Annual report [Section 13 and 15(d), not S-K Item 405]

ACQUISITION OF PRECISION ACOUSTICS LIMITED

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ACQUISITION OF PRECISION ACOUSTICS LIMITED
 12 Months Ended
Oct. 31, 2025
Business Combination, Asset Acquisition, Transaction between Entities under Common Control, and Joint Venture Formation [Abstract]  
ACQUISITION OF PRECISION ACOUSTICS LIMITED

NOTE 7 – ACQUISITION OF PRECISION ACOUSTICS LIMITED

 

On October 29, 2024, the Company acquired all the issued and outstanding shares of PAL for $6,538,569 in cash. At the acquisition date, the Company had immediate access to PAL’s cash balance of $1,933,284, which resulted in a net cash outlay at the acquisition date of $4,605,285. The Company agreed to pay the sellers for all cash in PAL’s bank account on the date of its acquisition, which was in excess of the agreed working capital amount of $595,869 and, as part of the transaction, the Company paid the sellers $1,337,415 for the excess cash balance.

 

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 the Marine Technology Business and more broadly to expand the Group’s collective capabilities in order to qualify to compete for larger Defense-related contracts. Prior to the acquisition, PAL was a non-key supplier to our Marine Technology Business, which purchased on average approximately $80,000 of acoustic materials from PAL. It expects to continue to purchase these materials, at a similar dollar level, from PAL in the future.

 

In addition to the cash paid at closing, the share purchase agreement provides for certain earnout payments over a three-year period, and which are conditional upon PAL meeting the defined targets (revenue and pre-tax profit) in each of the earnout years. The potential earnout provision amounts are shown in the table below applying an exchange rate (from British Pound to USD) of $1.278973, the exchange rate of the transaction:

 

Earnout   2025 FY     2026 FY     2027 FY  
Revenue Target   $ 5,334,584     $ 5,867,914     $ 6,454,962  
Pre-Tax Profit Target   $ 1,046,476     $ 1,295,597     $ 1,573,133  
Earnout Amount Payable based on Targets   $ 208,472     $ 418,223     $ 652,275  

 

At the time of acquisition and based on the projections the Company used, we did not anticipate that there would be earnouts payable and therefore no contingent liability for earnout payments was recorded in the Company’s income statement for the fiscal year ended October 31, 2024. For the fiscal year ended October 31, 2025, PAL’s operating results exceeded the Company’s initial forecasts, and it achieved the qualifying financial conditions for the payment of the year one earnout. As such, in our 2025 FY we expensed $213,343 (or £163,000 British Pound – the currency of the earnout obligation) representing the full amount of the year one earnout liability. Future earnout payments, if earned, will be expensed at the point in time that qualifying conditions for the earnouts are met.

 

 

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

October 31, 2025 and 2024

 

In the event that the business combination between the Company and PAL had occurred at the beginning of the Company’s 2024 FY comparable annual reporting period, the unaudited supplemental pro-forma information concerning revenue and expenses for PAL (which have been translated from British Pound to USD using the exchange rate used by the Company for those reporting periods) is shown below:

 

    October 31,     October 31,  
    2025     2024  
Net Revenue                
Coda Octopus Group   $

21,153,172

     $

20,316,161

  
Precision Acoustics    

5,409,954

      

4,942,389

  
Combined Net Revenue    

26,563,126

      

25,258,550

  
                 
Net Income                
Amortization of acquired intangible assets, pro forma   $

(480,325

 )   $ (477,181 )
Coda Octopus Group    

3,226,502

      

3,645,996

  
Precision Acoustics    

1,383,753

      

483,776

  
Combined Net Income   $

4,129,930

     $ 3,652,591  

 

Purchase Price Allocation

 

In accordance with the requirements of FASB ASU 805, Business Combinations, the acquisition of PAL was accounted for using the acquisition method of accounting. The Company determined the fair value of the PAL balance sheet as of October 29, 2024, the date of acquisition.

 

During the one-year measurement period that began on October 29, 2024, the Company did not make any adjustments to the amounts originally recorded at fair value in the PAL opening balance sheet and the measurement period has now expired. Subsequent adjustment, if any, will be made through the income statement although the Company does not anticipate any such adjustments.

 

The table below shows the fair value of the assets acquired and liabilities assumed in connection with the PAL acquisition.

 

 

    October 29, 2024  
Description   Amount  
Tangible assets and liabilities acquired        
Cash (including excess cash amount purchased of $1,337,415)   $ 1,933,284  
Accounts receivable     698,595  
Inventory     980,594  
Property, plant and equipment     509,337  
Right of Use Asset     417,881  
Accounts payable     (362,305 )
Lease liability     (417,881 )
Deferred revenues     (498,422 )
Accruals and other liabilities     (151,532 )
Intangible assets and liabilities at fair value        
Fair value of noncompete agreement     224,637  
Value of PA technology     2,947,155  
Expected value of earnout provision     -  
Goodwill     257,226  
Total purchase price   $ 6,538,569  
Acquisition, net of acquired cash   $ 4,605,285  

 

PAL’s technology was valued using the multi-period excess earnings method related to the income approach since this is the main identifiable intangible asset. Significant inputs used to measure the fair value included estimates of projected revenue and costs associated with generating those revenues and a discount rate of 12.36%. The discount rate is a level 2 fair value measurement, and the other assumptions used in the determination of the opening value of the PAL balance sheet at fair value are level 3 inputs. The fair value of the non-compete agreement was developed using the with and without income approach method. Estimates of the potential loss of business resulting from certain employees leaving the business were made and compared to the value of the business assuming the employee did not leave during the four-year non-compete period. Revenue projections and related projected costs of revenue were made and discounted at a 12.36% discount rate. The discount rate is a level 2 fair value measurement, and the other assumptions used in the determination of the opening value of the PAL balance sheet at fair value are level 3 inputs.

 

 

CODA OCTOPUS GROUP, INC.

Notes to the Consolidated Financial Statements

October 31, 2025 and 2024

 

Goodwill represents 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.

 

We recorded as part of our SG&A expenses transaction related costs of $41,531, in the twelve-months ended October 31, 2024.

 

During the 2025 FY our Marine Technology Business purchased $35,263 of acoustic materials from PAL and contracted $16,633 for R&D efforts These were eliminated from our financial statements.