Coda Octopus Group Inc

Previous wording

This section of this Form 10-K generally discusses fiscal 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Form 10-K, filed with the SEC on January 30, 2023, which is available free of charge on the SEC’s website at www.sec.gov and our Investor Relations website at codaoctopusgroup.com.

Current wording

This section of Form 10-K discusses fiscal 2024 and 2023 items and year-to-year comparisons between 2024 and 2023. Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Form 10-K, filed with the SEC on January 30, 2023, which is available free of charge on the SEC’s website at www.sec.gov and our Investor Relations website atwww.codaoctopusgroup.com

Previous wording

Our Marine Technology Business has operations in the USA, UK and Denmark – see organization chart set out in the Section Item 1 (Business). This business is an established technology solution provider to the subsea and underwater imaging, surveying and diving market. It has been operating as a supplier of solutions comprising both hardware and software products for close to 30 years to this market and it owns key proprietary technology including its Echoscope® and DAVD technology, that are used in both the underwater defense and commercial markets. All design, development and manufacturing of our technology and solutions are performed within the Company. We sell our products and solutions globally and have a combination of direct sales and indirect sales (via our agents’ network). In Asia and Africa, we largely sell via agents, in the USA, Europe and the Middle East we sell directly. We also rent our products and solutions, particularly to tier-one offshore service providers who prefer accounting for offshore equipment as an operating expense rather than capital expense.

Current wording

Our Marine Technology Business has operations in the USA, UK and Denmark – see organization chart set out in the Section Item 1 (Business). This business is an established technology solution provider to the underwater imaging, surveying and diving market. It has been operating as a supplier of solutions comprising both hardware and software products for over 30 years to this market and it owns key proprietary technology including its Echoscope® and DAVD technology, that are used in both the underwater defense and commercial markets. All design, development and manufacturing of our technology and solutions are performed within the Company. We sell our products and solutions globally and have a combination of direct sales and indirect sales (via our agents’ network). In Asia and Africa, we largely sell via agents while in the USA, Europe and the Middle East we sell directly. We also rent our products and solutions, particularly to tier-one offshore service providers who prefer accounting for offshore equipment as an operating expense rather than capital expense.

Previous wording

Our imaging sonar technology products and solutions marketed under the name of Echoscope® and Echoscope PIPE® are used primarily in the underwater construction market, offshore renewables, offshore oil and gas, forward looking obstacle avoidance, complex underwater mapping, salvage operations, dredging, bridge inspection, underwater hazard detection, port and harbor security, mining, mine counter measures, ship hull scanning, real time threat detection, fisheries, commercial and defense diving, and marine sciences sectors. Uniquely the Echoscope® technology is a single sensor for multiple underwater applications which allows the market operators to consolidate their underwater sensor requirements.

Current wording

Our imaging sonar technology products and solutions marketed under the name of Echoscope® and Echoscope PIPE® are used in a wide range of underwater construction activities (which include real time monitoring, placements or decommissioning), offshore renewables, offshore oil and gas, forward looking obstacle avoidance, complex underwater mapping, salvage operations, dredging, bridge inspection, underwater hazard detection, port and harbor security, mining, mine counter measures, ship hull scanning, real time threat detection, robotics and 3D perception applications, fisheries, commercial and defense diving, and marine sciences sectors. Uniquely the Echoscope® technology is a single sensor for multiple underwater applications which allows the market operators to consolidate their underwater sensor requirements.

Previous wording

Our novel diving technology is distributed under the name “CodaOctopus®DAVD” to the global defense and commercial diving markets and is relatively new to the market. The DAVD system which embeds a pair of transparent glasses in the Head up Display (HUD) is used as the data hub for displaying comprehensive real time data to the diver underwater. This also allows both the diver and the dive supervisor to visualize in real time the same underwater scene and data. We believe that the DAVD system has the potential to radically transform how diving operations are performed globally because it provides a fully integrated singular system for topside control and a fully connected HUD system for the diver allowing both the topside and diver to share a range of critical information including depth (pressure and temperature), compass and head tracking, real time dive timers and alerts, diver position and navigation, ultra-low light enhanced video system and enhanced digital voice communications. Limitations of current diving operations are that the diver only shares analog voice communications with the topside, is subject to the topside verbally describing information, and there is no real time information including real time navigation, tracking and mapping of the dive area available to the diver. The topside must also manage several independent systems for video, communications, and positioning. The Company’s solution addresses these deficiencies. Another critical part of our solution is that by using the Company’s Echoscope® technology, diving can be performed in zero visibility conditions, a common problem which besets these operations and can result in significant costs to the offshore service provider.

Current wording

Our novel diving technology is distributed under the name “CodaOctopus®DAVD” to the global defense and commercial diving markets and is relatively new to the market. The DAVD system which embeds a pair of transparent glasses in the HUD is used as the data hub for displaying comprehensive real time data to the diver underwater including augmented reality data. DAVD technology allows both the diver and the dive supervisor to visualize in real time the same underwater scene and data. We believe that the DAVD system has the potential to radically transform how diving operations are performed globally because it provides a fully integrated singular system for topside control and a fully connected HUD system for the diver, allowing both the topside and diver to share a range of critical information including depth (pressure and temperature), compass and head tracking, real time dive timers and alerts, diver position and navigation, ultra-low light enhanced video system and enhanced digital voice communications. Limitations of current diving operations are that the diver only shares analog voice communications with the dive supervisor on the surface, instructions are relayed verbally, and there is no real time information including real time navigation, tracking and mapping of the dive area available to the diver. The topside must also manage several independent systems for video, communications, and positioning. The Company’s DAVD solution addresses these deficiencies. Another critical part of our solution is that by using the Company’s Echoscope®technology, diving can be performed in zero visibility conditions, a common problem which besets these operations and can result in significant costs to the offshore service provider.

Previous wording

Although we generate most of our revenues from our real time 3D sonar which includes both proprietary hardware and software and the DAVD, we have a number of other products which we supply to the marine offshore market such as our inertial navigation systems (F280 Series®) and our geophysical hardware (DA4G) and software solutions (GeoSurvey which is widely used in the Oil & Gas sector 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. We also provide customization of services of our technology, particularly in the defense market and around our DAVD solutions where this is tailored for particular applications.

Current wording

Although we generate most of our revenues from our range of real time 3D sonars and DAVD, we have a number of other products which we supply to the marine offshore market such as our F280 Series®, DA4G, GeoSurvey and Survey Engine®. We also have added a new product for use in the diving market, a digital communication system (Voice HUB 4) which advances the current analog-based communication technology to a digital based communication technology. 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. We also provide technology customization services, particularly in the defense market and around our DAVD solutions where this is tailored for particular markets and applications.

Previous wording

Both the Marine Technology Business and Marine Engineering Business have established synergies in terms of customers and specialized engineering skill sets (hardware, firmware, and software) encompassing capturing, computing, processing and displaying data in harsh environments.

Current wording

These business units have established synergies in terms of customers and specialized engineering skills sets (hardware, firmware, and software) encompassing capturing, computing, processing and displaying data in harsh environments.

Previous wording

The Company’s operations are split between the United States, United Kingdom, Denmark, and the Netherlands. Item 1 (Business) of this Form 10-K sets out an overview of the entities within the Company’s group and their location. A significant proportion of our consolidated revenues (51.4% in 2023 FY compared to 53.9% in the 2022 FY) are generated outside of the United States by our foreign subsidiaries in the United Kingdom (“UK”) and Denmark. In addition, a significant part of our assets and liabilities (both current and fixed) is held in British Pounds, Danish Kroner and Euros by these foreign subsidiaries. Foreign Currency Translations as they pertain to our assets and liabilities are translated at the prevailing exchange rate at the balance sheet date and related revenue and expenses are translated at weighted average exchange rates in effect during the 12-month reporting period. Significant currency fluctuations (particularly the British Pound and/or the Danish Kroner, Euros, versus the US Dollar) may affect our financial results including our profit and loss account and the value of our assets and therefore we are subject to foreign currency fluctuation risks. In the Current 2023 FY, there were less adverse movements of these foreign currencies against the USD and therefore our foreign subsidiaries revenues when translated into USD were only marginally impacted when applying the Constant Rate (which is the 12-month period in the previous financial year exchange rate).

Current wording

The Company’s operations are split between the United States, United Kingdom, Denmark, and the Netherlands. A significant proportion of our consolidated revenues are generated outside of the United States by our foreign subsidiaries in the United Kingdom (“UK”) and Denmark and in the 2024 FY our foreign subsidiaries generated $12,936,755, representing 63.7% of our consolidated revenue. In addition, a significant part of our assets and liabilities is held in British Pounds, Danish Kroner and Euros by these foreign subsidiaries. Foreign Currency translations as they pertain to our assets and liabilities are translated at the prevailing exchange rate at the balance sheet date and related revenue and expenses are translated using the average exchange rates in effect during the 12-month reporting period. Significant currency fluctuations (particularly the British Pound and/or the Danish Kroner, Euros, against the US Dollar) may (positively or negatively) affect our financial results including our profit and loss account and the value of our assets and therefore we are subject to foreign currency fluctuation risks. In the 2024 FY, for the purpose of reporting revenue and expenses, the value of the British Pound and Danish Kroner when compared to the 2023 FY increased against the USD by 3.4% and 1.1%, respectively. For the purpose of reporting assets and liabilities, the British Pound and the Danish Kroner both increased by 6.0% and 2.8%, respectively against the USD when compared to the 2023 FY. We also hold cash and cash equivalents in foreign currencies such as British Pound, Euros, Danish Kroner. When the U.S. Dollar strengthens compared to these currencies, cash and cash equivalents balances when translated, may be materially less than expected and vice versa. The impact of currency fluctuations is discussed more fully below under Item 2 - “Inflation and Foreign Currency”. See also Note 2 (Summary of Accounting Policies) – “Foreign Currency Translation” to the audited consolidated financial statements.

Previous wording

Inflation measured as the Consumer Price Index has since calendar year 2022 been volatile in the countries in which we operate. Recently inflation has been falling in these countries and in the twelve months to October 31, 2023, these were:

Current wording

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 continues to be a threat to the global economy. Recently inflation has been falling in these countries but remain volatile and in the twelve months to October 31, 2024, these were:

Previous wording

We sell our products globally and increasingly to Asia. Asia is the fastest growing economies for our technology and solutions. The recent change in both the US and UK Governments’ political stance (and to a lesser extent the European Union Member States) towards trade with China, directly affects the sale of our products to customers based in China. Our real time 3D sonars which are depth rated above 300 meters along with our inertial navigation and attitude measurement sensors (F280®series) are subject to export control for certain countries, including China and therefore requires an export license. Although DAVD is not subject to export control under Export Administration Regulation (EAR) or International Trade in Arms Regulations (ITAR), we are not allowed to promote our DAVD technology in China.

Current wording

We sell our products globally and increasingly to Asia. Asia is the fastest growing economies for our technology and solutions. The recent change in both the US and UK Governments’ political stance towards trade with China, directly affects the sale of our products to customers based in China. Our real time 3D sonars which are depth rated above 300 meters along with our inertial navigation and attitude measurement sensors (F280®series) are subject to export control for certain countries, including China and therefore requires an export license. Many Chinese entities have been included on the US Bureau of Industry and Security blacklist where there is a presumption of denial of grant of export licenses.

Previous wording

The UK Government is generally in lock step with the US Government’s position and has refused to grant export licenses for several of the Company’s applications for end users in China for the first time in 25 years of our dealing with the UK Export Control Organization. The curtailment of access to this market due to refusal to issue export licenses is likely to significantly impact our revenues from Asia.

Current wording

The UK Government is generally in lock step with the US Government’s position and has refused to grant export licenses for several of the Company’s applications for end users in China. The curtailment of access to this market due to refusal to issue export licenses is likely to significantly impact our revenues from Asia.

Previous wording

The removal of China as a trading partner is likely to have a significant negative impact on our revenues and growth strategy. China has one of the largest planned and funded investment programs for offshore renewables, the market for which most of our technology is used for in China. After significant business development in China, we had started to see persistent and credible growth for our products in this market. However, with the ongoing geopolitical climate, we do not expect to see increased sale in China.

Current wording

The removal of China as a trading partner (the second largest economy in the world) is likely to have a significant negative impact on our revenues and growth strategy. China has one of the largest planned and funded investment programs for offshore renewables, the market for which most of our technology is used for in China. After significant business development in China, we had started to see persistent and credible growth for our products in this market. However, with the ongoing geopolitical climate, we do not expect to see increased sales in China. We also believe that where technologies are made unavailable to China, China will endeavor to find alternative source of supply or innovate in the areas where restrictions are placed by Western governments and will be more harmful to companies.

Previous wording

While there have been improvements in lead time for supply of raw materials and components in the Supply Chain during the reporting period, there is significant inflation which impacts the costs of raw materials which we are unlikely to be able to pass on to our customers due to the extent of these increases. These increases may make the cost of making our products uncompetitive and may also affect our margins.

Current wording

While there have been improvements in lead time for supply of raw materials and components in the Supply Chain during the reporting period, we have experienced a significant increase in the costs of raw materials caused by inflation. These increases may make the costs of our products uncompetitive and affect demand and margins.

Previous wording

We are experiencing skill shortages in areas that are critical to our growth strategy including experienced sales and marketing personnel, software developers and skilled electronic technicians. The inflationary conditions and shortage of skilled workers in the countries in which we operate (US, the UK, Denmark, and India) make it difficult for us to compete for these skills as there is extreme pressure on wages. It was widely reported in the UK press recently that “annual average total pay growth for the private sector was 7.9% in April to June 2023, the largest annual total growth rate since comparable records began in 2001 [The Economist August 19 th-25 th 2023 Edition]”. Furthermore, as a small business, we do not have resilience built into our workforce. As a result, there is a risk in the face of global skills shortages coupled with a higher demand for skills that we could lose skills that are essential for our business including the manufacture of our products or continuation of our engineering services. For our engineering business, it is crucial that they can offer competitive pricing to their Prime Defense Contractors who generally have the option to retain the subcontract inhouse with their engineering teams and therefore pricing is an important deciding factor for being awarded a subcontract by these customers.

Current wording

We are experiencing skill shortages in areas that are critical for our business operations. The inflationary conditions coupled with the shortage of skilled workers in the countries in which we operate make it difficult for us to compete for these skills. Furthermore, the competitive marketplace for labor also results in high turnover in the workforce which impacts our business in several areas.

Previous wording

As a small business, we are hindered in our ability to compete for certain specialized electronic engineering skills or technology skills, as our remuneration package is not as competitive as those offered by bigger companies which are competing for the same skills.

Current wording

Furthermore, as a small business, we are hindered in our ability to compete for certain specialized electronic engineering skills or technology skills, as our remuneration package is not as competitive as those offered by bigger companies which are competing for the same skills.

Previous wording

The Services Business revenues are highly concentrated and are largely generated from subcontracts with a small number of Prime Defense Contractors. The sales cycle is generally protracted which may affect our revenues. It is also dependent on the US federal government appropriating budget for defense projects and where the federal government is unable to find consensus in the US Congress, this affects the timely award of sub-contracts from Prime Defense Contractors to our Services Business, which is reliant on these awards. Furthermore, the Marine Technology Business key opportunities which are critical to its growth strategy 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 revenues and our overall growth plans.

Current wording

The Services Business revenues are highly concentrated and are largely generated from subcontracts with a small number of Prime Defense Contractors. The sales cycle is generally protracted, which may affect our revenues. It is also dependent on the US federal government appropriating budget for Defense projects and where the federal government is unable to find consensus in the US Congress, this affects the timely award of sub-contracts from Prime Defense Contractors to our Services Business, which is reliant on these awards. Furthermore, the Marine Technology Business’ key opportunities which are critical to its growth strategy are in the Defense market and therefore this business segment is also reliant on funding from Defense Programs. 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, unpredictable and subject to variation by the different Administrations, thus affecting timing of orders, revenues and our overall growth plans.

Previous wording

The Management’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements. These financial statements have been prepared in conformity with GAAP in the United States which requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty. We evaluate our estimates based on our historical experience and various other assumptions that are believed to be reasonable under the circumstances. These estimates relate to revenue recognition, the assessment of recoverability of goodwill and intangible assets, recognition and measurement of deferred income tax assets and liabilities, the assessment of unrecognized tax benefits, and others. Actual results could differ from those estimates, and material effects on our operating results and financial position may result.

Current wording

The Management’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements. These financial statements have been prepared in conformity with GAAP in the United States which requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty. We evaluate our estimates based on our historical experience and various other assumptions that are believed to be reasonable under the circumstances. These estimates relate to revenue recognition, the assessment of recoverability of goodwill and intangible assets, recognition and measurement of deferred income tax assets and liabilities, the assessment of unrecognized tax benefits, and others. In addition, in connection with our acquisition of PAL, we determined the fair value of PAL’s opening balance sheet, which determination relied on numerous estimates about the current and future operations of PAL. Actual results could differ from those estimates and may have material effects on our operating results and financial position.

Previous wording

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

Current wording

Revenues are earned under formal contracts with our customers. In respect of our Marine Technology Business these are derived from both sales and rental of underwater technologies and in respect of our Engineering Business from the supply of engineering services. Our contracts do not include the possibility for additional contingent consideration so that our determination of the contract price does not involve having to consider potential variable additional consideration. Our product sales do not include a right of return from the customer.

Previous wording

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

Current wording

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

Previous wording

Deferred tax assets and liabilities are the amounts by which the Company’s future income taxes are expected to be impacted by these differences as they reverse. Deferred tax assets are based on differences that are expected to decrease future income taxes as they reverse. Correspondingly, deferred tax liabilities are based on differences that are expected to increase future income taxes as they reverse. “Note 10 Income Taxes” to the Consolidated Financial Statements discusses the amounts of deferred tax assets and liabilities, and also presents the impact of significant differences between financial reporting income and taxable income.

Current wording

Deferred tax assets and liabilities are the amounts by which the Company’s future income taxes are expected to beimpacted by these differences as they reverse. Deferred tax assets are based on differences that are expected to decrease future income taxes as they reverse. Correspondingly, deferred tax liabilities are based on differences that are expected to increase future income taxes as they reverse. “Note 11 Income Taxes” to the Consolidated Financial Statements discusses the amounts of deferred tax assets and liabilities and also presents the impact of significant differences between financial reporting income and taxable income.

Previous wording

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

Current wording

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

Previous wording

At the end of each year, we evaluate goodwill on a separate reporting unit basis to assess recoverability, and impairments, if any, are recognized in earnings. An impairment loss would be recognized in an amount equal to the excess of the carrying amount of the reporting unit compared to the fair value of the reporting unit. To date, the Company has not had any goodwill impairments.

Current wording

At the end of each financial year, we evaluate goodwill on a separate reporting unit basis to assess recoverability, and impairments, if any, are recognized in earnings. An impairment loss would be recognized in an amount equal to the excess of the carrying amount of the reporting unit compared to the fair value of the reporting unit. To date, the Company has not had any goodwill impairments.

Previous wording

In the Current FY our overall consolidated financial results were down when compared to the Previous FY. Our consolidated results 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 on our consolidated results including revenue and our profitability. In the Current FY our consolidated revenue was $19,352,088 compared to $22,225,803 in the Previous FY, representing a decrease of 12.9%. The foreign currency impact in the Current FY was immaterial and when applying the Constant Rate (Previous FY exchange rate), our revenue would have been marginally higher in the Current FY by 0.4% or $84,901. During the Current FY Gross Profit Margins moderately decreased by 1.0%. Total operating expenses increased by 1.0% and were $10,291,503 compared to $10,186,624 in the Previous FY. Income from operations decreased by 45.3% and was $2,739,552 compared to $5,004,064 in the 2022 FY. Net income before taxes decreased by 33.3% and was $3,421,228 compared to $5,132,335 in the Previous FY.

Current wording

In the Current FY our overall consolidated financial results were up when compared to the Previous FY. 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, our profitability and the value of our assets and liabilities included on the consolidated balance sheet. In the Current FY our consolidated revenue was $20,316,161 compared to $19,352,088 in the Previous FY, representing an increase of 5.0%. When applying the Constant Rate (that is the foreign exchange rate applied in Previous FY when translating from the foreign subsidiaries’ functional currencies to USD for reporting purposes), our revenue would have been lower in the Current FY by 1.7% or $350,986 and therefore our consolidated revenue was positively impacted. Gross Profit Margin increased by 2.5%, reflecting changes in the mix of sales in the reporting period. Total operating expenses increased by 2.9% in the Current FY and were $10,588,974 compared to $10,291,503 in the Previous FY. Income from operations increased by 30.8% and was $3,584,131 in the Current FY compared to $2,739,552 in the Previous FY. Net income before taxes in the Current FY increased by 34.8% and was $4,611,288 compared to $3,421,228 in the Previous FY.

Previous wording

The information provided below pertains to the Company’s consolidated financial results. For information on the performance of each Segment including the disaggregation of revenues and geographical split, see “Note 14 Segment Analysis” and “Note 15 Disaggregation of Revenue” of our audited Consolidated Financial Statements as of October 31, 2023, and 2022.

Current wording

The information provided below pertains to the Company’s consolidated financial results of operations. For information on the performance of each Segment including the disaggregation of revenues and geographical split, see “Note 15 Segment Analysis” and “Note 16 Disaggregation of Revenue” of our audited Consolidated Financial Statements as of October 31, 2024, and 2023.

Previous wording

Our consolidated gross profit margins reported in our financial results may vary according to several factors. These include:

Current wording

Our consolidated gross profit margins reported in our financial results may vary according to several factors, which include:

Previous wording

In the 2023 FY gross profit margins for the Marine Technology Business were 76.7% compared to 80.0% in the 2022 FY. For the Engineering Business, these were 51.6% in the 2023 FY compared to 45.4% in the 2022 FY.

Current wording

In the 2024 FY gross profit margins for the Marine Technology Business were 77.9% compared to 76.7% in the 2023 FY. For the Services Business, these were 55.8% in the 2024 FY compared to 51.6% in the 2023 FY.

Previous wording

Research and Development costs are, in general, an inherent ongoing cost for the Marine Technology Business operations since it will need to either maintain the products it has in the market or continue to advance these products and its core technology to keep them competitive (both in price and performance) and to expand the product offerings which we have in the market.

Current wording

Research and Development costs are, in general, an inherent ongoing cost for the Marine Technology Business operations and are expended on maintaining its products in the market, advancing these or expanding its technology portfolio.

Previous wording

Notable factors in our SG&A 2023 FY are:

Current wording

Notable factors in our SG&A expenses for the 2024 FY are:

Previous wording

Within the category of SG&A we have transactions which are cash charges and non-cash charges. The non-cash charges comprise Depreciation, Amortization, Stock-based compensation charges and Exchange Rate Variance. In 2023 FY and 2022 FY, respectively non-cash items as a percentage of SGA expenses were 15.6% and 15.1%, respectively.

Current wording

SG&A expenses include transactions which are cash charges and non-cash charges. The non-cash charges comprise Depreciation, Amortization, Stock-based compensation charges, Exchange Rate Variance and Credit Losses Allowance. In 2024 FY and 2023 FY, respectively, non-cash items as a percentage of SGA expenses were 12.4% and 15.6%, respectively.

Previous wording

Stock Based Compensation Expenses (***Non-Cash Item).***In the 2023 FY we expensed $645,196 for stock-based compensation as compared to $1,130,917 in the corresponding 2022 FY, representing a decrease of 42.9%.

Current wording

SG&A expenses include stock based compensation expenses (Non-Cash Item). In the 2024 FY we recorded expense of $137,676 for stock-based compensation as compared to $645,196 in the corresponding 2023 FY, representing a decrease of 78.7% reflecting the reduced stock grants made under the plan in the Current FY.

Previous wording

Exchange Rate Variance (***Non-Cash Item)***We expensed $190,073 in the 2023 FY compared to recording a gain of ($431,314) in the 2022 FY.

Current wording

SG&A expenses include exchange rate variance (Non-Cash Item). In relation to exchange rate variance we recorded expense of $287,939 in the 2024 FY compared to $190,073 in the 2023 FY.

Previous wording

Key Areas of SG&A Expenditure across the Group for the year ended October 31, 2023, compared to the year ended October 31, 2022

Current wording

Key Areas of SG&A Expenses across the Group for the year ended October 31, 2024, compared to the year ended October 31, 2023

Previous wording

Rent expenditures decreased by 21.5% compared to FY 2022. Rent is not a material expenditure in the Group as most of our premises are owned by the Company, except for premises used in Denmark.

Current wording

Rentexpenditure decreased by 42.2% compared to FY 2023. Rent is not a material expenditure in the Group as most of our premises are owned by the Company, except for premises used in Denmark. However, with the acquisition of PAL, we anticipate this area of expenditure will increase in the future.

Previous wording

Marketing increased by 9.7%. This is in keeping with our strategy to shift our focus to business development, marketing, and brand building. Expenditures in this area are spent on industry-related trade shows and events, demonstrations particularly on the DAVD market adoption and technology awareness campaigns, marketing events and customer visits. As part of our Brand building endeavors, we have also established a “Digitalization Team” whose focus is on digitalizing the Company’s media content etc. As we continue to ramp up our marketing campaign around the DAVD and our newly developed standalone Digital Audio Communications system (Voice_HUB-4) a derivative from the DAVD technology, we anticipate this category of expenditures will increase in the 2024 financial year.

Current wording

Marketingincreased by 76.7% andTravel associated with marketing increased by 70.4%. This is in keeping with our strategy to shift our focus to business development, marketing, and brand building. Expenditures in this area are spent on industry-related trade shows and events, demonstrations particularly on the DAVD market adoption and technology awareness campaigns, marketing events and customer visits and fees relating to the US Focus Group we retained to assist us in this area.

Previous wording

Our overhead SG&A expenditures are constituted of general corporate administrative costs.

Current wording

Our overhead SG&A expenditures comprise general corporate administrative costs.

Previous wording

In the 2023 FY Operating Income decreased by 45.3%. This is due to the decrease in our consolidated revenue and gross profit for the reasons earlier discussed combined with a modest increase in our total operating expenses.

Current wording

In 2024 FY, Operating Income increased by 30.8%. This is largely due to the increase in our consolidated revenue and gross profit.

Previous wording

In the 2023 FY, we had “Other Income” of $681,676 compared to $128,271, representing an increase of 431.4% from the 2022 FY. In the 2023 FY $642,530 of this amount represents interest income earned on our certified deposit accounts. In February 2023, the Company established certified deposit accounts with its existing bankers. These accounts are for fixed 3-month rolling periods and constitute “cash equivalents” in our current audited Consolidated Financial Statements for period ended October 31, 2023. We anticipate that the interest earned on these certified deposit accounts will be material in the future if interest rates remain the same or continue to rise. See “Note 6 - Composition of Certain Financial Statement Captions” (Other Income) to the audited Consolidated Financial Statements for period ended October 31, 2023, where this is discussed further.

Current wording

In the 2024 FY, we had “Other Income” of $1,027,157 compared to $681,676, representing an increase of 50.7% from the 2023 FY. In the 2024 FY, $938,775 of this amount represents interest income earned on our certified deposit accounts. In the 2023 FY we had interest income of $642,530 (this was lower in the 2023 FY since the certified deposit accounts were established in February 2023). These accounts are for fixed 3-month rolling periods and constitute “cash equivalents” in our current audited Consolidated Financial Statements for the period ended October 31, 2024. We anticipate that the interest earned on these certified deposit accounts will be material in the future if interest rates remain the same or continue to rise and the Company continues to maintain this level of cash in the certified deposit accounts. See “Note 6 - Composition of Certain Financial Statement Captions” (Other Income) to the audited Consolidated Financial Statements for period ended October 31, 2024, where this is discussed further.

Previous wording

In the 2023 FY, we had income before income taxes of $3,421,228 as compared to $5,132,335 in the 2022 FY, representing a decrease of 33.3%. Net income before income taxes decreased largely due to a decrease in our consolidated revenues and gross profit in the 2023 FY attributable to the reasons discussed earlier combined with a modest increase in total operating expense.

Current wording

In the 2024 FY, we had income before income taxes of $4,611,288 as compared to $3,421,228 in the 2023 FY, representing an increase of 34.8%. Net income before income taxes increased largely due to an increase in our consolidated revenues and a 46.1% increase in interest income in the 2024 FY (see Other Income above).

Previous wording

In the 2023 FY we had Net Income of $3,124,149 compared to $4,301,221 in the 2022 FY, representing a decrease of 27.4%. This is a reflection of the decrease in our consolidated revenues and gross profit in the 2023 FY along with an increase in total operating expense for the reasons discussed earlier. In the 2023 FY we recorded a Current Tax Expense of $248,655 compared to $1,005,140 in the 2022 FY and a Deferred Tax Expense of $48,424 compared to a Deferred Tax Benefit in $174,026 in the 2022 FY. Our tax expenses depend on the composition of our consolidated income, and in particular the percentage that is attributable to the Company and its US subsidiaries together versus the percentage attributable to the Company’s foreign subsidiaries. It also depends on the availability of carryforwards losses and R&D tax credits in the UK subsidiaries. In the 2023 FY, the Company and its US subsidiaries had a lower percentage of taxable income than the Company’s foreign subsidiaries, while the Company’s UK and Danish subsidiaries had taxable income in their respective tax jurisdictions. The Company’s UK subsidiaries have carryforward losses and research and development (R&D) tax credits in their tax jurisdiction which has been applied to offset a portion of the 2023 FY tax liability. For 2023 FY, a current provision of $2,930 and deferred provision of $60,970 has been made for tax liability of the UK subsidiaries. Our Danish subsidiary has no carryforwards or other tax relief in its tax jurisdiction and therefore we have recorded current tax provision of $207,371 for 2023 FY.

Current wording

In the 2024 FY we had Net Income of $3,645,996 compared to $3,124,149 in the 2023 FY, representing an increase of 16.7%. This is a reflection of the increase in our pre-tax income for the reasons discussed earlier. In the 2024 FY our tax expenses increased, and we recorded a Current Tax Expense of $713,670 compared to $248,655 in the 2023 FY and a Deferred Tax Expense of $251,622 compared to $48,424 in the 2023 FY. Our effective tax rate is subject to significant variation due to several factors including variability in our pre-tax income and taxable 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 Global Intangible Low-Taxed Income. Furthermore, our tax liability is also affected by the availability of carryforwards losses and R&D tax credits in the UK subsidiaries. In the 2024 FY, the Company and its US subsidiaries had a lower percentage of taxable income (due to lower sales caused by reduced Defense funding allocation) than the Company’s foreign subsidiaries, while the Company’s UK and Danish subsidiaries had a higher percentage of taxable income in their respective tax jurisdictions. The Company’s UK subsidiaries benefit from carryforward losses (NOLs) and research and development (R&D) tax credits. These have been applied to offset a portion of the 2024 FY UK tax liability resulting in a current provision for tax liability of the UK subsidiaries of $267,759 for Current Tax Expense and a Deferred expense of $2,511. There was no provision made in 2023 FY for the UK subsidiaries as tax liabilities were fully offset through the application of offsets relating to R&D Tax Credits and NOLs. Our Danish subsidiary does not benefit from any carryforwards or other tax relief in its tax jurisdiction and therefore for the 2024 FY we have recorded a Current Tax Expense of $218,670 and a Deferred Tax Expense of $11,003.

Previous wording

In the 2023 FY Comprehensive income was $4,418,724 compared to $1,231,156 for the 2022 FY. This category is affected by fluctuations in foreign currency exchange transactions both relating to our profit and loss 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. In the 2022 FY we recorded a loss of $3,070,065 on foreign currency translation adjustment transactions compared to a gain of $1,294,575 in the 2023 FY. A significant part of the Company’s operations is based in the UK and Denmark, and therefore a major part of the Company’s assets and liabilities recorded in its consolidated balance sheet and profit and loss expenses are translated from the functional currencies of these subsidiaries into USD for reporting purposes, thus accounting for the changes. See Table under the section of the MD&A which concerns “Foreign Currency & Inflation”, and which shows the impact of the currency adjustments on our Income Statement and Balance Sheet in 2023 FY compared to 2022 FY.

Current wording

In the 2024 FY Comprehensive income was $4,577,714 compared to $4,418,724 for the 2023 FY. This category is affected by fluctuations in foreign currency exchange transactions both relating to our profit and loss 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. In 2024 FY we recorded a lower gain of $931,718 on foreign currency translation adjustment transactions compared to a gain of $1,294,575 in the 2023 FY. A significant part of the Company’s operations is based in the UK and Denmark, and therefore a major part of the Company’s assets and liabilities recorded in its consolidated balance sheet and profit and loss expenses are translated from the functional currencies of these subsidiaries into USD for reporting purposes, thus accounting for the changes. See Table under the section of the MD&A which concerns “Foreign Currency & Inflation”, and which shows the impact of the currency adjustments on our Income Statement and Balance Sheet in 2024 FY compared to 2023 FY.

Previous wording

We operate in two reportable segments, (“Products Business” and “Service Business”) which are managed separately based upon fundamental differences in their operations. Segment operating income is total Segment revenue reduced by cost of revenues and operating expenses (research and development and Selling, General & Administrative) identifiable with the reporting business segment. Overheads include general corporate administrative costs.

Current wording

We operate two reportable segments, “Products Business” and “Service Business” which are managed separately based upon fundamental differences in their operations. Segment operating income is total segment revenue reduced by cost of revenues and operating expenses, Research and Development (“R&D”), and Selling, General & Administrative (“SG&A”) identifiable with the reporting business segment. Overheads include general corporate administrative costs. As previously disclosed, PAL was acquired on October 29, 2024 and had no material income statement activity for the remaining two days of up to October 31, 2024. Therefore, our Income Statement does not include PAL. However, the fair value of assets acquired and liabilities assumed for PAL have been included in our audited Consolidated Balance Sheet and in respect of the Segment information provided immediately below, PAL is included in the Supplemental Disclosure information in the table below but not in the Income Statement.