Coda Octopus Group, Inc.

Previous 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

Current wording

This section of Form 10-K discusses fiscal 2025 and 2024 items and year-to-year comparisons between 2025 and 2024. Discussions of 2023 items and year-to-year comparisons between 2024 and 2023 that are not included in this Form 10-K can be found in “Management Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)” in our Form 10-K, filed with the SEC on January 29, 2025, which is available free of charge on the SEC’s website atwww.sec.gov and our Investor Relations website atwww.codaoctopusgroup.com.

Previous wording

We acquired PAL into the Group on October 29, 2024. PAL had no material income statement activity in the two days from the acquisition date October 29, 2024 through to October 31, 2024, the date of the Company’s fiscal year end. Therefore, the Company’s audited Consolidated Statements of Income and Comprehensive Income (“Income Statement”) reported in this Form 10-K for the year ended October 31, 2024, do not include any revenue or expenses relating to PAL. Therefore, to the extent that the Management Discussions relate to Income Statement activity, this does not include the recently acquired PAL.

Current wording

We operate three distinct business segments: the Marine Technology business, Acoustic Sensors and Material Business and the Defense Engineering Services Business. PAL was acquired on October 29, 2024 and had no material income statement activity in the two days from the acquisition date October 29, 2024 through to October 31, 2024, the date of the Company’s fiscal year end. Therefore, the Company’s audited Consolidated Statements of Income and Comprehensive Income for fiscal year 2024 and reported in its Form 10-K for the year ended October 31, 2024 does not include PAL. Accordingly, no income statement data is available for PAL in the 2024 FY and is therefore excluded from our MD&A discussion below.

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 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.

Current wording

Our Marine Technology Business has operations in the USA, UK and Denmark – see the 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 in this market as a supplier of solutions comprising both hardware and software products for over 30 years 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

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.

Current wording

Although the Marine Technology Business generates most of its revenue from its range of real time 3D sonars and DAVD, it supplies several other products to the marine offshore market such as its F280 Series®, DA4G-USB, GeoSurvey software, Survey Engine®software and Voice_HUB_4, (a recently developed digital audio communications system which advances the current analog-based communication technology to a digital based communication technology). Its customers include offshore service providers to major oil and gas companies, renewable energy companies, underwater construction companies, law enforcement agencies, ports, mining companies, underwater vehicle manufacturers, defense bodies, prime defense contractors, navies, research institutes and universities and diving companies. It also provides customization of technology services, particularly in the defense market and around our DAVD solutions where this is tailored for particular markets and applications.

Previous wording

The Services Business has operations in the USA and UK. It is a trusted long-term Department of Defense (DoD) supplier. Its central business model consists of 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. Customers include prime Defense contractors such as Raytheon, Northrop Grumman, Thales Underwater and BAE Systems. The typical scope of services provided by this business extends to concept, design, prototype, manufacture, and post-sale support including maintenance and obsolescence management.

Current wording

The Defense Engineering Services Business has operations in the USA and UK. It is a trusted long-term DoD supplier. Its central business model consists of 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. Customers include prime Defense contractors such as Raytheon, Northrop Grumman, Thales Underwater and BAE Systems. The typical scope of services provided by this business extends to concept, design, prototype, manufacture, and post-sale support including maintenance and obsolescence management.

Previous 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.

Current wording

We are subject to foreign exchange risks. The Company’s operations are split between the United States, United Kingdom and Denmark. A significant proportion of our consolidated net revenues are generated outside of the United States by our foreign subsidiaries in the United Kingdom (“UK”) and Denmark. For context, in the 2025 FY our foreign subsidiaries generated $17,596,977, representing 66.2% of our consolidated revenue. In addition, a significant part of our assets and liabilities are held in British Pounds, Danish Kroner and Euros by these foreign subsidiaries. Foreign Currency translations of our assets and liabilities are translated at the prevailing exchange rate at the balance sheet date, and 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 income statement transactions and the value of our assets and therefore we are subject to foreign currency fluctuation risks. In the 2025 FY, for the purpose of reporting revenue and expenses, the value of the British Pound and Danish Kroner when compared to the 2024 FY increased against the USD by 2.3% and 2.1%, respectively. For the purpose of reporting assets and liabilities, the British Pound and the Danish Kroner both increased by 2.4% and 6.5%, respectively, against the USD when compared to the 2024 FY. We also hold cash and cash equivalents in foreign currencies such as the British Pound, Euros and the 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

Furthermore, we sell our goods and services globally. The exchange rate of the foreign currency used by our customer for the purchase of our goods and services against our functional currency may make the purchasing of our products unattractive from a pricing point of view. In the Current FY, revenues from Japan, a key strategic market, were significantly down due to the depreciation of the Japanese Yen against major currencies such as the USD and British Pound.

Current wording

Furthermore, we sell our goods and services globally. The exchange rate of the foreign currency used by our customers for the purchase of our goods and services against our functional currencies (British Pounds purchase, Danish Kroner or USD purchase) may make the purchasing of our products unattractive from a pricing point of view. For example, a significant strategic market for our Echoscope® technology is Japan. The Japanese Yen has been under significant pressure and as a result we have seen reduced demand for our technology in Japan in the 2025 FY.

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 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.

Current wording

We sell our products globally and increasingly to Asia. Asia is the fastest growing economies for our technology and solutions. The change in the political stance of both the U.S. and UK Governments 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. 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 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 (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.

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 and competition in general.

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, 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.

Current wording

Our Business is affected by increased costs of raw materials such as chips and processors, due to the increasing demand from AI businesses. These increases may make the costs of our products uncompetitive and affect demand and margins.

Previous wording

A significant part of our growth strategy is predicated on our flagship real time volumetric imaging sonar technology, the Echoscope® and our Diver Augmented Vision Display (DAVD) solution. The technology space is inherently uncertain due to the fast pace of innovations and therefore we can give no assurance that we can maintain our leading position in these areas or that innovations in other areas may not surpass our solutions that we currently supply to the subsea market. An example of new technology entering the subsea market is lidar technology. However, unlike our sonar technology, Lidar technology cannot be employed in zero visibility conditions and cannot generate a volume pulse or image moving objects required for real time inspection and monitoring underwater.

Current wording

A significant part of our growth strategy is built on our flagship real time volumetric imaging sonar technology, the Echoscope® and our DAVD solution. The technology space is inherently uncertain due to the fast pace of innovations including in the area of AI and the capabilities this may bring, and therefore we can give no assurance that we can maintain our leading position in these areas or that innovations in other areas may not surpass our solutions that we currently supply to the subsea market. An example of new technology entering the subsea market is lidar and photogrammetry technologies. However, unlike our sonar technology, Lidar and Photogrammetry technology cannot be employed in zero visibility conditions and cannot generate a volume pulse or image moving objects required for real time inspection and monitoring underwater.

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 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.

Current wording

The Defense Engineering 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. 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.

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 and the recognition and measurement of deferred income tax assets and liabilities. 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. 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.

Current wording

Revenues are earned under formal contracts with our customers.

Previous 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.

Current wording

Regarding our Marine Technology Business and PAL, 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.

Previous 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.

Current 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 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, 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.

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 4 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

It should be noted that our audited Consolidated Statements of Income and Comprehensive Income (“Income Statement”) for the 2024 FY do not include PAL which was acquired into the Group on October 29, 2024 (two days prior to the Company’s fiscal year end on October 31). PAL had no material Income Statement activity during that period. As such, to the extent that the Management Discussions and Analysis below relate to Income Statement activity, these do not include PAL.

Current wording

Our audited Consolidated Statements of Income and Comprehensive Income (“Income Statement”) for the 2024 FY do not include PAL which was acquired into the Group on October 29, 2024 (two days prior to the Company’s fiscal year end on October 31, 2024) and therefore when we compare our 2025 FY to 2024 FY, there is no comparative income statement data for PAL in our 2024 FY Income Statement.

Previous 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.

Current wording

In the Current FY our consolidated net revenue was $26,563,126 compared to $20,316,161 in the Previous FY, representing an increase of 30.7%. A significant part of the increase in our consolidated net revenue in the 2025 FY is due to the addition of PAL to the Group which contributed 20.4% or $5,409,954 to our consolidated net revenue. Without PAL, our consolidated net revenue would have increased by 4.1% to $21,153,172. Gross Profit Margin decreased by 3.3% points, reflecting changes in the mix of sales in the reporting period in conjunction with an increase in commission costs incurred in the period which was $896,046 in the Current FY compared to $740,507 in the Previous FY, representing an increase of 21.0%. Total operating expenses increased by 24.0% in the Current FY and were $13,126,340 compared to $10,588,974 in the Previous FY, largely due to the inclusion of PAL which added 17.8% or $2,335,355 to our total operating expenses. Income from operations increased by 26.6% and was $4,536,028 in the Current FY compared to $3,584,131 in the Previous FY. Net income before taxes in the Current FY increased by 19.5% and was $5,512,217 compared to $4,611,288 in the Previous FY.

Previous wording

In the 2024 FY, the Services Business generated $7,509,558 or 37.0% of our consolidated revenues compared to $7,233,022 or 37.4% in the 2023 FY, representing an increase of 3.8%. Gross Profit Margin was higher at 55.8% in the 2024 FY compared to 51.6% in the 2023 FY, representing an increase of 4.2% points. This increase reflects the mix of engineering services composed within our 2024 FY revenue make up (more units of manufacturing compared to design work). Total operating expenses fell in the Services Business by 1.7% and were $2,471,810 in the 2024 FY compared to $2,515,664 in the 2023 FY. This is largely related to the reduction in staff headcount caused by volatility in the workforce in general and a shortage in engineering skills in the markets in which we operate. Income from operations in the 2024 FY was $1,719,233 compared to $1,216,121 in the 2023 FY.

Current wording

In the 2025 FY, the Defense Engineering Services Business generated $7,931,833 or 29.9% of our consolidated net revenue compared to $7,509,558 or 37.0% in the 2024 FY, representing an increase of 5.6%. Gross Profit Margin was higher at 58.6% in the 2025 FY compared to 55.8% in the 2024 FY, representing an increase of 2.8% points. This increase reflects the mix of engineering services provided during the reporting period (more units of manufacturing compared to design work). Total operating expenses increased in the Defense Engineering Services Business by 6.9% and were $2,641,594 in the 2025 FY compared to $2,471,810 in 2024 FY. This is largely related to an increase in wages and salaries. Although we have a lower staff headcount, wages have remained inflationary due to shortage of skills. This, in general, has resulted in higher volatility in the workforce, resulting in higher payroll costs. Income from operations in the 2025 FY was $2,002,833 compared to $1,719,233 in the 2024 FY, representing a 16.5% increase

Previous wording

This segment is comprised of the UK Operations (Martech) and the US Operations (Colmek) and is reliant on funding being available under Defense Programs. During the 2024 FY, the US Operations experienced significant delays in securing orders under Defense Programs caused by the reduced funding available under continuing resolutions which result in a shift in spending priorities. This has caused reduced order intake by our US Services Operations. Until a Federal Budget is adopted by the new Administration and the line-item appropriations are in place we expect this business unit to continue to be impacted.

Current wording

This segment is comprised of the UK Operations (Martech) and the US Operations (COEI) and is reliant on funding being available under Defense Programs. During the 2025 FY, the US Operations were affected by the US Government Shutdown which resulted in lower order take in the last quarter of 2025 FY.

Previous wording

We continue to work on the diversification of the Services Business revenue, which is highly concentrated and reliant on Defense funding being available, by investing in our Thermite® Octal range of mission computers.

Current wording

We continue to work on the diversification of the Defense Engineering Services Business revenue, which is highly concentrated and reliant on Defense funding being available, by investing in our Thermite® Octal range of mission computers.

Previous wording

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

Current wording

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

Previous 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.

Current wording

In the 2025 FY gross profit margins for the Marine Technology Business were 74.5% compared to 77.9% in FY 2024. For PAL these were 58.6% and for the Defense Engineering Services Business, these were 58.6% in the 2025 FY compared to 55.8% in the 2024 FY.

Previous wording

The Marine Technology Business incurred commission costs in the 2024 FY of $719,491 compared to $794,427 in the 2023 FY, representing a decrease of 9.4%.

Current wording

The Marine Technology Business incurred commission costs in the 2025 FY of $720,289 compared to $719,491 in the 2024 FY, representing a marginal increase of 0.1%. For PAL these were $124,764 and the Defense Engineering Services Business $50,993 compared to $21,016 in 2024 FY.

Previous wording

Since there are more variable factors affecting Gross Profit Margins in the Marine Technology Business, a table showing a summary break-out of sales generated by the Marine Technology Business in the 2024 FY compared to the 2023 FY is set out below:

Current wording

Since there are more variable factors affecting Gross Profit Margins in the Marine Technology Business, our core business, a table showing a summary disaggregation of sales generated by the Marine Technology Business in the 2025 FY compared to the 2024 FY is set out below:

Previous wording

For more detailed information on the composition and disaggregation of our revenues, please refer to “Note 16 Disaggregation of Revenue” of our audited Consolidated Financial Statements of October 31, 2024, and 2023.

Current wording

The increase in Equipment sales is largely attributable to an increase in DAVD and DAVD-related sales and increase in sales emanating from the strategic region of Asia where sales increased by 7.7% to $5,897,362 compared to $5,475,401. Rental revenue decreased and reflects the impact of the change in funding policy related to offshore renewables programs. Since the change in the U.S. Administration’s policy on the funding for offshore renewables programs, we have seen reduced demand for our rental and associated solutions from our European customers who were down-selected for developing many offshore renewables projects in the USA. For more detailed information on the composition and disaggregation of our revenues, please refer to “Note 16 Disaggregation of Revenue” of our audited Consolidated Financial Statements of October 31, 2025, and 2024.

Previous wording

In addition, the Services Business incurs research and development expenses 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.

Current wording

During the 2025 FY, the Defense Engineering Services Business R&D expenditure decreased by 21.5% and was $175,253 compared to $223,317 in the 2024 FY. The Defense Engineering 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

In the 2024 FY SG&A expenditures increased by 1.8% when compared to the 2023 FY.

Current wording

In 2025 FY, SG&A expenditure increased by 27.9% when compared to the 2024 FY.

Previous wording

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

Current wording

Notable factors in the change in our SG&A expenses for the 2025 FY are:

Previous wording

Overhead related costs as a percentage of revenue for the year ended October 31, 2024, compared to the year ended October 31, 2023

Current wording

Corporate expenses as a percentage of revenue for the year ended October 31, 2025, compared to the year ended October 31, 2024

Previous wording

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

Current wording

In 2025 FY, Operating Income increased by 26.6%. This is largely due to the increase in our consolidated net revenue and gross profit.

Previous 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.

Current wording

In the 2025 FY, we had “Other Income” of $976,189 compared to $1,027,157, representing a decrease of 5.0% from the 2024 FY. In the 2025 FY, $708,097 of this amount represents interest income earned on our certified deposit accounts. In the 2024 FY we had interest income of $938,775. The decrease in interest income reflects the change in interest rates that are applied to these amounts. These accounts are fixed for up to 3-month rolling periods and constitute “cash equivalents” in our current audited Consolidated Financial Statements for the year ended October 31, 2025. See “Note 6 - Composition of Certain Financial Statement Captions” (Other Income) to the audited Consolidated Financial Statements for the year ended October 31, 2025, where this is discussed further.

Previous 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).

Current wording

In the 2025 FY, we had income before income taxes of $5,512,217 as compared to $4,611,288 in the 2024 FY, representing an increase of 19.5%. Net income before income taxes increased largely due to an increase in our consolidated net revenues and gross profit.

Previous 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.

Current wording

In the 2025 FY we had Net Income of $4,129,930 compared to $3,645,996 in the 2024 FY, representing an increase of 13.3%. This is a reflection of the increase in our pre-tax income for the reasons discussed earlier. In the 2025 FY our tax expenses increased, and we recorded a Current Tax Expense of $1,149,815 compared to $713,670 in the 2024 FY and a Deferred Tax Expense of $232,472 compared to $251,622 in the 2024 FY. Our effective tax rate is subject to significant variation due to several factors including variability in our pre-tax income 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) and increase in foreign subsidiaries pre-tax income is likely to increase our GILTI tax liability. Furthermore, our tax liability is also affected by the availability of net operating loss carryforward losses and R&D tax credits in the UK subsidiaries. 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 2025 FY tax liability for the Company’s UK subsidiaries resulting in a current provision of $265,434 for Current Tax Expense and $293,052 for Deferred tax expense compared to $267,759 for Current Tax Expense and $2,511 for Deferred tax expense in the 2024 FY. Our Danish subsidiary does not benefit from any carryforwards or other tax relief in its tax jurisdiction and therefore for 2025 FY we have recorded a Current Tax Expense of $162,189, a decrease from FY 2024 FY where we recorded a Current Tax Expense of $218,670 and a Deferred Tax Expense of $11,003.

Previous 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.

Current wording

In 2025 FY Comprehensive income was $4,762,104 compared to $4,577,714 for the 2024 FY, representing an increase of 4.0%. This category is affected by fluctuations in foreign currency exchange transactions both relating to our income and 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 2025 FY we recorded a lower gain of $632,174 on foreign currency translation adjustment transactions compared to a higher gain on these transactions of $931,718 in the 2024 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 income and expenses account 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 2025 FY compared to 2024 FY.

Previous 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.

Current wording

We operate three reportable segments, “Marine Technology Business”, “Acoustic Sensors and Materials Business” and the “Defense Engineering Services Business”. These segments are managed separately based upon fundamental differences in their operations, market segments and allocation of resources. Segment operating income is total segment revenue reduced by cost of revenues and operating expenses, R&D and SG&A identifiable with the reporting business segment. Corporate expenses include general corporate administrative costs.

Previous wording

The following tables summarize certain balance sheets and statement of operations information by reportable segment for the financial years ending October 31, 2024, and October 31, 2023, respectively.

Current wording

The following tables summarize certain balance sheets and statement of operations information by reportable segment for the financial years ending October 31, 2025, and October 31, 2024, respectively, except that for 2024 FY there is no comparative Income Statement data for PAL for the reasons stated previously:

Previous wording

As of October 31, 2024, the Company had an accumulated deficit of $7,406,491, working capital of $39,084,999 and stockholders’ equity of $53,128,523. For the year then ended, the Company generated cash flow from operations of $2,451,675.

Current wording

As of October 31, 2025, the Company had an accumulated deficit of $3,276,561 working capital of $44,365,153 and stockholders’ equity of $58,115,414. For the year then ended, the Company generated cash flow from operations of $7,211,168.