Coda Octopus Group, Inc.
For the period ended Jan 31, 2025. Filed Mar 17, 2025.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jan 31, 2025 · Filed Mar 17, 2025
CODA$8.34+3.7%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-07-31; filed 2024-09-16.
0001493152-24-036298
Item 2. : Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2025-01-31; filed 2025-03-17.
0001493152-25-010461
Item 2. : Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 147 previous paragraphs and 96 current paragraphs.
28 unchanged; 32 reworded; 35 added; 82 removed; 5 previous and 1 current paragraphs rearranged.
Tables are not compared: 22 previous and 13 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (35)
Current report
We sell our goods and services internationally, with $3,910,878 or 75.1% of our consolidated revenue in the Current Quarter generated outside of the United States and 20% of our revenue from the Defense sector. Macroeconomic factors, including changes in inflation and interest rates, as well as global economic and geopolitical developments, 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 impact customer demand for our products and services and our ability to forecast spending patterns. We expect some or all of these factors to continue to impact our operations in fiscal year 2025.
Current report
The new U.S. Administration is rapidly changing key policies in the area of trade, defense and foreign policy which has resulted in general uncertainty around the world. As part of this, offshore renewable permits have been suspended for some developments in the U.S. 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 for our solutions across all sectors which caused a decrease in revenue by our Marine Technology Business. Notwithstanding the change in the U.S Policy on renewables (where it has suspended permits for offshore renewable developments), its new policy on prioritizing domestic energy production of Oil & Gas also favors our products and solutions and we believe that this new policy will in the foreseeable future offset any reduction of revenue from US offshore renewables which we may experience. Furthermore, a key part of our strategy as a Group relies on Defense spending. Although it is widely reported in the Press that the policy of the new U.S Administration is to reduce Defense spending by 8% over a number of years, its foreign policy on Defense has also seen Europe including the United Kingdom committing to significantly increase spending on Defense, 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. The Leaders of the 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 relating to trade, defense spending and foreign policy, we believe that these changes will favor our Business in the medium to long term.
Current report
In respect of tariffs, as of today, we are not directly impacted by tariffs. However, to the extent that these may result in a weakening of the global economy due to reduced demand we may be affected. Furthermore, some of our products are manufactured in the United Kingdom and should the new Administration change its trade policy vis-à-vis the UK, and if our products are within the items that are subject to any such tariffs and we import these into the U.S., we would be impacted.
Current report
Throughout these discussions “Current Quarter” means the Three-month period ended January 31, 2025 and “Previous Quarter” means the Three-month period ended January 31, 2024.
Current report
The Company operates three distinct businesses:
Current report
Our novel diving technology is distributed under the name “CodaOctopus®DAVD” to the global defense and commercial diving markets. The DAVD is a fully integrated diving solution which provides the diver with a fully connected head up display (HUD) which is used as his data portal. The DAVD provides the dive supervisor on the surface with a fully integrated suite of sensors and allows the diver and dive supervisor to share the same data in real time and visualize the same underwater scene.
Current report
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.
Current report
The biggest opportunity for the DAVD technology in the USA is the DAVD untethered system (“DUS”), with the target market being special forces and we continue to customize the technology (under a funded program (DUS Hardening Program), for use by the special forces community. We have reached a key milestone under the DUS Hardening Program by delivering the new generation of DAVD HUD GEN 4.0 with a much-reduced form factor and displaying data at a significantly higher resolution. We anticipate that in Fiscal Year 2025 we will receive initial orders for the DUS variant.
Current report
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.
Current report
Change in Global Trade Policy
Current report
We sell our goods and services globally and a large percentage of our revenue emanates from international sales. Any change in policy that restricts the free flow of goods and services is likely to dampen demand for our goods and services. 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 policy on the funding of offshore renewables programs, we have seen reduced demand for our rental solutions. We also have seen a dampening of demand for outright sales, which we believe is caused by a general level of uncertainty regarding the U.S. Administration policies including those relating to trade, energy transition and renewables.
Current report
Currency Fluctuation/Foreign Exchange Risks
Current report
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 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. 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”.
Current report
Business Combination
Current report
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.
Current report
Inventory Allowance
Current report
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 market 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.
Current report
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 on the consolidated balance sheet. During the Current Quarter, the USD strengthened against the British Pound and the Danish Kroner, resulting in translated foreign revenues being $76,562 lower when using the Previous Quarter exchange rate (for a discussion of the effect of foreign exchange rates see Item 2 “Inflation and Foreign Currency”). Consolidated Revenue in the Current Quarter increased by 16.8% and was $5,209,715 compared to $4,461,191 in the Previous Quarter. During the Current Quarter total operating expenses increased by 9.3% and income from operations increased by 19.2%. Agents’ sales commission costs were 16.3% lower in the Current Quarter and were $245,509 compared to $293,184 in the Previous Quarter due to the reduction in sales 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 $934,860 compared to $782,944 in the Previous Quarter, representing an increase of 19.4%. A more detailed analysis of our results of operations is set out below.
Current report
PAL was acquired on October 29, 2024 and therefore for the purpose of this MD&A discussion, no prior year comparison financial data is presented.
Current report
Products Business (Core Business)
Current report
We sell our products internationally. In the Current Quarter, the Products Business generated $2,275,809 or 43.7% of our consolidated revenues compared to $3,542,766 or 79.4% in the Previous Quarter, representing a decrease of 35.8%. The decrease in sales in the Current Quarter is a result of weak worldwide demand. We believe that this may be attributable to broader macroeconomic factors resulting from the uncertainties relating to the new U.S. Administration policies such as energy transition, renewables, Defense policy and trade tariffs. Some of our customers are delaying decisions pending more clarity on these policies (such as whether there will be a reversal of the offshore renewable programs that had been established by the prior Administration). Gross profit margin increased from 72.5% in the Previous Quarter to 73.1% in the Current Quarter, which is a reflection of reduced commission costs and hardware sales. In the Current Quarter we recorded for this segment sales commissions of $209,695 compared to $293,184 in the Previous Quarter, representing a decrease of 28.5% and which reflects the decrease in sales from Asia. In the Current Quarter total operating expenses decreased by 25.1% in the Products Business and were $971,676 compared to $1,296,766 in the Previous Quarter, largely due to exchange rate variance as a result of the USD strengthening against British Pound and Danish Kroner. Net income before tax was $853,124 in the Current Quarter compared to $1,428,157 in the Previous Quarter, reflecting the decrease in revenue.
Current report
Acoustic Sensors and Materials Business (PAL)
Current report
In the Current Quarter, PAL generated $1,312,261 or 25.2% of our consolidated revenue. Gross profit margin was 61.7%; commission costs incurred on sales generated in the Current Quarter were $23,049; total operating expenses were $329,218. Net Income before tax was $556,049.
Current report
Revenue: Total consolidated revenues for the Current Quarter increased by 16.8% when compared to the Previous Quarter and were $5,209,715 and $4,461,191 respectively. The increase in revenue is due to the introduction of PAL into the Group which contributed 25.2% to our consolidated revenue, along with an increase in our Services Business revenue (and which contributed 31.1% of our consolidated revenue). Without the introduction of PAL into our revenue mix, our revenue in the Current Quarter would be $3,897,454 compared to $4,461,191 in the Previous Quarter, representing a decrease of 12.6%. In the Current Quarter our Core Business revenue (Marine Technology Business) decreased by 35.8% caused by weak worldwide demand which we believe is attributable to broader macroeconomic factors resulting from uncertainties relating to the new U.S. Administration policies such as its energy transition, renewables and Defense and trade tariffs policies. The uncertain climate has negatively affected our Core Business and in the Current Quarter we saw reduced offshore construction activities resulting in weaker demand for our rental and outright sales solutions. In respect of sales from the U.S. market, we continue to be affected by delays in receiving orders under Defense Programs, due to the new Administration still reviewing its spending priorities, and reorganizing its federal operations, and this has also affected our revenue in the Current Quarter.
Current report
Gross Profit Margins*:* Margin percentage was weaker in the Current Quarter at 65.8% (gross profit of $3,428,470) compared to 69.2% (gross profit of $3,086,736) in the Previous Quarter, largely caused by our Core Business contributing a lesser percentage to our consolidated revenue and the other business units contributing a higher percentage.
Current report
In the Current Quarter, gross profit margins for the Marine Technology Business were 73.1% compared to 72.5% in the Previous Quarter and for the Services Business these were 58.9% in the Current Quarter compared to 56.4% in the Previous Quarter and for PAL it was 61.7%. Our consolidated commission costs in the Current Quarter decreased by 16.3% and were $245,509 compared to $293,184 in the Previous Quarter. This is largely due to less outright sales in the strategic region of Asia by our Martine Technology Business, where sales decreased by 11.5% and were $1,591,811 in the Current Quarter compared to $1,799,540 in the Previous Quarter.
Current report
This is a newly acquired business unit and therefore there is no financial comparison data for the Previous Quarter. During the Current Quarter PAL incurred R&D expenditure of $90,964. 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.
Current report
Wages and Salaries – this category of expenses increased primarily due to the inclusion of PAL into the Group. Wages & Salaries related to PAL in the Current Quarter are $112,904. Without PAL, this category of expenses would have been more in line with the Previous Quarter ($906,799 compared to $899,047 in the Current Quarter) reflecting a reduction in payroll expenses. On an annual basis, we anticipate that this area of expenditure will increase significantly as we are operating on reduced headcount and payroll costs is an area of which is exposed to significant inflationary pressures.
Current report
Legal and Professional fees increased reflecting an increase in audit fees associated with the acquisition of PAL.
Current report
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 new lease which we assumed as part of the acquisition of PAL. The increase in lease costs in the Current Quarter is attributable to PAL. We anticipate that lease costs will remain at approximately this level in fiscal year 2025.
Current report
Marketing and associated travel costs: We incur marketing expenses in connection with the promotion of our goods and services. These expenses include participation in industry trade shows, marketing events such as demonstrations of our technology and travel for marketing activities. These costs also include fees associated with the retention of a US Focus Group, which has been retained to assist with our marketing strategy and efforts.
Current report
Operating Income: In the Current Quarter operating income increased by 19.2% and was $662,022 as compared to $555,384 in the Previous Quarter. The increase in operating income is largely due to the inclusion of PAL into the Group, which contributed $480,926 (or 33.3% without our corporate overheads costs) to our consolidated operating income in the Current Quarter. Without the inclusion of PAL, our operating income would have decreased by 67.4% and would have been $181,096 due to the reduction in the revenue generated by our Core Business in the Current Quarter.
Current report
Net Income before income taxes: In the Current Quarter, we had pre-tax income of $934,860 compared to $782,944 in the Previous Quarter, representing an increase of 19.4%. Pre-tax income increased due to an increase in our consolidated revenue which is largely attributed to the addition of PAL to our Group. Without the inclusion of PAL, our pre-tax income would have been $378,811, representing a decrease of 51.6% caused largely by the reduction in our Core Business revenue for the reasons discussed earlier.
Current report
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.
Current report
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 reported period operating results had the foreign exchange rates remained the same as those in effect in the Previous Quarter. 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:
Removed paragraphs (82)
Previous report
Throughout these discussions, the following terms shall have the meanings set forth below:
Previous report
The Company operates two distinct businesses:
Previous report
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 & harbor security, mining, fisheries, real time 3D monitoring and inspection, commercial and defense diving, and marine sciences sectors. Uniquely our Echoscope®technology is a single sensor for multiple underwater applications and therefore serves a number of discrete market verticals such as breakwater construction, dredging, salvage, landing operations, complex survey and mapping, commissioning and decommissioning of underwater assets.
Previous report
Our novel diving technology is distributed under the name “CodaOctopus®DAVD” (Diver Augmented Vision Display) to the global defense and commercial diving markets. The DAVD embeds inside of the diver’s head up display (HUD) a pair of transparent glasses which is used as the data hub for displaying real time diving mission data to the diver. 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. Current diving operations are limited in that the diver only shares analog voice communications with the topside without real time information including real time navigation, tracking and mapping of the dive area. The topside must also manage several independent systems for video, communications, and positioning. The Company’s solution addresses these deficiencies. Also, using our sonar technology, diving can be performed in zero visibility conditions, a common problem which besets these operations thereby impacting the ability to perform diving operations when these conditions prevail, safety and the costs of these operations.
Previous report
Our digital audio communications system, (marketed under the name “Voice-HUB 4”), offers a digital audio communications system which advances the market from analog underwater communications to digital and provides much clearer underwater communications, thereby removing the risk of miscommunication.
Previous report
The DAVD untethered variant (“DUS”) is going through evaluation, and we are contracted under a program designed to “harden” the technology for fast adoption by special forces (“DAVD Hardening Program”). Under the DAVD Hardening Program, since fiscal year 2023, we have received $1.25 million in funding and, have supplied eight DUS systems which are currently used by the Program Sponsor for ongoing field evaluation. We have also continued to provide feature upgrades under this DAVD Hardening Program. We are expecting to receive another $700,000 in funding under the ongoing Hardening Program. Funding is currently delayed due to the upcoming Presidential Elections which have impacted funding under many defense programs. This is not unusual during a Presidential election year. The DUS system represents our most significant market opportunity for the DAVD technology, and we continue to advance the technology based on customer feedback. We continue to receive positive feedback on the DUS from the ongoing field trials by this user community and will reach a significant milestone in the DAVD Hardening Program later this year when we deliver the newly designed optical engines and HUD designed for face masks used by the special forces.
Previous report
The concept of utilizing a pair of transparent glasses in the HUD underwater, is protected by patent. All component parts of the DAVD system are proprietary to the Company and include overall systems designs, software (4G USE® DAVD Edition), Diver Processing Pack – telemetry system (DPP), Top Side Controller and real time 3D Sonar. The Company benefits from the exclusive license from the United States Department of the Navy at Naval Surface Warfare Center Panama City Division to exploit the utility patent covering the concept of using the pair of transparent glasses as a data hub underwater. The DAVD is an “Approved Navy Use” item and benefits from CE Marking required under UK and European Union safety regulations.
Previous report
Both the Marine Technology Business and 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. Both businesses jointly bid for projects for which their common joint skills provide competitive advantage and make them eligible for such projects.
Previous report
The following is a brief summary of the most critical factors that affect our business. For a more detailed discussion of these and additional factors, refer to our Form 10-K for the fiscal year ended October 31, 2023.
Previous report
Although inflation is falling, prices which have increased due to inflation over the last year including cost of material and wages have remained at their inflationary-inspired level and have become the base price.
Previous report
Interest Rates
Previous report
The change in monetary policy vis-à-vis interest rates has in general affected some of our key sectors such as offshore renewables and underwater construction. The increase in interest rates has impacted on the viability of a number of underwater projects resulting in increased operational costs, which in turn has reduced the demand for our underwater solutions.
Previous report
Geopolitical tensions
Previous report
The ongoing war in Ukraine impacts our Services Business as most defense spending is now directed toward land-based applications rather than naval based applications. In addition, the ongoing political tension with China reduces demand for our product in in that country where we understand from our agent network that there is a “Buy-China” policy in place. Furthermore, the ongoing addition of Chinese Suppliers on the US Bureau of Industry and Security (“BIS”) list may affect supply of components which are relevant for our products, making these obsolete and subject to significant re-engineering costs.
Previous report
Currency Fluctuations
Previous report
The Company has operations in the UK, USA and Denmark. Our consolidated results include the Company’s foreign subsidiaries’ results which are transacted in their native functional currency and translated into USD for reporting purposes. Unfavorable currency fluctuations may adversely affect our financial results. Revenue and expenses are translated using the average exchange rates in effect during the reporting period. In the Current Quarter, for the purpose of reporting revenue and expenses, the value of the British Pound when compared to the Previous Quarter increased against the USD by 0.7% and the Danish Kroner decreased by 0.8%, respectively. For the purpose of reporting assets and liabilities, the British Pound and the Danish Kroner both increased by 5.8% and 2.4% respectively. The impact of currency fluctuations is discussed more fully below under Item 2 - “Inflation and Foreign Currency”. See also Note 5 (Foreign Currency Translation) to the unaudited consolidated financial statements.
Previous report
Skills/Resource Shortages and Pressure on Salaries and Wages
Previous report
We are experiencing skill shortages in areas that are critical to our growth strategy including experienced sales and marketing personnel, software developers, skilled electronic engineers and production technicians and various management positions.
Previous report
Limitations caused by the use of Continuing Resolutions to authorize ongoing spending under Defense Programs
Previous report
Year to date, we have been affected by funding delays under Defense Programs in the USA including the DAVD Hardening Program. The upcoming Presidential election has resulted in funding gaps and slow down in procurement under Defense Programs. This is not unusual and generally the convention is to postpone new acquisitions until the outcome of the election is decided. This has adversely impacted on order intake and sales emanating from the Americas. As a result, we believe that this has impacted on our year to date sales in the Americas which was $4,688,741 compared to $7,315,039 in the previous year to date period. See Note 13 (Disaggregation of Revenue) for more information on this impact on our Business.
Previous report
Recoverability of Deferred Costs
Previous report
In respect of our Services Segment, we defer costs on projects for service revenue. Deferred costs consist primarily of direct and incremental 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.
Previous report
We recognize such costs on a contract by contract basis in accordance with our revenue recognition policy. For revenue recognized under the completed contract method, costs are deferred until the products are delivered, or upon completion of services or, where applicable, customer acceptance. 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 ratably over the term of the contract, costs are also recognized ratably over the term of the contract, commencing on the date of revenue recognition. At each 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.
Previous report
Income Taxes
Previous report
The Company accounts for income taxes in accordance with Accounting Standards Codification 740, Income Taxes (ASC 740). Under ASC 740, deferred income tax assets and liabilities are recorded for the income tax effects of differences between the bases of assets and liabilities for financial reporting purposes and their bases for income tax reporting. The Company’s differences arise principally from the use of various accelerated and modified accelerated cost recovery systems for income tax purposes versus straight line depreciation used for book purposes; the restricted stock awards differences between stock award price at the date of award and the fair value price at the date of issuance and from the utilization of net operating loss carry-forwards.
Previous report
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.
Previous report
For income tax purposes, the Company uses the percentage of completion method of recognizing revenues on long-term contracts which is consistent with the Company’s financial reporting under GAAP.
Previous report
Intangible Assets
Previous report
Intangible assets consist principally of the excess of cost over the fair value of net assets acquired (or goodwill) and customer relationships. 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 are being amortized on a straight-line basis over periods of 2 to 15 years. The Company amortizes its limited lived intangible assets using the straight-line method over their estimated period of benefit. Annually, or sooner if there is indication of a loss in value, we evaluate the recoverability of intangible assets and consider events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. There were no impairment charges during the periods presented.
Previous report
The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value, which is based on future cash flows, exceeds the carrying amount, goodwill is not considered impaired. If the carrying amount exceeds the fair value, goodwill is reduced by the excess of the carrying amount of the reporting unit over that reporting unit’s fair value. Goodwill can never be reduced below zero. 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.
Previous report
Our consolidated financial results include the results of the Company’s foreign subsidiaries (UK and Danish operations). Foreign subsidiaries’ results are translated from their functional currencies into USD for reporting purposes. Fluctuations in currency can therefore impact our translated results, including revenue and income. Revenue and expenses are translated using the average exchange rates in effect during the reporting period. During the Current Quarter, the British Pound strengthened against the USD when compared to the Previous Quarter exchange rate (“the Constant Rate”); whereas the Danish Kroner slightly weakened against the USD. During the Current Quarter our total consolidated revenue was $5,476,544 compared to $4,890,532, in the Previous Quarter. The impact of foreign exchange rate fluctuation between the Previous Quarter and our Current Quarter was negligible. During the Current Quarter total operating expense increased by $155,154 or 6.2%. Income from operations increased by 61.2%. Income before taxes increased by 51.4% and was $1,631,246 compared to $1,077,166 in the Previous Quarter. Further details concerning our financial results in the Current Quarter and the Current Nine Month Period are discussed immediately below.
Previous report
Products Business
Previous report
In the Current Quarter, the Products Business generated $3,048,544 or 55.7% of our consolidated revenues compared to $2,863,251 or 58.5% in the Previous Quarter, representing an increase of 6.5%. Gross profit margin increased from 82.1% in the Previous Quarter to 82.9% in the Current Quarter. In the Current Quarter we recorded sales commissions for this segment of $99,278 compared to $120,724 in the Previous Quarter, representing a decrease of 17.8%. In the Current Quarter total operating expenses increased by 7.3% in the Products Business and were $1,545,374 compared to $1,439,923 in the Previous Quarter. Income before tax was $1,154,300 in the Current Quarter compared to $1,091,700 in the Previous Quarter. Notable in the Current Quarter, sales generated by the Products Business from the USA decreased from $1,321,495 in the Previous Quarter to $682,477. We believe this is a result of the upcoming Presidential Election which has seen funding gaps and slowdown in procurement under Defense Programs (and which has affected programs such as DAVD). This is not unusual and generally the convention is to postpone new acquisitions until the outcome of the election is decided.
Previous report
Revenue: Total consolidated revenues for the Current Quarter and the Previous Quarter were $5,476,544 and $4,890,532 respectively, representing an increase of 12.0%. In the Current Quarter, both the Products Business and the Services Business revenues increased over the Previous Quarter.
Previous report
Gross Profit Margins*:* Consolidated margin percentage was stronger in the Current Quarter at 73.9% (gross profit of $4,048,538) compared to 68.8% (gross profit of $3,365,224) in the Previous Quarter.
Previous report
In the Current Quarter, gross profit margins for the Marine Technology Business were 82.9% compared to 82.1% in the Previous Quarter. For the Services Business these were 62.6% in the Current Quarter compared to 50.0% in the Previous Quarter. This level of gross profit margin for the Services Business is atypical and has arisen because we utilized, against one of our engineering projects, inventory items which were in our stock at a much lower cost than market value.
Previous report
Notable factors contributing to the higher gross profit margins include the significant increase in our rental and associated services revenue by the Products Business and the Service Business realizing higher gross margins for the reasons earlier discussed.
Previous report
The decrease in Equipment Sales in the Current Quarter reflects the reduction in orders and sales emanating from the Americas caused by the funding gaps on Defense Programs described earlier. This has affected programs like the DAVD, resulting in reduced orders and sales for this segment in the Americas, which in the Current Quarter was $682,477 compared to $1,321,495 in the Previous Quarter.
Previous report
In the Current Quarter the Marine Technology Business incurred commission costs of $99,278 compared to $120,724 in the Previous Quarter, representing a decrease of 17.8%.
Previous report
In the Current Quarter depreciation expenses relating to our rental assets increased by 17.0% and were $105,337 compared to $90,003 in the Previous Quarter.
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Reworded paragraphs (32)
Previous wording
The information herein contains forward-looking statements. 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 assurances 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.
Current wording
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.
Previous wording
The following discussion and analysis should be read in conjunction with our financial statements, included herewith and the audited financial statements included in our annual report on Form 10-K filed with the Securities and Exchange Commission on January 29, 2024. 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.
Current wording
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.
Previous wording
Our Marine Technology Business is an established technology solution provider to the subsea and underwater imaging, surveying, diving market and underwater communications market. It has been operating as a supplier of underwater solutions which include both hardware and software products for over 30 years. It owns key proprietary patented technology including real time volumetric 4D/5D and 6D imaging sonar technology and cutting-edge diving technology, that are used in both the underwater defense and commercial markets. It recently launched its new AI based underwater digital communications system which advances the offering in the market from analog voice communications underwater to digital voice communications underwater. All design, development and manufacturing of our technology and solutions are performed within the Company.
Current wording
Our Marine Technology Business 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 imaging sonar 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. This Business 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.
Previous wording
Although we generate most of our revenues from our real time 3D sonar which includes 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), DAVD and our digital audio communications system (Voice-HUB- 4).
Current wording
Although we generate most of our revenues from our real time 3D sonar and DAVD which include both proprietary hardware and software, we have a number of 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.
Previous wording
The Services Business has operations in the USA and UK. Its central business model is working with the prime defense contractors to design and manufacture sub-assemblies for utilization into larger defense mission critical integrated systems (“MCIS”). Examples of such MCIS are the US Close-In-Weapons Support (CIWS) Program for the Phalanx radar-guided cannon used on combat ships and the AN/AQS24 Mine Hunting System Program, both of these being programs of record. These proprietary sub-assemblies, once approved within the MCIS program, afford the Services 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 Services Business for the subassemblies they supply extends to concept, design, prototype, contract manufacturing and post-sale support.
Current wording
The Services 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 the Services 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 Services Business encompasses concept, design, prototype and manufacturing.
Previous wording
Key Pillars for our Growth Plans
Current wording
Key Pillars for our Growth Plans (“Core Business”)
Previous wording
Our volumetric real time imaging sonar technology, Echoscope PIPE®, and DAVD are the most promising products for the Company’s near-term growth. We are widely regarded as the leading solution providers for underwater real time 3D visualization.
Current wording
Our volumetric real time 3D imaging sonar technology and our DAVD are our most promising products for the Company’s near-term growth.
Previous wording
Our real time 4D/5D/6D Imaging sonars are the only underwater imaging sonars which are capable of providing complex seabed mapping, real time inspection and monitoring and providing 4D/5D/6D data of moving underwater objects irrespective of water conditions including in zero visibility (which is a common and costly problem in underwater operations). Competing products such as the multibeam sonar can perform mapping (but not complex mapping) without the ability to perform real time inspection and monitoring of moving objects underwater. We also believe our Echoscope PIPE® is the only technology that can generate multiple real time 4D/5D/6D acoustic images using different acoustic parameters such as frequency, field of view, pulse length, filters and different beamforming modes allowing users to increase the efficiency of their operations.
Current wording
We believe that our real time 3D/4D/5D/6D imaging sonars (Echoscope® and Echoscope PIPE®) are the only underwater imaging sonars which are capable of providing complex seabed mapping, real time inspection and monitoring and providing 3D/4D/5D/6D data of moving underwater objects irrespective of water conditions including in zero visibility (which is a common and costly problem in underwater operations). Competing products such as the multibeam sonar can perform mapping (but not complex mapping) without the ability to perform real time inspection and monitoring of moving objects underwater. We also believe our Echoscope PIPE® is the only technology that can generate multiple real time 3D/4D/5D/6D acoustic images using different acoustic parameters such as frequency, field of view, pulse length, filters and different beamforming modes.
Previous wording
We also believe that the DAVD system 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. The DAVD technology changes this and offers the market an integrated suite of sensors providing real time mission critical information to both the diver and the dive supervisor on the surface and also allow both of them to visualize the same underwater scene.
Current wording
We also believe that the DAVD system, which is a 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.
Previous wording
The DAVD tethered variant is now in early-stage adoption by different teams within the US Navy. The DAVD which is included on the Approved Navy Use (“ANU”) list is a standard item available for purchase within the Navy community and some of these commands are now requesting this solution for their operations. We have also started realizing sales of the DAVD in the offshore commercial market and have sold our first DAVD tethered system to a significant offshore service provider in Asia.
Current wording
The DAVD tethered variant is now in the early stage of adoption by different teams within the US Navy such as the underwater construction and salvage teams. The DAVD which is included on the Authorized Navy Use (“ANU”) list is a standard item available for purchase within the Navy community and some of these commands are now requesting this solution for their operations.
Previous wording
Inflation measured as the Consumer Price Index has been significant and volatile in the countries in which we operate. Recent trends indicate that inflation is falling. For the 12-month period preceding July 2024, this was:
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. For the 12-month period preceding January 2025, this was:
Previous wording
Inflation affects our business in a number of areas including increasing our cost of operations and materials and therefore our overall financial results. See “Inflation and Foreign Currency” section of this Form 10-Q.
Current wording
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.
Previous wording
The Services Business revenues are highly concentrated and are mainly generated from sub-contracts with prime defense contractors. The sales cycle is generally protracted, and this may affect quarterly revenues. It is also dependent on the federal government approving and 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-contract from the prime defense contractors to our Services Business, which is reliant on these awards. Furthermore, the Products 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 quarterly revenues.
Current wording
The Services Business revenues are highly concentrated and are generated from sub-contracts with Prime Defense Contractors. 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 US Congress or there is a change in spending priorities, this may affect 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 quarterly revenues.
Previous wording
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, 2023 and those disclosed in our Form 10-Qs for the first and second quarters of this fiscal year, are likely to have on our future financial results.
Current wording
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.
Previous wording
These factors may adversely impact on our availability of free cash flow, working capital and business prospects. As of July 31, 2024, we had cash and cash equivalents of $25,217,965 and cash provided by operating activities was $458,013 in the nine months to July 31, 2024. Based on our outstanding obligations and our cash balances, we believe we have sufficient working capital to effectively continue our business operations for the foreseeable future.
Current wording
These factors may adversely impact on our availability of free cash flow, working capital and business prospects. As of January 31, 2025, we had cash and cash equivalents of $22,541,963, and cash provided by our operations of $641,511. 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.
Previous wording
Our revenues are earned under formal contracts with our customers and are derived from both sales and rental of underwater solutions for imaging, mapping, defense, survey and diving applications 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
Our Marine Technology Business revenues are derived from both sales and rental of underwater solutions for imaging, mapping, Defense and survey applications. PAL’s revenues are derived from sales of acoustic sensors and materials and for our Engineering Services 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.
Previous wording
Regarding our Products 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 sale of services is recognized when those services have been provided to the customer and evidence of the delivery of those services exists.
Current wording
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.
Previous wording
In the Current Quarter, the Services Business generated $2,428,000 or 44.3% of our consolidated revenues compared to $2,027,281 or 41.5% in the Previous Quarter, representing an increase in sales of 19.8%. Gross profit margin increased from 50.0% in the Previous Quarter to 62.6% in the Current Quarter. This level of gross profit margin for the Services Business is atypical and has arisen because we utilized, against one of our engineering projects, inventory items which were in our stock at a much lower cost than market value. In the Current Quarter total operating expenses decreased by 4.2% in the Services Business and were $535,421 compared to $558,739 in the Previous Quarter and income before tax was $1,030,488 compared to $489,414 in the Previous Quarter. This Business is reliant on funding from Defense Programs.
Current wording
In the Current Quarter, the Services Business generated $1,621,645 or 31.1% of our consolidated revenues compared to 918,425 or 20.6% in the Previous Quarter, representing an increase in sales of 76.6%. Gross profit margin increased from 56.4% 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 9.5% in the Services Business and were $684,246 compared to $625,086 in the Previous Quarter. Net income before tax in the Current Quarter was $297,795 compared to a net loss of $35,713 in the Previous Quarter.
Previous wording
Since there are more variable factors affecting gross profit margins in the Marine Technology Business (Products 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:
Current wording
Our Marine Technology Business margins increased in the Current Quarter due to less units of outright sales in Asia and therefore reducing the level of commission costs associated with sales in this region. Commission costs incurred by this business unit were $209,695 compared to $293,184 in the Previous Quarter, representing a decrease of 28.5%. Since there are more variable factors affecting gross profit margins in the Marine Technology Business (Products 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:
Previous wording
Further information on the performance of each business segment including revenues by type and geography can be found in Notes 12 and Note 13 to the unaudited consolidated financial statements for the Current and Previous Quarter.
Current wording
Further information on the performance of each business segment, including revenues by type and geography, can be found in Notes 15 and Note 16 to the unaudited consolidated financial statements for the Current and Previous Quarters.
Previous wording
Research and Development (R&D): R&D expenditures in the Current Quarter were $496,359 compared to $568,287 in the Previous Quarter, representing a decrease of 12.7%.
Current wording
Research and Development (R&D): R&D expenditures in the Current Quarter increased by 11.8% and were $543,126 compared to $485,977 in the Previous Quarter.
Previous wording
During the Current Quarter the Products Business R&D expenditure decreased by 17.5% and was $459,879 as compared to $557,260 in the Previous Quarter. R&D expenditure is incurred by this business in connection with investments it makes in developing its products and solutions. This expenditure is an essential part of our business, as our market competitiveness is predicated on continued innovation.
Current wording
During the Current Quarter our Products Business R&D expenditure decreased by 12.0% and was $405,812 as compared to $461,375 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. In the Current Quarter, R&D expenditure decreased due to a reduction in headcount during the period.
Previous wording
During the Current Quarter the Services Business R&D expenditure increased by 230.8% and was $36,480 compared to $11,027 in the Previous Quarter. The Services Business incurs research and development expenses primarily 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. As we understand our customer base requirements for these mission computers, we may incur more R&D expenditure on developing this range of products.
Current wording
During the Current Quarter the Services Business R&D expenditure increased by 88.4% and was $46,350 compared to $24,602 in the Previous Quarter. The Services 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.
Previous wording
Selling, General and Administrative Expenses (SG&A): SG&A expenses for the Current Quarter increased by 11.7% to $2,161,405 from $1,934,323 in the Previous Quarter.
Current wording
Selling, General and Administrative Expenses (SG&A): SG&A expenses for the Current Quarter increased by 8.7% to $2,223,322 from $2,045,375 in the Previous Quarter. The inclusion of PAL into the Group has resulted in SG&A in the Current Quarter being 12.0% or $238,254 higher. Without the addition of PAL, our SG&A would have decreased by 2.9% ($1,985,068 in the Current Quarter compared to $2,045,375 in the Previous Quarter).
Previous wording
SG&A includes transactions which are cash charges and non-cash charges. The non-cash charges transactions comprise depreciation, amortization, stock-based compensation, and exchange rate variance charges. In the Current Quarter non-cash transactions as a percentage of SG&A expenses were 15.0 % compared to 17.2% in the Previous Quarter.
Current wording
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 non-cash items as a percentage of SG&A expenses were 2.6% compared to 15.5% in the Previous Quarter. This is caused by the strengthening of the USD against the British Pound and Danish Kroner resulting in exchange rate variance adjustment loss of ($318,279) in the Current Quarter compared to adjustment benefit of $118,261 in the Previous Quarter. Due to the acquisition of PAL, Amortization costs increased significantly and were $127,759 compared to $17,246 in the Previous Quarter.
Previous wording
General corporate administrative expenses in the Current Quarter were $576,969 or 10.5% of revenue and $503,948 or 10.3% of revenue in the Previous Quarter, respectively. For more information on general corporate administrative expenses, please see Note 12 (Segment Analysis).
Current wording
General corporate administrative expenses in the Current Quarter were $781,308 or 15.0% of revenue and $609,500 or 13.7% of revenue in the Previous Quarter, respectively. For more information on general corporate administrative expenses, please see Note 15 (Segment Analysis).
Previous wording
Other Income: In the Current Quarter, we had “total other income” of $240,472 compared to $214,552 in the Previous Quarter, representing an increase of 12.1%. In the Current Quarter we had $230,009 interest income earned on our certified deposit accounts. These accounts are for fixed 3-month rolling periods and constitute “cash equivalents” in our current unaudited Consolidated Financial Statements for the period ended July 31, 2024 (see Note 6 Composition of Certain Financial Statement Captions) for more detailed analysis of this. We anticipate that the interest earned on these certified deposit accounts will remain to be material in the future if we continue to hold this level of cash and interest rates remain at this level.
Current wording
Other Income: In the Current Quarter, we had “Other Income” of $272,838 compared to $227,560, representing an increase of 19.9% from the Previous Quarter. A significant component of other income is interest earned on our certified deposits of $194,171. 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 unaudited Consolidated Financial Statements for the period ended January 31, 2025 (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 the same or continue to rise.
Previous wording
Net Income: In the Current Quarter we had Net Income of $1,274,658 compared to $1,038,780 in the Previous Quarter, representing an increase of 22.7%. Net Income increased in the Current Quarter over the Previous Quarter as a result of the increase in “Income before taxes” for the reasons explained above. However, in the Current Quarter our provision for tax liability was higher than in the Previous Quarter. In general, our tax liability included in our consolidated financial results will depend on the composition of our consolidated income or loss. In particular, the percentage of income or loss attributed to the Company and its US entities, and the percentage of income or loss attributed to its foreign subsidiaries. In the Current and Previous Quarter, we recorded Current Tax Expense of $325,625 (which include an amount of $26,668 relating to adjustments for fiscal year 2023) and $68,771, respectively, representing an increase of 373.5%. We also recorded a Deferred Tax Expense of $30,963 in the Current Quarter compared to a Deferred Tax Benefit of $30,385 in the Previous Quarter. In the Current Quarter the Company’s UK subsidiaries generated a taxable income but have carryforward losses and R&D tax credits which will be used to defray tax liability for these subsidiaries and therefore no provision for tax liability has been made in our consolidated results for the UK subsidiaries in the Current Quarter. The Company’s Danish subsidiary generated a taxable income in the Current Quarter, resulting in a tax provision of 22.0% in our consolidated results. We also made a further provision for Global Intangible Low-Taxed Income of $74,000.
Current wording
Net Income: In the Current Quarter we had Net Income of $912,975 compared to $629,888 in the Previous Quarter, representing an increase of 44.9%. In the Previous Quarter we recorded Current Tax Benefit of $34,015 compared to a Current Tax Expense of $48,874 in the Current Quarter reflecting provision for income tax. We also recorded a Deferred Tax Expense of $187,071 in the Previous Quarter compared to a Deferred Tax Benefit of $26,989 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 Global Intangible Low-Taxed Income (GILTI). In the Current Quarter, the U.S. subsidiaries generated 27.3% of our consolidated revenue and did not generate any taxable income. The Company’s UK subsidiaries have carryforward losses and R&D Tax credits which are applied to defray income tax liability and therefore no provision has been made for tax liability for the UK subsidiaries in our consolidated results for the Current Quarter. We have made a provision for our Danish subsidiary of 22.0% for the Current Quarter.
Previous wording
Comprehensive Income*.* In the Current Quarter comprehensive income was $1,668,038 compared to $1,431,263 for the Previous Quarter reflecting adjustments resulting from foreign currency translations. This category is affected by fluctuations in foreign currency exchange transactions both relating to our profit and loss expenses and valuation of our assets and liabilities on our balance sheet. 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 financial transactions are translated from the functional currencies of these subsidiaries into USD for reporting purposes. In the Current Quarter, for the purpose of reporting revenue and expenses, the value of the British Pound when compared to the Previous Quarter increased against the USD by 0.7% and the Danish Kroner decreased by 0.8%, respectively. For the purpose of reporting asset and liabilities, the value of British Pound and the Danish Kroner both increased against the USD by 5.8% and 2.4% respectively. Therefore, in the Current Quarter there was a gain of $393,380 on foreign currency translation adjustment transactions compared to $392,483 in the Previous Quarter. 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.
Current wording
Comprehensive Income*.* In the Current Quarter comprehensive loss was $115,611 compared to comprehensive income $1,659,468 for the Previous Quarter reflecting adjustments resulting from foreign currency translations. This category is affected by fluctuations in foreign currency exchange transactions both relating to our profit and loss expenses and the valuation of our assets and liabilities on our balance sheet. In the Current Quarter, the USD strengthened against the British Pound, Danish Kroner and Euro and we had a loss of $1,028,586 on foreign currency translation adjustment transactions compared to a gain of $1,029,580 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 consolidated balance sheet and financial transactions are translated from the functional currencies of these subsidiaries into USD for reporting purposes. 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.
Previous wording
As of July 31, 2024, the Company had an accumulated deficit of $7,732,703, working capital of $42,682,046, cash and cash equivalent of $25,217,965 and stockholders’ equity of $52,805,037. For the nine months ended July 31, 2024, the Company’s operating activities provided cash of $458,013.
Current wording
As of January 31, 2025, the Company had an accumulated deficit of $6,493,516, working capital of $39,382,917, cash of $22,541,963 and stockholders’ equity of $53,113,057. In the Current Quarter, the company generated cash from operations of $641,511.
Previous wording
The Company’s consolidated results are a combination of its US 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 purposes. 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 and financial position.
Current wording
The Company’s consolidated results are a combination of its US 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.
Previous wording
This table shows that net income from operations increased in the Current Quarter by $11,476 and net assets decreased by $1,326,495, when applying the Constant Rate applied in the Previous Quarter (versus the Current Quarter’s exchange rate).
Current wording
This table shows that the effect of exchange rates changes (the Current Quarter’s exchange rate compared to the Previous Quarter’s exchange rate) decreased our net income from operations by $43,725 and net assets by $930,553, in the Current Quarter.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
Our revenues are earned under formal contracts with our customers.
Rearranged previous paragraphs (5)
Previous report — wording carried elsewhere
Our customers include offshore service providers, major oil and gas companies, renewable energy companies, underwater construction companies, law enforcement agencies, ports, mining companies, defense bodies (such as navies), prime defense contractors, research institutes and universities and diving companies.
Previous report — wording carried elsewhere
Gross profit margins reported in our financial results may vary according to several factors. These include:
Previous report — wording carried elsewhere
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:
Previous report — wording carried elsewhere
General corporate administrative expenses in the Current Nine Month Period were $1,642,771 or 10.8% of revenue and $1,866,824 or 11.8% of revenue in the Previous Nine Month Period, respectively. For more information on general corporate administrative expenses, please see Note 12 (Segment Analysis).
Previous report — wording carried elsewhere
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.