GROUP, INC.
Notes to the Unaudited Consolidated Financial Statements
July 31, 2025 and October 31, 2024
NOTE 7 – COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS (Continued)
Fixed Assets consisted of the following as of:
| July 31, | October 31, | |||||||
| 2025 | 2024 | |||||||
| Buildings | $ | $ | ||||||
| Land | ||||||||
| Office machinery and equipment | ||||||||
| Rental assets | ||||||||
| Furniture, fixtures and improvements | ||||||||
| Totals | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total Property and Equipment, net | ||||||||
| Right of use assets, net | ||||||||
| Total Fixed Assets, net | $ | $ | ||||||
Depreciation
expense for the three months ended July 31, 2025, and 2024 was $
Property and equipment, net, by geographic areas were as follows:
| July 31, | October 31, | |||||||
| 2025 | 2024 | |||||||
| USA | $ | $ | ||||||
| Europe | ||||||||
| Total Property and Equipment, net | $ | $ | ||||||
Accrued Expenses and Other Current Liabilities consisted of the following as of:
| July 31, | October 31, | |||||||
| 2025 | 2024 | |||||||
| Accruals | $ | $ | ||||||
| Other Tax Payables | ||||||||
| Commitment and Contingent Liability – PAL Earn Out | ||||||||
| Employee Related | ||||||||
| Total Accrued Expenses and Other Current Liabilities | $ | $ | ||||||
Total Other Income, consisted of the following:
| Three Months | Three Months | Nine Months | Nine Months | |||||||||||||
| Ended | Ended | Ended | Ended | |||||||||||||
| July 31, | July 31, | July 31, | July 31, | |||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Grant Income | $ | $ | $ | $ | ||||||||||||
| Other | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Interest Received | ||||||||||||||||
| Total Other Income, net | ||||||||||||||||
NOTE 8 – CONTRACTS IN PROGRESS
Costs
and estimated earnings in excess of billings on uncompleted contracts represent accumulated project expenses and fees which have not
been invoiced to customers as of the balance sheet date. These amounts are stated on the consolidated balance sheets as Unbilled Receivables
and as of July 31, 2025 and October 31, 2024, these were $
Deferred
Revenue as of July 31, 2025 and October 31, 2024, was $
Sales of equipment include a provision for warranty obligations or TLS services. The contractual components relating to warranty and TLS are treated as deferred revenue over the corresponding period of the Company’s obligations under these deferred arrangements and are amortized over the relevant warranty or TLS period (12 months is our standard warranty contract obligation or for TLS 24, 36 or 60 months, depending on the contract) from the date of sale.
Deferred
Revenue (“Current”) includes invoices paid by our customers in advance of delivery of products or services contracted,
including technical support services to be delivered within twelve months, provision for warranty obligations which may arise in the
twelve month period or the current portion of TLS obligations. Deferred Revenue was $
| 12 |
CODA OCTOPUS GROUP, INC.
Notes to the Unaudited Consolidated Financial Statements
July 31, 2025 and October 31, 2024
NOTE 8 – CONTRACTS IN PROGRESS (Continued)
Deferred Revenue (“Current”) consisted of the following as of July 31, 2025 and October 31, 2024:
| July 31, | October 31, | |||||||
| 2025 | 2024 | |||||||
| Deferred Revenues | $ | $ | ||||||
| Customer Technical Support Obligations (including TLS) | ||||||||
| Product Warranty | ||||||||
| Total Deferred Revenues (“Current”) | $ | $ | ||||||
Deferred
Revenue (“Non-Current”) includes customer prepaid TLS services for future performance. Deferred Revenue
(“Non-Current”) was $
NOTE 9 – ACQUISITIONS
On
October 29, 2024, the Company acquired all the issued and outstanding shares of Precision Acoustics Limited (PAL) for $
The Company acquired PAL to gain access to its expertise in acoustic and medical imaging technologies which we believe can be leveraged through development for use in the subsea market, the primary sector for our core business, the Marine Technology Business, and more broadly to expand the Group’s collective capabilities in order to qualify and compete for larger Defense-related contracts.
In
the Current Quarter, PAL contributed revenues of $
| Pro forma | Pro forma | Pro forma | Pro forma | |||||||||||||
| Three Months | Three Months | Nine Months | Nine Months | |||||||||||||
| Ended | Ended | Ended | Ended | |||||||||||||
| July 31, | July 31, | July 31, | July 31, | |||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Net Revenue | ||||||||||||||||
| Coda Octopus Group | $ | $ | $ | $ | ||||||||||||
| Precision Acoustics | ||||||||||||||||
| Combined Net Revenue | $ | $ | $ | $ | ||||||||||||
| Net Income | ||||||||||||||||
| Amortization of acquired intangible assets, pro forma | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Coda Octopus Group | ||||||||||||||||
| Precision Acoustics | ||||||||||||||||
| Combined Net Income | $ | $ | $ | $ | ||||||||||||
The Company did not have any material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported proforma information.
These pro forma amounts have been calculated after applying the Company’s accounting policies and adjusting the Company’s results to reflect the additional amortization that would have been charged assuming the fair value adjustments to intangible assets had been applied from the beginning of the Company’s fiscal year 2025 (November 1, 2024) up to the period ended July 31, 2025.
In
fiscal year 2024, the Company incurred $
The
acquisition of PAL includes contingent consideration arrangements (“Earn Outs”) that requires additional consideration
to be paid by the Company over a three year period to the sellers of PAL based on future revenue and pre-tax income of PAL. The potential Earn Out amounts
as at October 31, 2024 are shown in the table below applying an exchange rate (from British Pound to USD) of $
| Earn Out | 2025 FY | 2026 FY | 2027 FY | |||||||||
| Revenue Target | $ | $ | $ | |||||||||
| Pre-Tax Profit Target | $ | $ | $ | |||||||||
| Earn Out Amount Payable based on Targets | $ | $ | $ | |||||||||
The actual Earn Out obligations are specified in British Pound and therefore, if triggered, the amounts stated above may vary according to exchange rate fluctuations.
Based on the projections the Company used, we determined that there would be no Earn Outs payable, and therefore until the period ended April 30, 2025 (our second fiscal quarter) no contingent liability for Earn Out payments had been recorded in the Company’s financial statements.
An
assessment shows that PAL is achieving financial results that exceeded our original expectations. As noted above, the contingent
consideration has two components that both must be met to achieve the contingent consideration payout: a revenue and pre-tax income
target. As of July 31, 2025, it appears probable that PAL will achieve the pre-tax income target. We also believe that PAL is close
to achieving the revenue target for triggering the year one Earn Out payment. Since PAL revenues fluctuate from quarter to quarter,
the Company intends to wait until the fourth quarter amounts are known to determine if the first-year Earn Outs payments will be
achieved. Based on PAL’s results through the first three-quarters of fiscal year 2025, in the Current Quarter the Company has
recorded an expense and liability for 75% of the total Earn Out or $
The Company has up to one-year from October 29, 2024, to make any measurement period adjustments to the fair value of the opening balance sheet.
The goodwill is attributable to the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including an experienced workforce that will help accelerate product development and our go-to-market strategy, as well as expected future synergies generated by integrating PAL’s products with those in our existing platform. None of the goodwill is expected to be deductible for tax purposes.
Prior
to the acquisition, PAL was a non-key supplier to our Marine Technology Business, which purchased on average approximately $
The
fair value of assets acquired includes non-competes and value of technology. The estimated future annual amortization expenses of finite-lived
assets relating to the PAL acquisition for our fiscal year 2025 is $
| 13 |
CODA OCTOPUS GROUP, INC.
Notes to the Unaudited Consolidated Financial Statements
July 31, 2025 and October 31, 2024
NOTE 10 – CONCENTRATIONS
Significant Customers
During
the three months ended July 31, 2025, the Company had two customers from whom it generated sales greater than 10% of net revenues. Revenue
from these customers was $
During
the three months ended July 31, 2024, the Company had one customer from whom it generated sales greater than 10% of net revenues. Revenue
from this customer was $
During the nine months ended July 31, 2025, the Company had no customers from whom it generated sales greater than 10% of net revenues.
During
the nine months ended July 31, 2024, the Company had one customer from whom it generated sales greater than 10% of net revenues. Revenue
from this customer was $
NOTE 11 – RECENT ACCOUNTING PRONOUNCEMENTS
On October 27, 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 will affect how we report segment information, starting with our Form 10-K for the year ended October 31, 2025, and our quarterly reports on Form 10-Q starting with our quarterly report for the quarter ended January 31, 2026. The ASU requires that we provide disclosures of significant segment expenses and other segment items that are regularly provided to our Chief Operating Decision Maker (“the CODM”) and included in each reported measure of segment profit or loss. We will also have to disclose other segment items by reportable segment (i.e., the difference between reported segment revenue less the significant segment expenses (which are disclosed), less reported segment profit or loss). The information needed for these disclosures is available, and we are determining the best way to provide that information for these required segment disclosures.
On November 4, 2024, the FASB issued ASU 2024-03 Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (“ASU 2024-03”) which is an update to Topic 220, Income Statement - Reporting Comprehensive Income. ASU 2024-03 enhances transparency and decision-usefulness of expense disclosures in response to investors’ requests for more detailed, disaggregated expense information, enabling a clearer understanding of a public business entity’s performance and cost structure. The amendments improve disclosure requirements in financial statement notes for specific expense categories including: (a) purchases of inventory, (b) employee compensation, (c) depreciation, (d) intangible asset amortization, (e) certain amounts that are already required to be disclosed under current generally accepted accounting principles in the same disclosure as other disaggregation requirements, (f) qualitative description of amounts remaining in relevant expense captions that are not necessarily disaggregated quantitatively, as well as (g) the total amount of selling expenses, and in annual reporting periods, the entity’s definition of selling expense. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026, and therefore will be included in our Form 10-K for our fiscal year 2028 and Form 10-Qs beginning after December 15, 2027 (i.e., our first quarter of fiscal 2029 interim report). Early adoption is permitted. We are currently evaluating ASU 2024-03 to determine the impact it will have on its consolidated financial statements and related disclosures.
On December 14, 2023, the FASB issued ASU 2023-09 Improvements to Income Tax Disclosures (“ASU 2023-09”), which is an update to Topic 740, Income Taxes. The amendments in this update relate to improvements regarding the transparency of income tax disclosures by requiring consistent categories and greater disaggregation by jurisdiction of information included in the effective income tax rate reconciliation and for income taxes paid. Also, the amendments allow investors to better assess an entity’s (i) capital allocation decisions, (ii) worldwide operations, and (iii) related tax risks, tax planning, and operational opportunities that affect the effective income tax rate and prospects for future cash flows. The other amendments in this update improve the effectiveness and comparability of disclosures relating to pretax income (or loss) and income tax expense (or benefit) and remove disclosures that are no longer considered cost beneficial or relevant. ASU 2023-09 is effective for public entities starting in annual periods beginning after December 15, 2024, and therefore will be included in our Form 10-K for our fiscal year 2026. While early adoption is permitted, the Company has decided to adopt these changes in its 2026 financial statements. We expect that the adoption of ASU 2023-09 will not have an impact on our results of operations and financial condition but will have a material impact on the disclosures required in the relevant notes to the consolidated financial statements.
NOTE 12 – GOODWILL AND IDENTIFIED INTANGIBLE ASSETS
Intangibles consisted of the following as of:
| Average | July 31, 2025 | October 31, 2024 | |||||||||||||||||||||||||
| Life | Gross | Accumulated | Gross | Accumulated | |||||||||||||||||||||||
| Fiscal Period | Years | Asset | Amortization | Net | Asset | Amortization | Net | ||||||||||||||||||||
| Customer Relationships | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Non-Compete Agreements | ( | ) | ( | ) | |||||||||||||||||||||||
| Value of Technology | ( | ) | |||||||||||||||||||||||||
| Patents | ( | ) | ( | ) | |||||||||||||||||||||||
| Total intangible assets | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||||||||
Amortization
of intangible assets for the three months ended July 31, 2025 and 2024 was $
| 14 |
NOTE 12 – GOODWILL AND IDENTIFIED INTANGIBLE ASSETS (Continued)
Goodwill consisted of the following as of:
| July 31, | October 31, | |||||||
| 2025 | 2024 | |||||||
| *Coda Octopus Engineering, Inc. | $ | $ | ||||||
| Coda Octopus Products, Ltd | ||||||||
| Coda Octopus Martech, Ltd | ||||||||
| Precision Acoustics, Ltd | ||||||||
| Total Goodwill | $ | $ | ||||||
| * |
| Three Months | Three Months | Nine Months | Nine Months | |||||||||||||
| Ended | Ended | Ended | Ended | |||||||||||||
| July 31, | July 31, | July 31, | July 31, | |||||||||||||
| Fiscal Period | 2025 | 2024 | 2025 | 2024 | ||||||||||||
| Numerator: | ||||||||||||||||
| Net Income | $ | $ | $ | $ | ||||||||||||
| Denominator: | ||||||||||||||||
| Basic weighted average common shares outstanding | ||||||||||||||||
| Unexercised portion of options and restricted stock awards | ||||||||||||||||
| Diluted outstanding shares | ||||||||||||||||
| Net income per share | ||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||
NOTE 14 – 2017 AND 2021 STOCK INCENTIVE PLANS
2017 and 2021 Stock Incentive Plan (together “SIPs”)
On December 6, 2017, the Board of Directors adopted the 2017 Stock Incentive Plan (the “2017 Plan”). The purpose of the Plan is to advance the interests of the Company and its stockholders by enabling the Company and its subsidiaries to attract and retain qualified individuals through opportunities for equity participation in the Company, and to reward those individuals who contribute to the Company’s achievement of its economic objectives. The Plan was adopted subject to Stockholders’ approval and was approved by Stockholders at the Company’s Annual General Meeting held on July 24, 2018, and provides for a maximum of to be issued under this Plan. On July 12, 2021, a second plan was adopted by the Board of Directors (2021 Plan). The 2021 Plan is identical to the 2017 Plan in all material respects except that the maximum number of shares allocated for issuance is .
The shares allocated for issuance under the SIPs may, at the election of the Compensation Committee, be either treasury shares or shares authorized but unissued, and, if treasury shares are used, all references in the SIPs to the issuance of shares will, for corporate law purposes, be deemed to mean the transfer of shares from treasury.
Pursuant to the terms of the 2017 Plan, during the three months ended July 31, 2025, no awards of either restricted stock or options were made; restricted stock awards were forfeited, and no treasury stock was created. As a result of the forfeiture, shares were returned to the 2017 Plan during the period.
During the nine months ended July 31, 2025, the Company granted restricted stock awards. There were forfeitures of restricted stock award and no treasury stock created. During the nine months ended July 31, 2025 there were options exercised on a cashless basis, pursuant to which shares of common stock were issued. During the nine months ended July 31, 2025, shares were returned to the Plan as a result of the exercise of options on a cashless basis and as a result of restricted stock forfeitures during the nine month period.
As of July 31, 2025, there were shares available for future issuance under the 2017 and 2021 Plans.
The total stock compensation expense during the three month period ended July 31, 2025 and 2024 was $ and $ respectively. During the nine months ended July 31, 2025 and 2024, these were $ (of which $ constituted unregistered stock which was issued outside of the SIPs) and $, respectively.
| 15 |
CODA OCTOPUS GROUP, INC.
Notes to the Unaudited Consolidated Financial Statements
July 31, 2025 and October 31, 2024
NOTE 15 – SEGMENT ANALYSIS
We
operate
Segment operating income is total segment net revenue reduced by cost of revenues and operating expenses (research and development and selling, general & administrative) identifiable with the reporting business segment. Overhead includes general corporate administrative costs.
The Company evaluates performance and allocates resources based upon operating income. The accounting policies of the reportable segments are the same as those described in the critical accounting policies in Item 2 of this Form 10-Q. Our Chief Operating Decision Maker (“CODM”) regularly reviews consolidated net sales, consolidated operating expenses, and consolidated operating income (loss) by segment. Amounts included in consolidated operating expenses include “cost of sales,” “R&D expenses”, “selling, general and administrative expenses,” and “other operating expense (income), net”. Our CODM manages our business by reviewing business plans and strategy, annual forecasts and consolidated results by segment on a quarterly basis.
The net revenues shown in this Note 15 in the tables below comprise sales which have been made externally and exclude sales between the companies within the Group (“Inter-Company Sales”). For segment reporting purposes we have, nevertheless, included in the Supplemental Disclosures in the tables below, information on Inter-Company Sales in the reporting period. Inter-Company sales are not included in our net revenues.
● Marine Technology Business
The Marine Technology Business constitutes our core business in the Group and is a supplier of various technologies to the underwater/subsea market. Its key technologies are its real time 3D volumetric imaging sonars, Echoscope®, and diving solutions (DAVD). It also supplies a suite of geophysical products, inertial navigation sensors, digital audio communications systems, rental equipment, customization of technology services and field support services.
● Acoustic Sensors and Materials Business
The Company acquired Precision Acoustics Limited (PAL) on October 29, 2024. PAL is a supplier of acoustic sensors and materials. PAL serves a broad base of markets such as the medical, subsea, defense, universities and research and development institutes. PAL also performs calibration services for medical devices and is accredited to ISO/IEC 17025 standard. PAL is one of only two organizations in the United Kingdom with this certification, alongside the National Physical Laboratory (NPL). Globally, only a handful of facilities hold ISO/IEC 17025 accreditation for these measurements. Ultrasonic free-field sensitivity calibration is critical for markets that require precision ultrasonic measurement, strict safety compliance, and full metrological traceability. These include regulated and high-risk applications, such as diagnostic and therapeutic medical ultrasound and defense and underwater acoustics, where free-field calibration is essential to ensure accurate beam sensitivity and minimal interference.
● Marine Engineering Business
The Marine Engineering Business operates primarily as subcontractors to prime defense contractors where they provide engineering services and supplies proprietary sub-assemblies which typically form part of larger mission critical defense systems.
The following tables summarize segment asset and operating balances by reportable segment for the three months and nine months ended July 31, 2025 and 2024, respectively.
The Company’s reportable business segments sell their goods and services in four geographic locations:
| ● | Americas | |
| ● | Europe | |
| ● | Australia/Asia | |
| ● | Middle East/Africa |
| 16 |
CODA OCTOPUS GROUP, INC.
Notes to the Unaudited Consolidated Financial Statements
July 31, 2025 and October 31, 2024
NOTE 15 - SEGMENT ANALYSIS (Continued)
| Marine Technology Business (“Products”) | Acoustic
Sensors and Materials Business (“PAL”) |
Marine Engineering Business (“Engineering”) | Overhead | Total | ||||||||||||||||
| Three Months Ended July 31, 2025 | ||||||||||||||||||||
| Net Revenues | $ | $ | $ | $ | $ | |||||||||||||||
| Cost of Revenues | ||||||||||||||||||||
| Gross Profit | ||||||||||||||||||||
| Research & Development | ||||||||||||||||||||
| Selling, General & Administrative | ||||||||||||||||||||
| Total Operating Expenses | ||||||||||||||||||||
| Income (Loss) from Operations | ( | ) | ||||||||||||||||||
| Other Income | ||||||||||||||||||||
| Other Income | ||||||||||||||||||||
| Interest Income | ||||||||||||||||||||
| Total Other Income | ||||||||||||||||||||
| Income (Loss) before Income Taxes | ( | ) | ||||||||||||||||||
| Income Tax (Expense) Benefit | ||||||||||||||||||||
| Current Tax (Expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Deferred Tax Benefit | ||||||||||||||||||||
| Total Income Tax (Expense) Benefit | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Net Income (Loss) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Supplemental Disclosures | ||||||||||||||||||||
| Total Assets | $ | $ | $ | $ | $ | |||||||||||||||
| Total Liabilities | $ | $ | $ | $ | $ | |||||||||||||||
| Revenues from Intercompany Sales - eliminated from sales above | $ | $ | $ | $ | $ | |||||||||||||||
| Depreciation and Amortization | $ | $ | $ | $ | $ | |||||||||||||||
| Purchases of Long-lived Assets | $ | $ | $ | $ | $ | |||||||||||||||
| 17 |
CODA OCTOPUS GROUP, INC.
Notes to the Unaudited Consolidated Financial Statements
July 31, 2025 and October 31, 2024
NOTE 15 – SEGMENT ANALYSIS (Continued)
In the Segment Analysis information presented for the Previous Quarter, there is no comparative information for the Acoustics Sensors and Material Business (“PAL”) as this business unit was acquired by the Company on October 29, 2024.
Marine Technology Business (“Products”) |
Marine Engineering Business (“Engineering”) | Overhead | Total | |||||||||||||
| Three Months Ended July 31, 2024 | ||||||||||||||||
| Net Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of Revenues | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| Research & Development | ||||||||||||||||
| Selling, General & Administrative | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Income (Loss) from Operations | ( | ) | ||||||||||||||
| Other Income | ||||||||||||||||
| Other Income | ||||||||||||||||
| Interest Income | ||||||||||||||||
| Total Other Income | ||||||||||||||||
| Income (Loss) before Income Taxes | ( | ) | ||||||||||||||
| Income Tax (Expense) Benefit | ||||||||||||||||
| Current Tax (Expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Deferred Tax (Expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Total Income Tax (Expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net Income (Loss) | $ | $ | $ | ( | ) | $ | ||||||||||
| Supplemental Disclosures | ||||||||||||||||
| Total Assets | $ | $ | $ | $ | ||||||||||||
| Total Liabilities | $ | $ | $ | $ | ||||||||||||
| Revenues from Intercompany Sales - eliminated from sales above | $ | $ | $ | $ | ||||||||||||
| Depreciation and Amortization | $ | $ | $ | $ | ||||||||||||
| Purchases of Long-lived Assets | $ | $ | $ | $ | ||||||||||||
| 18 |
CODA OCTOPUS GROUP, INC.
Notes to the Unaudited Consolidated Financial Statements
July 31, 2025 and October 31, 2024
NOTE 15 - SEGMENT ANALYSIS (Continued)
| Marine Technology Business (“Products”) | Acoustic
Sensors and Materials Business (“PAL”) |
Marine Engineering Business (“Engineering”) | Overhead | Total | ||||||||||||||||
| Nine Months Ended July 31, 2025 | ||||||||||||||||||||
| Net Revenues | $ | $ | $ | $ | $ | |||||||||||||||
| Cost of Revenues | ||||||||||||||||||||
| Gross Profit | ||||||||||||||||||||
| Research & Development | ||||||||||||||||||||
| Selling, General & Administrative | ||||||||||||||||||||
| Total Operating Expenses | ||||||||||||||||||||
| Income (Loss) from Operations | ( | ) | ||||||||||||||||||
| Other Income | ||||||||||||||||||||
| Other Income | ||||||||||||||||||||
| Interest Income | ||||||||||||||||||||
| Total Other Income | ||||||||||||||||||||
| Income (Loss) before Income Taxes | ( | ) | ||||||||||||||||||
| Income Tax (Expense) Benefit | ||||||||||||||||||||
| Current Tax (Expense) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Deferred Tax Benefit | ||||||||||||||||||||
| Total Income Tax (Expense) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net Income (Loss) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Supplemental Disclosures | ||||||||||||||||||||
| Total Assets | $ | $ | $ | $ | $ | |||||||||||||||
| Total Liabilities | $ | $ | $ | $ | $ | |||||||||||||||
| Revenues from Intercompany Sales - eliminated from sales above | $ | $ | $ | $ | $ | |||||||||||||||
| Depreciation and Amortization | $ | $ | $ | $ | $ | |||||||||||||||
| Purchases of Long-lived Assets | $ | $ | $ | $ | $ | |||||||||||||||
| 19 |
CODA OCTOPUS GROUP, INC.
Notes to the Unaudited Consolidated Financial Statements
July 31, 2025 and October 31, 2024
NOTE 15 - SEGMENT ANALYSIS (Continued)
| Marine Technology Business (“Products”) | Marine Engineering Business (“Engineering”) | Overhead | Total | |||||||||||||
| Nine Months Ended July 31, 2024 | ||||||||||||||||
| Net Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of Revenues | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| Research & Development | ||||||||||||||||
| Selling, General & Administrative | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Income (Loss) from Operations | ( | ) | ||||||||||||||
| Other Income | ||||||||||||||||
| Other Income | ||||||||||||||||
| Interest Income | ||||||||||||||||
| Total Other Income | ||||||||||||||||
| Income (Loss) before Income Taxes | ( | ) | ||||||||||||||
| Income Tax (Expense) Benefit | ||||||||||||||||
| Current Tax (Expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Deferred Tax (Expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Total Income Tax (Expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net Income (Loss) | $ | $ | $ | ( | ) | $ | ||||||||||
| Supplemental Disclosures | ||||||||||||||||
| Total Assets | $ | $ | $ | $ | ||||||||||||
| Total Liabilities | $ | $ | $ | $ | ||||||||||||
| Revenues from Intercompany Sales - eliminated from sales above | $ | $ | $ | $ | ||||||||||||
| Depreciation and Amortization | $ | $ | $ | $ | ||||||||||||
| Purchases of Long-lived Assets | $ | $ | $ | $ | ||||||||||||
| 20 |
CODA OCTOPUS GROUP, INC.
Notes to the Unaudited Consolidated Financial Statements
July 31, 2025 and October 31, 2024
NOTE 16 – DISAGGREGATION OF REVENUE
Information about the Company’s operations in different geographic areas for the three months and nine months ended July 31, 2025, is shown below. Net sales were attributed to geographic areas based on the location of the customer. In the Disaggregation of net revenue information presented for the Previous Quarter, there is no comparative information for the Acoustics Sensors and Material Business (“PAL”) as this business unit was acquired by the Company on October 29, 2024.
| For the Three Months Ended July 31, 2025 | ||||||||||||||||
| Marine | Acoustic Sensors | Marine | ||||||||||||||
| Technology | and Materials | Engineering | Grand | |||||||||||||
| Business (“Products”) | Business (“PAL”) | Business (“Engineering”) | Total | |||||||||||||
| Disaggregation of Total Net Sales | ||||||||||||||||
| Primary Geographical Markets | ||||||||||||||||
| Americas | $ | $ | $ | $ | ||||||||||||
| Europe | ||||||||||||||||
| Australia/Asia | ||||||||||||||||
| Middle East/Africa | ||||||||||||||||
| Total Revenues | $ | $ | $ | $ | ||||||||||||
| Major Goods/Service Lines | ||||||||||||||||
| Equipment Sales | $ | $ | $ | $ | ||||||||||||
| Equipment Rentals | ||||||||||||||||
| Software Sales | ||||||||||||||||
| Engineering Parts | ||||||||||||||||
| Services | ||||||||||||||||
| Total Revenues | $ | $ | $ | $ | ||||||||||||
| Goods transferred at a point in time | $ | $ | $ | $ | ||||||||||||
| Services transferred over time | ||||||||||||||||
| Total Revenues | $ | $ | $ | $ | ||||||||||||
| 21 |
CODA OCTOPUS GROUP, INC.
Notes to the Unaudited Consolidated Financial Statements
July 31, 2025 and October 31, 2024
NOTE 16 – DISAGGREGATION OF REVENUE (Continued)
| For the Three Months Ended July 31, 2024 | ||||||||||||
| Marine | Marine | |||||||||||
| Technology | Engineering | Grand | ||||||||||
| Business (“Products”) | Business (“Engineering”) | Total | ||||||||||
| Disaggregation of Total Net Sales | ||||||||||||
| Primary Geographical Markets | ||||||||||||
| Americas | $ | $ | $ | |||||||||
| Europe | ||||||||||||
| Australia/Asia | ||||||||||||
| Middle East/Africa | ||||||||||||
| Total Revenues | $ | $ | $ | |||||||||
| Major Goods/Service Lines | ||||||||||||
| Equipment Sales | $ | $ | $ | |||||||||
| Equipment Rentals | ||||||||||||
| Software Sales | ||||||||||||
| Engineering Parts | ||||||||||||
| Services | ||||||||||||
| Total Revenues | $ | $ | $ | |||||||||
| Goods transferred at a point in time | $ | $ | $ | |||||||||
| Services transferred over time | ||||||||||||
| Total Revenues | $ | $ | $ | |||||||||
| 22 |
CODA OCTOPUS GROUP, INC.
Notes to the Unaudited Consolidated Financial Statements
July 31, 2025 and October 31, 2024
NOTE 16 – DISAGGREGATION OF REVENUE (Continued)
| For the Nine Months Ended July 31, 2025 | ||||||||||||||||
| Marine | Acoustic Sensors | Marine | ||||||||||||||
| Technology | and Materials | Engineering | Grand | |||||||||||||
| Business (“Products”) | Business (“PAL”) | Business (“Engineering”) | Total | |||||||||||||
| Disaggregation of Total Net Sales | ||||||||||||||||
| Primary Geographical Markets | ||||||||||||||||
| Americas | $ | $ | $ | $ | ||||||||||||
| Europe | ||||||||||||||||
| Australia/Asia | ||||||||||||||||
| Middle East/Africa | ||||||||||||||||
| Total Revenues | $ | $ | $ | $ | ||||||||||||
| Major Goods/Service Lines | ||||||||||||||||
| Equipment Sales | $ | $ | $ | $ | ||||||||||||
| Equipment Rentals | ||||||||||||||||
| Software Sales | ||||||||||||||||
| Engineering Parts | ||||||||||||||||
| Services | ||||||||||||||||
| Total Revenues | $ | $ | $ | $ | ||||||||||||
| Goods transferred at a point in time | $ | $ | $ | $ | ||||||||||||
| Services transferred over time | ||||||||||||||||
| Total Revenues | $ | $ | $ | $ | ||||||||||||
| For the Nine Months Ended July 31, 2024 | ||||||||||||
| Marine | Marine | |||||||||||
| Technology | Engineering | Grand | ||||||||||
| Business (“Products”) | Business (“Engineering”) | Total | ||||||||||
| Disaggregation of Total Net Sales | ||||||||||||
| Primary Geographical Markets | ||||||||||||
| Americas | $ | $ | $ | |||||||||
| Europe | ||||||||||||
| Australia/Asia | ||||||||||||
| Middle East/Africa | ||||||||||||
| Total Revenues | $ | $ | $ | |||||||||
| Major Goods/Service Lines | ||||||||||||
| Equipment Sales | $ | $ | $ | |||||||||
| Equipment Rentals | ||||||||||||
| Software Sales | ||||||||||||
| Engineering Parts | ||||||||||||
| Services | ||||||||||||
| Total Revenues | $ | $ | $ | |||||||||
| Goods transferred at a point in time | $ | $ | $ | |||||||||
| Services transferred over time | ||||||||||||
| Total Revenues | $ | $ | $ | |||||||||
NOTE 17 – INCOME TAXES
Our tax provision or benefit from income taxes for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we may update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment.
Our quarterly tax provision, and our quarterly estimate of our annual effective tax rate, is subject to significant variation, due to several factors including variability in accurately predicting our pre-tax income and/or loss and the mix of jurisdictions to which they relate, intercompany transactions, the applicability of special tax regimes, changes in how we do business, acquisitions, investments, changes in our stock price, foreign currency gains (losses), changes in regulations and administrative practices. Our effective tax rate can be more or less volatile based on the amount of pre-tax income or loss.
The One Big Beautiful Bill Act of 2025 (the “2025 Tax Act”) was signed into law on July 4, 2025. The 2025 Tax Act makes changes to the U.S corporate income tax, including reinstating the option to claim 100% accelerated depreciation deductions on qualified property, with retroactive application beginning January 20,2025 and immediate expensing of domestic research and development costs, with retroactive application beginning January 1, 2025. While we are still carefully evaluating the full extent of the 2025 Tax Act’s impact, in 2025 we do not anticipate major changes to our U.S cash taxes.
In the future (2027) we expect our income tax provision to increase primarily due to a decrease in our foreign income deduction under the Act’s global intangible low-taxed income (“GILTI”) provisions.
We
estimate that the Company’s effective tax rate for the three months ended July 31, 2025, and 2024, was
In
the three and nine months ended July 31, 2025, the Company made awards of restricted stock and recorded a deferred tax benefit of $
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act 1995. 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 assurance 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. Actual results and outcomes could differ materially for a variety of reasons, including, among others, fluctuations in foreign exchange rates, changes in global economic conditions, tariff and trade policies, reduction in government spending in Defense sector and customer demand and spending, inflation, interest rates, and world events, risks of inventory management, variability in demand, economic and geopolitical conditions and additional or unforeseen circumstances, developments, or events may give rise to or amplify many of these risks.
The following discussion and analysis should be read in conjunction with our consolidated financial statements, included herewith and the audited financial statements with their accompanying notes included in our annual report on Form 10-K filed with the U.S. Securities and Exchange Commission on January 29, 2025. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.
General Overview
Throughout these discussions, the following terms shall have the meaning set forth below:
| “Current Quarter” | Three month period ended July 31, 2025 | |
| “Previous Quarter” | Three month period ended July 31, 2024 | |
| “Current Nine Month Period” | Nine month period ended July 31, 2025 | |
| “Previous Nine Month Period” | Nine month period ended July 31, 2024 |
We sell our goods and services internationally, with $4,484,660 or 63.5% of our consolidated net revenue in the Current Quarter derived from outside of the United States. Macroeconomic factors, including changes in inflation and interest rates, as well as global economic and geopolitical developments including unpredictable shifts in global tariffs, world events, significant changes in trade policies and funding policies, have direct and indirect impacts on our results of operations that are difficult to isolate and quantify. These factors may adversely affect customer demand for our products and services and our ability to forecast spending patterns and therefore overall demand for our goods and services. We expect some or all of these factors to continue to impact our operations in fiscal year 2025.
The new U.S. Administration is rapidly changing key policies in the area of trade, defense and foreign policy which have resulted in general uncertainty around the world. Our core business has a leading solution in the offshore renewable market. Following the change in the US renewables policy many offshore renewable permits for U.S. developments have been suspended and many leading developers such as Shell, Orsted, BP and Total Energy have either reduced or halted their US offshore renewable programs. We believe that these factors have resulted in weak demand from European developers and offshore suppliers for our rental solutions which caused a decrease in rental revenue and associated services from the geographic region of Europe (the Marine Technology’s main rental hub) in the Current Quarter. Nevertheless, we believe that new U.S. policy on prioritizing domestic energy production of Oil & Gas also favors our products and solutions, and we believe that in the foreseeable future this may offset the reduction of revenue from U.S. offshore renewables. Furthermore, a key part of our growth strategy as a Group relies on Defense spending and the U.S. new foreign policy on Defense has also seen Europe including the United Kingdom committing to significant increases defense spending, with Germany expecting to spend about €400 billion ($428 billion) on defense over the coming years in addition to creating a special fund of €500 billion ($535 billion) for infrastructure spending over the next 10 years. European Union member states have also agreed to allow the member states to exceed the debt ceilings that are in place to allow the countries to borrow for defense investments. We therefore believe that despite the short-term disruption caused by uncertainty around the new U.S. Administration’s critical policies, many of these changes are likely to be favorable for our Business.
The Company operates three distinct businesses:
| ● | the Marine Technology Business (also referred to in this Form 10-Q as “Products Business”, or “Products Segment” or “Core Business”); | |
| ● | Acoustic Sensors and Materials Business (also referred to in this Form 10-Q as “PAL”); | |
| ● | the Marine Engineering Business (also referred to in this Form 10-Q as “Engineering Business”). |
Our Marine Technology Business constitutes our core business and is critical for our growth strategy. It is an established technology solution provider of over 30 years to the offshore subsea market. It owns key proprietary technology (comprising both hardware and software) including its real time 3D volumetric imaging sonar (Echoscope®) and its cutting-edge augmented reality diving solution DAVD (Diver Augmented Vision Display) system. These solutions are used in both the underwater Defense and Commercial markets. It recently launched its new underwater digital communications system which advances the offering in the market from analog voice communications to digital voice communications underwater (Voice-Hub-4). All innovation, design, development, manufacturing and support are performed within the Company.
Our novel diving technology is distributed under the name “CodaOctopus® DAVD” to the global defense and commercial diving markets. The DAVD technology is an advanced Augmented Reality display technology designed to enhance divers’ safety, performance and situational awareness, especially in low-visibility and technically challenging environments. It seamlessly integrates several different streams of real-time data, on-demand information (such as drawings, pictures, videos) and Echoscope 3D sonar imagery, projecting these onto the diver’s field of vision through the DAVD Augmented Reality Head-Up display (HUD).
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Although we generate most of our revenues from our real time 3D sonar and DAVD which include both proprietary hardware and software, we have several other products such as our inertial navigation systems (F280 Series®) and our geophysical hardware (DA4G) and software solutions (GeoSurvey and Survey Engine®, which include artificial intelligence 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, prime defense contractors, navies, research institutes and universities and diving companies.
On October 29, 2024, we acquired PAL which is a recognized leader in the ultrasound and acoustic measurement field. PAL supplies acoustic sensors and materials to a broad range of markets including the medical, aerospace, subsea and automotive industries. It also provides measurement and calibration services for the sensors that they supply. PAL recently received accreditation to the ISO/IEC 17025 standard. PAL is one of only two organizations in the United Kingdom with this certification, alongside the National Physical Laboratory (NPL). Globally, only a handful of facilities hold ISO/IEC 17025 accreditation for these measurements. Ultrasonic free-field sensitivity calibration is critical for markets that require precision ultrasonic measurement, strict safety compliance, and full metrological traceability. These include regulated and high-risk applications, such as diagnostic and therapeutic medical ultrasound and defense and underwater acoustics, where free-field calibration is essential to ensure accurate beam sensitivity and minimal interference.
The Marine Engineering Business has operations in the USA and UK. Its central business model is working with Prime Defense Contractors to design and manufacture 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 this 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. The scope of services provided by the Marine Engineering Business encompasses concept, design, prototype, manufacturing and support.
Key Pillars for our Growth Plans (“Core Business”)
Our volumetric real time 3D imaging sonar technology (the Echoscope® technology) and our DAVD are our most promising products for the Company’s near-term growth.
The Echoscope® is widely used in the Commercial Offshore marine market for a wide range of activities from real time 3D monitoring, salvage and recovery, placements and landings, mining, etc. The biggest market opportunity for scalable growth around the Echoscope is in the Defense space which is undergoing a major transformation through the deployment of new classes of underwater vehicles, including manned, unmanned surface, and fully autonomous platforms. These platforms vary dramatically in size, from large vehicles exceeding 85 feet in length and weighing over 85 tons, to compact, one-person-deployable systems. Despite this diversity, a common requirement across all platforms is the need for reliable underwater vision. This capability is essential for safe and accurate navigation, situational awareness, environmental understanding, data collection, and mission execution. The Echoscope directly addresses these needs by providing high-resolution, real-time 3D imaging in complex underwater environments. The defense sector deploys these underwater vehicles for a range of mission-critical applications, most notably: Mine Countermeasures (MCM), Anti-Submarine Warfare (ASW), Surveillance and Reconnaissance, and Infrastructure Protection. Currently, the Echoscope is being evaluated for integration into active future defense programs supporting three of these core mission areas, positioning it as a vital enabler in next-generation underwater operations.
All next-generation defense vehicle programs share a common objective: integrating advanced technologies and enhanced capabilities. Central to this evolution is the development of smarter vehicles equipped with tools like the Echoscope® which deliver real-time, three-dimensional data for informed decision-making. Its versatility across a wide range of defense mission applications supports the consolidation of sensor suite requirements on these platforms. A key advantage lies in addressing SWaP (Size, Weight, and Power) constraints. By reducing the number of sensors required, the Echoscope helps lower power consumption and overall vehicle weight, directly contributing to extended mission durations. This capability represents a unique and valuable benefit the Echoscope brings to the defense underwater vehicles programs.
We also believe that the DAVD system, which is a relatively new technology and presents significant capabilities to the diving market, is poised to radically change the way diving operations are performed globally by providing a fully integrated suite of sensor data shared in real time by the dive supervisor on the surface and the diver. Current diving is done largely by voice command missions from the topside using disparate suite of systems for video data, communications, and positioning.
There are two distinct addressable underwater market applications for the DAVD solution. The tethered diving market and the untethered diving market. The tethered market includes both the commercial diving market and the Defense diving market. The untethered variant serves the Defense market.
The DAVD untethered variant is now a commercial offering and is in the early stages of adoption with the US Navy in over 12 commands. We continue to work to achieve adoption in the global market.
The DAVD untethered solution (DUS) presents the biggest market opportunity for the DAVD technology. In the USA alone there are over 14,000 divers that could utilize this solution including U.S. Special Operations Forces (SOF), EOD, US Army, Marine Corps, US Coast Guard, first responders and law enforcement. The DAVD untethered solution has been the subject of a joint funded U.S and Foreign Navy hardening program under which the DAVD technology was adapted for SOF applications, and in fiscal year 2024 we made significant progress by delivering major project deliverables such as a new generation head up display (DAVD HUD), which is in a much smaller form factor and higher resolution. In our first quarter 2025, we received the first order for sixteen DAVD DUS systems which will be used for field trials across different communities of users such as the EOD (Explosive Ordinance Disposal) community in the U.S. We successfully delivered these systems in our third quarter and continue to support the customer’s evaluation program. We also are actively working with two foreign navies who are in an advanced stage of readiness to start adopting the technology (in small batches), and which will be used to introduce the technology to their divers.
During the Current Quarter, we delivered the final deliverables under the DUS Hardening Program to the foreign navy sponsor and this delivery included a number of DUS systems with the new generation HUD. This now enables this foreign navy to start using the DUS technology on live missions, which will be a critical to their evaluation program.
Factors Affecting our Business in the Current Quarter
The following are some of the most critical factors that affected our business during the Current Quarter. Our annual report on Form 10-K for the fiscal year ended October 31, 2024, contains additional factors that are hereby deemed incorporated by reference.
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Inflation
Inflation measured as the Consumer Price Index has affected the global economy since calendar year 2022, and which was caused by supply chain issues resulting from the coronavirus pandemic and which has since been further compounded by the war in Ukraine which has affected the price of commodities such as oil. Inflation has since remained volatile in the countries in which we operate and continue to be a threat to the global economy. For the 12-month period preceding July 2025, this was:
| Ø | Denmark 2.3% - source: Statistics Denmark, | |
| Ø | UK 4.2% - source: Office of National Statistics; and | |
| Ø | USA 2.7% - source: U.S. Bureau of Labor Statistics. |
Inflation affects our business in a number of areas including increasing our cost of operations and materials and demand for our goods and services in general, and therefore our overall financial results. See “Inflation and Foreign Currency” section of this Form 10-Q.
Change in Global Trade Policy
We sell our goods and services globally and a large percentage of our revenue emanates from international sales. Any change in U.S. policy that restricts the free flow of goods and services is likely to dampen demand for our goods and services globally. The recent change in trade policy by the U.S. vis-à-vis the rest of the world has created significant uncertainties. Our revenue mix is a combination of outright sales and rentals. Rentals are driven by offshore projects. However, since the change in the U.S. Administration’s policy on the funding for offshore renewables programs, we have seen reduced demand for our rental and associated solutions from our European customers who were down-selected for developing many offshore renewables projects in the USA. Furthermore, some of our products sold in the U.S. market are manufactured in the UK. Therefore, we are subject to a 10% tariff on items which are imported into the U.S. from the UK. In the Current Quarter approximately 42.6% of our Marine Technology Business revenue was generated from sales made in the U.S.
Currency Fluctuation/Foreign Exchange Risks
The Company has operations in the UK, USA, Denmark, Australia and India. The results of operations, our intercompany balances associated with our international operations, products and service offerings are exposed to foreign exchange rate fluctuations. Due to these fluctuations, operating results may differ materially from expectations, and we may record significant gains or losses on the remeasurement of intercompany balances (such as assets and liabilities). We also hold cash and cash equivalents in foreign currencies such as British Pounds, Euros and Danish Kroner. When the U.S. Dollar strengthens compared to these currencies, cash equivalents when translated, may be materially less than expected and vice versa. In the Current Quarter the USD weakened against the British Pound and Danish Kroner, which resulted in direct cost of sale and also total operating expenses of our foreign subsidiaries when translated into USD for reporting purposes being higher. The impact of currency fluctuations is discussed more fully below under “Inflation and Foreign Currency”. See also Note 5 (Foreign Currency Translation) to the Unaudited Consolidated Financial Statements and the section of this report which concerns “Inflation and Foreign Currency”.
Concentration of Business Opportunities Where the Sales Cycle is Long and Unpredictable
The Marine Engineering Business revenues are highly concentrated and are mostly generated from sub-contracts with Prime Defense Contractors, although recently we have received direct contracts from the Department of Defense. The sales cycle is generally protracted, and this may affect quarterly revenues. It is also dependent on the federal government appropriating budget for Defense projects and where the federal government is unable to find consensus in the U.S. Congress or there is a change in spending priorities, this may affect the timely award of sub-contracts from Prime Defense Contractors to our Marine Engineering Business, which is reliant on these awards. Furthermore, our Core Business, the Marine Technology Business, key opportunities are in the Defense Market for both its imaging sonars and the DAVD, both of which are key pillars of the Company’s growth strategy. Due to the protracted nature of the government procurement process and cycle for Defense spending under federal and/or state budgets, the sales cycle can be long and unpredictable, thus affecting timing of orders and thus quarterly revenues.
Impact on Revenues and Earnings
We are uncertain as to the extent of the impact the factors disclosed above and in our Form 10-K covering fiscal year ended October 31, 2024, are likely to have on our future financial results.
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Impact on Liquidity, Balance Sheet and Assets
These factors may adversely impact on our availability of free cash flow, working capital and business prospects. As of July 31, 2025, we had cash and cash equivalents of $26,196,439, and cash provided by our operations of $4,307,865. Based on our outstanding obligations and our cash and cash equivalents, as well as our revolving line of credit with HSBC NA, we believe we have sufficient working capital to meet our anticipated cash needs for the next twelve months. However, any projections of future cash flows are subject to substantial uncertainty.
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 Annual Report on Form 10-K for the fiscal year ended October 31, 2024.
Revenue Recognition
Our revenues are earned under formal contracts with our customers.
Our Marine Technology Business revenues are derived from both sales and rental of underwater solutions for imaging, mapping, survey applications and diving. PAL’s revenues are derived from sales of acoustic sensors and materials and for our Marine Engineering Business from engineering services performed for third party customers who are primarily Defense Contractors. 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 additional variable consideration. Our product sales do not include a right of return by the customer.
Regarding our Marine Technology Business and PAL, 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, or calibration services 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 performing engineering services is recognized when those services have been provided to the customer and evidence of the provision of those services exists.
For further discussion of our revenue recognition accounting policies, refer to Note 2 – “Revenue Recognition” in these unaudited consolidated financial statements and Note 2 “Summary of Accounting Policies” in our Annual Report on Form 10-K for the fiscal year ended October 31, 2024.
Business Combination
Assets acquired and liabilities assumed as part of a business acquisition are recorded at their fair value at the date of acquisition. The excess of purchase price over the fair value of the assets acquired and liabilities assumed is recorded as goodwill. Determining the fair value of identifiable assets, particularly intangibles acquired also requires management to make estimates, which are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses associated with an asset.
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Inventory Allowance
We value our inventory based on our cost. We adjust the value of our inventory to the extent our management determines that our cost cannot be recovered due to obsolescence or other factors. In order to make these determinations, our management uses estimates of future demand and sales prices for each product to determine appropriate inventory reserves and to make corresponding reductions in inventory values to reflect the lower of cost or net realizable value. In the event of a higher incidence of inventory obsolescence, we could be required to increase our inventory reserve, which would increase our cost of sales and decrease our gross profit.
Consolidated Results of Operations for the Current Quarter compared to the Previous Quarter
Our consolidated results of operations include the results of the Company’s foreign subsidiaries. Our foreign subsidiaries’ results are translated from their respective functional currencies into United States Dollar (USD) for reporting purposes. Currency fluctuations can therefore impact (positively or negatively) on our consolidated results including revenue, profitability and the value of our assets and liabilities included in the consolidated balance sheet. During the Current Quarter, the USD weakened against the British Pound and the Danish Kroner, resulting in translated foreign revenues being higher by $264,175 than when using the Previous Quarter exchange rate. In addition, the associated costs of our foreign subsidiaries including cost of sales and operating expenses when translated from their respective functional currencies into USD for reporting purposes were higher due to the weakening of the USD, (for a discussion of the effect of foreign exchange rates see Item 2 “Inflation and Foreign Currency”). Consolidated net revenue in the Current Quarter increased by 29.0% and was $7,064,795 compared to $5,476,544 in the Previous Quarter. During the Current Quarter total operating expenses increased by 29.6% and income from operations decreased by 0.8%. Commission costs were 46.5% higher in the Current Quarter or $146,921 compared to $100,290 in the Previous Quarter due to an increase in sales deriving from Asia (see Notes 15 and 16 to the unaudited Consolidated Financial Statements for more information on Segment reporting and Disaggregation of Revenue by segment and geography). Pre-tax income in the Current Quarter was $1,543,749 compared to $1,631,246 in the Previous Quarter, representing a decrease of 5.4%, largely caused by an increase in our SG&A costs which includes a provision for the Current Nine Month Period of $158,872 for contingent liability related to the PAL’s year one Earn Outs, representing 75% of the first year Earn Out contingent liability. A more detailed analysis of our results of operations is set out below.
PAL was acquired on October 29, 2024 and therefore for the purpose of our MD&A discussion, no prior year comparative financial data is presented.
As mentioned above, exchange rate fluctuations were a key factor in our results of operation in the Current Quarter.
Revenue Impact – Percentage of Revenue and Costs from our Foreign Subsidiaries:
In the Current Quarter 66.1% of our consolidated net revenue was attributable to the Company’s foreign subsidiaries. When translating this amount from the native functional currencies of British Pound and Danish Kroner in the Current Quarter this was $4,670,202 compared to $4,406,027 when using the exchange rate applied in the Previous Quarter and therefore an increase in net revenue of $264,175.
Cost of Revenue and Operating Costs Impact from our Foreign Subsidiaries
In the Current Quarter 71.8% of our consolidated Operating Expenses and Cost of Revenue was attributable to the Company’s foreign subsidiaries and this was $4,082,816 (“Foreign Subsidiary Costs”) of our total costs of $5,684,816. When translating the Foreign Subsidiary Costs from the native functional currencies of British Pound and Danish Kroner to USD in the Current Quarter this was $224,023 higher when using the exchange rate of the Previous Quarter.
Segment Summary
Products Business (Core Business)
We sell our products internationally (57.4% of sales by our Products Business in the Current Quarter are attributed to sales outside of the USA). In the Current Quarter, the Products Business generated $3,984,475 or 56.4% of our net revenues compared to $3,048,544 or 55.7% in the Previous Quarter, representing an increase of $935,931 or 30.7%. The increase in sales is due to a combination of factors including increase in hardware sales, mainly derived from the Americas and Middle East & Africa, by 103.6% to $2,746,255 in the Current Quarter compared to $1,349,010 in the Previous Quarter. Sales derived from the U.S. increased by 148.6% to $1,696,334 compared to $682,477 in the Previous Quarter, driven mainly by an increase in DAVD related sales of $1,235,300. Gross profit margin decreased from 82.9% in the Previous Quarter to 77.0% in the Current Quarter, which reflects several factors including the mix of sales. The Products Business mix of sales in the Current Quarter includes a higher percentage of units of hardware sales (which yields a lower gross profit margin) and a lower percentage of rentals (which yields a higher gross profit margin). Also, sales from Europe (our rental hub) decreased significantly and were $157,227 in the Current Quarter compared to $662,700 in Previous Quarter which we believe is a result of the change in the funding policy by the U.S. Administration for offshore renewables which has resulted in many European developers (such as Orsted and BP) cancelling offshore renewable development projects. In the Current Quarter total operating expenses increased by 14.6% in the Products Business and were $1,770,863 compared to $1,545,374 in the Previous Quarter. This is due to a combination of factors including recording in the Current Quarter an exceptional item of $158,872 for PAL related Earn Outs, exchange rate translation expenses as a result of the USD weakening against the British Pound and Danish Kroner, the functional currencies of our foreign subsidiaries, and which resulted in a $238,551 foreign currency related expense compared $163,440 in the Previous Quarter. Pre-tax income was $1,426,739 in the Current Quarter compared to $1,154,300 in the Previous Quarter, reflecting an increase in revenue and gross profit.
Acoustic Sensors and Materials Business (PAL)
In the Current Quarter, PAL generated $1,458,536 or 20.6% of our consolidated net revenue. Gross profit margin was 54.8%; commission costs incurred on sales generated in the Current Quarter were $50,833; total operating expenses were $550,090. PAL’s transactions are in its native currency of British Pound. Pre-tax income was $252,108.
Marine Engineering Business
In the Current Quarter, the Marine Engineering Business generated $1,621,784 or 23.0% of our consolidated net revenues compared to $2,428,000 or 44.3% in the Previous Quarter, representing a decrease in sales of 33.2%. Our U.S. based Marine Engineering Business has experienced delays in receiving orders from its prime defense contractors’ customers resulting from delays in the appropriation of the defense budgets. Gross profit margin decreased from 62.6% in the Previous Quarter to 58.9% in the Current Quarter, reflecting the mix of engineering projects. In the Current Quarter total operating expenses increased by 32.3% in the Marine Engineering Business and were $708,563 compared to $535,421 in the Previous Quarter. Pre-tax income in the Current Quarter was $277,335 compared to $1,030,488 in the Previous Quarter.
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Results of Operations for the Current Quarter compared to the Previous Quarter
Net Revenue: Total consolidated net revenues for the Current Quarter increased by 29.0% when compared to the Previous Quarter and were $7,064,795 and $5,476,544, respectively. Revenue increased in the Marine Technology Business, while it decreased in the Marine Engineering Business. PAL contributed 20.6% to our consolidated net revenue. Without the inclusion of PAL our consolidated net revenue would have increased by 2.4% to $5,606,259 in the Current Quarter, compared to $5,476,544 in the Previous Quarter. This is as a result of an increase in the Products Business revenue by 30.7% offset by a significant decrease in the Marine Engineering Business revenue caused by delays in receiving awards from its prime defense contractor customers due to delays in appropriation of the line items under the Federal Budget.
Gross Profit Margins: Margin percentage was weaker in the Current Quarter at 68.3% (gross profit of $4,823,756) compared to 73.9% (gross profit of $4,048,538) in the Previous Quarter largely due to the mix of sales. In the Current Quarter, gross profit margins in our Marine Technology Business were weaker due to the composition of sales in the Current Quarter, which had more units of hardware sales with a concentration of DAVD hardware, and less units of rental sales. Our net commission costs in the Current Quarter were $146,921 compared to $100,290 in the Previous Quarter, representing an increase of 46.5%.
Gross profit margins reported in our financial results may vary according to several factors. These include:
| ● | The percentage of consolidated net sales attributed to the Marine Technology Business versus the Marine Engineering Business and PAL. The Marine Technology Business gross profit margin may vary with the mix of products and geography from which those sales are derived from (most sales from Asia incur commission costs which impact margins). The gross profit margin yielded by the Marine Technology Business is generally higher than that of the Marine Engineering Business and PAL. | |
| ● | The percentage of consolidated net sales attributed to the Marine Engineering Business. The Marine Engineering Business yields a lower gross profit margin on generated sales which are largely based on time and materials for our Department of Defense contracts (DoD subcontracts). | |
| ● | The percentage of consolidated net sales attributed to PAL. PAL supplies acoustic sensors and materials and its gross margin for these are typically between 55 – 62%. This may vary with the mix of products and also the percentage of reported sales that are performed through sales agents during the reporting period. | |
| ● | The geography from which the sales are derived and the mix of sales within the Marine Technology Business during the reporting period: |
| ● | Hardware related sales versus Software related sales (Hardware margins are lower and Software margins are higher). | |
| ● | Custom engineering around its technology (“services”) versus field services (where our technical support engineers are deployed to the field to provide support to our customers in their use of our technology). |
| ● | Level of commission on products which may vary according to volume. All our business units work with sales/distribution agents. Most of the Marine Technology Business and PAL’s sales in Asia are completed via agents or distributors. See Note 3 “Cost of Goods Sold” for more discussion on this. | |
| ● | Level of Rental Assets in the Marine Technology Business’ Rental Pool and therefore the depreciation expenses may vary accordingly. | |
| ● | The mix of engineering projects performed by our Engineering Business (Prototyping Designs versus manufacturing), may also affect gross profit margins. |
Our net commission costs incurred in the Current Quarter increased by 46.5% and were $146,921 compared to $100,290 in the Previous Quarter. In the Current Quarter this is largely due to the inclusion of PAL into the Group which incurred $50,833 of commission costs in the Current Quarter.
In the Current Quarter, gross profit margins for the Marine Technology Business were 77.0% compared to 82.9% in the Previous Quarter and for the Marine Engineering Business these were 58.9% in the Current Quarter compared to 62.6% in the Previous Quarter and for PAL it was 54.8%.
Since there are more variable factors affecting gross profit margins in the Marine Technology Business, a table showing a summary of break-out of sales generated by this business in the Current Quarter compared to the Previous Quarter is set out below:
| July 31, 2025 | July 31, 2024 | Percentage | ||||||||||
| Description | Products | Products | Change | |||||||||
| Equipment Sales | $ | 2,746,255 | $ | 1,349,011 | 103.6 | % | ||||||
| Equipment Rental | 304,617 | 805,259 | (62.2 | )% | ||||||||
| Software Sales | 236,803 | 251,488 | (5.8 | )% | ||||||||
| Services | 696,800 | 642,786 | 8.4 | % | ||||||||
| Total Net Sales | $ | 3,984,475 | $ | 3,048,544 | 30.7 | % | ||||||
Further information on the performance of each business segment, including revenues by type and geography, can be found in Notes 15 and 16 to the unaudited consolidated financial statements for the Current and Previous Quarters.
Research and Development (R&D): R&D expenditure in the Current Quarter increased by 15.3% and was $572,468 compared to $496,359 in the Previous Quarter. The increase is largely attributed to the inclusion of PAL into the Group combined with the impact of foreign currency translation from British Pound to USD for reporting purpose (and where a significant portion of our R&D expenses are incurred).
| ● | Products Business |
During the Current Quarter our Products Business R&D expenditure decreased by 6.9% and was $428,007 as compared to $459,879 in the Previous Quarter. R&D expenditure is incurred by this business in connection with investments it makes in developing its products and solutions and a significant component of these expenditures comprises wages and salaries. This expenditure is an essential part of our business, as we need to continue to innovate our solutions on an ongoing basis. The increase is related to exchange rate variance as all of the costs related to this category have been translated from British Pound to USD and during the Current Quarter the USD weakened against the British Pound, the functional currency in which these costs are incurred.
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| ● | Acoustics and Materials Business (PAL) |
This is a newly acquired business unit and therefore there is no financial comparative data for the Previous Quarter. During the Current Quarter, PAL incurred R&D expenditure of $98,502. R&D expenditure is incurred by this business in connection with investments it makes in developing its acoustic sensors, solutions and materials. A significant component of these expenditures comprises wages and salaries and we anticipate that R&D costs associated with this business unit will be approximately $450,000 on an annualized basis.
| ● | Marine Engineering Business |
During the Current Quarter, the Marine Engineering Business R&D expenditure increased by 26.0% and was $45,959 compared to $36,480 in the Previous Quarter. The Marine Engineering Business incurs research and development expenses mainly on advancing its Thermite® Octal range of mission computer products with the strategic goals of increasing and diversifying its revenues and improving gross profit margins.
| Percentage | ||||||||||||
| Segment | July 31, 2025 | July 31, 2024 | Change | |||||||||
| Marine Technology R&D Expenditures | $ | 428,007 | $ | 459,879 | (6.9 | )% | ||||||
| PAL R&D Expenditure | $ | 98,502 | $ | - | N/A | |||||||
| Marine Engineering R&D Expenditures | $ | 45,959 | $ | 36,480 | 26.0 | % | ||||||
Selling, General and Administrative Expenses (SG&A): SG&A expenses for the Current Quarter increased by 32.8% to $2,871,309 from $2,161,405 in the Previous Quarter. There are several factors which have resulted in higher SG&A costs in the Current Quarter, including:
| ● | The inclusion of PAL into the Group has resulted in an increase in SG&A in the Current Quarter by 20.1% or $451,588. | |
| ● | A contingent liability of $158,872 representing 75% of the first year Earn Outs provided for under PAL acquisition agreement. This amount is subject to adjustment during the Company’s fourth quarter based on PAL’s actual total revenue and pre-tax profits for the current fiscal year. | |
| ● | The increase in non-cash charges as a component of SG&A which were 20.2% or $580,419 compared to 15.0% or $324,462 in the Previous Quarter. SG&A includes both cash charges and non-cash charges. The non-cash charges comprise Depreciation, Amortization, Stock-based compensation and Exchange Rate Variance charges. In the Current Quarter, the most significant factors which account for the increase in non-cash charges component were (i) exchange rate adjustment expenses increased by 80.5% and were $237,948 compared to $131,856 in the Previous Quarter, reflecting the weakening of the USD against British Pound and Danish Kroner; and (ii) Depreciation expenses increased by 61.9% to $176,439 in the Current Quarter compared to $108,956 in the Previous Quarter; and (iii) Amortization expenses increased by 946.5% and were $136,259 compared to $13,020, as a result of the acquisition of PAL in the Group.
Stock-based compensation decreased by 57.8% and was $29,773 in the Current Quarter compared to $70,630 in the Previous Quarter. |
Key Areas of SG&A Expenditure across the Company for the Current Quarter compared to the Previous Quarter are:
| Expenditure | July 31, 2025 | July 31, 2024 | Change | |||||||||
| Wages and Salaries | $ | 1,131,777 | $ | 909,504 | 24.4 | % | ||||||
| Legal and Professional Fees (including accounting, audit, tax and investor relations) | $ | 386,046 | $ | 352,671 | 9.5 | % | ||||||
| Rent and operating lease | $ | 5,750 | $ | 6,651 | (13.5 | )% | ||||||
| Commitment and Contingency – PAL Earn Out | $ | 158,872 | $ | - | 100.0 | % | ||||||
| Marketing (Excluding associated travel) | $ | 58,812 | $ | 104,496 | (43.7 | )% | ||||||
| Travel associated with marketing activities | $ | 43,315 | $ | 27,193 | 59.3 | % | ||||||
Wages and Salaries – this category of expenses increased primarily due to the inclusion of PAL into the Group. Wages and salaries related to PAL in the Current Quarter are $141,748. Without PAL, this category of expenses would have increased by 8.9%, reflecting inflation as we are operating on a lower head count than in the Previous Quarter. We anticipate that during the current fiscal year this category will increase materially over our previous fiscal year as we are currently operating on a reduced headcount and are seeking to recruit for several vacant positions and to expand our management team.
Legal and Professional fees increased by 9.5% in the Current Quarter reflecting the timing of the performance of certain services such as tax consultants’ fees. In the Current Quarter this category includes professional fees attributable to PAL of $27,732.
Rent and operating lease expenses – We own most of our business premises. This category of expenditure is not material for our business and relates to our Copenhagen office space and the existing lease which we assumed as part of the acquisition of PAL.
Commitment and Contingent Liability – Based on the performance of PAL during the Current Nine Month Period, we have included a provision for year one Earn Out of $158,872 which represents three quarters of the Earn Outs that would be payable if PAL meets the pre-conditions relating to revenue and pre-tax income. The remaining portion will be expensed in the Company’s fourth quarter if the pre-conditions are met, otherwise this provision will be reversed in our fourth quarter 2025.
Marketing and associated travel costs: We incur marketing expenses in connection with the promotion of our goods and services. These expenses include the wages and salaries of our Digitalization Team, which is responsible for content creation and video production relating to our products and solutions. They also include costs associated with participation in industry trade shows, marketing events and travel for marketing activities. Marketing costs attributable to PAL in the Current Quarter were negligible.
Overhead related costs as a percentage of net revenue for Current Quarter, compared to the Previous Quarter
General corporate administrative expenses in the Current Quarter were $414,261 or 5.9% of net revenue and $576,969 or 10.5% of net revenue in the Previous Quarter, respectively, representing an increase in our consolidated net revenue by 29.0%. For more information on general corporate administrative expenses, please see Note 15 (Segment Analysis).
Operating Income: In the Current Quarter operating income decreased by 0.8% and was $1,379,979 as compared to $1,390,774 in the Previous Quarter. Although consolidated net revenue increased by 29.0% our Total Operating Expenses increased by 29.6%, largely as a result of the recording in the Current Quarter of $158,872 for year one PAL-related Earn Out of $158,872 which represents three quarters of the year one Earn Outs payable if PAL meets the revenue and pre-tax income pre-conditions; and non-cash charges as a component of SG&A increasing by 78.9%.
Other Income: In the Current Quarter, we had “Other Income” of $163,770 compared to $240,472, representing a decrease of 31.9% from the Previous Quarter. A significant component of “Other Income” is interest of $154,848 earned on our certified deposits. In February 2023, the Company established certified deposit accounts with its existing bankers. These accounts are for a fixed term of up to 3-month rolling periods and constitute “cash equivalents” in our current unaudited Consolidated Financial Statements for the period ended July 31, 2025 (see Note 7 (Composition of Certain Financial Statement Captions for a more detailed analysis). We anticipate that the interest earned on these certified deposit accounts will be material in the future if interest rates remain broadly the same.
Income before income taxes: In the Current Quarter, we had pre-tax income of $1,543,749 compared to $1,631,246 in the Previous Quarter, representing a decrease of 5.4%. Pre-tax income decreased, primarily due to an increase in our Total Operating Expenses which increased for the reasons discussed above.
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Net Income: In the Current Quarter we had Net Income of $1,282,985 compared to $1,274,658 in the Previous Quarter, representing an increase of 0.7%. In the Previous Quarter we recorded Current Tax Expense of $325,625 compared to $268,786 in the Current Quarter reflecting provision for income tax. We also recorded a Deferred Tax Expense of $30,963 in the Previous Quarter compared to a Deferred Tax Benefit of $8,022 in the Current Quarter, which relates to the granting of stock awards. Our effective tax rate is subject to significant variation due to several factors including variability in our pre-tax income and/or loss and the mix of jurisdictions to which such income or losses relate, the applicability of special tax regimes, changes in tax regulations, changes in our stock price, changes in our deferred tax assets and liabilities, their valuation, foreign currency gains (losses). The mix of jurisdictions and related income or losses also affects our tax liability for GILTI. The changes under the 2025 Tax Act as they relate to GILTI, including the computation method, will be effective for the Company in its 2027 financial statements. In the Current Quarter, the U.S. subsidiaries generated 33.9% of our consolidated net revenue and generated taxable income which resulted in a provision for income tax in the Current Quarter of $219,600. The Company’s UK subsidiaries have carryforward losses and qualify for R&D Tax credits which are applied to defray a percentage of our income tax liability in the UK. In Current Quarter we have made provision of $49,186 for tax liability for the Company’s foreign subsidiaries.
Comprehensive Income. In the Current Quarter comprehensive income was $1,353,477 compared to $1,668,038 for the Previous Quarter reflecting adjustments resulting from foreign currency translations. In the Current Quarter, the USD weakened against the British Pound, Danish Kroner and Euro and we had a gain of $70,492 on foreign currency translation adjustment transactions compared to $393,380 in the Previous Quarter. A significant part of the Company’s operations is based in the UK and Denmark, and therefore a major part of our assets and liabilities recorded in our unaudited consolidated balance sheet and financial transactions are translated from the functional currencies of these subsidiaries into USD for reporting purposes (Note 7 “property and equipment (by geographic areas) provide an indication of the split of our property). See the section below which concerns “Inflation & Foreign Currency” which shows the impact of the currency adjustments on our Income Statement and Balance Sheet in the Current Quarter compared to the Previous Quarter.
Results of Operations for the Current Nine Month Period compared to the Previous Nine Month Period
Net Revenue: Total consolidated net revenues for the Current Nine Month Period and the Previous Nine Month Period were $19,291,969 and $15,260,913 respectively, representing an increase of 26.4%. In the Current Nine Month Period, the Marine Technology Business net revenues were $10,138,374 compared to $10,116,024 representing a marginal increase of 0.2% when compared to the Previous Nine Month Period. PAL net revenues in the Current Nine Month Period were $4,069,866. The Marine Engineering Business revenues in the Current Nine Month Period and the Previous Nine Month Period were $5,083,729 and $5,144,889, respectively, representing a decrease of 1.2%. The increase in our consolidated net revenue in the Current Nine Month Period is attributable to the inclusion of PAL which we recently acquired into the Company. Without PAL our net revenue in the Current Nine Month Period would have been lower by 0.3% at $15,22,103 compared to $15,260,913 in the Previous Nine Month Period.
Gross Profit Margins: Consolidated margins percentage was weaker in the Current Nine Month Period at 66.1% (gross profit of $12,749,507) compared to 71.3% (gross profit of $10,873,708). The main factors which have resulted in the lower consolidated margins percentage in the Current Nine Month Period are attributable our Core Business (Marine Technology Business) and the introduction of PAL’s products into the mix of sales which has a different margin profile. Our Core Business sales derived from Asia increased by 11.5% and were $4,871,995 compared to $4,368,330, resulting in commission costs increasing by 28.0% from $523,671 in the Previous Nine Month Period to $670,164 in the Current Nine Month Period. Moreover, the composition of this business’ sales in the Current Nine Month Period included a higher percentage of hardware sales and a lower percentage of rentals and associated services sales, which impacted margins. Sales made to Europe (our rental hub) by our Marine Technology Business decreased in the Current Nine Month Period. We secure most of our rental and associated services revenue from the European market and in the Current Nine Month Period our rental revenue decreased by 63.0% when compared to the Previous Nine Month Period. We believe that the change in the U.S. Administration Policy on funding for offshore renewables development projects has affected our rental revenue as many European developers have cancelled or shelved many U.S offshore renewable programs including Shell, Orsted, BP and Total Energy. Net commission costs for the Nine Month Period were $782,814 compared to $525,696 in the Previous Nine Month Period, representing an increase of 48.9%.
Gross profit margins reported in our financial results may vary according to several factors. These include:
| ● | The percentage of consolidated net sales attributed to the Marine Technology Business versus the Marine Engineering Business and PAL. The Marine Technology Business gross profit margin may vary with the mix of products and geography from which those sales are derived from (most sales from Asia incur commission costs which impact margins). The gross profit margin yielded by the Marine Technology Business is generally higher than that of the Marine Engineering Business and PAL. | |
| ● | The percentage of consolidated net sales attributed to the Marine Engineering Business. The Marine Engineering Business yields a lower gross profit margin on generated sales which are largely based on time and materials for our Department of Defense contracts (DoD subcontracts). | |
| ● | The percentage of consolidated net sales attributed to PAL. PAL supplies acoustic sensors and materials and its gross margin for these are typically between 55 – 62%. This may vary with the mix of products and also the percentage of reported sales that are performed through sales agents during the reporting period. | |
| ● | The geography from which the sales are derived and the mix of sales within the Marine Technology Business during the reporting period as most sales derived from Asia are performed through our network of sales agents, thus incurring commission costs. |
| ● | Level of commission on products which may vary according to volume. All our business units work with sales/distribution agents. Most of the Marine Technology Business and PAL’s sales in Asia are completed via agents or distributors. See Note 3 “Cost of Goods Sold” for more discussion on this. | |
| ● | Level of Rental Assets in the Marine Technology Business’ Rental Pool and therefore the depreciation expenses may vary accordingly. | |
| ● | The mix of engineering projects performed by our Marine Engineering Business (Prototyping Designs versus manufacturing), may also affect gross profit margins. |
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Marine Engineering Business
Gross Profit Margins for the Marine Engineering Business were marginally higher at 57.7% in the Current Nine Month Period compared to 57.3% in the Previous Nine Month Period. This is largely due to the types of engineering projects ongoing in the reporting period (contract manufacturing versus design and development work scopes), the former yielding a higher margin profile.
Acoustics and Materials Business (PAL)
This is a newly acquired business unit and therefore there is no comparative data for the Previous Nine Month Period. For context, Gross Profit Margin for PAL in our first Quarter 2025 was 61.7%, second Quarter 2025 was 65.4% and for the Current Quarter 54.8% (the decrease in the Current Quarter reflects higher commission costs) and for the Current Nine Month Period 60.4%. In the Current Nine Month Period PAL incurred commission costs of $99,885. PAL sells its acoustics sensors and materials globally and has several agents in Asia and therefore it incurs commission costs on sales concluded in Asia.
Marine Technology Business
In the Current Nine Month Period gross profit margin for the Marine Technology Business was 72.6% compared to 78.3% in the Previous Nine Month Period. The weakening of gross profit margins reflects higher commission costs incurred in the Current Nine Month Period and which were $670,164 compared to $523,671 in the Previous Nine Month Period, representing an increase of 28.0%, combined with more units of hardware sensor sales (which yield a lower gross profit margin) and lower percentage of units of rentals and associated engineering support services (which yield a higher gross profit margin). These factors together resulted in a decrease in gross margin.
Since there are more variable factors affecting gross profit margins in the Marine Technology Business, a breakdown of sales for this business in the Current Nine Month Period is set out below:
| July 31, 2025 | July 31, 2024 | Percentage | ||||||||||
| Description | Products | Products | Change | |||||||||
| Equipment Sales | $ | 7,800,318 | $ | 5,730,411 | 36.1 | % | ||||||
| Equipment Rental | 697,851 | 1,885,732 | (63.0 | )% | ||||||||
| Software Sales | 585,651 | 653,759 | (10.4 | )% | ||||||||
| Services | 1,054,554 | 1,846,122 | (42.9 | )% | ||||||||
| Total Net Sales | $ | 10,138,374 | $ | 10,116,024 | 0.2 | % | ||||||
The increase in Equipment sales in the Current Nine Month Period is a result of an increase in sales derived from the strategic region of Asia where sales increased to $4,871,995 from $4,368,330 and sales derived from the U.S increased to $3,474,671 in the Current Nine Month Period compared to $1,660,492 in the Previous Nine Month Period and which mainly relates to DAVD technology sales.
Rental assets were significantly underutilized in the Current Nine Month Period resulting in a reduction of rental and associated services revenue due to weak demand caused by reduced offshore renewables project activities conducted by Shell, Orsted, BP and Total Energy. This is reflected in the reduction of sales from Europe, which is the region where we generate most of our rental and services revenue from. See Note 16 for more information on the composition and disaggregation of our revenue. Rental revenue in the Current Nine Month Period was $697,851 compared to $1,885,732 in the Previous Nine Month Period, representing a 63.0% decrease.
Research and Development (R&D): R&D expenditures in the Current Nine Month Period were $1,805,589 compared to the $1,524,817 in the Previous Nine Month Period, representing an increase of 18.4%. This is due to the inclusion of PAL into the Group.
| ● | Marine Engineering Business |
During the Current Nine Month Period, the Marine Engineering Business R&D expenditure increased by 2.7% and was $121,653 compared to $118,502 in the Previous Nine Month Period. R&D expenditure is primarily incurred by the Marine Engineering Business on its Thermite® range of mission computers and other developments which the business deem will advance its business strategy. The Thermite® product line remains important to the Marine Engineering Business for growth and diversification of revenue. As we understand our customer base requirements for the Thermite® mission computers, we may incur more R&D expenditure on developing this range of products.
| ● | Acoustics and Materials Business (PAL) |
This is a newly acquired business unit and therefore there is no comparative data for the Previous Nine Month Period. During the Current Nine Month Period, PAL incurred R&D expenditure of $284,732. R&D expenditure is incurred by this business in connection with investments it makes in developing its acoustic sensors, solutions and materials. A significant component of these expenditures comprises wages and salaries and we anticipate that R&D costs associated with this business unit will be approximately $400,000 to $450,000 on an annualized basis.
| ● | Marine Technology Business |
During the Current Nine Month Period R&D expenditure in the Marine Technology Business marginally decreased by 0.5% from $1,406,315 in the Previous Nine Month Period to $1,399,204. R&D expenditure is incurred by this business in connection with investments in developing its products and solutions. This expenditure is an essential part of our business, as our market competitiveness is predicated on continued innovation.
| Percentage | ||||||||||||
| Segment | July 31, 2025 | July 31, 2024 | Change | |||||||||
| Marine Technology R&D Expenditures | $ | 1,399,204 | $ | 1,406,315 | (0.5 | )% | ||||||
| PAL R&D Expenditure | $ | 284,732 | $ | - | N/A | |||||||
| Marine Engineering R&D Expenditures | $ | 121,653 | $ | 118,502 | 2.7 | % | ||||||
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Selling, General and Administrative Expenses (SG&A): SG&A expenses for the Current Nine Month Period increased by 29.1% and were $7,814,233 compared to $6,052,350 in the Previous Nine Month Period. There are several factors which have resulted in higher SG&A costs in the Current Nine Month Period and these include:
| ● | The inclusion of PAL into the Group has resulted in SG&A in the Current Nine Month Period being higher by 16.6% or $1,298,765. Without the addition of PAL including the related earn out provision, SG&A costs would have increased by 5.0% (to $6,356,596 in the Current Nine Month Period compared to $6,052,350 in the Previous Nine Month Period). | |
| ● | A contingent liability of $158,872 representing 75% of the first year Earn Outs provided for under PAL acquisition agreement. This amount is subject to adjustment during the Company’s fourth quarter based on PAL’s actual total revenue and pre-tax profits for the current fiscal year. | |
| ● | The increase in non-cash charges as a component of total SG&A costs which was 16.7% or $1,308,448 in the Current Nine Month Period as compared to 10.5% or $635,999 in the Previous Nine Month Period. Non-cash charges comprise Depreciation, Amortization, Stock-based compensation and Exchange Rate Variance charge. | |
| ● | Increase in Amortization costs caused by the inclusion of PAL in the Group and which were $394,566 compared to $46,888 in the Previous Nine Month Period, representing a 741.5% increase and which is a result of the addition of PAL to the Group. | |
| ● | As a component of SG&A costs, stock based compensation charges were $196,156 compared to $86,843 in the Previous Nine Month Period, reflecting an increase in the awards of restricted stock awards both under the Plan and outside of the Plan during the Current Nine Month Period. |
Key Areas of SG&A Expenditure across the Group for the Current Nine Month Period compared to the Previous Nine Month Period are:
| Percentage | ||||||||||||
| Expenditure | July 31, 2025 | July 31, 2024 | Change | |||||||||
| Wages and Salaries | $ | 3,194,346 | $ | 2,748,812 | 16.2 | % | ||||||
| Legal and Professional Fees (including accounting, audit, tax and investor relations) | $ | 1,318,124 | $ | 1,190,181 | 10.7 | % | ||||||
| Rent and operating lease | $ | 57,680 | $ | 22,201 | 159.8 | % | ||||||
| Commitment and Contingency – PAL Earn Out | $ | 158,872 | $ | - | 100.0 | % | ||||||
| Marketing (Excluding associated travel) | $ | 287,191 | $ | 267,562 | 7.3 | % | ||||||
| Travel associated with marketing activities | $ | 95,811 | $ | 50,216 | 90.8 | % | ||||||
Wages and salaries in the Current Nine Month Period increased by 16.2% over the Previous Nine Month Period. This category has increased primarily due to the addition of PAL to the Group. In the Current Nine Month Period, $367,639, representing 11.5% of the total Wages and Salaries costs for the Current Nine Month Period is attributable to PAL. Without the inclusion of PAL this category would have remained broadly in line with the Previous Nine Month Period and would have been $2,826,707 in the Current Nine Month Period compared to $2,748,812 in the Previous Nine Month Period, reflecting inflation. Notwithstanding, we anticipate that on a full year basis in the fiscal year 2025 this category will increase materially over the fiscal year 2024 as we are currently operating on a reduced headcount and are seeking to recruit for several vacant positions along with expanding our management team.
The increase in the “Legal and Professional” category of expenditures in the Current Nine Month Period reflects the addition of PAL into the Group and in the Current Nine Month Period 7.9% or $104,770 of this category of expenses is attributable to PAL. Without the addition of PAL, this category would have increased by 1.9% to $1,213,354 in the Current Nine Month Period compared to $1,190,181 in the Previous Nine Month Period.
Rent and operating lease expenses – We own most of our business premises. This category of expenditure is not material for our business and relates to our Copenhagen office space and the existing lease which we assumed as part of the acquisition of PAL. The increase in lease costs in the Current Nine Month Period is attributable to PAL. We anticipate that lease costs will remain at approximately this level in fiscal year 2025.
Commitment and Contingent Liability – Based on the operating results of PAL during the Current Nine Month Period, we have included a provision for year one Earn Out of $158,872 which represents three quarters of the year one Earn Outs that would be payable if PAL meets the pre-conditions relating to revenue and pre-tax income. The remaining portion will be expensed in the Company’s fourth quarter if the pre-conditions are met, or otherwise will be reversed.
Marketing and associated travel costs: We incur marketing expenses in connection with the promotion of our goods and services. These expenses include wages and salaries of our Digitalization Team which is responsible for content creation and video production relating to our products and solutions. They also include costs associated with participation in industry trade shows, marketing events such as demonstrations of our technology and travel for marketing activities.
Overhead related costs as a percentage of net revenue for Current Nine Month Period, compared to the Previous Nine Month Period
General corporate administrative expenses in the Current Nine Month Period were $1,668,799 or 8.7% of net revenue and $1,642,771 or 10.8% of net revenue in the Previous Nine Month Period, respectively, reflecting an increase in net revenue by 26.4% in the Current Nine Month Period. For more information on general corporate administrative expenses, please see Note 15 (Segment Analysis).
Operating Income: Our income from our operating activities in the Current Nine Month Period was $3,129,685 as compared to $3,296,541 in the Previous Nine Month Period which represents a decrease of 5.1%. This is due to an increase in our Total Operating Expenses which increased from $7,577,167 in the Previous Nine Month Period compared to $9,619,822 in the Current Nine Month Period, representing a 27.0% increase as a result of the inclusion of PAL, which accounts for 16.7% of our Total Operating Expenses in the Current Nine Month Period. Without the inclusion of PAL and the related Earn Out provision discussed earlier, our Total Operating Expenses in the Current Nine Month Period would have been more in line with the Previous Nine Month Period and would have been $7,877,453 compared to $7,577,167 in the Previous Nine Month Period.
Other Income: In the Current Nine Month Period, this decreased by 19.0% and was $614,534 as compared to $758,864 in the Previous Nine Month Period. In the Current Nine Month Period $494,613 of our “Other Income” is attributable to interest earned on our rolling certified deposit accounts which are restricted for up to 3 months. Since establishing the certified deposit accounts, the applicable interest rates have decreased, resulting in the amount of interest earned reducing. See Note 7 (Composition of Certain Financial Statement Captions) for more detailed analysis of this. We anticipate that the interest earned on these certified deposit accounts will be material in the future if interest rates remain broadly the same.
Income before income taxes: In the Current Nine Month Period, we had pre-tax income of $3,744,219 as compared to $4,055,405 in the Previous Nine Month Period, representing a decrease of 7.7%. The decrease in pre-tax income is due to higher operating costs for the reasons explained earlier including the provision of the contingent liability related to the PAL Earn Outs for year one.
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Net Income: In the Current Nine Month Period we had Net Income of $3,104,722 as compared to $3,319,784 in the Previous Nine Month Period, representing a decrease of 6.5%. In the Previous and Current Nine Month Periods we recorded Current Tax Expense of $692,361 and $482,683, respectively, reflecting provision for income tax in the respective periods. We also recorded a Deferred Tax Expense of $252,938 in the Previous Nine Month Period compared to a Deferred Tax Benefit of $52,864 in the Current Nine Month Period, which relates to the granting of stock awards. Our effective tax rate is subject to significant variation due to several factors including variability in our pre-tax income and/or loss and the mix of jurisdictions to which such income or losses relate, the applicability of special tax regimes, changes in tax regulations, changes in our stock price, changes in our deferred tax assets and liabilities, their valuation and foreign currency gains (losses). The mix of jurisdictions and related income or losses also affects our tax liability for GILTI. The changes under the 2025 Tax Act as they relate to GILTI, including the computation method, will be effective for the Company in its 2027 financial statements. In the Current Nine Month Period, the U.S. subsidiaries generated 34.7% of our consolidated net revenue and generated taxable income and we have recorded a provision of $394,560 for federal taxes including GILTI. The Company’s UK subsidiaries have carryforward losses and R&D Tax credits which are applied to defray a percentage of our income tax liability. We have made a provision of $297,801 for tax liability for the UK and Danish subsidiaries in our consolidated results for the Current Nine Month Period.
Comprehensive Income (loss). In the Current Nine Month Period Comprehensive Income was $3,947,067 compared to $4,305,061 for the Previous Nine Month Period. This category is affected by fluctuations in foreign currency exchange transactions both relating to our net revenue and related expenses and our assets and liabilities on our balance sheet and are largely paper losses or gains, as may be applicable in the reporting period. A significant part of the Company’s operations is based in the UK and Denmark, and therefore a significant part of our financial transactions is performed in British Pounds and Danish Kroner which are translated into USD for reporting purposes (Note 7 “property and equipment (by geographic areas) provide an indication of the split of our property). In the Previous Nine Month Period we had a gain of $985,277 on foreign currency translation adjustment transactions compared to a gain of $842,345 in the Current Nine Month Period. In the Current Nine Month Period, the USD has weakened against the British Pound and Danish Kroner (the functional currencies of our two operating foreign subsidiaries). See Table 2 under the MD&A section which concerns “Inflation & Foreign Currency”, and which shows the impact of the currency adjustments on our Income Statement and Balance Sheet in the Current Nine Month Period compared to the Previous Nine Month Period.
Liquidity and Capital Resources
As of July 31, 2025, the Company had an accumulated deficit of $4,301,769, working capital of $43,239,402, cash of $26,196,439 and stockholders’ equity of $57,271,746. For the nine months ended July 31, 2025, the Company’s operating activities provided $4,307,865 in cash.
The Company entered into a $4,000,000 revolving line of credit with HSBC NA on November 27, 2019, at prime. The outstanding balance on the line of credit was $0 as of July 31, 2025. This revolving credit line will expire on November 26, 2025, unless renewed.
We believe our cash flow generated from operations and our cash and cash equivalents as well as our revolving line of credit will be sufficient to meet our anticipated cash needs for the next twelve months. However, any projections of future cash flows are subject to substantial uncertainty.
Inflation and Foreign Currency
The Company and its subsidiaries maintain their accounts in the native currencies of their operations, and which are:
| US Dollars | For US Operations | |
| British Pound | For United Kingdom Operations | |
| Danish Kroner | For Danish Operations | |
| Australian Dollars | For Australian Operations (operations are currently dormant) | |
| Indian Rupees | For Indian Operations (operations are currently dormant) |
The Company’s consolidated financial results therefore include the translation of its subsidiaries functional currencies into U.S Dollar. See “Note 5 - Foreign Currency Translation” of our unaudited consolidated financial statements, for more information on the applicable rates used for our Balance Sheet transactions and Statement of Income and Comprehensive Income.
The Company’s consolidated results are a combination of its U.S. and foreign operations and these companies maintain their accounts in the functional currencies of their jurisdictions which are noted above. Fluctuations in currency exchange rates can directly impact on the Company’s sales, profitability and financial position when the transactions of the foreign subsidiaries are translated from their functional currencies into USD for financial reporting. In addition, the Company is also subject to currency fluctuation risk with respect to certain foreign currency denominated receivables and payables incurred in the ordinary course of its business operations (cross-border transactions such as inventory purchasing). In general, the Company’s subsidiaries perform financial transactions in their native currencies. Occasionally, a subsidiary may perform financial transactions in currencies other than its native or functional currency (purchasing inventory from a foreign supplier, for example, in foreign currency). Furthermore, the Company holds significant cash balances in foreign currencies, such as British Pound, Euro and Danish Kroner. The Company cannot predict the extent to which currency fluctuations may affect its business and financial position, and there is a risk that such fluctuations may have an adverse impact on the Company’s sales, profits, cash and cash equivalent balances and its overall financial position.
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Information regarding the effect of foreign exchange rates versus the U.S. Dollar on our net sales, operating expenses, and operating income and balance sheet items is provided to show the periods ended the three months and nine months operating results had the foreign exchange rates remained the same as those in effect in the correlated previous periods. The effect on our net sales, operating expenses and operating income along with our balance sheet items from changes in our foreign exchange rates versus the U.S. Dollar is as follows:
Information is not specified for INR as there is a limited scope of operations in this jurisdiction and therefore contributions are immaterial. However, the information for INR is included in the totals.
Table 1: Three Months ended July 31, 2025
| Based British Pounds | Based Australian Dollar | Based Danish Kroner | TOTAL USD | |||||||||||||||||||||||||||||||||
| Actual | Constant | Actual | Constant | Actual | Constant | Actual | Constant | *Total | ||||||||||||||||||||||||||||
| Results | Rates | Results | Rates | Results | Rates | Results | Rates | Effect | ||||||||||||||||||||||||||||
| ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ||||||||||||||||||||||||||||
| Net Revenues | 3,330,437 | 3,148,227 | - | - | 1,339,765 | 1,257,800 | 4,670,202 | 4,406,027 | 264,175 | |||||||||||||||||||||||||||
| Net Costs | 3,868,249 | 3,656,615 | 956 | 977 | 206,584 | 193,945 | 4,082,816 | 3,858,793 | 224,023 | |||||||||||||||||||||||||||
| Net profit (losses) from operations | (537,812 | ) | (508,388 | ) | (956 | ) | (977 | ) | 1,133,181 | 1,063,855 | 587,386 | 547,234 | 40,152 | |||||||||||||||||||||||
| Assets | 30,530,296 | 29,607,524 | 19,136 | 19,442 | 2,666,267 | 2,534,376 | 33,227,114 | 32,173,243 | 1,053,871 | |||||||||||||||||||||||||||
| Liabilities | (3,068,480 | ) | (2,975,736 | ) | (2,940 | ) | (2,987 | ) | (500,027 | ) | (475,292 | ) | (3,593,027 | ) | (3,476,513 | ) | (116,514 | ) | ||||||||||||||||||
| Net assets | 27,461,816 | 26,631,788 | 16,196 | 16,455 | 2,166,240 | 2,059,084 | 29,634,087 | 28,696,730 | 937,357 | |||||||||||||||||||||||||||
This table shows that the effect of exchange rates changes (the Current Quarter’s exchange rate compared to the Previous Quarter’s exchange rate) increased our net income from operations by $40,152 and increased net assets by $937,357, when compared to our net assets as at October 31, 2024.
Table 2: Nine Months ended July 31, 2025
| Based British Pounds | Based Australian Dollar | Based Danish Kroner | TOTAL USD | |||||||||||||||||||||||||||||||||
| Actual | Constant | Actual | Constant | Actual | Constant | Actual | Constant | *Total | ||||||||||||||||||||||||||||
| Results | Rates | Results | Rates | Results | Rates | Results | Rates | Effect | ||||||||||||||||||||||||||||
| ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ||||||||||||||||||||||||||||
| Net Revenues | 8,683,904 | 8,471,026 | - | - | 3,921,850 | 3,887,690 | 12,605,754 | 12,358,716 | 247,038 | |||||||||||||||||||||||||||
| Net Costs | 10,044,757 | 9,798,519 | 4,405 | 4,573 | 624,870 | 619,427 | 10,695,813 | 10,444,966 | 250,847 | |||||||||||||||||||||||||||
| Net profit (losses) from operations | (1,360,853 | ) | (1,327,493 | ) | (4,405 | ) | (4,573 | ) | 3,296,980 | 3,268,263 | 1,909,941 | 1,913,750 | (3,809 | ) | ||||||||||||||||||||||
| Assets | 30,530,296 | 29,607,524 | 19,136 | 19,442 | 2,666,267 | 2,534,376 | 33,227,114 | 32,173,242 | 1,053,872 | |||||||||||||||||||||||||||
| Liabilities | (3,068,480 | ) | (2,975,736 | ) | (2,940 | ) | (2,987 | ) | (500,027 | ) | (475,292 | ) | (3,593,027 | ) | (3,476,513 | ) | (116,514 | ) | ||||||||||||||||||
| Net assets | 27,461,816 | 26,631,788 | 16,196 | 16,455 | 2,166,240 | 2,059,084 | 29,634,087 | 28,696,729 | 937,358 | |||||||||||||||||||||||||||
This table shows that the effect of exchange rates changes (the Current Nine Month period exchange rate compared to the Previous Nine Month period exchange rate) decreased our net income from operations by $3,809 and increased net assets by $937,358, when compared to net assets as at October 31, 2024.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required for smaller reporting companies.
Item 4. Controls and Procedures
a) Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.
The Company’s management, under the supervision and with the participation of the Company’s Chief Executive Officer and Interim Chief Financial (and principal accounting) Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of July 31, 2025. Based upon that evaluation the Chief Executive Officer and Interim Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.
(b) Changes in Internal Controls.
There was no change in our internal controls over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting during the reporting period covered by this report.
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PART II - OTHER INFORMATION
Item 1. 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 1A. Risks Factors
Not required for smaller reporting companies
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
Item 6. Exhibits
| 31 | Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) | |
| 32 | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS | Inline XBRL Instance Document. | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Coda Octopus Group, Inc. (Registrant) | |
| Date: September 15, 2025 | /s/ Annmarie Gayle |
| Annmarie Gayle | |
| Chief Executive Officer | |
| Date: September 15, 2025 | /s/ Gayle Jardine |
| Gayle Jardine | |
| Interim Chief Financial Officer |
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